Smart contracts on the Lightning network?

Remember me talking about Lapps on Bitcoin Lightning Network?
Well here the full post:
https://steemit.com/bitcoin/@sames/lapps-what-they-are-and-how-many-are-there-now
But I'll summarize the post for you.

Lapps are another name for Lightning apps and are kinda like Dapps. The Lightning network(LN) is kinda like a giant smart contracts for payments but utilizing that feature-apps can be built on the LN. LN nodes connect to these apps and maintain the payment in a decentralized structure. Every user can connect to the apps in a cheap manner. You in theory can run a LN node on your phone!

However in this new update:
https://www.coindesk.com/mit-testing-smart-contract-powered-bitcoin-lightning-network/
You can do more complex smart contracts on the LN now! :)

While the title of that post is a little misleading. Here what they are talking about!

They are actually referring to a new LApp development tool which allows for smart contracts to get executed instantly while seamlessly integrating with third party internet services. One example they give is that you could implement a futures contract on the lightning network, so Jim could bet $50 that bitcoin will hit $10k by Friday and if it does he would instantly get his money via the lightning network, with the futures contract enforced by a smart contract.
-reddit user dmar198

If you want to do this type of smart contract:

You and your counterparty would have to decide how to determine the price when you're setting up the contract. You'd probably use an exchange that has a digital way of presenting their prices to outside applications, or you might use an aggregate of several exchanges, but it'd all depend on how you and your counterparty design the off-chain part of the contract.

The important thing is how immensely this expands the ability of smart contracts that use lightning channels. We could already write contracts that trigger automatic actions -- like where if you pay someone a certain amount, their server automatically sends you a product (one implementation of this functionality is "IfPayThenThat" by Blockstream) -- but now we can write contracts where third party actions trigger a payment from your lightning channel, supposing you signed the contract ahead of time. So, for example, once the company ships the product, then your payment is automatically triggered. This vastly increases the abilities of bitcoin smart contracts in a dramatic way.
-reddit user dmar198

How is this accomplished?

By using Discreet Log Contracts.
The input that determines how to divide the funds locked in the contract comes from a trusted oracle. Oracles provide the connection between the blockchain and the real world, similar to other smart contract systems. There's (currently) no way around that - you have to trust the oracle will announce the correct value.

The paper already describes methods in which to mitigate the risk of the oracle not acting in good faith, for instance by using multiple oracles that have to agree (and the participants receiving their respective funds back if they don't).

There's an added benefit to the contract not being on chain. No one can actually see its existence from the public ledger which, for contracts you don't want to be known to the entire world, is a desirable feature.

The on-chain part of a discreet log contract is, similar to a payment channel, just a 2-of-2 multisig output.
-reddit user gertjaap

More decentralization of this type of L-contracts is being researched.

Also an erc20 type token standard can be built on the LN. I shall go more in depth on that one of these days. Also I going to combine these soon to be 3 posts into one bc they technically are about one subject Lapps :)