Blockchain 101: What is a Smart Contract?

From vending machines to DAOs, the beginner’s guide to the code that powers everything Web3: smart contracts.

From vending machines to DAOs, the beginner’s guide to the code that powers everything Web3: smart contracts.

SMooTH

Posted on Apr 24, 2025
GM (that’s how we say hi in Web3) and welcome back to Blockchain 101! 👋
 
So we’ve covered the blockchain basics: what it is, how it works, and how Bitcoin and Ethereum are fundamentally different beasts.
 
In our last lesson, we explored crypto wallets: your personal keychain to the blockchain. We learned that wallets don’t hold coins, but keys.
Keys that let you interact with apps, send transactions, and sign your way into Web3.
 
But what are you actually signing? 🤔
It’s time we moved past basic money transfers, and stepped into the real magic of blockchain: smart contracts.
To me, smart contracts are the reason why blockchain is so fascinating. They are the invisible engines powering the future of decentralized economy.
 
Today we look at what smart contracts are, how they work, what they enable, and why they’re reshaping everything from finance to art to gaming.
 
As always: plain English only. No jargon. No gatekeeping.
 
Let’s dive in. 🫡
 
 

1️⃣ What Is a Smart Contract?

A smart contract is a bit of code stored on a blockchain that automatically runs when certain conditions are met.
That’s it. It’s not “smart” and it’s not a “contract” in the legal sense — it’s really just a robot with instructions.
 
Why then are they called smart contracts?
 
Well, because:
  • They can automatically execute actions based on pre-set rules (~smart)
  • They represent agreements between parties (~contract)
 
Think of a vending machine. You put in the right amount, press a button, and out comes your snack. No cashier. No arguments. Just pure logic.
 
Smart contracts do the same thing, but on the blockchain.
 
❔
Example
Rule: “If Alice sends 1 ETH to this smart contract, then send her a digital key.”
The code checks if the rule is met. If it is, the contract executes it automatically, without middleman.
💡
Did you know?
  • Ethereum pioneered this technology and uses the EVM (Ethereum Virtual Machine) — a standardized “engine” for running smart contracts.
  • Other blockchains are either EVM-compatible (so you can copy/paste Ethereum contracts with little change) or they have their own systems (like Solana’s smart contracts, which use Rust and a totally different architecture).
  • Some chains don’t support smart contracts at all (like Bitcoin— though you can build them on top of Bitcoin using layers like Rootstock or Ordinals inscriptions, but it’s limited).
 

2️⃣ How Do Smart Contracts Work?

Let’s break it down step-by-step:
1. Write the contract ✍️
A dev writes code with logic like “if this, then that.”
  1. Deploy it to the blockchain 🚢
      2. Once published, the contract gets its own address. From now on, it lives on-chain, forever.
  1. Trigger it 🖱️
      2. Anyone can send a transaction to interact with the contract. For example by clicking a button in a dApp.
  1. Contract executes ⚙️
      2. If the conditions are met, the contract executes automatically: sending tokens, updating data, minting an NFT — whatever it’s programmed to do.
  1. Results recorded 💾
      2. The blockchain logs what happened. It’s public, irreversible, and provable.
 
 
📌
Upgradeable contracts
Most smart contracts can’t be changed once deployed. But there are exceptions:
  • Proxy contracts: A contract that links to a different contract where the logic resides. To upgrade, just swap out the contract it points to (like changing the TV but keeping your old remote).
  • Admin controls: Some contracts have built-in upgrade functions, letting certain wallets (like a DAO or dev team) make changes.
🚧
Not a dev? Not a problem.
There are now plenty of no-code and low-code tools that help you create smart contracts without touching a single line of Solidity! Here are 2 examples:
  • Thirdweb: Build and deploy smart contracts for NFTs, tokens, and marketplaces with a slick UI. Great for creators and small teams.
  • Manifold: Popular with artists. Lets you create custom smart contracts for NFTs and retain on-chain provenance.
 

3️⃣ Smart Contracts vs Traditional Contracts

Let’s see how smart contracts stack up against the good ol’ paper-and-pen handshake deals.
 
🧾 Traditional Contracts
  • They rely on people, lawyers, and courts to work.
  • They’re built on trust and legal backing, and often involve intermediaries like notaries or banks.
  • While flexible and renegotiable, they’re usually private, slow to enforce, and come with high costs (paperwork, attorney fees,..)
🧠 Smart Contracts
  • They are code on a blockchain that runs automatically when conditions are met.
  • You don’t need to trust the other party. Just the code. They’re fast, public and verifiable, and cheaper.
  • But they’re also rigid: once deployed, they can’t be changed easily.
 
