My hero Vitalik Buterin, the 22-year-old programmer of Ethereum, explained what a smart contract is:

“In a smart contract approach, an asset or currency is transferred into a program “and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability.”

People that want more transparency and integrity in their transactions are jumping for joy. One example of this is in fractional co-ownership of commercial property. Smart Contracts are used to make ownership percentages of a property (like a new hotel project) transparent. Investors are given asset or ownership tokens that represent how much they have invested. When the property is sold profits are distrubuted via the execution of a smart contract that pays out the profits according to the percentage of investment or asset tokens owned. The contract is immutable so the investor is secure in the knowledge that the contract is safe from corruption and unfair modification. Commericial real estate law is going to dramatically change, in fact I think all business oriented lawyers will be impacted by smart contracts.