Smart contracts have limited efficiency in certain industries if they are not implemented in conjunction with IoT sensors, according to blockchain technology and business experts at NYU.
Associate professors from New York University’s Stern School of Business Hanna Halaburda and Yannis Bakos presented their research at the Unitize conference July 10 on the interaction between smart contracts and Internet of Things (IoT) sensors to improve business efficiency.
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Smart contracts make business more democratic
The study examined how „smart contracts will make the business landscape more democratic“, i.e. beneficial to all parties involved, however, it found shortcomings in the current application of the technology when used alone.
Halaburda explained that IoT is key to maximizing the benefits of smart contracts in the trade sector:
„They happen to solve a problem, but only partially,“ he said, „but what doesn’t happen, if we just add smart contracts, is a higher quality of delivery.
Using the example of a contract between a fruit carrier and the retailer, he explained that the smart contract solves the problem of automated execution, but does not encourage the carrier to ensure the quality of the fruit.
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However, by adding IoT sensors to the process, an intelligent contract can increase the level of detail or adjust payments based on the quality of the fruit delivered, such as storage temperature. As a result, neither party needs to rely on the other Bitcoin Millionaire to complete their part of the agreement.
It all comes down to legal costs
The decision to implement smart or traditional contracts comes down to legal costs at the time of discussion, Halaburda said:
„If the legal costs are very low, then it doesn’t make sense to implement smart contracts when they are expensive to implement. … For a region where it makes sense to implement [IoT] sensors, then adding smart contracts doesn’t mean adding more value.
When the legal costs for traditional contract disputes would normally be high, implementing IoT sensors and smart contracts has maximum value, he concluded.
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Savings of $300 billion per year
A recent report by Cointelegraph Consulting and VeChain also addresses the benefits of combining blockchain technology with IoT, suggesting that $300 billion a year can be saved for the food industry in seven years. IBM has already implemented FoodTrust, which serves Walmart, Carrefour and California Giant Berry Farms.