Blockchain and Smart Contract Blockchain Blockchain

Blockchain and Smart Contract

Blockchain

Blockchain technology functions like a database, holding information in a digital ledger comprised of individual blocks, with each new transaction adding to the chain. Unlike static databases, blockchain has no centralized point for storage; instead, this information is distributed throughout the chain, and every adjustment, addition, deletion, or transaction is recorded in detail in real time. As soon as a new block is approved as valid, it joins the chain. Every chain participant has full visibility to the entire chain. Through the blockchain platform, information is widely distributed, transparent, immediate, and decentralized. This secure, distributed technology paved the way for secure digital currency and is now unlocking the potential for new anti-counterfeiting measures and product protection possibilities.

When it comes to combating counterfeiting, product protection strategies often start with examining and securing the supply chain. With blockchain, a verifiable chain of custody makes it much easier to detect where the gaps in the supply chain occur. A product or element within the product is registered on the blockchain immediately when it is manufactured by assigning a barcode, serial number, or cryptographic seal. It can then be tracked from manufacturer to distributor to retailer with this unique product ID creating the link between that physical product and its digital marker on the blockchain. With each handoff or checkpoint, the blockchain updates its digital ledger to verify the product through every step of the supply chain. When product shipments disappear or move through an unauthorized dealer, the misstep can be detected and pinpointed within the supply chain by reviewing the blockchain.

Counterfeiting is damaging to company brands, profits, and reputations as sub-standard products and intellectual property are presented to consumers as the real thing. By unlocking the ability to track items individually and maintaining an ironclad ledger that can’t be tampered with, blockchain has the potential to be a useful tool in verifying the authenticity of products in multiple industries.

In connecting the physical product with the blockchain, a multidisciplinary team of researchers at Michigan State University is exploring the revolutionary application of partnering blockchain with nanotechnology and DNA, or “blockchain-nano-DNA,” as Dr. Evangelyn C. Alocija of the Department of Biosystems and Agricultural Engineering calls it. Initially, researchers considered the possibility of gold, silver, or magnetic nanoparticles as blockchain labels; however, these aren’t unique, which wouldn’t support an anti-counterfeiting system. MSU’s novel approach combines nanoparticles with DNA sequences to create and print a unique serial code for a product. This code can be embedded or printed, and later revealed applying a chemically based kit, which causes the DNA-nano code to shine under UV light. With this approach, products can be verified where digital coverage is lacking in the blockchain.


Smart Contract

The blockchain has many other applications. One of the most interesting is in creating and managing smart contracts—unique assets on the blockchain that can be used to establish, manage and deliver on agreements between different parties. A smart contract is a piece of code that exists on the blockchain. This smart contract can be used to define almost anything about the relationship that exists between supply chain parties, it could state the cost of manufacturing items as part of a specific order, timescales between order, shipping and receiving, penalty and bonus clauses, payment terms for settling invoices. Most details that can be written into a standard operational contract can also be recorded into a smart contract, making smart contracts ideal virtual documents to operationally manage dynamic supply chain relationships.

A Supply Chain Smart Contract is not the same as a Legal Contract. A legal contract sets up the high-level agreements and contractual relationships between two supply chain organizations, the smart contract is an operational tool that ensures lower-level, specific agreements and arrangements are being met. Smart Contract is not a replacement for Regular Contract, a regular legal contract is still needed to create high-level relationships and agreements between parties. Regular contracts are useful and the established way of doing things, but they do have limitations, it’s very difficult to track ongoing performance and there’s often a lot of filler language and legalese to get through. With a smart contract, it’s easier to define and agree the exact, day-to-day requirements and targets to see if they’re being met in the supply chain. They’re most effective as operational agreements for supply, manufacture, logistics and related areas. Smart contracts have several other benefits for supply chain managers: No need to send around large amounts of paper documents as everything is virtual, no delay for long transfer, review and sign off processes associated with traditional contracts, no fraud as smart contracts have a complete audit trail of all changes and smart contracts are available to all parties via a blockchain ledger system. Smart Contracts can automatically Update Themselves, Smart Contracts can react to inputs from elsewhere, and are automatically triggered when specific factors come into play. For example, a supply chain manager could set up a contract for a particular order and put a payment into escrow. When the goods are received by the retailer’s warehouse, the smart contract is updated and the funds are automatically released to the manufacturer. Anyone with the necessary permissions can view a smart contract, as they are held on a central, distributed ledger. This means all relevant supply chain stakeholders can view all smart contracts at all times. They can also see the criteria for the contract, how close it is to being fulfilled and the history of the contract. Smart Contracts are extremely secure from tampering, for several reasons: Any changes to the smart contract are captured in a historic audit record, so people can see how the contract has changed over time. Smart contracts are part of a distributed ledger, meaning that all the technology involved with processing that ledger need to agree on the changes, meaning one party cannot typically change a contract by itself. Updated versions of the ledger are supplied to all parties any time a change is made, making it easy to track and agree alterations. Smart Contracts can be negotiated directly, one of the greatest benefits of these types of operational contracts is that they don’t need a middleman like a lawyer. Instead, two organizations in the supply chain can directly create an operational agreement between them, once the terms of the contract are met, the contract is considered fulfilled.

Supply chain smart contracts are still in their infancy, but the technology is developing quickly. And many large organizations are already using smart contracts in their supply chains.