What are the Three Types of Smart Contracts?

Smart contracts, as a piece of technology, have a wealth of potential and many possible use cases for both the present and the future. Since blockchain and the smart contracts built upon it have the potential to reshape numerous aspects of our daily lives, it can be easy to get caught up in all the things smart contracts can innovate and forget about the basics. With that in mind, let’s get back to basics and take a look at the three types of smart contracts. 

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Before we get into the specifics of smart contracts and the common types, let’s first make sure we have a shared definition of what smart contracts are. Smart contracts are similar to computer programs using “if-then” or “if-else if” codes. These contracts become “smart” when they are able to self-execute when the specific criteria are met. The smart aspect comes from the fact that all inputs are stored on the blockchain, which makes for immutable and secure proof of records.  Now, for the types of smart contracts. We can roughly classify smart contracts into three primary categories: 



1. Smart Legal Contract


The most common type of smart contract, a smart legal contract, involves similar legal requirements (i.e.- mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality) to its traditional counterpart, and it is put in place to hold concerned parties accountable for fulfilling their end of an agreement. When set up properly, a smart contract is legally enforceable and requires the parties to fulfill their obligations; failure to fulfill obligations in the contract may result in legal action that can be automatically triggered by the smart contract against the party that is in breach.


2. Decentralized Autonomous Organizations 

Decentralized Autonomous Organizations, or DAO, can be defined as communities that exist on the blockchain. These communities can be defined by a set of agreed upon rules which are coded via smart contracts. Every participant and their actions are subject to the community’s rules with the task of enforcing these rules. These rules are made up of many smart contracts and work together to watch over activities in the community.  


3. Application Logic Contracts 

Application Logic Contracts—or ALCs—contain an application-based code that remains in-step with other blockchain contracts. They enable communication across different devices, such as the merging of the Internet of Things (IoT) with blockchain technology. ALCs are a pivotal piece of multi-function smart contract and mostly work under a managing program. 


As we know, smart contracts have an expansive reach and ability, and it all comes from one of these three categories. The need for smart contracts comes from their innate ability to bring transparency, time efficiency, precision, safety, cost-effectiveness, and trust into transactions, even into industries that have traditionally lacked these qualities. Anyone can write a smart contract and deploy it to the network. One of the barriers to entry, though, has been the ability to code, which is why SIMBA developed a low-code platform allowing anyone to register and start developing today! 


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