For example, let’s say we have side chain 1 (SC1) and side chain 2 (SC2). A transaction occurs on SC1. A node in SC1 broadcasts the transaction to nodes in the main chain to record this transaction. The same node of SC1 calls a function from SC2 with a proof. The function in the nodes of SC2 verifies the proof on the main chain. The function gets executed.
Blockchain-based smart contracts are proposed contracts that could be partially or fully executed or enforced without human interaction. One of the main objectives of a smart contract is automated escrow. An IMF staff discussion reported that smart contracts based on blockchain technology might reduce moral hazards and optimize the use of contracts in general. But "no viable smart contract systems have yet emerged." Due to the lack of widespread use their legal status is unclear.