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Contrary to public misbelief, smart contracts are neither smart nor contracts. They are computer programs running on the blockchain.

Smart contracts are computer programs that automatically carry out predefined parameters. The terms are coded directly into the program’s lines. This program is stored on a decentralized blockchain network. When specific conditions outlined in the code are met, the smart contract is executed automatically. Once the code is run, it cannot be undone or modified.

Smart contracts offer a major benefit by allowing transactions and agreements to happen between parties who may not fully trust each other. This means that there’s no need for a third-party authority, legal system, or external mechanism to oversee the process. It allows for anonymous execution of agreements.

It’s important to note that while smart contracts often resemble traditional legal contracts and involve actions between parties, they are not legal documents in themselves.