Blockchain and Smart Contracts are Redefining Commerce and the Supply Chain

Posted by Land Link on Oct 3, 2018 2:24:42 PM

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At its core, blockchain is attractive for global trade professionals because it can be used to create a completely secure record of every step in a given business process. Whether one speaks of applications related to finance, operations or logistics, blockchain’s ability to execute encrypted actions that include identification of the parties, authentication of a transaction and the time-stamping of blocks in a chain has a truly universal appeal. In this weeks blog we're going to explore blockchain technology in the supply chain and how this technology has changed international commerce. Blockchains have their problems, but they are rated undeniably faster, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them. Blockchain offers the greatest potential for international trade when three factors are present: a contractual agreement, clearly defined rules that govern the agreement and finally, a transaction that involves a monetary exchange. All of these are managed by smart contracts within the blockchain.

Smart Contracts

In 1994, Nick Szabo, a legal scholar, and cryptographer realized that the decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service. Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way. In a smart contract approach, an asset or currency is transferred into a program and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof. In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability. Basically, the smart contract knows when obligations of one party have been filled to the point they should be automatically paid in full or in part depending upon the terms of the contract.


Suppose you rent an apartment from me. You can do this through the blockchain by paying in cryptocurrency. You get a receipt which is held in our virtual contract; I give you the digital entry key which comes to you by a specified date. If the key doesn’t come on time, the blockchain releases a refund. If I send the key before the rental date, the function holds it releasing both the fee and key to you and me respectively when the date arrives. The system works on the If-Then premise and is witnessed by hundreds of people, so you can expect a faultless delivery. If I give you the key, I’m sure to be paid. If you send a certain amount in bitcoins, you receive the key. The document is automatically canceled after the time, and the code cannot be interfered by either of us without the other knowing since all participants are simultaneously alerted.

Making the supply chain more efficient with Smart Contracts and Blockchain Technology.

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.
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 hauler 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.

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. To stay informed subscribe to our blog

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Topics: Supply Chain Management, Industry Trends