smart contract
A smart contract is code that executes automatically when its conditions are met, without needing anybody to be trusted or to agree afterwards.
In plain English
A normal contract is a promise, enforced by courts, which are slow, expensive and in some places unreliable.
A smart contract is a promise written as code on a blockchain. When the agreed conditions are met, it executes itself. Nobody has to agree afterwards. Nobody can refuse. The money moves because the code says so.
The appeal is obvious in a country where enforcing an agreement can take years. If payment released automatically when a delivery was confirmed, an enormous amount of Nigerian commercial pain would simply not exist.
But there are two limits that the enthusiasts skip past, and both are serious.
The code does exactly what it says, including when what it says is wrong. There is no judge to appeal to and no reasonable interpretation. Bugs in smart contracts have lost hundreds of millions of dollars, and there was nobody to complain to.
And the contract only knows what it is told. If it must know whether goods actually arrived, somebody must tell it, and that somebody can be wrong or dishonest. The blockchain guarantees the code ran correctly. It guarantees nothing about the truth of what went in.
Powerful, genuinely. And not a substitute for trusting anybody at all.
A smart contract releases payment automatically when a shipment is confirmed as delivered. It works flawlessly, provided the person confirming the delivery is honest. The code removed the lawyer. It did not remove the human.
Questions people ask
What is a smart contract used for?
Automatically executing agreements, such as releasing payment on a condition, running decentralised finance, or transferring ownership without an intermediary.
Can it be reversed if something goes wrong?
Generally not, which is the point and the danger. Bugs have caused enormous losses with no recourse.
Does it remove the need for trust?
Only for the execution. Somebody still has to supply the information the contract relies on, and that person can be wrong or dishonest.
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