Understanding Smart Contracts

Learn the difference between smart contracts and traditional contracts – and why smart contracts have the advantage.

What is a smart contract?

Smart contracts are the backbone of each and every DAO.

When a DAO is created, a smart contract is written to formally explain its rules and functionality.

The smart contract is visible to every member so that everyone who joins a DAO is fully aware of how it works.

Smart Contract vs. Traditional Contract

The main differences between smart contracts and traditional contracts are:


Smart contracts will execute rules and protocols automatically. For example, the smart contract for a charity DAO might agree that, once the treasury has reached x amount of dollars, a donation will be made to the selected organization. The DAO will automatically carry out that transaction once the treasury reaches the predetermined amount of dollars.


No one member has the ability to alter the DAOs smart contract. Once the contract is live, its rules and protocols can only be altered by passing a proposal. When a member makes a proposal, the remaining members must vote on whether or not they support it. Only when a majority of members have voted “yes” does any change take place.