What's a smart contract (and how does it work)?

Smart contracts are potentially one of the most useful tools associated with blockchain, and they can enable the transfer of everything from bitcoin and fiat currency to goods transported around the world. Here's what they do and why they're likely to gain traction.

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Over the next several years, the massive growth in IoT connected devices could spur greater use of smart contracts. That's because a substantial portion of the estimated 46 billion industrial and enterprise devices connected in 2023 will rely on edge computing, according to Juniper research. As a result, addressing standardization and deployment issues will be crucial.

Smart contracts could offer a standardized method for accelerating data exchange and enabling processes between IoT devices by removing the middleman: the server or cloud service that acts as the central communication spoke for requests and other traffic among IoT devices on a network.

"Fundamentally, the idea is you don't have a central agent – no one approving and validating every single transaction. Instead, you have distributed nodes that participate in validating every transaction in the network," said Mario Milicevic, a member of the Institute of Electrical and Electronics Engineers (IEEE), a leading authority on technology innovation that has more than 500,000 members.

Blockchain ledgers decrease the time required to complete IoT device information exchange and processing time.

"It could be in an automotive manufacturing plant. As soon as a certain part arrives, that part then communicates that to other nodes at that destination, which would agree that part arrived and communicate that to entire network. The new node would then be allowed to begin doing its work," Milicevic said.

The rise of edge computing is critical in scaling up tech deployments, owing to reduced bandwidth requirements, faster application response times and improvements in data security, according to Juniper Research.

Blockchain experts from IEEE believe that when blockchain and IoT are combined they could actually transform vertical industries.

While financial services and insurance companies are currently at the forefront of blockchain development and deployment, transportation, government and utilities sectors are now engaging more, due to the heavy focus on process efficiency, supply chain and logistics opportunities. And that's expected to combine to make smart contracts more ubiquitous in the years ahead.

Copyright © 2019 IDG Communications, Inc.

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