A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible.
An example of a smart contract is a real estate purchase. The buyer and seller agree to the terms of the contract, including the price and closing date, and these terms are written into a smart contract. The smart contract is then stored on the blockchain, which is a distributed ledger. When the closing date arrives, the smart contract automatically verifies that the buyer has the funds available and then releases the funds to the seller. The seller then confirms receipt of the funds and the transaction is complete.