How does a smart contract operate?

A smart contract operates by executing automatically based on pre-defined coded terms. These contracts are self-executing agreements with the terms of the agreement directly written into lines of code. They run on blockchain technology, which ensures transparency, security, and immutability. When certain conditions specified within the contract are met, the corresponding actions (like transferring assets or executing payments) occur without needing human intervention.

This automatic execution eliminates the need for intermediaries, such as lawyers or notaries, which can streamline processes and reduce costs. The use of coded terms also allows for precise enforcement of the agreement, ensuring that all parties adhere to the stipulations outlined within the smart contract. By functioning in this way, smart contracts facilitate trust and efficiency in transactions across various sectors, not limited to digital asset transfers but applicable in numerous contexts such as supply chain management, healthcare, and legal agreements.