Smart Contracts: a Few Tips to Avoid Being Outsmarted

• Citation: Vol. 6 No. 1
• Publication year: 2023

[Page 41]

William L. Carr and Henry M. Grabbe ^*

In this article, the authors lay out a basic understanding of the relationship between smart contracts and Internet of Things devices and identify a few tips to help avoid some of the potential risks of integrating smart contracts into a business.

Proponents of digital innovations such as blockchain, the Internet of Things ("IoT") and smart devices have hailed the introduction of such technology as the Fourth Industrial Revolution. When used together, they may create self-executing "smart contracts" for a variety of transactions. Smart contracts do not need to rely on IoT devices, but when they do, these devices are critical to the system, most importantly because they collect and transfer the transaction-related data that triggers the execution of the contracts. But how is that data verified, and what happens if the IoT devices are wrong?

This article lays out a basic understanding of the relationship between smart contracts and IoT devices and identifies a few tips to help avoid some of the potential risks of integrating smart contracts into a business.

What Is a Blockchain?

A blockchain acts as a distributed and immutable ledger for recording transactions including those involving smart contracts. Businesses most often use permissioned blockchains, which allow only authorized users to access the blockchain on a shared network and add data blocks, such as transactions, to it. There is no single "master copy" of the blockchain, but everyone can be confident that their copy of the blockchain is accurate because when one participant adds a transaction to the ledger, it is visible to all others on the...