A smart contract is a program stored on a BlockchainBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing. that runs automatically when certain conditions are met. It follows a simple rule: if this happens, then do that. No middleman is needed to interpret or enforce the contract.
How does a smart contract work?
The best comparison is a vending machine. You choose a product, pay the right amount and get the product. No shop assistant is involved, and if you pay too little, you get nothing. A smart contract works the same way, except it can handle money, tokensTokenA digital asset created with a smart contract on another cryptocurrency's blockchain, rather than on a blockchain of its own. and almost anything else.
The idea goes back to Nick Szabo, who wrote about it in 1994. It only became practical when EthereumEthereumAn open blockchain that can run applications and smart contracts, with its own cryptocurrency called ether (ETH). launched in 2015. Today smart contracts run on many networks, and they power things like DeFiDeFi (decentralised finance)Financial services, such as lending, saving and trading, that run on smart contracts on a blockchain instead of through a bank or other middleman. services and stablecoins.
What to keep in mind
The code of a smart contract is usually public, so anyone can read it. Once a contract is on the blockchain, it can't be changed. That is both a strength and a weakness: the rules stay fixed, but bugs can't be fixed either.
In 2016 an attacker exploited a bug in a smart contract called The DAO and drained more than 3.6 million ETH. The incident led to Ethereum splitting into two networksForkA change to a blockchain's rules; if not every node follows the change, the chain can split into two separate chains, each with its own coin.. So before you use a smart contract, it helps to know who made it and whether it has been independently audited.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.