How Smart Contracts is changing Supply Chain
This article aims to serve as a primer to how supply chain will be disrupted by Blockchain
A smart contract is a special protocol intended to contribute, verify or implement the negotiation or performance of the contract.In the context of blockchains and cryptocurrencies, smart contracts are pre-written logics which are stored and replicated on a distributed storage platform like blockchain which is run by a network of computers and can also result in ledger updates. If blockchains give distributed trustworthy storage, then smart contracts give us distributed trustworthy calculations.
It is one of the main functions which differentiates Ethereum from other blockchains. Vitalik Buterin, Ethereum’s creator kept smart contracts in mind while designing Ethereum. Anyone can now create a smart contract using the Ethereum Virtual Machine (EVM) -a programming environment for writing smart contract code- and can execute them on blockchains.Smart contracts allow the performance of credible transactions without third parties.
Smart contracts are the key which connects blockchains to the real world.They are the key to decentralisation and a trustless mechanism for transacting almost any kind of business through the blockchain including altcoin trades.
Smart contracts can function as ‘multi-signature’ accounts so that funds are spent only when a required percentage of people agree.They can also Store information about an application, such as domain registration information or membership records and can provide utility to other contracts too.
The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, one would go to a lawyer or a notary, pay them, and wait while he gets the document. With smart contracts, one simply drops a bitcoin into the vending machine (i.e. ledger). Moreover, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.
Smart contracts are special because they exist on the blockchain, one can program code that self-executes and no third party is required for it.This helps in saving a lot of time, efforts and money.And since there’s no need for any human to facilitate transactions, there is no chance of user errors or frauds.
Making supply chain more efficient with Blockchain
As businesses become more and more dependent on global supply chains for goods and services, the freight and logistics industry will pay a much more critical role. Currently, the industry is controlled by freight brokers who help to facilitate transactions of loads from shippers to carriers by adding a markup.Due to this, the costs of the carriers and of the downstream prices to the customers tend to increase.
Also, the traditional supply chains have relied on physical movement of large volumes of paper documents which may result in huge challenges in efficiency, tracking and theft.Very often, supply chains are hampered by paper-based systems reliant on trading parties and banks around the world physically transferring documents which can take weeks for a single transaction.
Blockchain can help to solve these challenges of efficiency, security, transparency and tracking by using smart contracts which are automatically triggered when predefined conditions are met. Smart contracts would help to eliminate or to drastically reduce the role of intermediaries.
A blockchain can provide secure, accessible digital versions to all parties in a single transaction and smart contracts can be used to manage the workflow of approvals and automatically transfer upon all signatures being collected.Implementation of smart contracts will allow the execution of defined events autonomously when the needed parameters are fulfilled. For example, automatic payment to a haulier after goods receipt.
By virtually guaranteeing the performance of often unknown suppliers, smart contracts will allow companies to bypass conventional ways of establishing trust.Companies would be able to save a lot of time and money through this.A wide range of supply chain transactions can be set up this way, including the delivery of raw materials or finished goods, payment for value-added services, transfers of copyrights and IP value and insurance payouts.
In a bigger picture, this scenario is an essential foundation for fully automated order calls, particularly in multi-stakeholder contracting.The Blockchain smart contracting approach is also interesting in light of the inhomogeneity of used IT infrastructure.
The usage of Smart contracts through the entire network clearly has the potential to transform supply chains into highly integrated and efficient smart supply chains in which supply streams can be stimulated virtually. It helps in the integration of physical processes and enables automation.The results are really effective which are complete end-to-end transparency and transformation of the supply chain into an agile cooperation network.
There’s a huge possibility to break down the existing information silos between members of the supply chain and to make it more efficient than ever.
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.