By Robert Alberghine, CEO of Global Smart Commodity Group
For the past few years, the American supply chain has been at the forefront of many consumers’ minds. In our day and age, strategies that can be implemented to optimize complicated global processes are greatly welcomed. Take the supply chain: when the pandemic began and industries were constrained in their business practices, new ways to keep business and revenue flowing were explored. In addition, emerging technological solutions came to the forefront, such as grocery delivery services like Instacart and Amazon Fresh, which have gained prominence as a result.
One such practice was the adoption of smart contracts within the commodities trading market, whereby a program that automates agreements between buyers and sellers is stored on the blockchain. The automated execution enables all participants to achieve desired outcomes immediately while improving the supply chain workflow.
How do smart contracts work? What’s the value?
Smart contracts are carried out on a blockchain network, having one action of a trade complete thereby triggering the next action to commence. By its very nature, this process ensures transparency, traceability, and trust. Blockchain removes the need for intermediaries, and eliminates the delays and fees associated with middlemen. It also removes the inherent risk of dealing with a third party. But it goes farther than that. Blockchain can help companies realize the digital supply chain by providing a “single version of the truth” for the entire supply chain. It’s more secure, holds more documents, and has become the go-to location for businesses and individuals to store electronic photos, documents, and even videos with relative ease.
The smart contract’s role is to automate and simplify trade actions. The algorithm analyzes both ends of the contract, and if there are components that don’t match, the transaction will be blocked from going through on the trading platform. The value lies in what the blockchain adds to the equation. Blockchain can help companies realize the digital supply chain by providing a “single version of the truth” for the entire supply chain. This creates a breeding ground for safe and precise commodity transactions by allowing both parties visibility to the same chain of custody.
Forging flexibility using the blockchain
Transparency in the commodities market is like having an apple a day: it keeps the fraudulent commodity doctors away. Having commodities traded on the blockchain erases the “trust then verify” mentality that both parties transacting in the market have adapted. The use of the ‘smart contracts’ created by blockchain technology allows for the undeniable proof of the origin of any product produced or traded anywhere in the world. By logging the origin of production, there is no longer ‘trust and verify’, it becomes validation or nothing. From the producers perspective, verification of the goods they are producing and maintaining the provenance of the data becomes an essential tool in the supply chain.
Flexibility and new possibilities come from farmers using blockchain technology to trade their products. An acronym to remember the types of new possibilities available to them is SMORES. This is where the commodities trading system built on blockchain technology allows for more safety (S), money (M), opportunity (O), reach (R), elasticity (E), and simplicity (S). Outbreak issues or mishaps are quickly traceable on the smart contract, providing a safety net for both the buyer and seller. For this reason, the farmer can earn the maximum profit from their transactions and the buyer knows exactly what they are paying for. Sellers have direct relationships with buyers on the trading platform, allowing them both to capitalize on new opportunities in a matter of moments and not requiring a liaison to conduct business between both parties at a high fee. The ease of use on the direct platform creates an elastic economic environment for buyers and sellers to locate the best transactions. And because the smart contracts do all the heavy lifting for the buyers and sellers, the system in place is as simple as can be.
Having the SMORES processes in place helps to alleviate traditional risk in the supply chain, makes the transaction process better for buyers and sellers alike, and provides the best product to the end users. Producers having more flexibility and alternatives will naturally lead to a healthier supply chain.
Supply chain enhancement is on the horizon
The system of yesterday was trust, then verify. However, the paradigm has shifted to where the leading commodities trading principle is a “verify then trust” model. More standardization leads to fewer errors haphazardly occurring, especially when many transactions are occurring simultaneously
Conflict-driven variables such as disease and war—as we’ve seen with COVID-19 and the Russo-Ukrainian War, respectively—will have lesser impacts on the strength of the global supply chain. Reinforced supply chains utilizing the value of blockchain technology and smart contracts will mean that global or regional events have less impact on the reliability of exchanging commodities. A commodity trading platform that incorporates values that benefit the interests of buyers and sellers will help to establish a more reliable, more trusted, commodities economic ecosystem.