What is a Smart Contract?

A smart contract is a self-executing agreement in which the terms of the contract are written into lines of code. ?Smart contracts use distributed ledgers like blockchain to document and validate contract transactions in a secure, transparent manner without the need for oversight by a central authority.

One of the main advantages of smart contracts over traditional contracts is their ability to automate each step of a contract’s execution when predetermined conditions are met. In business, smart contracts are used to:

• Automate financial transactions.
• Create and manage decentralized identity and access control systems.
• Verify ownership of a digital or physical asset.
• Track the movement of goods and verify their authenticity and ownership at each step of a supply chain.

The idea of smart contracts were first proposed by computer scientist and legal scholar Nick Szabo in the mid-1990s. Szabo envisioned a system in which contracts could be self-executing, using computer code to enforce the terms of the contract. It wasn’t until the wide-spread use of blockchain distributed ledger technology, however, that the concept of smart contracts really started to catch people’s interest, especially in industries such as finance and supply chain management.

Here is an example of how a smart contract could be used in supply chain management:

• A supply chain manager asks their IT department to create a smart contract that documents the movement of a commodity from a supplier to the manager’s warehouse.
• Product developers use Solidity to write code that specifies the parties involved, the terms of the contract and the conditions under which the contract will execute.
• The smart contract is deployed on an Ethereum blockchain, and each party involved in the supply chain is given access to the contract’s address on the blockchain.
• As the commodity moves through the supply chain, the smart contract documents the transaction, verifies the information recorded on the blockchain and ensures the conditions of the contract are being met.
• If the conditions are met, the smart contract executes the contract’s pre-defined if/then statements.
• If any of the conditions in the contract are not met, the smart contract triggers a predefined action, such as alerting relevant parties or preventing the commodity from moving forward in the supply chain.
• Once the commodity reaches the supply chain manager’s warehouse, the contract initiates payment to the supplier.

By deploying a smart contract on a distributed ledger like blockchain, all parties involved in the supply chain have access to a secure and tamper-proof record of the transaction, ensuring that information is always accurate and up-to-date.

If at any time during contract execution an involved party wants to check the status of the contract, they can use a client application or web interface to call a function on the contract that will return the data they are interested in. The function call is broadcast to the network, and the data will be returned to the involved party if the call is successful.