What a smart contract is
A smart contract is a computer program that runs on a blockchain network. It automatically executes actions when specific conditions are met. Nick Szabo (computer scientist known for his research in smart contracts) described smart contracts as digital promises with protocols for performance. Many people compare the idea to a vending machine that enforces rules automatically. On blockchains like Ethereum, the contract code is stored and executed by the network. This means no single company can secretly change the rules after deployment. In practice, smart contracts can move tokens, issue receipts, or enforce simple agreements. They work best for clear “if this happens, then do that” logic. A smart contract is not the same as a traditional legal contract in every case. It is closer to software that reliably follows prewritten rules.
Why it bridges Web3 and Web2
Web3 apps run on blockchains and can execute smart contracts automatically. Web2 services run on normal servers, like banks, websites, and payment processors. Smart contracts cannot directly fetch data from outside the blockchain. This is why oracles exist, acting as bridges between real-world systems and smart contracts. Oracles can deliver verified data, like prices, weather, or payment status, onto the blockchain. Once the oracle provides the data, a smart contract can respond automatically. This is how a Web3 application can react to a Web2 event, like a delivery confirmation. It is also how blockchains can use external price feeds for lending and trading. In simple terms, smart contracts handle the rules, while oracles bring the facts.
Real examples and limits
In decentralised finance, smart contracts can lend and borrow without a bank approving each transaction. In simple marketplaces, they can swap tokens when both sides meet conditions. In insurance-style products, an oracle can report an event and trigger a payout. These systems reduce manual paperwork and can speed up settlement. However, smart contracts can also contain bugs and lose funds if written poorly. They also cannot interpret nuance like human agreements can. Many projects therefore combine smart contracts with audits and safety controls. The safest use cases keep rules simple and data sources transparent. As Web3 grows, smart contracts may become the automation layer behind many Web2 services. They offer a path for digital agreements that are open, testable, and predictable.
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