What is the Difference Between Smart Contracts & Traditional Contracts?

Smart contracts are self-executing computer programs, based on Blockchain technology and distributed ledger ecosystem. These are more of a computer program than a law bound traditional contracts.

The obvious question must be, what is the difference between smart contracts and Traditional contracts?

We will look into various aspects of smart contracts and Traditional contracts and try to reach a conclusion and hopefully, you would understand what are the major differences.

Smart Contracts

Smart contracts are one use case of Blockchain Technology, like cryptocurrency and Decentralized applications also known as DApps.  When Bitcoin was first introduced to the world back in 2009, people knew nothing about Blockchain and often confused the technology with its by-products. People thought Bitcoin and Blockchain are the same things.

However, as the time progressed, and Bitcoin saw a wider acceptance with prices rising exponentially, people realized the potential of the underneath tech, and that is when smart contracts came into existence on the Ethereum platform.

Smart contracts are not much of a contract in a legal sense, and it just a set of computer codes, with preset condition, which would be executed on the present conditions.

Let us try to understand the working process of smart contracts through a real-world example,

Smart contracts are just like your ‘one-month free Netflix subscription’, where in order to avail the free subscription, you need to enter your bank or card details, and once the time period of one month is reached, and you haven’t logged out of the account, the next month’s fee will be deducted automatically.

Here, the preset code was, 30-day period, as your subscription reached a month, the preset-code on Netflix would either send you a message or deduct the amount automatically if you are not logged out.

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How Smart Contracts Differ From Traditional Contracts?

If you are of the belief that smart contracts are Traditional Contracts 2.0, then you are far from the reality, as traditional contracts are bound by legal entities and still hold the same value as it did before.

Smart Contracts in businesses are still governed by traditional contracts, we can say that traditional contracts help the smart contracts to maintain the workflow.

The main reason for making smart contracts was to ease up the workload and avoid human interference. A traditional contract is governed by certain conditions within the legal bounds.

The main difference between the traditional and smart contracts is human intervention, while a traditional contract can be modified and changed anytime with the consent of two parties, while a smart contract once set, cannot be paused or changed.

Yes, there are options for developers to pause or terminate the contract, but that is a very rare occurrence, as the main motive behind the formation of smart contracts was to avoid human interference.

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Traditional Contracts + Smart contracts = Hybrid Contracts

As we discussed above, we can see that neither the traditional form of contract is foolproof, nor the smart ones. Traditional contracts are designed keeping flexibility and mind so that it can be modified. While the smart contracts are self-executing codes, which cannot be tampered with easily.

So, what if I want to make a smart contract which can be modified when the time comes, well the idea is not new and as the Blockchain Technology make new advancements, we might reach a point where we can combine the benefits of the two, i.e flexibility of traditional contracts and preset code governed by smart contracts to get Hybrid contracts.

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Smart Contract vs Traditional Contracts

  • Smart contracts are a self-executing computer program, while traditional contracts are bound by the legal terms.
  • Smart contracts cannot be modified or changed according to people’s will, while traditional contracts are flexible and can be modified at any time with the consent of both the parties.
  • Smart Contracts work on the distributed ledger technology, while Traditional contracts work on the institutional factors and requirements of the two parties involved.
  • Smart contracts cannot be manipulated or tampered with, while traditional contracts can be manipulated and changed easily.
  • Smart contracts limit human interaction and interference while traditional contracts need human intervention.


Smart Contract is one of the many use cases of Blockchain technology and a distributed network. The current form of smart contracts are not even contracts in the legal sense, but a set of codes which can execute on its own, once the preset conditions are fulfilled.

As time progresses, we will see more advancements in the working principle of smart contracts and hopefully, we would be able to create hybrid contracts, by taking the best of both Smart and traditional form of contracts.

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