A smart contract refers to a computer program that automatically executes based on the terms of an agreement between a buyer and a seller. These terms are directly embedded into lines of code within the program. The program, along with the agreement, is distributed across a decentralized blockchain network like Ethereum or Ontology. Once specific conditions are met, the smart contract is executed. Once executed, the code becomes virtually impossible to reverse or modify.
Smart contracts enable anonymous transactions and agreements between multiple parties who may not trust each other. They eliminate the need for a third-party authority, justice system, or external mechanism.
One way to understand smart contracts is by comparing them to vending machines. Similar to how you can make a purchase from a vending machine without directly interacting with the merchant, smart contracts allow for direct and trustless transactions. In a vending machine, you insert coins and receive the desired item. This direct and trustless method of transacting is what makes smart contracts advantageous. Businesses have already started integrating smart contracts into their systems to enhance protection against losses and foster customer confidence.
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