Paul Valencourt - Blockchain Quick Reference

The most immediate advantage of smart contracts is that they reduce the labor and pain involved in even successful and faithfully carried out agreements. Take for example, a simple purchase order and invoice between companies. Imagine a company called FakeCar Inc. that decides they need 1,000 wheels from their supplier, Wheelmaster. They agree between them that each wheel will cost $20, with payment made when the wheels are delivered to FakeCar. At the beginning, the wheels might be shipped by freight, passing through multiple hands on the way to FakeCar. Once they arrive, FakeCar would need to scan and inspect each wheel, make notes, and then issue a check or wire transfer to Wheelmaster. Depending on the distance involved, the wheels may be in the custody of multiple companies: a trucking company, intercontinental shipping, another trucking company, and finally FakeCar's manufacturing facility. At each stage, there is a chance of damage, loss, or misdelivery. Once delivered, FakeCar would need to issue a transfer to cover the invoice. Even if all goes well, this process can take weeks. In the meantime, both FakeCar and Wheelmaster have to worry whether they will get their wheels or their money, respectively.

Now let's look at how this process might work with smart contracts:

1. FakeCar issues a purchase order on the blockchain for 1,000 wheels at $20 a wheel, valid for 1 month.
2. Wheelmaster issues a shipping request from their suppliers to deliver in one month, and accepts the purchase order.
3. FakeCar funds the purchase order in a smart contract escrow; Wheelmaster can be assured that they will be paid if the wheels arrive.

1. Wheelmaster sees that funds are available to pay for the wheels, ships with a company that tracks each step on a blockchain, and accepts the terms of paying for any wheels that are lost. They (or their insurer) also fund a shipping escrow contract with enough money to cover the event of lost shipping. The contract will automatically refund the shipper once FakeCar signs off on the receipt.
2. The wheels are shipped and delivered, FakeCar's escrow is released, and the insurance bond returns to the shipping company. This happens the moment FakeCar registers receipt and the shipping company signs off on the change in custody.

In this scenario, payments and insurance can be verified and handled instantlyeven across international boundaries, and across cultures and languagesif all the parties participate in a blockchain-based ecosystem of smart contracts. The result is a great increase in the certainty of outcomes across all parties, and a subsequent increase in efficiency. For instance, if Wheelmaster can be certain that their invoice will be paid, then they can make business decisions with vastly more efficiency.