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.

The main differences between smart contracts and traditional contracts are:

Efficiency

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.

Democracy:

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.