What it is
A smart contract is a program stored on a blockchain, like Ethereum, that automatically executes when predefined conditions are met. These contracts are immutable and transparent, meaning once deployed, they cannot be changed and their execution is verifiable by anyone. They eliminate the need for intermediaries by enforcing agreements directly through code, enabling trustless transactions and automated processes across various applications.
Smart contracts are the backbone of decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs). For example, a lending protocol uses smart contracts to automatically release collateral once a loan is repaid. Understanding smart contracts helps retail investors grasp how dApps function and the risks or benefits associated with interacting with them, particularly regarding security audits and code vulnerabilities.
Why it matters
Smart contracts power most decentralized applications, making them fundamental to understanding DeFi and NFTs.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice