They are contracts based on a computer code or protocol that facilitates the verification and execution of the underlying agreement in an automated way, without the need for intermediaries. An illustrative example would be the payment of a coupon for a debt issue, in such a way that the buyer guarantees that, upon the previously established maturity, the contract will be executed automatically by transferring the corresponding amount to the buyer, calculated in accordance with the pre-established conditions[1].
However, Smart Contracts are still “in their infancy”, far from their widespread development. In the future, these contracts could be used in the following productive sectors[2]: Food, financial services, energy, pharmaceuticals, healthcare, aerospace, aviation, telecommunications, technology and communications, transportation, public services, agriculture, and oil and gas.
Below are some concrete examples of the practical application of these smart contracts:
- Guaranteed loan contracts: As soon as a non-payment or a series of defaults is found, the guarantee is executed.
- Loan contract to purchase a vehicle: The loan instalment payment is stopped and the car is blocked for use.
- Breach of material contract obligations: As soon as the breach occurs, the contract is terminated.
- Lease contracts: Rent update in view of the evolution of the CPI automatically; non-payment and automatic initiation of eviction proceedings.
- Inheritances: After the death of the testator, the allocation of estate between their heirs and legatees occurs automatically.
- Equity securities: As soon as the issuer approves its annual accounts and the proposal for result distribution, the payment of the dividend is made to the shareholders.
- Intellectual property: The smart contract calculates and distributes the copyright payments as agreed and based on the number of copies sold.
[1] Bank of Spain (2018): “Tecnología de registros distribuidos (DLT): una introducción”, Boletín Analítico 4/2018, analytical articles, October 16.
[2] UK Government Chief Scientific Adviser (2016): “Distributed Ledger Technology: beyond block chain”, Government Office for Science.
