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Like every wave of buzzwords, the reality is usually different from the hype. Sometimes reality is better, and sometimes it's disappointing.
Blockchain has been riding this curve -- particularly in the IoT space, where smart contracts use cases can be implemented to facilitate the sharing of services and resources in a distributed network.
They're talked about, but just how ubiquitous are they?
"Smart contracts are everywhere, and there's a lot of demand for smart contract capability," said Martha Bennett, analyst at Forrester Research. Implementations range from comparatively simple triggers, such as taking actions if temperatures detected by IoT sensors in a given environment change, to automating complicated rules, she added.
IoT smart contracts aren't limited to a single vertical; they're popping up across various industries -- from entertainment to utilities to advertising -- offering benefits that range from ensuring transparent and timely payments to meeting power demands to reducing digital fraud.
Their true value can be calculated when real-world smart contract use cases are taken into account. Here are three companies that have used blockchain to support IoT smart contracts -- and their reported promising results.
Three industries using blockchain-based smart contracts
IoT smart contracts in entertainment
Fiction Riot's platform, Ficto, is a streaming service that pays royalties and uses blockchain to ensure transparent payments. Built on Dcore, an open source blockchain environment created by the nonprofit Decent, the smart contract component of Ficto includes the agreement to pay, as well as the rates and payment methods.
"We want to ensure every artist is provided an opportunity to earn meaningful compensation for content and saw an opportunity to do this by leveraging blockchain," said Mike Esola, CEO and co-founder of Fiction Riot.
By recording transactions over blockchain's secure and encrypted platform, royalties can be tallied and paid in near real time. Plus, he explained, it would have been next to impossible to achieve the same functionality with older technologies, which are good for short-term compensation, but "horrible" for long-term artist compensation, because they may never get properly compensated.
A "rigid class structure" has emerged for artists and upward mobility is blocked by compensation tiers where "the very few retain the majority of power," Esola explained. Now, blockchain serves as a secure ledger that automates accounting and operations at scale, he said, adding that this enables fairer compensation of individuals involved in creative projects, such as films.
IoT smart contracts in utilities
In the increasingly complex world of electricity supply and delivery, solutions provider Virtual Force is working with utility companies to ensure the many transactions involved in moving electrons -- and paying for them -- is as seamless as possible.
Virtual Force helped startup Evolve Power create a blockchain-based platform to meet a specific challenge: help electric utilities meet peak power demands, especially when renewable energy is involved. While a significant portion of its customers is willing and able to reduce their consumption at peak times, it historically involved manual methods of operating and accounting for these changes was slow and inefficient.
To solve the problem, Evolve Power's demand response management system uses IoT, AI and blockchain, said Waleed Nasir, head of product development at Virtual Force. At the heart of the system, self-enforcing digital smart contracts automate demand response in concert with a predictive rules engine. In a typical scenario, IoT enables the integration of solar panels at residences via Smart meters. APIs associated with the meters then enable the demand response system to read the energy capacity and signal withdrawal to the grid.
"Smart contracts are needed to enable an automated, secure and timely demand response management flow. The distributed ledger technology ensures the transactions are verified, recorded and secured for bookkeeping and management," Nasir said.
Smart contracts in advertising
MetaXchain is an ad tech company focused on reducing digital ad fraud by using IoT and blockchain in digital advertising. CEO and founder Ken Brook said the company sees blockchain as the technology that can "anchor identity" of individuals and add value to decentralized, community-governed systems.
What does a smart contract use case have to do with advertising?
"We created the adChain Registry, which is a token-curated registry of community-approved premium domains," he explained. The token-curated registry uses smart contracts to allow community members to apply domains to be listed on the registry, challenge fraudulent domains in order to remove them from the registry and govern the network in a decentralized manner.
All three companies described the experience of getting up and running on blockchain-based smart contracts as straightforward. For Fiction Riot's Esola, selecting a vendor was the first step. "There are a lot of blockchain companies out there. Most of them are designed to automate transactions related to crypto, real estate and healthcare," he said. Connecting with Decent "was a needle in the haystack for us."
In addition to APIs, Fiction Riot needed to develop start-to-end processes for artists, from e-signing their agreement to the money being deposited into their account. Users start with a DocuSign agreement on their phone, which triggers a dynamic set of calls to both Ficto and Decent. Decent records views per episode via its encrypted ledger, Esola said, and the automated ledger then directs payments by pulling from a digital wallet company that contains users' confidential ACH bank data.
When it comes to savings, he said it's hard to quantify the labor involved because the whole project involved multiple elements. "It would be a lot easier to measure if the blockchain integration was the only thing on our plate, but we also had to create a consumer app, a cloud-based toolbox for artists and an automated submission process for content curation," Esola explained.
Evolve Power, which has been piloted by about 20 utilities, also reported smooth sailing, Virtual Force's Nasir said. One major challenge, he noted, has been that utilities usually act slowly when adopting new technologies.
"Educating industry leaders about the viability of smart contracts is going to take time," he said. Similarly, rolling out a demand response management system at scale requires reintegration of several other systems to enable the technology end to end. "The biggest hurdle in implementing blockchain solutions is the surrounding ecosystem that needs to integrate with the solution," Nasir explained.
MetaXchain's Brook said his big takeaway is the importance of UI and UX. "We realized the importance of great usability. Without these essential components, decentralized applications will have a very difficult time drawing users away from existing centralized applications," he said.
As is the case with any new innovation, driving smart contract use cases and adoption is an ongoing challenge, Brook admitted. "We designed the adChain Registry with a global user base in mind and coded incentives to drive usage and adoption, but educating the user base on the benefits of our platform is an ongoing effort," he said. The current focus of the community is efficient governance using smart contracts to automate network functions. "Governance combined with Layer 2 innovations should create a more frictionless user experience and build the onramps for user adoption," he added.
Are smart contract use cases going mainstream?
Looking ahead, Nasir believes blockchain is an enabler of new economies and business models. However, he said, blockchain alone is not likely to disrupt an industry or create value due to the fact that it takes several stakeholders and technologies to enable value-creating ecosystems.
Citing KPMG's Technology Industry Innovation Survey on blockchain, Nasir said 41% of technology companies plan to roll out the technology in the next three years.
Esola said his advice on adopting blockchain and smart contract use cases is, "Don't listen to what 90% of people say about blockchain." There are a lot of smart people in the world, but when it comes to blockchain, he said, "it's shocking how little they know."
When will the time be right for blockchain? "Dive in now," Esola recommended. "Figure it out. Not only will it change your business for the better, but it might alter your perspective on everything forever."
Lucas Lu, formerly with Alibaba and now founder and CEO of 5miles, a peer-to-peer marketplace that began incorporating smart business contracts as part of its operations, said he sees rapid change ahead.
"Despite certain political and institutional resistance to decentralization, we believe that there's extraordinary potential for blockchain technology and smart contracts to transform entire industries and economies," Lu said. That's especially true in less developed or emerging economies with "nothing to lose."
And, he noted, blockchain-based IoT smart contracts may even render third-party intermediaries, such as credit card processors, obsolete someday.