Major Types of Smart Contracts

Major types of smart contract

Assuming the reader has a basic understanding of contracts and computer programming and building on from our definition of smart contracts, we can roughly classify smart contracts and protocols into the following major categories.

1. Smart legal contracts

These are presumably the most obvious kind. Most, if not, all contracts are legally enforceable. Without going into much technicalities, a smart legal contact is one that involves strict legal recourses in case parties involved in the same were to not fulfill their end of the bargain. As previously mentioned, the current legal framework in different countries and contexts lack sufficient support for smart and automated contracts on the blockchain and their legal status is unclear. However, once the laws are made, smart contracts can be made to simplify processes which currently involve strict regulatory oversight such as transactions in the financial and real estate market, government subsidies, international trade etc.

2. DAOs

Decentralized Autonomous Organizations, shortly DAO, can be loosely defined as communities that exist on the blockchain. The community may be defined by a set of rules arrived at and put into code via smart contracts. Every action by every participant would then be subject to these sets of rules with the task of enforcing and reaching at recourse in case of a break being left to the program. Multitudes of smart contracts make up these rules and they work in tandem policing and watching over participants.

A DAO called the Genesis DAO was created by Ethereum participants in may of 2016. The community was meant to be a crowdfunding and venture capital platform. In a surprisingly short period of time they managed to raise an astounding $150 million. However, hacker(s) found loopholes in the system and managed to steal about $50 million dollars’ worth of Ethers from the crowdfund investors. The hack and its fallout resulted in a fork of the Ethereum blockchain into two, Ethereum and Ethereum Classic[5].

3. Application logic contracts (ALCs)

If you’ve heard about the internet of things in conjunction with the blockchain, chances are that the matter talked about Application logic contacts, shortly ALC. Such smart contracts contain application-specific code that works in conjunction with other smart contracts and programs on the blockchain. They aid in communicating with and validating communication between devices (while in the domain of IoT). ALCs are a pivotal piece of every multi-function smart contract and mostly always work under a managing program. They find applications everywhere in most examples cited here

Types of Smart Contracts

Smart contracts have the potential to disrupt many industries including the banking sector, insurance, telecommunication, art world, music and film, education and many more. They range from simple to complex.

An example of simple contracts includes time-stamping services like ascribe for art registry — also, governmental and semi-governmental records for land titles, birth certificates, school, and university degrees.

However, many regulatory aspects are made up of complex contracts. A good example is the Decentralized Autonomous Organization which represents the most complex form of smart contracts.

Examples of Simple Contracts

A simple digital value exchange — let’s imagine an employer sending some Bitcoins to an employee. A smart right and obligation contract — let’s imagine a consumer that buys a digital content stream.

Examples of Complex Contracts

  • Distributed autonomous government — let’s imagine settlers of a previously uninhabited area who code their own self-enforcing government services.
  • Distributed autonomous organization — let’s imagine self-driving trucks that make P2P deliveries and pay for local toll road fees.


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