A smart contract is a program that runs on a blockchain. On Ethereum, it is code and stored data at a particular blockchain address. The name can be misleading: a smart contract is not automatically a legal agreement.
The term describes software and how it executes under the rules of a network. It does not tell you whether the program is well written, fair, secure or legally enforceable.
A program, not a person
Ethereum’s documentation describes a smart contract as a collection of code, called functions, and data, called state, that runs on the Ethereum blockchain. It is a type of Ethereum account. People or other programs can interact with it by submitting transactions that call functions defined in its code.
That is why the term is often compared with an automated rulebook. The program follows the rules it was given. It cannot use ordinary judgement about whether a result is sensible, fair or intended.
Why the word “contract” needs care
Smart contracts can automate actions when conditions in their code are met. That technical meaning does not settle whether an agreement exists in law, what the parties intended or whether any promised result is enforceable. Those are separate questions that depend on the circumstances and relevant terms.
What a smart contract can and cannot know
A smart contract works with data available to its network. Ethereum’s documentation says smart contracts cannot independently retrieve facts from outside the blockchain. A system that uses outside information needs an additional mechanism to bring that data in.
This matters when someone claims that a smart contract proves something about the physical world. Code can record or respond to information, but it does not independently confirm that an outside claim is true.
What the label does not guarantee
Calling a program a smart contract does not establish that it is safe, audited, lawful, suitable or connected to a genuine product. It does not guarantee that a linked asset has value or that a transaction will have a particular outcome outside the network.
See the crypto glossary for shorter definitions of blockchain and transaction. Return to Crypto explained for the wider reading route.
Sources and scope
Source: Ethereum.org’s introduction to smart contracts. This is technical terminology, not financial, tax or legal advice. Source check: 15 September 2026. Send corrections through The Coin Expert contact page.