What Is a Smart Contract?

A smart contract is a self-executing computer program with the terms of the buyer’s and seller’s agreement directly embedded into lines of code. The program, along with the agreement it contains, is distributed across a decentralized blockchain network such as Ethereum or Ontology. A smart contract is automatically executed when certain conditions are met. Once the code is executed, it is virtually impossible to reverse or alter.

Smart contracts enable transactions and agreements to be anonymously executed among two or more parties that do not trust each other, without the need for a third-party authority, justice system or another external mechanism.

A smart contract is analogous to a vending machine, as opposed to a store where you have to pay a merchant to buy. With a vending machine, you don’t have to deal directly with the merchant (vending machine owner) since you can simply transact automatically by inserting coins in the machine and your chosen soda will drop. This direct way of transacting without the need to know or trust who you’re dealing with is what makes a smart contract favorable. In fact, businesses have already started implementing smart contracts in their systems as they provide better protection from losses, as well as make customers feel safe.