Ricardian contracts were initially proposed in the paper, Financial Cryptography in 7 Layers, by Ian Grigg in late 1990s. These contracts were used initially in a bond trading and payment system called Ricardo. The fundamental idea is to write a document that is understandable and acceptable by both a court of law and computer software. Ricardian contracts address the challenge of issuance of value over the internet. It identifies the issuer and captures all the terms and clauses of the contract in a document to make it acceptable as a legally binding contract.
A Ricardian contract is a document that has several of the following properties:
- A contract offered by an issuer to holders
- A valuable right held by holders and managed by the issuer
- Easily readable by people (like a contract on paper)
- Readable by programs (parsable, like a database)
- Digitally signed
- Carries the keys and server information
- Allied with a unique and secure identifier