[jwfxpr]

I Am Not An Expert.

If I understand correctly, these are a way to automate the execution of the financial part of normal contracts without the need for undue trust between parties. Some simple examples that might help (and I invite correction):

• I and a few investors agree to buy into an enterprise in several installments. A contract can be written to the blockchain that automates these payments. Should a majority of the investors decide to withdraw support, the payments will cease, but while more than 50% wish to continue support, everyone will continue.

• I have an enterprise that I am highly confident will generate profit. I can establish a smart contact that guarantees my investors a minimum ROI at specific intervals; should the balance fail to grow by the agreed margin, all investors will instead be refunded (in full or part) based on a scheme agreed a priori to be fair — say, a function of shares owned for how long.

• I and several other Ethereum miners agree to develop a scheme built on top of Ethereum for, say, a specific method of interoperability between the Ethereum blockchain and traditional futures markets. We have a specific idea for this, but agree we need to ensure that there is momentum in the project, and want those participating to have 'skin in the game'. We build a tontine such that all of us invest a non-trivial amount, and any investor becomes ineligible for payout if their hash power abandons the protocol. If this falls below a certain threshold, remaining investors can vote to continue or divide the pot and abandon the project.

[sjy]

The problem with your first two examples is that the 'investment' locked up in the smart contract can't be spent, which means the investors are not bearing any risk, and therefore cannot enjoy a return. If the money could be spent on capital and operating expenses, then the smart contract wouldn't be able to refund it if the conditions of the investment failed.

It is possible to create a smart contract, like the DAO, which implements the rules of a joint stock company. But stockholders are not concerned about the risk that these rules will be broken. The risk is that the company fails and there is nothing to distribute according to the rules. Replacing the general meeting of stockholders with a smart contract doesn't change the economics of collective investment – it just adds the risk of losing everything to a bug in the contract.

[al2o3cr]

    without the need for undue trust between parties

Needing to assume that the contract author didn't make a trivial mistake (like leaving off `internal`) that makes all your tokens fall on the floor seems like a pretty sizable chunk of trust - and that's also assuming everybody involved isn't malicious.

[ym705]

Uses case are infinite.. You could also for example write transparent casinos system, transparent marketplace where every transactions would be certified by both parts, a banking system, some new money, ect..