A smart contract is a self-executing contract with the terms of the agreement between buyer and seller directly written into lines of code. These contracts are stored and replicated on a blockchain network, making them secure and immutable. Smart contracts automatically execute and enforce the terms of a contract when predetermined conditions are met without the need for intermediaries.Â
Real estate transactions, stock and commodity trading, lending, corporate governance, supply chain, dispute resolution, and healthcare are only a few examples where smart contracts can be used.
Jake Frankenfield, fintech journalist at Investopedia
In Simpler Terms
Imagine you’re renting an apartment, and instead of a traditional paper contract, you and the landlord agree to a digital smart contract. Once you fulfill the conditions (like paying the rent), the contract automatically dispenses what you want (access to the apartment) without needing a lawyer or a notary. Smart contracts not only automate tasks but also bring high levels of transparency and trust, as the terms are visible and accessible to all relevant parties and cannot be altered once set.
While smart contracts can streamline many processes, they’re only as good as the code they’re written with. Errors in the code can lead to unintended consequences. Plus, they operate within a still-evolving legal framework, which can be a gray area in terms of enforceability and regulation.
