What is a smart contract?

A smart contract is a program stored on a blockchain that runs automatically when set conditions are met, without a bank, court, or middleman to enforce it. This matters because it lets strangers agree to swap money, tokens, or data with rules that can't be changed or ignored once the deal starts. For example, a lending app like Aave uses a smart contract to hold your crypto as collateral and release a loan the moment you deposit enough funds, all without a loan officer involved.

The natural follow-up: what happens if the code has a bug? Since the contract runs exactly as written, a coding mistake can be exploited, which is why security audits matter so much before a contract handles real money.