What's a smart contract (and how does it work)?

Smart contracts are self-executing, business automation applications that run on a decentralized network such as blockchain.

And because they’re able to remove administrative overhead, smart contracts are one of most attractive features associated with blockchain technology. While blockchain acts as a database, confirming that transactions have taken place, smart contracts execute pre-determined conditions; think about a smart contract as a computer executing on “if/then,” or conditional, programming.

Essentially, once certain conditions of a smart contract are met – goods arrive in a port, two parties agree to an exchange in cryptocurrency – they can automate the transfer of bitcoin, fiat money, or the receipt of a shipment of goods that allows them to continue on their journey. Underneath it all: a blockchain ledger that acts as a database to store the state of the smart contract – whether it’s been fulfilled or not.

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