A smart contract is a self-executing program that automatically executes the terms of an agreement between two parties when certain predetermined conditions are met. These conditions are typically encoded as a set of rules or code, which is stored on a blockchain.

Here's a basic overview of how a smart contract works:

1. Creation: A smart contract is created by a developer or a team of developers using a blockchain platform. The contract is then deployed onto the blockchain.

2. Execution: Once the contract is deployed, it waits for certain conditions to be met before executing. These conditions are typically defined by the developer and could include events like a specific date, time, or action being taken by one or both parties involved in the contract.

3. Validation: Before the contract can execute, it must be validated by the network of nodes on the blockchain. This helps to ensure that the contract is valid, and that it has not been tampered with in any way.

4. Execution: Once the contract is validated, it automatically executes the terms of the agreement. For example, if the contract is a payment contract, it will automatically transfer the funds from one party to the other.

5. Recording: The execution of the contract is recorded on the blockchain, which creates an immutable and transparent record of the transaction. This ensures that the terms of the agreement are enforced and that there is no room for dispute.

Smart contracts have the potential to revolutionize the way we do business by automating many of the processes involved in executing agreements. They are secure, transparent, and efficient, making them an ideal solution for a wide range of applications.