Here's an example: "Smart loans" could automatically adjust interest rates based on the financial performance of a borrower. The contract's code would need to include an automated observation of the key real world metrics—like the rate at which the borrower is paying off the loan. And while most commercial loans already have these provisions, they have to be manually reported and monitored, and enforcement may fall to the discretion of individual agents, or the courts, so the application of this technology would create major efficiencies.
"The potential to greatly reduce or even eliminate the need for litigation and courts may be the most attractive feature of smart contracts," wrote Houman B. Shadab, co-director of New York Law School's Center for Business and Financial Law. In a recent conference abstract, he added that the technology "in principle removes the potential for parties to have a dispute."
A similar application would include "smart property", such as a digital asset (or one day even a real-world product like a car) that would turn off if the smart contract is ever breached. The car example, which was cited by several technologists, would likely require something akin to a self-driving feature to return it to a dealership.
To be sure, similar technologies exist in other forms (Oracle's PeopleSoft offers similar functionality, for example) but the blockchain innovation is that it allows the system to work without a trusted third party.