The easiest way to explain what a smart contract does is through an example. If you’ve ever bought a car at a dealership, you know there are several steps and it can be a frustrating process. If can’t pay for the car outright, you’ll have to obtain financing. This will require a credit check and you’ll have to fill out several forms with your personal information to verify your identity. Along the way, you’ll have to interact with several different people, including the salesperson, finance broker and lender. To compensate their work, various commissions and fees are added to the base price of the car.
What smart contracts on blockchain can do is streamline this complex process that involves several intermediaries because of a lack of trust among participants in the transaction. With your identity stored on a blockchain, lenders can quickly make a decision about credit. Then, a smart contract would be created between your bank, the dealer and the lender so that once the funds have been released to the dealer, the lender will hold the car’s title and repayment will be initiated based on the agreed terms. The transfer of ownership would be automatic as the transaction gets recorded to a blockchain, is shared among the participants and can be checked at any time.
More detail: https://www.ibm.com/blogs/blockchain/2018/07/what-are-smart-contracts-on-blockchain/