What is Smart Contract?

The term smart contract was coined by computer scientist Nick Szabo in the 1990s, but the concept became practically deployable with the launch of Ethereum in 2015. Ethereum introduced a programmable blockchain on which developers could deploy arbitrary code that runs exactly as written — no party can alter it after deployment without creating a new contract.

A smart contract works like a vending machine: insert the correct input (payment, a trigger condition, a signed transaction) and it automatically delivers the specified output according to its coded rules. No human intermediary is required to execute or verify the outcome.

Smart contracts power a wide range of applications:

• Decentralized exchanges: Code automatically swaps tokens between users at algorithmically determined prices.
• Lending protocols: Contracts manage collateral, issue loans, and trigger liquidations when collateral ratios fall below thresholds.
• NFT minting and sales: Ownership rules, royalty splits, and transfer logic are all encoded in contracts.
• Decentralized autonomous organizations (DAOs): Governance votes and treasury disbursements are executed by contracts.

Because smart contracts run on a blockchain, they are transparent (code is publicly readable), immutable (cannot be changed after deployment), and trustless (outcomes depend on code, not on trusting a counterparty).

The immutability that makes smart contracts reliable also makes bugs permanent. Security audits are a standard — though not foolproof — practice before deploying contracts that will handle significant value.