A “smart contract” is simply a piece of code that is running on Ethereum. It’s called a “contract” because code that runs on Ethereum can control valuable things like ETH or other digital assets. As explained in our guide “How Ethereum Works“, ethereum runs smart contract code when a user or another contract sends it a message with enough transaction fees. The Ethereum Virtual Machine then executes smart contracts in 'bytecode', or a series of ones and zeroes that can be read and interpreted by the network.Ethereum is game-changing technology, literally.
Non-cooperative game theory, the original and most widely used branch of game theory, assumes the absence of an external authority to enforce rules. Fundamentally, I claim that the Ethereum ledger constitutes an incorruptible, omnipresent, external overseer that no matter the game is always available to enforce agreements among players. This implies that Ethereum, in theory, could turn any non-cooperative game into a cooperative game (sometimes called a coalitional game).
The transmogrification from non-cooperative to cooperative games is achieved by a technique we term Game Warping defined as using transparent, triggerable, unstoppable burns and on-chain side-payments to move game-theoretic equilibria or to create new player actions. Game Warping stacks as a new layer atop an uncooperative game to make cooperation the Rational choice.
A smart contract is an agreement between two people in the form of computer code. They run on the blockchain, so they are stored on a public database and cannot be changed. The transactions that happen in a smart contract processed by the blockchain, which means they can be sent automatically without a third party.