Smart Contract
Self-executing code stored on a blockchain that automatically enforces agreement terms when preset conditions are met.
What is Smart Contract?
A smart contract is a computer program stored and executed on a blockchain that automatically enforces the terms of an agreement when predetermined conditions are satisfied — with no need for intermediaries. Once deployed, a smart contract's code is immutable and publicly auditable; it executes exactly as written without the possibility of downtime, censorship, or third-party interference. Smart contracts were popularized by Ethereum and are the foundation of decentralized finance, NFTs, decentralized autonomous organizations (DAOs), and decentralized exchanges. They are written in languages such as Solidity (Ethereum), Rust (Solana), and Move (Aptos/Sui). While powerful, smart contracts carry risks: bugs or vulnerabilities in the code can be exploited and are typically irreversible, making auditing critical before deployment.
Example
When a borrower takes out a loan on Aave (a DeFi lending protocol), a smart contract automatically holds the collateral, calculates interest in real time, and liquidates the position if the collateral value falls below the required threshold — all without a bank or loan officer. The entire process is governed by audited code on the Ethereum blockchain.