A smart contract refers to a form of business agreement between two or more parties by using a piece of computer code to produce a technology known as the blockchain. Blockchain stores data on a distributed ledger so that the transaction between both parties can be fully verified. The good thing about this technology is that a transaction involving two parties cannot be executed until every rule surrounding the transaction is met at both ends. A smart contract is highly needed in cryptocurrencies.
For instance, bitcoin is a decentralized payment system. This means there is no third party or any middleman who will control or decide things for you. It is not owned by any financial institution. This is why a smart contract is needed to get things done for you as a virtual middleman. You need a smart contract because it does not come with huge transaction costs. The fact that it eliminates the need for a middleman reduces the possibility of being defrauded.
A smart contract is a contract, or agreement between two people trading in bitcoin or another cryptocurrency. Smart contracts are enforced through digital ledgers that list transactions in cryptocurrencies. There are several different types of blockchains you can use to create a smart contract.
Ethereum is a very popular blockchain that developers use. Smart contracts are essentially a way for people who use cryptocurrencies to ensure security and transparency in a currency exchange system that is devoid of anything tangible. Smart contracts allow cryptocurrency users to bypass a middleman and trade directly through a program with predetermined rules, penalties, and oversight.