what is a smart contract 
a smart contract is a self executing program that automates the actions required in a blockchain transaction once completed the transactions are trackable and irreversible the best way to envision a smart contract is to think of a vending machine when you insert the correct amount of money and push an item s button the program the smart contract activates the machine to dispense your chosen item smart contracts permit trusted transactions and agreements to be carried out among disparate anonymous parties without the need for a central authority legal system or external enforcement mechanism while blockchain technology has come to be thought of primarily as the foundation for bitcoin it has evolved far beyond underpinning a virtual currency investopedia laura porterhistory of smart contractssmart contracts were first proposed in 1994 by nick szabo an american computer scientist who conceptualized a virtual currency called bit gold in 1998 10 years before bitcoin was introduced szabo is often rumored to be the real satoshi nakamoto the anonymous bitcoin inventor which he has denied szabo defined smart contracts as computerized transaction protocols that execute the terms of a contract 1 he wanted to extend the functionality of electronic transaction methods such as pos points of sale to the digital realm in his paper szabo also proposed the execution of a contract for synthetic assets such as combining derivatives and bonds szabo wrote these new securities are formed by combining securities such as bonds and derivatives options and futures in a wide variety of ways very complex term structures for payments can now be built into standardized contracts and traded with low transaction costs due to computerized analysis of these complex term structures 1smart contracts do not contain the legal language or even the terms of a contract between two parties they are scripts that contain functions module imports and other programming that automate the actions between two parties many of szabo s predictions in the paper came true in ways preceding blockchain technology for example derivatives trading is now mostly conducted through computer networks using complex term structures smart contract usesbecause smart contracts execute agreements they can be used for many different purposes one of the simplest uses is ensuring transactions between two parties occur such as the purchase and delivery of goods for example a manufacturer needing raw materials can set up payments using smart contracts and the supplier can set up shipments then depending on the agreement between the two businesses the funds could be transferred automatically to the supplier upon shipment or delivery it s important to understand that the connections between blockchain transactions and real world transfers are still being developed for instance if you use some ether to order an item from a retailer that uses an e commerce blockchain that can communicate with ethereum it must still be packed up and shipped by a person in this case a smart contract would likely transfer your cryptocurrency to the retailer and initiate another script that notifies the shipping department of a sale real estate transactions stock and commodity trading lending corporate governance supply chain dispute resolution and healthcare are only a few examples where smart contracts are theorized to have use smart contract pros and consthe primary benefit of smart contracts is similar to the benefit of blockchain technology they remove the need for third parties other benefits of this technology are some of the downfalls of smart contracts are 