What is Smart Contract?

A smart contract is code stored on a blockchain that automatically executes when predetermined conditions are met. They enable trustless agreements - parties don't need to trust each other, just the code.

Why it matters: Smart contracts power DeFi, NFTs, DAOs, and tokenized assets. They replace intermediaries (banks, lawyers, escrow) with transparent, auditable code.

Common uses:

• Token contracts: Define token supply, transfers, balances
• DEX swaps: Execute trades automatically
• Lending: Manage collateral and liquidations
• Vesting: Release tokens on schedule
• NFTs: Define ownership and royalties

Risks: Code bugs can cause massive losses (see: DAO hack, Wormhole). Always verify contracts are audited by reputable firms.

Smart contract audits and security: An audit is a thorough review of a smart contract's code by independent security experts. Reputable firms like CertiK, OpenZeppelin, and Trail of Bits examine the code for vulnerabilities such as reentrancy attacks, integer overflow, access control flaws, and logic errors. Audits typically take weeks and cost tens of thousands of dollars, which signals that a project takes security seriously. However, an audit is not a guarantee of safety. It reflects the code at a specific point in time, and post-audit changes can introduce new bugs. Investors should check whether audit reports are publicly available, whether identified issues were resolved, and whether the deployed contract matches the audited version.