According to blockchain and business experts from New York University, the efficiency of smart contracts in certain industries will be limited if implemented without IoT sensors.
Hanna Halaburda, an associate professor at Stern School of Business, and Yannis Bakos presented their research at the Unitize conference on July 10, focusing on the interaction between smart contracts and IoT sensors in enhancing business efficiency.
Smart Contracts Without IoT Sensors Have Limited Potential
Smart Contracts Democratize Business
This research examines how “smart contracts can democratize the business landscape” (i.e., benefiting all stakeholders), but it found that current implementations have flaws when the technology is used in isolation.
Halaburda explained that IoT is crucial for maximizing the benefits of smart contracts in trade:
She stated, “It turns out they solve one problem, but only partially. If we only add smart contracts, there will be no higher quality goods delivery.”
She used the example of contracts between fruit transport companies and retailers, explaining that smart contracts solve the issue of automatic execution but do not incentivize transport companies to ensure the quality of the fruit.
However, when IoT sensors are added to the process, smart contracts can increase detail or adjust payments based on the quality of the delivered fruit (e.g., storage temperature). Thus, neither party needs to trust the other to fulfill part of the agreement.
Ultimately About Legal Costs
Halaburda explained that the decision to implement smart contracts or traditional contracts depends on the legal costs in case of disputes.
“If legal costs are very low, then when the execution cost of smart contracts is high, it makes no sense to enforce smart contracts. […] In areas where [IoT] sensors need to be deployed, adding smart contracts adds no value.
She concluded that when legal fees for traditional contract disputes are typically high, the implementation of IoT sensors and smart contracts will have the greatest value.
Saving $300 Billion Annually
The latest report from Cointelegraph Consulting and VeChain also discussed the benefits of combining blockchain technology with IoT, indicating that it could save the food industry $300 billion annually over seven years. IBM has already provided FoodTrust services for Walmart, Carrefour, and large berry farms in California.
