A smart contract is a self-executing agreement with the terms of the contract directly written into code. It runs on a blockchain, which is a decentralized digital ledger that ensures transparency and security. When predefined conditions are met, the contract automatically executes the agreed-upon actions without the need for intermediaries. These contracts can be used for various applications, such as financial transactions, supply chain management, and digital identity verification. By eliminating the need for third parties, smart contracts can reduce costs and increase efficiency in various processes, making them an innovative solution in the digital economy.