Smart contracts are programmes run on a blockchain that self-execute once predetermined conditions are met. They do not require an intermediary and all participants are aware of the outcome of the contract as soon as it has executed. They can be very simple or hugely complex, pulling data from oracles, tiering outcomes or automating a workflow, triggering the next action when conditions are met.
Smart contracts can be viewed, simply, as IF-THEN statements.
The simplest form of a smart contract is a vending machine. There are preconditioned outcomes such as ‘I get a chocolate bar’ or ‘I do not get a chocolate bar’ and the criteria is known before you engage the vending machine, i.e. the price is displayed.
IF you put the correct amount in the vending machine, THEN it will ask you to make a selection. IF the selection is valid, THEN your chocolate bar will drop out. IF there is an outstanding balance, THEN the machine will give you change.
This is a simplified version of a smart contract but the principles of IF-THEN remain the same and provides a framework for dispute resolution without an authority while the outcomes could be anything such as releasing funds, sending a notification, transfer of documents or whatever else can be coded in a predetermined manner.