A smart contract is a digital contract stored on a blockchain that can be automatically executed when predetermined terms and conditions are met.”
A blockchain is a decentralized way of keeping records by anyone without any need for central authority. This type of contract effectively eliminates the need for a third party to determine when a contract is to be executed. This is because a block-chain -based system is considered “trustless” since participants do not need to know, or trust, each other or a third party for the system to function.
For all participants to be immediately certain of an outcome, smart contracts are used to automate the execution of an agreement without time loss or an intermediary’s involvement. When predetermined terms and conditions have been met and verified, a computer executes the necessary actions. Such actions can include registering a vehicle, issuing a ticket or invoice, sending notifications or releasing funds.
By definition, all smart contracts are on blockchain. Within a typical smart contract, the participants can enforce any stipulations they feel are necessary to ensure the task will be completed satisfactorily.
In order to establish these terms, they must determine how transactions and their data are represented on the blockchain. The participants must also agree on the rules that govern such transactions and explore all possible exceptions. Finally, a framework must be defined specifically for solving disputes.
Once all of these stipulations have been met, the smart contract can be programmed by a developer. Recently, more and more organizations are providing templates and online tools to simplify the smart contract process. When a transaction is completed, the blockchain is updated.
There is a myriad of different ways to use smart contracts. Some examples include:
In simple terms, think of a smart contract like a vending machine: You want something, have the currency to afford it, put in your money and out comes the candy or drink you desire. There is no middleman or third party between you and the product you are purchasing. Smart contracts function in a manner similar to this, but with more variables and options than the basic vending machine.
In the traditional sense, smart contracts are not actually “contracts.” However, once they are executed they cannot be changed and are generally enforceable as long as certain conditions are met.
These conditions include:
If any of the components of these conditions are lacking, the smart contract is not legally enforceable, but may still be executed. Some legal challenges facing smart contracts are:
In short, the answer is yes, blockchain is the future of supply chain. Because of blockchain’s ability to track and record every transaction, it has proven to be a vital part of a properly functioning supply chain. Blockchain has many uses including tracing, efficient delivery, streamlining coordination through the supply chain, batching/recall information, to name a few. According to the World Economic Forum, the integration of blockchain can help reduce supply chain barriers and improve sales by nearly 15%.