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Definition

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They operate on blockchain technology, allowing for automated and trustless transactions without the need for intermediaries.

Why it matters

• Smart contracts enhance efficiency by automating processes.
• They reduce costs associated with traditional contract enforcement.
• They increase transparency, as all parties can view the contract terms on the blockchain.
• Smart contracts can facilitate complex agreements that require multiple conditions to be met.

Risks & Pitfalls

• Smart contracts may contain bugs or vulnerabilities in the code.
• They are immutable, meaning errors cannot be easily corrected once deployed.
• Legal recognition of smart contracts varies by jurisdiction.

Examples

• A smart contract that automatically transfers ownership of a digital asset upon receipt of payment.
• A decentralized finance (DeFi) application that executes trades based on predefined conditions.

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