Nature of Smart Contracts

Types of smart contracts

"Parties may choose between three different types of smart contracts that run on a spectrum:

  1. On one end, the smart contract is essentially written in code on the blockchain and there is no other written agreement in natural language (e.g. English). This type of smart contract is ideal for parties who do not want to involve third-party intermediaries in their transactions, relying solely on the DLT.

  2. In the middle of the spectrum is a mixed contract where parties agree that the contractual terms are written in natural language. However, a few or all of the operative terms are written in programming language, which may then be used to execute the transaction.

  3. The last type of contract is a traditional natural language contract that may include a portion of code that executes a single clause. The contract may also allow for the blockchain to execute the contract."

Source: Singapore Legal Advice, last revised on 20 September 2021

FinReg business tip

Smart Contracts vary depending on the code that executes any clause(s), and the amount of natural language terms incorporated within it. In Singapore, the use of Smart Contracts in cryptocurrency and dispute resolution is regulated according to the Payment Services Act (PSA), Securities and Futures Act (SFA) and contract law principles.