Different Types of Smart Contracts

The simplest definition of smart contracts is that they are comparable to computer programs with “if-then" or "if-else if" logic. If a smart contract can self-execute when the required conditions are met, it becomes "smart."

They're also called such because all data is recorded on the blockchain, providing indisputable and safe proof of documentation.

There are three primary types of smart contracts:

1. Smart Legal Contracts

This is the most common form of the smart contract, probably comprising the bulk of most people’s basic understanding of smart contracts. A smart legal contract has the same legal requirements as its conventional counterpart. Its objective is to hold both parties under an agreement accountable for their obligations.

Smart contracts are legally enforceable, requiring both parties to fulfill their obligations. Non-fulfillment may result in legal action that can be instantly triggered by the smart contract against the party in breach.

2. Decentralized Autonomous Organizations

Decentralized autonomous organizations (DAOs) are networks or communities existing on the blockchain. Smart contracts utilize coded rules to define these networks.

Participants in the community are accountable to the community's regulations. Their performance is directed by the responsibility to enforce these rules. Rules comprise numerous smart contracts, which collaborate to monitor community activities.

DAOs can have various purposes, such as collecting NFTs, raising funds, providing research grants, and more. As such, smart contracts are at their very fiber, and DAOs cannot exist without them.

3. Application Logic Contracts

Finally, application logic contracts (ALCs) are a form of smart contract that resides in the same application as other blockchain contracts. They allow for the simultaneous exchange of data across various devices, such as when blockchain technology is combined with the Internet of Things (IoT). ALCs are multi-function smart contracts commonly used in managing programs.