A smart contract is a self-executing digital contract on a blockchain that runs automatically when predetermined conditions are met.
A smart contract is a self-executing program that runs on a blockchain and automatically enforces the terms of an agreement. In essence, it is a computer program that can self-execute the terms of a contract without the need for intermediaries.
One of the most significant advantages of smart contracts is their ability to automate processes and reduce the need for intermediaries. For example, a loan agreement in traditional finance requires a borrower, lender, and intermediary such as a bank or lawyer. With a smart contract, the loan terms can be encoded into the blockchain, and the contract will automatically execute when the conditions are met.
Smart contracts can also improve transparency by making tracking and verifying transactions easier. Because smart contracts are recorded on a blockchain, all parties can see the transaction's details, making it harder to commit fraud or engage in other illegal activities.
Another advantage of smart contracts is that they are immutable, meaning they cannot be changed once executed. This ensures that the terms of the contract are enforced and all parties are held accountable.
However, smart contracts do not have only innovative and positive aspects.
Humans not only write them but also tamper. One of the biggest challenges is requiring careful design and programming to ensure they function as intended. Hackers can exploit smart contract bugs or vulnerabilities to steal funds or disrupt the network.