Smart Contracts and the World Computer

Code that executes automatically when conditions are met. The mechanics, the standards, the major exploits, and the protocols built on top.

11 min · advanced · part of Smart Contracts: Programmable Money

Contracts Without Lawyers

A traditional contract is a promise enforced by law. If someone breaks it, you go to court — and the legal process is slow, expensive, and depends on jurisdictions and judges. A smart contract is a promise enforced by code that runs on a blockchain. If the conditions encoded in the contract are met, the contract executes automatically. No courts, no lawyers, no "I never received that payment" — just transparent execution that anyone can verify. Example: You want to bet a friend that the temperature in New York will exceed 100°F next Tuesday. **Traditional approach:** • You both verbally agree to pay if you lose. • Tuesday comes; you check the news. • The loser might pay — or might decide to dispute the source, or simply not respond. • Dispute? You hope you have proof. Court? Probably not worth your time. **Smart contract approach:** • You both deposit funds into the contract. • The contract is connected to a trusted weather oracle (e.g., Chainlink, which secures over $100B in total value as of October 2025). • On Tuesday at the agreed time, the oracle reports the temperature; the contract automatically sends the entire pot to whoever was right. • No trust between you and your friend required — only trust in the code (which is auditable) and the oracle (which itself is a trust assumption to evaluate). The canonical short definition: smart contracts are self-executing programs that run on a blockchain. The breakthrough is that they let strangers transact based on programmable rules, without needing to trust each other or a central intermediary.

Also in this lesson

Ethereum: The Programmable Blockchain
ERC Standards: How Tokens Work
When Smart Contracts Go Wrong: Major Exploits
For Deeper Reading

Key terms

Smart contract: Self-executing code stored on a blockchain that automatically enforces the terms of an agreement. Once deployed, runs exactly as written.
Ethereum: The blockchain platform pioneered by Vitalik Buterin et al. Launched July 30, 2015. The dominant smart contract platform.
Solidity: The most widely-used programming language for Ethereum smart contracts. Designed by Gavin Wood et al. Current version 0.8.35 (May 2026).
EVM (Ethereum Virtual Machine): The stack-based runtime environment for Ethereum smart contracts. Specified in the Yellow Paper. Each opcode has a defined gas cost.
Gas: The unit of computational cost on Ethereum. Each operation has a fixed gas cost; transactions specify gas limit and gas price.
ERC-20: The fungible token standard for Ethereum (EIP-20, Nov 2015). Powers stablecoins, governance tokens, and the vast majority of fungible tokens.
ERC-721: The non-fungible token (NFT) standard for Ethereum, finalized June 2018. Powers digital collectibles, art, gaming items, ENS domains.
ERC-1155: Multi-token standard (Witek Radomski/Enjin, June 2019). Allows fungible and non-fungible tokens in a single contract.
DeFi: Decentralized Finance — financial services built on blockchain without traditional intermediaries. Total DeFi TVL ~$160B as of mid-2026.
DAO: Decentralized Autonomous Organization — an organization governed by smart contracts and token-holder voting. Module 14 covers in depth.
Reentrancy: A class of smart contract vulnerability where an external call enables recursive callback before state updates. The DAO hack of 2016 exploited this.
Flash loan: A DeFi pattern where a user borrows a large sum with no collateral, conditional on repayment within the same transaction. Enables creative arbitrage but also enables exploits.
Audit firm: A specialized security review firm. OpenZeppelin, CertiK, Trail of Bits are leaders. Audits typically cost $25K-$250K per engagement.
Chainlink CCIP: Chainlink's Cross-Chain Interoperability Protocol. As of late 2025, secures $14T+ in onchain transaction value across 60+ networks.

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Educational only — not financial advice.