The smart contract, or “intelligent contract”, is a contract (a set of clauses, expression of an agreement between two or more parties) subject to conditions structured according to a code (automated agreement) and self-executable, such that it will automatically execute to the occurrence of the aforementioned conditions (input, that can be internal to the same code, that is external, defined “oracles”).
The impulse determining the execution of the instructions recorded in the smart contract may depend on its internal elements, on the succession of events already included in the code (as, for example, the expiration of a term) or external circumstances (for example, an interest rate).
A typical example is Etherisc: an insurance on decentralized air travel, which operates on the ethereum platform. The smart contract queries the interfaces for the programming of applications to have information on the departure times and, in case of delay of the flight guaranteed by the policy, triggers automatically the refund.
The technology blockchain allows, therefore, the selfenforceability of the contract: they come executed automatically the terms and the conditions of the same one to the occurrence of the predetermined events from the parts and inscribed in the code. In fact, since the blockchain ledger is immutable, the code – and so the contract to which it refers – can only be deleted or modified following the terms defined by the code itself.
Smart contracts are based, like a flow chart, on logic “if this then that”: if a prerequisite (this) occurs then a result (that); once the conditions described in the code are met, specific actions are automatically triggered which cannot be interrupted.
Therefore, unlike traditional contracts, which offer the possibility to perform the services as stipulated in the contract itself or to default and meet the related consequences (for example, suspension of benefit, termination of default, etc.), this option is not available in a smart contract where the fulfilment of the contract is automated and subject only to the occurrence of certain events that are not the will of the parties. Smart contracts, in other words, cannot remain defaulted: theirs is a tamper-proof execution.
Here are some examples where you can create a Smart contract:
§ Delivery on delivery: You could expect a Smart contract that will collect the sums of the goods sold, and that will continuously check the status of the package (perhaps on another unmodifiable data blockchain containing shipping data), automatically transfer the sum to the seller when it is “delivered”, thereby excluding the carrier’s custody of the sum.
§ Currency exchange/Exchange: the exchange agent purchases the currency directly from the supplier through a Smart Contract which, upon receipt of a certain sum, automatically converts the currency into another currency, or exchange it for another currency in another portfolio to which it has access.
§ Purchase of securities on the stock exchange: in this case a very simple Smart contract is sufficient to be allowed to analyze a performance of a stock, and that upon reaching the set amount purchases or sells the stock and transfers it to the portfolio to which it has access.
§ Draft or cashier’s check: it would be enough for the Smart contract to be set to freeze an amount transferred (in the case of the cashier’s check), and to issue it to a determined future date set in the code, avoiding also the risk of overdraft for the creditor; or that it was set to transfer the given amount at the maturity of the promissory note.