Vitalik Buterin, explained:
“In a smart contract approach, an asset or currency is transferred into a program and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”

Smart contracts essentially define and enforce rules and penalties for a mutual exchange or transaction within seconds in an automated manner. The document is also stored in the distributed public ledger which is the main point of contact. Ethereum charges a transaction fee in Ethers for every transaction. Say for a transfer for 50000 you will be charged a transaction cost of 0.002 ETH which is a lot. One of the blockchain protocols XDC that i recently read about has very low transaction cost as it doesn't use an external process called gas for mining the blocks. Also the standard use of ERC20 ensures fundamental compatibility with the multitude of emerging Ethereum Dapps. But what is amazing is that unlike Ethereum wallets, XDC tokens call on tokens's contact rather than sending them from a wallet, preventing loss of tokens.