What is a smart contract?
Much like a contract you might create for construction work needed on your home, a smart contract establishes the terms of the agreement. However, with smart contracts, these terms are written in code that is designed to run on a blockchain like Ethereum and are self-executed when the terms and rules outlined are met.
The key innovation that enables Ethereum to do all of this is that it’s taken the responsibilities for verifying agreements out of human hands and given that power to computers, essentially automating trust. You don’t even need to know who is on the other side of the agreement.
For example, smart contracts are often used for financial purposes like trading or investing where buyers and sellers come together to agree on a certain price before the stock, share or asset is sold.
As smart contracts are encrypted and recorded on the blockchain, participants don’t have to worry about the agreement being tampered with by external parties, with a permanent record available for everyone to see. They can trust that they will receive their desired outcome as soon as the conditions outlined in the contract have been met.