In traditional businesses "contracts" are used which are written with human language and is a kind of subjective things, means it is open for judicial interpretation. The "smart contracts" on the other hand are pre-written in programmer language and it behaves and executes in an automated pattern and that pattern depends upon the logic behind and the logic is governed by terms, conditions, rules, expiry and other relevant information etc. Simply put, Smart contracts are kind of objective and data driven way to execute the contract conditions. The smart contracts are one of the aspect of blockchain technology which can be coded and embedded in to it.
Now the question is how is it better than the traditional way to execute a contract.
The number one benefit of using a smart contract is that it is decentralized and can be executed from peer to peer and it does not need a central party which could result in a conflict of interest and might manipulate the things and this has been a long standing issue in traditional systems.
Second benefit is that it is encrypted through blockchain technology and data recorded remains forever and are immutable in nature, that means one can not tamper with the data that has been recorded. This is a revolutionary feature and hence disruptive to the traditional way of doing business and the business can be done in a more transparent way by using smart contracts.
The third benefit is that it can be audited by anybody to check the legitimacy of the contracts conditions and can be ascertained very well that whether the contract has been executed in accordance to the conditions or not.
The traditional businesses by large rely on legal infrastructure and agreements in order to conduct & execute their businesses with third parties. This requires a variety of middlemen, as well as incredibly big budgets dedicated to documentation processing and contract enforcement. This time consuming too. By opting for a blockchain based smart contract system, most businesses can reduce the risk of fraud and the costs of middlemen, save a lot of time, whilst avoiding having to hand all data over to another centralized entity. In essence, they allow any business agreement to be automatically executed or enforced.
Therefore smart contracts in blockchain use cases can help to save the most important resource of enterprises and businesses. Businesses waste a great deal of time handling paperwork, enforcing contracts and interacting with middlemen. Smart contracts help to save companies countless man hours that could potentially be spent elsewhere. So blockchain based smart contract are cost effective too.