Smart contract: a program on the blockchain, not a legal contract

A smart contract is a program stored on a blockchain that runs automatically when predefined conditions are met. It is not a “contract” in the legal sense, but code. Once deployed, it works exactly as it was written and is usually hard to change. Tokens, decentralized exchanges and DeFi apps, among other things, are built on it.

The code will execute exactly as written, even if it contains a bug, and flaws in smart contracts have caused many losses. That is why audits, meaning independent reviews of the code, matter, though they too offer no guarantee. A contract also cannot check whether outside data is true. So-called oracles are used to supply it, and they can themselves be a weak link.