Smart contract

A smart contract is a program whose code is immutably recorded on a blockchain and which runs automatically when its conditions are met. A traditional contract needs human interpretation and an execution process. A smart contract faithfully runs its if-then logic (if condition A is verified, payment B goes out), with no room for discretionary intervention or delay. Transactions gain transparency, traceability and tamper-proofing, to the point that execution itself is no longer in dispute; the argument moves to the design of the code and the quality of the data. In parametric insurance, it is a natural automation tool: it receives data from an oracle, checks whether the trigger threshold is reached and instantly transfers funds to the beneficiary. Ethereum is the most widely used platform for these decentralized insurance applications. Its limitation is that it executes without discernment. A design error in the contract conditions, or bad data from the oracle, will be executed with the same rigor as a correct instruction. The blockchain also does not guarantee that the contract is legal under the insurance law of the policyholder's jurisdiction, and regulatory uncertainty still holds back large-scale adoption.