A smart contract can be defined as a specifically created computer program with self-executing features. Smart contracts are needed to check, assist, and implement a contract on a blockchain without third parties.
Understanding the term
As a computer program, smart contracts consist of several lines of code representing the terms of agreements decided between the buyers and sellers. This program and agreement are spread across a decentralized blockchain network similar to Ethereum.
Smart contracts are executed automatically once certain predefined conditions are met. Smart contracts are needed because they can be used to anonymously execute agreements as well as enable transactions between two entities without depending on a third party.
A smart contract can be thought of as a vending machine of sorts, which serves the same purpose as that of a store merchant, but is entirely self-sufficient. Using a vending machine, instead of going to the store, saves people from needless interaction with a third party and also simplifies how one transacts automatically to get the desired product they need. Smart contracts find applications in the financial, gaming, healthcare, and real estate.
Once executed, reversing a smart contract is virtually impossible. For this reason, smart contracts are sought after by businesses to act as protection against losses of various kinds.