Deciding on Smart
criteria can help evaluate whether it makes sense to use smart contracts in a
given supply chain. Smart chains are warranted in the following circumstances:
- The current processes involve considerable manual intervention
and many intermediaries.
- The supply chain problem
cannot be solved by existing technology such as database management structures or
- Blockchains and smart
contracts would give the regulators more visibility over transactions, which in
turn could accelerate the cycle time and save costs.
criteria and blockchain-based solutions are detailed in a new research project
from Chain Business Insights titled “Smart Contracts in Supply Chains: Making
Sense of a Potential Game Changer.”)
say that you decide to automate through the use of smart contracts. How do you then
work with technologists to turn a physical paper contract into a smart
should not be ambiguous, so you need to ensure that the code matches the
written contract terms. Consider drawing a decision tree showing the logic of
how one might create a contract that could then be programmed. The starting
point might be: “Company A will
pay X amount of money to Company B when it receives a certain product or
service.” Then build specific terms into the smart contract’s code to
ensure enforceability. These terms might include the jurisdiction or governing
law, an indemnification provision and a potential arbitration requirement.
As one expert
recently observed, both the beauty and the biggest drawback of smart contracts
is that they specify terms unambiguously. It’s important to have some room to
maneuver and reinterpret contracts in the case of unforeseen circumstances; yet
changing the terms of a smart contract within its code is still a technical
challenge. To this end, technologists are exploring the use of escape hatches.
These can alter the terms of the smart contract or terminate the smart contract
— that is, if the situation warrants it and there is agreement among a
sufficient number of parties to make the change.
This is just one of the ways that smart contracts are still a work in progress,
but there are others.
While the transparency and accountability that blockchains afford are
compelling, supply chain participants may be reluctant to put their data on
blockchains because they are concerned about confidentiality. Zero knowledge
proofs may provide
a potential solution. In cryptography, a zero knowledge proof is a method by
which one party (the “prover”)
can prove to another party (the “verifier”)
that a given statement is true, without conveying any information apart from
the fact that the statement is indeed true. Participants can see much of the
transaction information, but they can also obfuscate and send information to
Intel’s SGX is a technology for application developers seeking
to protect select code and data from disclosure or modification. But it could
take time for these technologies to transition into prototypes ready for
exploration by supply chains and the various blockchain platforms.
Finally, it’s critical to ensure smart contracts correctly reflect user intent
and that they do not contain software bugs. Formal verification tools could
help solve the problem of bugs. These tools prove or disprove the correctness
of intended algorithms underlying a system with respect to a certain formal
specification or property using formal mathematical methods.
bounties” reward people for discovering vulnerabilities that could potentially
compromise a platform. As an added protection, bug bounty systems could be
created whereby the people making these discoveries are not themselves in a
position to compromise a platform.
Automation through the use of smart contracts could lower operational costs,
reduce administration costs and streamline workflows. Smart contracts are
already in production on blockchain platforms such as Ethereum, Hyperledger’s
Fabric and R3’s Corda.
However, much needs to be done before the benefits can be realized. Businesses
across all verticals need to be educated on the benefits of smart contracts.
Policy makers must be engaged to help build frameworks that address the unique
issues around smart contracts while fostering growth. Moreover, the supply
chain management industry needs to work together to agree on technology
standards and interoperability.