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What is a smart contract? The difference between smart and traditional contracts

What is a smart contract? The difference between smart and traditional contracts

Today, with the advancement of technology, new methods and methods are also used to make things easier by using technology. For example, in the past, to create a contract, both parties must be present at the time of signing the contract for this to happen. But today, a new method has been considered and presented for this, which is used in digital currency exchanges. Smart contracts are a new type of contract formation that is much more efficient and effective than the traditional method of contracting. You might be wondering what  a smart contract is  and how it differs from a traditional contract. In order to get to know smart contracts better and learn about its features and disadvantages, read the rest of the article.

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What is a smart contract?

Smart contracts are another type of contracts that are used more over time. Various organizations and organizations use smart contract, which is a technology connected to the blockchain. Through smart contracts, it is possible to create agreements between two parties automatically anywhere in the world. The smart contract is also used in the digital currency market. By using smart contracts in the cryptocurrency market, transactions are 100% guaranteed and traceable. The way this contract is formed in the blockchain is that if the condition is acceptable, the contract is executed automatically. The guarantee that exists in these contracts is from the side of the smart contracts and it is traceable and irreversible.

Trust is not very important in this type of transaction, because they neither know nor see each other. But how can such a system be trusted? All contracts in this system are based on blockchain, which proves its high security. Also, all contracts are done automatically and no governmental or non-governmental institutions are involved in their execution. Smart contracts are also widely used in crypto games so that players’ items can be better defined. In the next part of the article, what is a smart contract, we will discuss the applications of this technology.

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What are the applications of smart contract?

Smart contracts are effective in many sectors, which we will briefly discuss below. As we stated in the previous section of the smart contract article, many organizations and organizations use this technology. Among the sectors where smart contracts are used, we can mention securities, lending, governance, decentralized programs, etc.

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Bonds and bonds are one of the places where smart contracts are involved in transactions. Smart contracts are used to manage the buying and selling of bonds in financial markets. All transactions performed in this ecosystem, including stock management, buying and selling, automatic payments are done by smart contracts. Most importantly, these cases prevent profit-seeking people from cheating.


I think that most traders are familiar with the concept of lending in the digital currency market and the traditional banking system. If you are not familiar with the concept of lending, read the article What is a crypto loan? Most of the exchanges like Kocoin and Binance have a platform for lending to traders. All assets that are provided to other traders as loans on these platforms are based on smart contracts. In this contract, as in traditional contracts, the amount of interest received and the period of return of the money are mentioned. Of course, during this time, the lender’s property is blocked until the contract expires. After the completion of the smart contract, the money you provided to the exchange will be deposited into your account along with its interest. We have exactly this process in the traditional banking system.

Government and country affairs

Apart from financial markets, smart contracts can also be used in the affairs of the country. By using smart contracts in electronic elections, governments and countries can use both the accuracy of the result and to increase the speed. Through the technology of smart contracts, government works are done more quickly and accurately, and errors are greatly reduced. For example, this technology can be used in government work such as document registration, service offices, etc.

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In the field of agriculture and industry

Until this part of the article on what is a smart contract, you realized that it is used in different sectors. But one of the interesting places where smart contracts are used is industry and agriculture. Through smart contracts, it is possible to check the product production cycle from the time of its production until it reaches the customer. Therefore, it is easy to avoid over-pricing of goods, because the prices are recorded from the very beginning.

In the field of DeFi

Decentralized applications or DeFi are among the sectors that are intertwined with smart contracts. DeFi is widely used in the game industry, and you will rarely find a game that is based on blockchain, but does not use a smart contract.

Digital currencies

Another sector where smart contracts are most used is the cryptocurrency market. Most of the digital currencies that are bought and sold in the digital currency market these days are implemented based on this technology. Among the digital currencies that support this technology, Lido Dao can be mentioned. To learn about this digital asset,   read the article What is digital currency Lido .

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What are the advantages and disadvantages of a smart contract?

Now that you are familiar with the applications and smart contracts up to this part of the article, what is a smart contract; It is better to check its advantages and disadvantages. The characteristics of this type of contract have increased its popularity.


  • Transactions are fully traceable
  • There is no possibility of cheating in online transactions
  • There is no need for an intermediary or a third party to conduct transactions
  • There is good transparency in transactions
  • If good coding has been done behind smart contracts, the possibility of error is zero
  • Smart contracts give high execution speed to transactions
  • It greatly reduces the cost for systems that use this feature
  • It has high security and someone from outside cannot access them easily
  • 100% guarantee


It does not scale well, that is, when the number of transactions increases, the system crashes. This is the only problem with smart contracts, but it is one of the most important. Because today, most blockchains such as Bitcoin and Ethereum blockchain deal with this problem.


Technology always surprises people who use different tools. One of the best technologies that has been created using blockchain technology to date is the smart contract. This type of contract has many advantages over the traditional contracts that we explained above. It also has many applications in life and industry and financial markets that help speed up transactions and work. In this article, we tried to introduce you to  smart contracts  and answer the question of what is a smart contract.

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