GLOSSARY · BLOCKCHAIN & WEB3
Smart contract
What smart contracts are for in business: automating payments, deliveries and rights when a condition is met, with examples and legal limits.
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What is a smart contract?
A smart contract is a stand-alone, self-executing computer program deployed on a blockchain network, which executes predefined instructions in a deterministic, transparent and immutable way when certain conditions are met. These contracts automate the execution of agreements that already exist, reducing manual involvement by banks, platforms or administrators, with maximum traceability. They do not replace the legal contract or the formalities the law requires: a public deed and a land-registry entry are still needed where the law imposes them. The contract is the source of the right; the smart contract only executes it (Arts. 1279 and 1280 of the Spanish Civil Code).
The code of a smart contract:
- It is written in specific languages such as Solidity (EVM), Rust (Solana/NEAR), Move (Sui/Aptos).
- It is deployed on a public or private blockchain through a transaction.
- It allows you to execute functions such as token transfers, logical validations, issuance of NFTs, votes, auctions or financial flows.
- It uses a model of shared global state, where each execution can modify balances, emit events or interact with other contracts.
Key features:
- Immutability: once deployed, it cannot be modified (unless programmed with upgrade logic).
- Decentralization: its execution is validated by the entire network.
- Transparency: the code and interactions are public.
- Automation: responds automatically to defined actions, without permissions or external intervention.
- Cryptographic security: any execution is signed and recorded.
Use cases:
- DeFi: loans, exchanges, stablecoins, derivatives.
- NFTs: creation, transfer, royalties.
- DAOs: decentralized governance, on-chain voting.
- Tokenization: legal or financial representation of real assets.
- Digital identity: verification, authentication and permissions.
- Gaming: reward mechanics, in-game economy, digital property.
Its correct design requires rigorous testing, error control and professional audits, since a vulnerability in a smart contract can cause irreversible losses, given the immutability of the blockchain environment.
Learn more: What are smart contracts and what are they used for?
Explained simply
A smart contract is like an automatic digital contract that enforces itself. You set out the rules it must follow (for example, “if you receive the payment, send the product”) and it executes them without anyone having to monitor it or approve anything. It works on blockchain, so it can't be manipulated and everything is recorded.
Smart contract: key points
- Code that automatically executes on a blockchain
- Allows agreements without intermediaries
- Ensures traceability, transparency and automatic compliance
- Fundamental to dApps, DeFi, NFTs, DAOs and tokenization
- It works with specific languages such as Solidity or Rust
Smart contract: advantages
- Process automation without manual intervention
- Elimination of intermediaries and reduction of costs
- Public traceability of all interactions
- Executability 24/7 and without geographical borders
- Foundation of the decentralized economy and Web3
Smart contract: disadvantages
- Immutable code: uncorrected errors can cause critical failures
- High learning curve for secure development
- Gas costs when running on congested networks
- Vulnerability risk if not properly audited
- They can't access real-world data without external oracles
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