Self-executing digital agreements written in computer code
Smart contracts are coded digital agreements written to blockchain networks, and once deployed, cannot be changed or deleted. The technology significantly reduces the need for trusted intermediaries when creating and enforcing agreements. Whereas contracts in the physical world require lawyers to draft them and mediators to oversee any disagreements, the terms of a smart contract are written in publicly auditable, immutable code, which automatically executes when specific conditions are met.
Nick Szabo coined the term smart contract. In a 1994 essay, the cryptographer, computer scientist and early digital-money pioneer described computerized agreements that automatically execute when predefined conditions are met. However, when Szabo first wrote about smart contracts, the technology to implement them was not yet available. That changed with the creation of Bitcoin.
Although Bitcoin does allow for simple smart contracts, most are written to blockchains that support more sophisticated programming languages. Platforms like Ethereum, Solana, Avalanche, Polkadot and Cardano each allow for decentralized applications built using smart contracts.
Smart contracts are the building blocks of these DApps. Their interoperability means they can be stacked to create increasingly sophisticated products that function without the oversight or involvement of any intermediary — including their creators. As a result, the phrase “money lego” is often used to describe smart contract-based applications.
Smart contracts are the cornerstone of much of the blockchain innovation of recent years. For example, by leveraging smart contract technology, developers have monetized digital artwork and collectibles, and are in the process of decentralizing the financial industry.