What are smart contracts?

Smart contracts are computer codes built on a blockchain network that are self-executing when the agreed terms between two parties are met. Basically, they facilitate the execution of trusted transactions and pacts among anonymous individuals without the supervision of a third party.

Smart contracts are digital versions of everyday contracts. They follow an if-then syntax and they are written in the native programming language of the blockchain where they exist. Unlike human-to-human contracts, smart contracts are automated, immutable, and transparent. Both parties can see the terms of the agreement but the only criteria for execution are that one party to the contract fulfills their part of the agreement. As soon as one of the parties to the contract keeps their part of the agreement, the contract is automatically executed.

Smart contracts are the building blocks of decentralized applications. They enable people to agree on specified terms without the need for trust. The possibilities with smart contracts are limitless with the most common application involving the replacement of intermediaries. As an open API, smart contracts can call other smart contracts to extend their functionality, a feature known technically as composability. All blockchains like Ethereum, that have a programmable layer for applications need smart contracts to structure the apps on the network.