A Cardano smart contract is a script that checks whether a proposed transaction follows specified rules. It does not run continuously or initiate actions on its own: an application or user must construct a transaction, and Cardano’s network evaluates the script before accepting it. Cardano represents contract state in transaction outputs, using its extended unspent transaction output (eUTXO) model.
What a Cardano smart contract does
On Cardano, a smart contract is commonly a validator script associated with an address. The script governs outputs at that address: when a transaction tries to spend one, the validator checks whether the proposed transaction satisfies the script’s rules. If the check passes, the transaction may be validated; if it fails, the transaction is rejected.
That distinction matters. A validator does not independently send funds, wake up at a particular time, or fetch information from the internet. As Cardano’s Developer Portal explains, “A validator cannot take actions. It can only approve or reject a proposed transaction.” A person’s wallet, a decentralized application, or an off-chain service has to prepare and submit the transaction for evaluation.
How Cardano represents contract state
Cardano uses an extended UTXO model, or eUTXO. In the underlying UTXO approach, value is held in unspent transaction outputs rather than in a continuously updated account balance. The eUTXO model adds the ability for an output to carry custom data relevant to a script. A script-locked output can contain ADA or tokens and a datum that represents information the validator may need when checking a later transaction.
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When an application wants to interact with that output, it constructs a transaction that identifies the output to spend and supplies a redeemer: data expressing the requested action. The validator also evaluates the transaction context, which includes relevant transaction information. Together, the datum, redeemer, and context let the script determine whether the requested transition is allowed. See the Cardano Developer Portal’s explanation of the Extended UTXO Model.
What happens when a Cardano contract is used
- An output is locked by a script. The compiled validator script has a hash associated with the address. ADA or tokens sent to an output at that address are governed by the script’s rules.
- The application prepares a transaction. A wallet or application selects the inputs and outputs and supplies the script information, including any redeemer and relevant datum, needed for the proposed operation.
- The validator checks the proposal. The script evaluates the supplied information and transaction context against its rules. It approves or rejects the proposed spend; it does not carry out the operation itself.
- The network validates and applies an accepted transaction. A successful state transition often consumes the previous script-locked output and creates a new output representing the next state. The transaction is then reflected in the ledger.
This model makes the transaction itself central: the application proposes a state change, and validation determines whether the change is permitted. Cardano’s Plutus documentation describes this extended-UTXO approach and the division between on-chain and off-chain code.
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Plutus and other Cardano scripts
Plutus validators
Plutus is Cardano’s native smart-contract platform. Developers write validator code using Haskell and Plutus tooling; compilation produces Plutus Core, the language evaluated on-chain by Cardano nodes. Off-chain code—such as code in a wallet or application—helps build and submit the transaction that interacts with the validator. The on-chain script checks the proposal, while the off-chain part helps arrange it.
Native scripts
Not every script-governed operation needs a Plutus validator. Cardano also supports simpler native scripts for rules such as multisignature authorization and time locks. These can be used for certain script checks, including native-token minting, without writing a general-purpose Plutus contract.
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What validators can and cannot know
A validator can check information available through the transaction and the ledger context presented for evaluation. It cannot directly make an internet request or independently verify an outside fact, such as a current market price. If a contract depends on external information, an oracle or another mechanism must provide that information through a transaction or on-chain data arrangement; the validator checks what is provided under its rules.
Pre-checks, conflicts, and script costs
Pre-checking does not reserve an input
An application can evaluate a candidate transaction before submitting it, which helps identify whether it appears to satisfy the relevant script rules. But pre-evaluation does not lock or reserve the inputs. If another transaction spends an input first—particularly a shared script-locked UTXO—the original transaction may no longer be valid and may need to be rebuilt with the current state.
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Execution budgets affect fees
Running a script consumes resources, and Cardano transactions account for script execution through a budget. Transaction fees depend on script resource use and the network’s protocol parameters; they are not a single fixed smart-contract price. Applications can estimate execution needs and costs while constructing a transaction, but the actual parameters can change. Check current network parameters rather than relying on an old fee figure. Cardano’s Transaction Fees documentation describes the role of script execution fees and protocol parameters, while its transaction costs and determinism documentation covers budgets and predictable execution.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How Cardano’s model differs from account-based contracts
The practical difference is not that one model is inherently better; it is where state sits and how a state change is proposed. In Cardano’s eUTXO model, relevant state is represented in outputs, and transactions that depend on the same output can contend if one consumes it first. In account-based systems, state is generally associated with accounts. Cardano applications therefore need to plan around the outputs they consume and create, while still constructing transactions for validators to assess.
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