The way businesses contract with each other has remained pretty much the same for hundreds of years
Traditionally contracts are negotiated, drafted and agreed in a time consuming and costly manner, before being stored away in paper and usually only revisited only if a dispute arises.
Smart contracts can transform contracts as we know them into a very useful, valuable and dynamic business tool, that can help facilitate supply chains.
Smart contracts are digital expressions of contractual provisions that enable the automation of online activities that arise from, or are in connection with, the contract.
Smart Contracts are stored and maintained on a blockchain, meaning that no party unilaterally can control, or amend, the Smart contract, or the code that it contains. This enables Smart Contracts to be utilized as a trusted record of all contractual events accessible, on demand and in real time, to all relevant parties.
The potential for trade and the economy cannot be overstated. A contract that can connect to external data sources to responsively and efficiently monitor and take action in relation to automated fulfilment of contractual obligations can be of great utility across the entire commercial spectrum.
The way supply chains work has remained largely unchanged for over 200 years. Smart Contracts can help revolutionize Supply chains. Current Supply Chains are in urgent need of revamping. They are complex environments in dire need of simplification. There is high inefficiency as both vendors and suppliers are forced to constantly connect the dots on who needs what, when and how. Different players function as independent silos of information, which can be particularly problematic.
A large number of significant yet highly repetitive tasks further hinder how supply chains are run. A Blockchain facilitated system utilizing smart contracts can help solve many of these problems
Let us take as an example, a contract that contains an obligation to make payments when goods are placed in the warehouse, contractual obligations relating to quality, etc, have been met, and title transferred to the buyer.
A Smart contract could be used to manage the Transaction. When the consignments are delivered to the warehouse, there could be an inspection and certification by a nominated agency, or by the warehouse itself. A barcode could be scanned on each pallet as it passes inspection.
As soon as those scans are complete, the data they generate is uploaded to a blockchain, triggering a series of events including transferring ownership from the seller to the buyer, and transferring payments from the buyer to the seller. If all conditions of the contract’s terms are met, the entire process can take about 10 minutes or less. Payment will not be released until contract terms have been met.
A Blockchain makes the above possible. Since smart contracts run in environments in which they are executed exactly as written, they do not require approval at each step as long as pre-established conditions are fulfilled. The smart contracts would greatly speed up transactions and help eliminate errors. The whole transaction is then recorded on the distributed ledger shared by the parties.
This is an example of how smart contracts could help solve and streamline supply chains, particularly for cross border transactions. Utilizing Smart Contracts would increase transparency for participants along the supply chain, with real-time information being utilized by the Smart contracts (and recorded on the shared, distributed ledger) on the whereabouts of goods. All relevant parties would thereby have a single, trusted audit trail across a supply chain. This would help reduce the potential for human error, fraud, and other beaurocratic inefficiencies, and help make for more efficient supply chains.
Smart Contracts have the potential to reduce barriers to entry for smaller market participants. The Internet revolution was a Revolution of Information. The Blockchain Revolution is a Revolution of value. Smart Contracts on the Blockchain are helping to change the way that trade is done, and help organisations develop and fulfil contractual relationships.