What are computable contracts? And how do they differ from the more popular smart contracts?
The term computable contract refers to all those contracts that are not only understandable to humans, but also to machines. More precisely, they are contracts whose logic can be understood even by a computer, allowing it to analyze them and check whether or not they have been fulfilled.
Hence, they are not a particular type of contracts, but in general, this definition includes all those contracts whose logic can be stored in a computer so that it can analyze, understand and verify it.
As can be easily guessed, smart contracts must also be computable contracts, but not all computable contracts are also smart contracts: these two definitions have the same relationship as blockchain and DLT: just as blockchain is a subset of DLT, smart contracts are a subset of computable contracts.
In fact, the specific peculiarity of smart contracts, which differentiates them from other computable contracts, is that they are self-executable.
Actually, the definition of smart contract as a self-executable computable contract is a bit forced, as they are actually nothing but computer programs that automatically execute transactions, particularly on the blockchain. Some people do not define them as real contracts, but as simple “programmable money”.
Whereas the more generic category of computable contracts includes all those real contracts that can be, as they say in jargon, fed to a computer, and that do not necessarily have to be self-executable.
Admittedly, creating contracts that can be understood by a machine is not simple at all, especially because a computer is not able to understand the meaning at the same conceptual or symbolic level as an experienced person.
It involves the use of computer languages to create texts or programs accepted by all parties involved, allowing computers to reliably identify the various components of the contract. In addition, the same parties who sign the contract must provide the computer with the rules to react sensibly and consistently with the meaning of the contractual commitments.
This means that, at present, computable contracts have certain limitations. In particular, they cannot be overly complex and they cannot involve abstract, difficult or uncertain legal arguments that require human interpretation.
Often it is basically a matter of providing computers with contractual terms and conditions regarding well-defined subjects and deterministic criteria in the absence of significant legal uncertainty.
In addition, computers are unable to understand the vast majority of traditional legal contracts, so it is not possible to take any traditional contract and translate it into machine-understandable language.
In other words, there are still few areas in which computable contracts can be used, and they must be written for this purpose and not translated from classical paper contracts.
However, the subset of smart contracts, although even more limited than that of computable contracts due to the fact that machines not only have to understand them but also run them automatically, has already shown great potential, to the point that the entire Decentralized Finance (DeFi) is based on them.