{"id":729,"date":"2018-06-12T06:27:45","date_gmt":"2018-06-12T06:27:45","guid":{"rendered":"http:\/\/kusuaks7\/?p=334"},"modified":"2026-04-30T13:33:14","modified_gmt":"2026-04-30T13:33:14","slug":"blockchains-role-in-the-produce-supply-chain-part-four-smart-contracts-vs-off-chain-automation","status":"publish","type":"post","link":"https:\/\/www.experfy.com\/blog\/fintech\/blockchains-role-in-the-produce-supply-chain-part-four-smart-contracts-vs-off-chain-automation\/","title":{"rendered":"Blockchain’s Role in the Produce Supply Chain: Part Four–Smart Contracts vs. Off-chain Automation"},"content":{"rendered":"\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\tReady to learn Blockchain?\u00a0Browse courses<\/a>\u00a0like\u00a0Blockchain for Finance Professionals<\/a> developed by industry thought leaders and Experfy in Harvard Innovation Lab.<\/em><\/strong>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\tIn\u00a0Part One<\/a>,\u00a0Part Two<\/a>, and\u00a0Part Three\u00a0<\/a>of this series, we described approaches to traceability, the data and capabilities required for improving freshness and safety, and blockchain-specific capabilities. In this article, we talk about which automation belongs in a smart contract vs. being executed off-chain.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t

Automation and Smart Contracts<\/strong><\/h2>\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t

On-chain Smart Contracts vs. Off-chain Automation<\/strong><\/h3>\n<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\tA blockchain may contain smart contracts<\/a>1<\/a><\/sup>\u00a0that trigger and execute at key handoffs and decision points for each pallet or case of produce flowing throughout the end-to-end supply chain from farm to consumer. These can be used to automate key transactions and decisions. However, it is important to understand that storing data and running smart contracts on a blockchain is many orders of magnitude more expensive than using conventional computing resources.<\/a>2<\/a><\/sup>\u00a0Therefore, business applications will usually store most of the data and automation off-chain, using the blockchain only where it makes sense. Smart contracts will typically be used to encode mutually-agreed, high-level business rules and transactions, where multiple parties want full visibility and the ability to mutually validate the execution of transactions. Lower-level or \u2018behind-the-scenes\u2019 automation and algorithms will likely be executed off-chain. Thereby, the automation described below is likely to involve a hybrid of networked SaaS systems working in tandem with blockchain technology and smart contracts, rather than just blockchain-based smart contracts alone.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\tAs we are in the early days of development and deployment of full scale blockchain applications in the supply chain, people are still experimenting and discovering what data and logic belongs on the blockchain vs. off-chain. The picture will become much clearer over time. In the meantime, below we describe hypothetical divisions of labor (i.e. execution) between blockchain-based smart contracts and off-chain automation logic, based on what might make sense today and in the near future.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t

Freshness-related Smart Contract and Off-chain Automation Logic<\/strong><\/h3><\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\n\n\n\n
\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Example Smart Contract: Retailer\u2019s Acceptance<\/strong><\/p>\n

A smart contract between the retailer and grower\/ distributor might include one or more freshness thresholds specifying exactly how many days of shelf life are needed for each type of produce by time-of-year (potentially by location<\/a>3<\/a><\/sup>\u00a0or other factors as well). For example, there may be an \u2018auto-rejection level\u2019 threshold; all pallets with shelf lives below that level are automatically rejected, and a higher \u2018full-acceptance level\u2019 threshold, above which all pallets are accepted (contingent on passing visual inspection).<\/p>\n

Pallets with shelf life in-between the auto-reject and full-accept thresholds might be automatically accepted, but with the retailer paying only 85% of the full-shelf-life price. Or for those \u2018in-between pallets,\u2019 the contract may be set up to check inventory and forecast levels and if that particular item is in short supply, then it may accept those shorter shelf-life pallets. Alternatively, for \u2018in-between pallets\u2019 the contract may request the off-chain system to send all the relevant information (e.g. shelf life of pallets, current inventory levels, forecasted demand, etc.) to the responsible buyer or inventory manager at the retailer to make the decision. These are just illustrative examples: the actual business rules in the contract can be customized to meet the needs of both parties, just as the clauses in a traditional contract may be customized by both parties to serve their interests.<\/p>\n\n\n

\n\n\n\n
\n\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\tAt the retailer, smart contracts can semi-automate the acceptance process, assuring that only produce with adequate remaining freshness and safety is accepted. For determining freshness, a smart contract needs access to the data and capabilities described in the section above on\u00a0Data\/Capabilities Required for Improving Freshness<\/em>.\u00a0In this case, the calculations of remaining days of freshness would be done off-chain by the networked platform, while the smart contract on the blockchain might contain the specific terms of acceptance, such as minimum days of freshness required. Such a smart contract could be triggered, for example, when a pallet is received by the retailer for acceptance or rejection (see sidebar at right).\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\tSmart contracts do not eliminate the need for physical inspection for damage, as the temperature history does not reveal mechanical damage to the produce, nor discoloration<\/a>4<\/a><\/sup>\u00a0or other visual defects. Nevertheless, this type of semi-automation does accomplish several things:\n