What is a Smart Contract?

Smart contracts are neither contracts nor smart. They are simple programs stored on the blockchain along with information about smart contracts and wallets. Smart contracts are the key to the development of decentralized applications based on cryptocurrencies.

Smart contracts do not run on the Bitcoin blockchain . It was introduced in 2014 as part of the Ethereum manifesto containing the smart contract definition. Therefore, when it comes to smart contracts, Ethereum is important . This is one reason why so many dApps are built to run on Ethereum and Ethereum-compatible blockchains.

What is a smart contract really? It started as simple IF/THEN statements. The developer who coined the term “smart contract” described a smart contract as a blockchain version of a vending machine: IF the right coins are deposited, THEN give me a snack. The automaton is intelligent in a sense, meaning it can carry out its task automatically and independently.

In Ethereum, a smart contract can specify that if an amount arrives in the user's wallet, THEN 10% of that amount will be transferred to a second wallet reserved for long-term savings. 

Most smart contracts are now written in a programming language called Solidity, created by some of the software engineers who developed the first versions of Ethereum. Solidity supports the creation of more complex smart contracts than the simple IF/THEN model. 

Smart contracts are executed by the Ethereum Virtual Machine, a software platform installed on Ethereum nodes along with copies of blockchain transactions. EVMs are now available that allow the creation of smart contracts in C++, C#, Go, Haskell, Java, JavaScript, Python, Ruby, Rust, Elixir, Erlang and other programming languages. Visual programming tools like EtherScripter serve as virtual environments that allow the creation of smart contracts without writing code in a programming language.

Just like other information on the blockchain, smart contracts are immutable, meaning they cannot be changed and undone once written, meaning they cannot be deleted. Most developers make the source code of their smart contracts available for human review, so users can be sure that the contracts do not drain some or all of their funds into the developer's wallet.

All blockchain-based decentralized finance applications and other dApps are based on smart contracts.