What are smart contracts?
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. Because they are on the Ethereum A blockchain—the technology underlying bitcoin and other c... More, they render transactions traceable, transparent, and irreversible.
A smart contract should not be confused with the classical concept of a contract, as it can any kind of computer program (e.g., What are ERC-20 tokens? ERC-20 tokens are tokens designed an... More). When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. On the blockchain, smart contracts allow for code to be run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. It can facilitate the exchange of money, content, property, shares, or anything of value.
Currently, there are a small number of blockchains that can handle smart contracts, with the most prominent being Ethereum.