The initial purpose of blockchain technology was to serve as an immutable and distributed ledger for storing currency transactions in a peer-to-peer network. However, the technology was also designed to support the storage and transactions of numerous data types, one of which are Smart Contracts.
Smart contracts are programmable and highly flexible digital contracts that can be recorded on and interact with Blockchain technology - thereby inheriting all the beneficial properties that are commonly associated with distributed ledger technology (DLT).
As a result of the Blockchain’s distributed nature, Smart contracts are an example of so-called peer-to-peer contractual agreements, meaning that the creation, the signation, and the execution of a Smart Contract are not governed by any third-party instances. Instead, the contract’s details regarding its creation, signation, and execution are stored programmatically onto the Blockchain - allowing the contract to be executed when certain predefined conditions are met. Therefore, the use of Smart Contracts allows contractual participants to cut out the middleman - irrevocably resulting in increased efficiencies and a reduction in costs.
Due to the immutable nature of the Blockchain, data cannot be altered once it has been verified and stored onto the Blockchain. This immutability provides all contractual participants with the guarantee that a Smart Contract will be executed transparently, according to the clauses that were stated in the contract at its time of inception. This transparency - along with their robustness and security - often make Smart Contracts the rationally preferred choice when engaging in peer-to-peer contractual agreements.
Smart Contracts have become increasingly more versatile and flexible, allowing them to be connected to various hardware data sources and any publicly or privately available Application Programming Interface (API). This allows Smart contracts to store the information provided by external data sources, and even govern the contract’s execution based on externally provided parameters and data. This flexibility and connectivity allow Smart Contracts to bridge the gap to another recent technological innovation: the Internet of Things.
The Internet of Things refers to any physical object that is connected to the Internet and is equipped with local processing power. In addition, when embedded with various sensory devices - such as temperature, vibration, and humidity sensors -, the technology allows to monitor and self-analyse the state of the underlying connected equipment. This has caused the Internet of Things to become the technology of choice for monitoring a wide variety of processes, one of which is industrial manufacturing processes.
The recent improvements in affordability, as well as the effectiveness of IoT technology, has led to wide-scale adoption – driving efficiencies in medicine, transportation and energy management. Management consulting firm McKinsey estimates that the total number of IoT-connected devices is projected to increase to 43 billion by the year 2023 .
This poses various opportunities to a wide variety of industries, including the logistics and transportation industry. More specifically, with Smart Contracts being able to communicate with external data sources and increasingly more physical objects becoming connected to the Internet, the combination of Smart Contracts with IoT devices poses an opportunity to drastically improve the traceability of currently existing global supply chains.