These are digital contracts that are embedded in program code and whose algorithm automatically executes contract terms. They thus replace human or manual transactions and ensure decentralized execution of contracts. Smart contracts are stored anonymously and forgery-proof in the respective blockchain.
Background: Contracts often consist of sequences in the "if-then" form. For example, if a person has signed a contract for their leased car and the terms of payment have been clarified, they will receive the keys to the car. This process can be simplified with smart contracts, since the sequence can be automated. A smart contract means nothing more than a sequence of activities (events) that are executed as soon as a specific event occurs. This can range from leasing to a rental agreement to complex financial transactions.
Smart contracts do not involve third parties. So there is no need for a notary or similar to close a smart contract. The nodes (computers, servers) in the network are responsible for verification and authentication. For example, if person A and person B conclude a smart contract and person A has fulfilled his condition, then the necessary action is automatically carried out in the network according to the algorithm. It is therefore not necessary for person B or a third party to become active or to become active at this point in time. The nodes check the status themselves at any time.
see nodes, decentralization