 
So what does this all mean in practice?
 
Smart contracts don’t replace traditional legal agreements — but they automate the parts that can be coded.
 
Instead of “if I pay you, you’ll ship the item,” you can now do: “If crypto is sent, auto-release the NFT.”
No middleman. No delay. No trust issues.
 
That’s a game-changer for everything from digital art sales to decentralized lending — especially between people or parties who’ve never met.
 
⚠️
Remember: smart contracts are only as good as their code.
They follow rules exactly as written, not as intended. So if there’s a bug or loophole, the contract will still execute it.
Vulnerabilities are open to being exploited, and very often are.
 
In short:
  • Traditional contracts are enforced by people.
  • Smart contracts are enforced by math and machines
Choose wisely. 😉
 

4️⃣ Real-World Use Cases

Smart contracts are useful for a LOT of reasons, and we’ve only hinted at their real-world applications so far.
Here’s the definitive list:
🧪 DeFi (Decentralized Finance):
Borrow, lend, swap. All without banks.
Example: Uniswap A giant pool of tokens you can trade against, with prices set by code.
🎨 NFTs & Digital Art:
Minting and trading unique digital collectibles.
Royalties are built right into the contract.
Example: OpenSea The biggest NFT marketplace, powered by smart contracts.
🤝 DAOs (Decentralized Orgs):
Internet-native communities governed by code.
One token = one vote. Proposals, budgets, and decisions — all on-chain.
Example: BoringSecDAO A security awareness organisation that provides free classes and track scam/hack trends in Web3.
📦 Supply Chain & Automation:
Track goods, trigger payments, or verify delivery.
The blockchain becomes the referee.
Example: VeChain A blockchain platform for supply chain tracking, ensuring transparency in goods delivery.
 
🎮 Gaming & Virtual Assets:
Own your gear, your land, your rare sword.
Smart contracts turn in-game items into real assets.
Example: Gods Unchained A free-to-play, play-to-earn trading card game on Immutable.
☔ Insurance & Escrow:
Flight canceled? Get paid automatically.
No claim forms. Just code that checks the data and acts.
Example: Nexus Mutual A decentralized insurance platform using smart contracts to cover risks like smart contract failures.
 
 
And these are but the tip of a very large iceberg!
 

5️⃣ Conclusion

Smart contracts might sound futuristic, but they’re already transforming how we trade, build, vote, game, and insure — all through code.
Pretty sweet, wouldn’t you say?
 
Let’s recap what we’ve learned today!
 
Smart contracts
  • Are code that auto-executes rules on the blockchain, no middleman needed.
  • They run on blockchains like Ethereum, making them public, transparent, and tamper-proof.
  • They replace trust with code: if X happens, the contract makes Y happen. Instantly.
  • They power DeFi, NFTs, DAOs, games, and more, bringing automation to entire industries.
  • You don’t need to be a developer to use (or even create) them — tools and dApps handle the heavy lifting.
 
⚠️
A word of warning
Before you turn your entire business into an on-chain vending machine, remember:
  • Code is law — if it’s buggy, it still runs. You can’t undo it. So audit, test, repeat.
  • It’s hard to code securely. You need serious skills to write airtight contracts. One tiny mistake = millions gone.
  • Legal gray zone. Most smart contracts aren’t legally binding. If something goes wrong, courts might not help you. Legislation around crypto is still in its early stages.
  • Can’t see the outside world. Smart contracts can’t access off-chain info (like weather or prices) without oracles — trusted data feeds that come with their own risks. Can that data be trusted?
 
Smart contracts are the engine room of Web3. They automate trust, reduce friction, and open up programmable everything — from finance to farming games.
 
They’re not perfect. But they’re powerful.
And they’re already shaping the next internet.
 
Like all things blockchain, the best way to learn is to try them out. Start small. Experiment safely. Keep learning.
 
And if you enjoyed this breakdown — don’t forget to subscribe.
 
Clickety-click on the red text. You know you want to.
 
More lessons coming soon. 🫡
 
 
📚
So far, in our Blockchain 101 Series:
  1. Blockchain 101: What It Is and Why It Matters
  1. Blockchain 101: How It Really Works
  1. Blockchain 101: Bitcoin vs Ethereum
  1. Blockchain 101: Crypto Wallets Explained
Author's avatar
Author

SMooTH

@thisissmooth

🐍 Confident Cobra 📢 Communication is my passion 🔎 Research at Pluid 🦉 Ambassador at DYLI 👍

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