What Is Smart Contract?
Also known as: Smart Contracts, Self-Executing Contract
In short
A smart contract is a computer program stored on a blockchain that runs automatically when predefined conditions are met, without needing an intermediary. It forms the foundation of applications such as DeFi, NFTs and tokens.
The concept was first proposed in the 1990s by computer scientist Nick Szabo, but its widespread use became possible with Ethereum, launched in 2015. A smart contract is written in a language such as Solidity, compiled and deployed to the blockchain, and receives its own address. Users call the contract's functions by sending transactions to this address; the code is executed identically by the nodes in the network and the result is recorded on-chain.
As a simple example, an escrow contract can lock a buyer's payment and automatically transfer it to the seller once delivery is confirmed. Decentralized exchanges, lending protocols and stablecoins are also made up of smart contracts that can connect to one another. On Ethereum, the cost of executing contracts is paid with gas fees.
Once published, smart contracts often cannot be changed; this means a bug in the code can be permanent. Vulnerabilities such as reentrancy have led to major losses in the past, which is why projects have their code reviewed by independent security audits. Also, despite the word contract in the name, smart contracts do not always amount to a legally binding contract.
Last updated: · This content is for information purposes only and is not investment advice.