A smart contract is a self-executing program that automates the actions required in a blockchain transaction. Once completed, the transactions are trackable and irreversible. The best way to envision a smart contract is to think of a vending machine—when you insert the correct amount of money and push an item's button, the program (the smart contract) activates the machine to dispense your chosen item.

Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.