What Are Smart Contracts and How Do They Work?
In a world that is becoming extensively time-conscious and progress-oriented, traditional methods are gradually being replaced by innovative technological developments. Smart Contracts is one such development with the majority of users in the financial industry but fintech companies also extend its services to every other industry that involves complex payment terms on a regular basis.
Blockchain technology in logistics and supply chain ensures seamless processing of payments and operations. Smart contracts are programs within a blockchain ecosystem that works on the basis of pre-determined conditions to facilitate an agreement, transaction or operations. Smart contracts in logistics ensure higher security, efficiency and speed than traditional methods of dealing with agreements or transactions because there are no intermediaries involved.
Smart contracts blockchain involve creating a code for the terms and conditions of a particular process that needs to be carried out. For instance, a code is created for claiming insurance during a crisis and the terms and conditions are created in the form of a code. When users engage with the process, the data is collected and analyzed based on these pre-determined conditions and the process is halted, redirected or completed based on the requirements of the smart contract.
Why Smart Contracts are the Future of Transactions?
- Compliance: Every business is cautious about preventing risks. Compliance with rules and regulations is of prime importance and cannot be overlooked. However, ensuring compliance is a tedious task because the process has several stages and is complicated. That is why smart contracts in logistics are a game changer. Since smart contracts blockchain requires the fulfillment of pre-determined conditions, it ensures compliance, and only data that is acceptable is processed.
- Connectivity: Connectivity is a major challenge in processing business agreements and transactions. It requires dependency on multiple people and involves long hours of work and the availability of personnel to handle queries or complexities. Interestingly, smart contracts do not need any intermediaries to monitor or engage in the process because the contract has been programmed to be automatically fulfilled when the required conditions are met.
- Cost of operations: The cost of paperwork and intermediaries is huge in a business agreement or transaction. Blockchain technology in logistics and supply chain with the use of smart contracts reduce operational costs to a greater extent by eliminating paperwork and intermediaries. The entire process is digitised and automatically processed based on the fulfillment of certain conditions that were set prior to the initiation of the process.
How Will Smart Contracts Revolutionize Logistics?
- Transparency: Smart contracts are stored on a blockchain ecosystem which resembles a distributed ledger system where transactions and data are transparent to all the parties with access to the particular database. Thereby, all the terms and conditions are visible to its members and cannot be altered or manipulated without the notice of all the members involved. In a logistics firm, it provides complete visibility to truck drivers, shippers and other parties involved.
- Credibility: The transactions and data are stored in blocks and are chained to one another in chronological order. Therefore, it becomes almost impossible to modify or delete a particular transaction or piece of data without altering the entire chain of data. Thus, smart contracts in logistics provide credibility for every transaction and ensure smooth operations and payments between shippers, drivers and customers.
- Affordability: The biggest challenge in the logistics sector is the amount of paperwork and intermediaries involved at every stage of the process. Blockchain technology in logistics and supply chain with the use of smart contracts counter these challenges by efficiently digitizing the entire process and eliminating intermediaries as it can automate a process based on pre-determined terms and conditions. This reduces the cost of paperwork and intermediaries to a great extent.
- Accessibility: The greatest advantage of the blockchain ecosystem is that it is decentralised and not controlled by a single individual or group. Therefore, no member can tamper with the data or make transactions without the consent of other members. Moreover, since the transactions are stored in chronological order, it is easier for shippers, truck drivers or other members to revisit a transaction for reference or verification when necessary.
Let’s Wrap Up!
Fintech companies employ blockchain technology in logistics and supply chain for seamless payments and operations. Smart contracts in logistics can provide cost-efficient, faster and more productive results. It ensures compliance, connectivity and low operational costs at every stage of the process without the need for paperwork or intermediaries.
Axlerate is a unified platform for Logistics management, payments and services. Our solutions help to simplify tolls, fuel purchases, fleet expenses, loans, insurance, escrow, payments, truck booking, fleet management and the buying and selling of logistics products and services.