Smart contracts are computer programs or transaction protocols that are designed to automatically execute, control, or document events and actions according to the terms of a contract or an agreement. They are stored on a blockchain and run when predetermined conditions are met. Smart contracts are commonly associated with cryptocurrencies, and the smart contracts introduced by Ethereum are generally considered a fundamental building block for decentralized finance (DeFi) and NFT applications.

Here are some key features of smart contracts:

• Automation: Smart contracts automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.

• Reduction of need for trusted intermediaries: Smart contracts aim to reduce the need for trusted intermediaries, arbitration costs, and fraud losses, as well as the reduction of malicious and accidental exceptions.

• Irreversibility: Smart contracts cannot be deleted by default, and interactions with them are irreversible.

• Security: Smart contracts offer security, reliability, and accessibility while offering sophisticated peer-to-peer functionality.

Smart contracts can be used for many different purposes, such as ensuring transactions between two parties occur, registering a vehicle, sending notifications, issuing a ticket, and more. They can also function in traditional financial ecosystems outside the blockchain network. To establish the terms, participants must determine how transactions and their data are represented on the blockchain, agree on the “if/when...then…” rules that govern those transactions, explore all possible exceptions, and define a framework for resolving disputes.

Smart contracts were first proposed in the early 1990s by Nick Szabo, who coined the term, using it to refer to "a set of promises, specified in digital form, including protocols within which the parties perform on these promises". Since the 2015 launch of the Ethereum blockchain, the term "smart contract" has been more specifically applied toward the notion of general-purpose computation that takes place on a blockchain or distributed ledger.