You hear of this term all the time in the Web3 world. What is it?

At its core, a smart contract is just a computer program that sits within a blockchain.

That’s it.

You already know what a blockchain is.

To recap:

A blockchain is another piece of software that shows you TRUE transactions between 2 parties, without the need for a trusted authority.

A blockchain does this in the following ways:

1. Its software is open source for anyone in the world to inspect for malicious codes, vulnerabilities and mistakes

2. Any improvements on the blockchain can be suggested to the team behind the project and if they are implemented, they are open to anyone to inspect once again

3. It is decentralised, so that no one single entity controls it

4. It is transparent, so that everyone can see the transactions and nothing is hidden

5. It is immutable, which means that the data recorded on it cannot be modified or tampered with.

The above 5 factors enable us to TRUST the blockchain.

A smart contract is just ANOTHER COMPUTER PROGRAM that works WITHIN OR ON TOP OF THE BLOCKCHAIN to provide additional functionality.

An easy way to understand this is that the blockchain is like the Operating System (OS) for our computers, and the smart contract is like the programs that work on the OS.

Our computers’ OS controls things like keyboard inputs, outputs, the hard drive, the speakers, the microphones, the connectors, the screen (resolution, brightness, size, colours), the mouse, and so on.

The computer programs that work on the OS enable us to use the computer to do many additional useful functions that the OS doesn’t do or is responsible for.

For example, your laptop’s OS may be Windows, and you use a program called Word to type out your letter or report or book, or another program called Excel to do spreadsheets, or another program called Photoshop to change or manipulate images, or another program like a browser to surf the Internet, and so on.

So Windows is like the “blockchain”, and MS Word, Excel, Photoshop, etc is like a “smart contract”.

But the Windows OS and computer programs like MS Word, Excel, etc, are NOT open source — you can’t inspect their codes as they were written by a private company who sells their software for profit.

But you can inspect public blockchain and public smart contracts’ codes to ensure they are safe and work properly.

Also MS Word, Excel, etc cannot execute itself without any input from you. For example, MS Word cannot write a book for you if you don’t touch the keyboard to write the words on your own.

But smart contracts can SELF-EXECUTE.

So if a smart contract is linked to your fridge over the Internet, and you are running out of eggs, the smart contract can automatically send a buy order for more eggs from your favourite grocer and pay them via your e-wallet.

Your fridge does need sensors to detect you’re running low on eggs, and then relay this information automatically to your smart contract.

Another example is for the smart contract to detect that a person has done a certain job by a certain deadline (like visiting certain places that he has to clock in and this data is automatically relayed to the smart contract over the Internet). If so, the smart contract will then automatically pay him.

So a smart contract can have in its code that when certain conditions are met, something else can be made to happen, automatically.

You don’t have to lift a finger to detect and execute your part of the agreement, if the other party has done his/her/its part.

There is an UNLIMITED number of uses for smart contracts that are programmed as part of the blockchain.

This will come in handy for our wealth creation/wealth multiplication strategies that will be coming soon.

But an understanding of the terms is crucial for you to understand those strategies, so please ensure you make an effort to understand what these terms mean first.