Guest Author, Jack Shaw, Innovation and Change Management Strategist
Imagine this all-too-common scenario: A shipment of cotton from Texas arrives at a port in China. The buyer inspects the merchandise before taking physical possession of it. The shipment then passes through customs, a broker handles the paperwork, and the buyer pays any duties required. Once the merchandise is out of customs, the buyer takes legal possession of it and initiates payment to the seller for the product and to the transportation carrier for its freight services. All this takes about 10 business days—assuming there are no variances from the purchase contract.
Now imagine this same scenario, but with smart contracts—applications that replicate and execute all the provisions of a standard legal agreement and its associated terms and conditions. When the ship arrives, the cotton is unloaded, and the buyer scans a barcode 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 filing the customs declarations, paying any necessary duties, transferring ownership from the seller to the buyer, and transferring payments from the buyer to the seller and the carrier. If all conditions of the contract’s bargained for exchange are met, the entire process can take about 10 minutes or less.
The latter scenario is already a reality. Although the concept of smart contracts has been around for decades, it’s only thanks to the advent of blockchain—which creates immutable records of each transaction shared by multiple parties—that every provision can be automatically executed and verified along the way. 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 potential impact on cash flow and working capital management alone is huge—not to mention that smart contracts would greatly speed up transactions by eliminating redundant error checking. In the logistics industry alone, blockchain verification and automated execution driven by artificial intelligence (AI) could free up some of the $140 billion tied up in payment disputes every day and save the industry an estimated $50 billion. (1)
Use Cases Across Industries
The use cases for smart contracts are hardly limited to logistics. Certified Origins is using the Oracle Blockchain Platform (OBP) to verify the authenticity of its Italian extra virgin olive oil and to streamline billing and purchase orders. The company implemented smart contracts via blockchain to establish commercial terms and give parties access to an immutable record of their agreements—reducing delays along the supply chain while eliminating contract-related disputes and execution errors and increasing trust and collaboration along the supply chain.
“We believe that buyers and growers deserve a world in which authenticity and quality are not only valued but verified,” explains Andrea Biagianti, Chief Information Officer, Certified Origins Italia Srl. “Managing traceability with blockchain technology is the logical progression of the whole traceability process for our Bellucci Premium Extra Virgin Olive Oil. We are using Oracle Blockchain to track shipments of our EVOO from our bottling facility in Italy to the port of arrival in the US. OBP easily integrates with our partners’ systems, and we can create smart contracts between supply and distribution actors, thus reducing operational costs.”
In the healthcare industry, multiple smart contracts between payers, providers, and patients could similarly streamline the highly complex claim and payment process while putting patients in complete control of their medical data. According to research from the Chamber of Digital Commerce, smart contracts and blockchain may be used in clinical trials to successfully link patient data across different organizations. The organization, with the support of the Smart Contracts Alliance, has identified 12 potential use cases for smart contracts including digital identity, securities, post-trade processes, mortgages, and land title recording.
What’s Next for Smart Contracts on Blockchain?
While many smart contracts are operating on the public blockchain Ethereum, significant implementations will likely take place on more secure and trusted permissioned blockchains that businesses and industries are setting up worldwide. To create these private blockchains, organizations need an open platform and enterprise-grade infrastructure such as OBP. With its pre-assembled components and templates for setting up and implementing smart contracts, OBP can greatly reduce deployment of new blockchain solutions. Enterprises can readily benefit from a blockchain-as-a-service (BaaS) model to provide the speed, scalability, computational power, and interoperability needed to support the blockchain-enabled capabilities of smart contracts.
Smart contracts are an exciting development that would not be effective without the use of blockchain to ensure that contract terms automatically execute if all parties meet agreed-upon conditions. They have the potential to revolutionize multiple industries, freeing up capital and giving legal departments around the world an opportunity to focus their talents on strategic initiatives and complex contracts and litigation instead of routine contract enforcement that may be open to dispute.
To learn how Oracle Blockchain Platform and Oracle Blockchain Applications can speed your blockchain development and streamline your business processes, visit Oracle’s Blockchain page.
About the Author: Jack Shaw, co-founder, Blockchain Executive
Jack Shaw is an innovation and technology strategist, author, and thought leader who prepares leaders for digital transformation — managing the strategic business impacts of current and emerging technologies such as AI, blockchain, 5G, Internet of Things, and 3D printing.