Smart contracts bringing the world economy online

North America’s decentralized transportation and logistics industry needs blockchain to reduce the cost of trust, and the number of potential use cases continues to proliferate as the technology develops, an expert told the Blockchain in Transport Alliance (BiTA) membership on May 9.

At the BiTA Spring Symposium, Agoric CEO Dean Tribble launched into a thorough, fast-paced discussion of the development of and potential for smart contracts in transportation and logistics.

Tribble has been working on the automation of business functions and transactions since the late 1980s, especially in the area of secure communications and payments, spending more than nine years at Microsoft as a Principal Architect from 2003 to 2012.

The ultimate vision for smart contracts, Tribble said, is to bring the entire economy of the world online.

“A smart contract is a contract-like agreement, expressed in code, where the behavior of the program enforces the terms of the contract,” Tribble said by way of defining the term ‘smart contract.’

The fundamental value proposition of a smart contract is that it reduces the cost of trust, according to Tribble. The documentation and verification and compliance procedures associated with establishing trust between entities who want to do business with each other – think of a freight broker processing bills of lading, rate confirmations, checking carrier safety scores, et cetera – are a pure cost. Establishing trust does not add value, but rather it protects value from being lost, Tribble argued.

In the global economy, establishing trust costs about 35 percent of GDP. Automating and decentralizing trust-establishing processes could increase global GDP by 5 percent and grow global trade by 15 percent, Tribble said, citing a recent World Trade Organization analysis.

“Blockchains provide high integrity to data and choices,” Tribble said. “A smart contract reduces the cost of creating arrangements with people that you can rely on. That’s the game-changer; that’s one of the reasons why people are so deeply excited about this.”

Transportation-specific use cases for smart contracts include driver credential verification (authentication); chain of custody transitions (data); payment in shipping transactions (currency conversion); automated (partial) payment release; automated accounts receivable loans for completed delivery; and links to associated financial transactions.

Those uses cases are interdependent and build on each other, though, Tribble said, so they have to be developed and implemented in a specific sequence.

“Until you do chain of custody, you can’t really do automated payment of delivery,” Tribble reasoned.

Trucking transportation is already massively decentralized, with hundreds of thousands of players – the permutations of all their customer and partner relationships quickly reaches astronomically high numbers. That decentralization drives very high costs of trust in trucking and trucking-related logistics services, but at the same time, results in an industry that is already structured to run a blockchain network of distributed nodes.

Fortunately, as Tribble pointed out, it’s not ‘all or nothing’ with smart contracts. The industry does not have to choose between total and irreversible automation or archaic, completely manual transaction processes.

“In a hybrid smart contract, the arrangement includes both code and prose,” Tribble explained. “The code portions are enforced by the smart contract system, while the prose portions are enforced by people.”

In a hypothetical example of a trucking carrier deciding how to route their assets through inclement weather in the Rocky Mountains, Tribble said that a weather ‘oracle’ might make the initial determination about the best route. An oracle is an agent that finds and verifies real-world occurrences and submits the data to the blockchain – it could be an RSS feed of ESPN reporting a basketball game score, or, in this case, a severe winter weather warning issued by the National Weather Service.

A smart contract that helps route trucks and ensures that risk and efficiency are being balanced correctly might take an input from a weather oracle, but then also include a hook to a decentralized community of weather experts, one of whom would earn micro-compensation for checking the automated decision and either approving it or modifying it.

“In 99 percent of cases,” Tribble said, “the automated system will make a decision and it will be fine, but in that one case out of 100 where it matters, or where ‘I saw this 20 years ago, what’s really going is this,’ he can make the call as the expert and make an exception. Now all those human audit processes that said the package took longer because John made the wrong call – now we only have to engage that process in one out of 100 shipments instead of all of them.”

But Tribble said that blockchain developers have aspirations that go even beyond hooks to individual experts.

“I want to go to a worldwide community of 1,000 weather experts, and they’ll vote,” Tribble said. “Now I have no moral hazard” associated with relying on one person’s potentially biased or compromised judgment. Tribble said that the blockchain industry already has projects like that where, for example, risk analysis for loans is crowd-sourced and produces better and less biased results.

Tribble ended his talk with a series of axioms about why private blockchains are not the answer: they don’t leveraged shared services and resources; they don’t leverage the reduced cost of trust; and they don’t enable combinatorial growth across industries.

“The diverse, vibrant world economy needs high integrity computation, a security model that works for software components, broad scope and interoperability with other chains,” Tribble concluded.

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.

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