"A distributed contract is a method of using Bitcoin to form agreements with people via the block chain. Contracts don't make anything possible that was previously impossible, but rather, they allow you to solve common problems in a way that minimizes trust. Minimal trust often makes things more convenient by allowing human judgements to be taken out of the loop, thus allowing complete automation.
By building low trust protocols that interact with Bitcoin, entirely new products can be created:
- Smart property is property that can be atomically traded and loaned via the block chain.
- Transferable virtual property are digital items that can be traded but not duplicated.
- Agents are autonomous programs that maintain their own wallet, which they use to buy server time. Money is obtained by the agent selling services. If demand exceeds supply the agents can spawn children that either survive or die depending on whether they can get enough business.
- Distributed markets are a way to implement peer to peer bond and stock trading, allowing Bitcoin to be evolve into a full competitor to the international financial system.
- The Ripple currency exchange is a way to implement a distributed currency exchange based on social networks.
This page also lists some smaller examples.
Many of the ideas underlying Bitcoin contracts were first described by Nick Szabó in his seminal paper, Formalizing and Securing Relationships on Public Networks. These pages were written by Mike Hearn. Contact him if you have an idea for a new type of contract. You can watch a video of a talk on contracts that was presented at the Bitcoin 2012 conference in London." (https://en.bitcoin.it/wiki/Contracts)