What is a smart contract? To explain what a smart contract is, to begin with, and even if it seems obvious, we can recall the RAE definition of a contract: "Completing a pact or agreement, oral or written, between parties related to a specific subject or thing".

Or, in other words, the rules of the game that govern the relationships and interactions between two or more parties.

Verbal or written contracts can be subject to interpretation and this is precisely what differentiates them from smart contracts, as the latter are able to implement and enforce themselves.

Smart contracts are computer codes with programming languages, which means that the terms of the contract are sentences and commands in the code that make them up.

They are based on blockchain technology and can change the traditional way of doing business, with the aforementioned ability to run autonomously.
The name Smart Contract was first used by Nick Szabo in 1996 in an article called 'Smart Contracts: Building Blocks for Digital Markets'.

How do smart contracts work?

As we have just mentioned, the security of transactions is guaranteed by blockchain technology. Therefore, they allow to act automatically and autonomously.

Therefore, it is not necessary to provide verification by the supervisory body. It is enough to indicate in a computer program which result should be executed.

In order for these contracts to work properly, it is necessary for all parties involved to know (and accept) what the rules and steps are. And once the execution starts, the programmed rules cannot be changed.

What are smart contracts for?

Due to their connection with blockchain technology, the value that smart contracts provide is the security, trust and transparency it provides between signatories, avoiding any kind of changes (misunderstandings or forgeries) and eliminating intermediaries.

Examples of blockchain and smart contracts

To understand what they consist of in a more tangible way, let's look at some examples of blockchain and smart contracts:

• Insurance. Thanks to automation, doubts about the assumptions included in the policies can be eliminated: they allow the amounts to be paid automatically.