CESC2020: Smart Contracts, IoT Sensors, and Efficiency

Thank you very much for the opportunity, to present my research, my name is going to have a Buddha and from NYU Stern and I'm presenting research joint with you on his back was also from NYU. I we we talked about smart contracts connected internet sensors and efficiency of Contracting. The interest in Washington ologies has been closely tied, the promise of smart contracts to change interaction business interactions and making the business landscape more decentralized and Democratic. Smart contracts themselves. I'll go back out earlier than

Bitcoin blockchain. They go back to the constant defined by an extra Bowl in 1996, where he presented snow Seminole car. Lease example in this example of buyer, buyer of a car movies playing in soul mates or leasing a car. When I payment is messed up. Contract will automatically go over the car and transferred that control rights to the bank with my tips control control transfer Devon to may be willing to make a long story relation at that. Can we start over? Ariel. Yes. Yes, we can. We can, we can

hold on. Thank you very much for sharing this research. I'm Hannah Hala model from NYU Stern and this is Joint research with Janice Paco's. Also from NYU Stern, interest in blockchain exclusive related to the promise of smart contracts to change interactions and make the business landscape. More decentralized and Democratic the concept of smart cuts themselves is bitcoin's. Blockchain 1996 to Nick's taco shells, definition of smart contracts. And a first example of emotional example of a car lease, We're at a

fire of a car up, on the missing, the buyer of the car, misses the payment on the car. Then this contract automatically lock the car and transfers the control, over that car to the bank. This all automation of automation of a control transfer made a change on the relationship between the bank and they're and they're Islanders Now the examples of how smart contracts can be implemented and implemented and how they can change. The business relationship has X that cake and it has me excited that the smart contracts will make Contracting complete.

They may allow us to get rid. Of course, they may allow us to get rid of coffee escrow and other enforcers. And they may be able to complete the centralization for centralized organization in smart contract. What we have set out to do, is to analyze, what are the benefits of more contracts, really? And for that, we bills at multiple, where we distinguish the benefits of smart technology. So is smart, contract is basically a computer program, where a Honda trigger automatically execute an agreement between the two parties

to that contract. The key characteristic that we're going to drop off on, is it? It does not allow reneging because it is automated. So was that contract is smart contract program is set in motion, and the parties could not withdraw from it in the canal, change their other options. One of the most important limitation is the trigger and the agreement in the definition of the smart. Contract needs to be a well-defined and they need to be because they're both the trigger and execution of

digital control agreement werewolf to focus on their the ones that lend themselves to Smart Contracting. There is a digital input is crucial to our analysis. They're all find digital inputs. Come from that only needs to be stopped, play stops that are not readily available. So this is where they're connected sisters or Internet the sink sensors coming to play. And Amanda examples, in fact, most prominent and most promising examples of application of smart, contracts, contracts and have been confounded.

So, even in the example of the car lease to come from shovel, what we need for the smart contract, award is a sensor or a, as an ultimatum in the contractor, is going to control the control over the car. You can just write a program without a connection to the car, that would make it didn't transfer all rights to the back. So we did that sends orders and smart contracts are different things are different Technologies. And we set out to buy building a simple motor to separate the effect of smart contracts and sensors. See, which technology brings

how much benefit in different situations and whether we need both of them or just one in different circumstances, which we realize is that sends orders when they are implemented. The expansion space, the state space, which means we can ride more detailed contract over many more variables because now they both are very visible. And smart contracts, restroom the strategy space. They don't have very different consequences on the efficiency of a contract,

So we are going to use a simple model of a simple example of a free shipping. So we're going to have to first a fruit fruit fruit. Do all fruits as it's our shift when properly refrigerated condition brings a high value to the company but it also cost to ought to keep it in the refrigerator. When the fruit is not refrigerated when it's shit, then I drink slower value to the company, about the transportation company can do it at a lower cost. We are, we are so that it is it is it brings higher-value to

refrigerate to the food and and sheep different refrigerated for the difference between the volume to call Sis larger than when the fridge. But it is still worthwhile to trade and to ship the fruit. Even if it is not refrigerated. Know what is important? What's a know what we are going to draw a cone? Is that the fruit company does not see immediately upon delivery of the truth? Whether that food was refrigerated or not, it's often turn sound couple days later when the food goes bad on the Shelf before it was sold, or

our needs result at the discount, but it's not feasible right away. When the switch is not readable for parties of change Zero 7th, once they have an agreement, if something goes wrong and that the dispute has brought in both parties, have a cost of taking legal action, we are making simplifying assumptions here. That stick Claus is going to be the same no matter who initiated the action. No matter who wins the argument right now, the course always stare and they always have the

ability to enforce their contractor info, the model can be modified to operate other. But willing to bring out the main idea of what is the difference between the smart contract and centers in this situation? In this initial situation before bringing any additional technology, smart contracts or ascenders. Their Refrigeration is not observable to different company on or is verifiable to court. Therefore, the contract North Division are taking a chance with their, the refrigerator but not, what is visible? And verifiable is

whether a payment has been made. And whether the fruit was delivered at all. There's already some information that is available to all visitors to bring in more information. So the game and it's expensive for him is to represent that industry. So what's up what we see is that the transportation company upon a signing. The contract has a choice of the of providing local to delivery which is without Refrigeration high-quality deliver with refrigeration. What is the Liebert can pay according to the contract? Or they can

renege and not pay it all? You did not pay the transportation company can bring the case to court and either. And if it takes it, that there are the case to court, then improving the cost. So in this initial initial case without any additional technology, what we see is a trading is never a solution. If the legal costs are really large, then there is no contrasting. And this is because the transportation company, if it's stripped the truth and it did not receive the payment will not find it worthwhile to go to the cord because the payment

they're going to receive will be lower than the legal costs. If so they're not going to go to court, if they're not being said, knowing that the fruit company has not been set upon delivery in knowing that the transportation company. And even when Contracting is occurring, then he does. He go cause a low and all through the Contracting is occurring. Because the first company, cannot pay more for high-quality delivery, and less for local to delivery. Then the quality of delivery always will be

I know in this situation if we are smart contracts, would hope that maybe smart contracts would solve the problem and solve a problem, but only partially. So, let's assume that we are adding smart contracts with the situation where they have. So smart contract is going to automatically create a payment from the fruit company. To the transportation company upon delivery company. No longer has a choice between Tay or not pay on delivery. So do the trick and a the game free looks different because now this strategy a remote and

no every time it is beneficial to try. There was however So we retain some, we gained some some some space where the Contracting is happening and it will not have been happening before. Now not happen if we jump a smart contracts is the high quality of delivery. There is no reason for them for the transportation company to provide a refrigerated delivery just because the payment is done, so that it will be all still on the local to delivery right now. But only sensors without Smart contract.

And then the scissors may allow us to describe distinguish between a refrigerated or not. So, what we imagine here is a type of temperature sensors that the are food in within the transportation transportation. Close to the fruit orange in the container and they registered the the temperature and they can show up under a delivery or maybe even earlier with the temperature has exceeded the limits that accept inbox. And if it has not accepted accepted by high quality delivery and if it says exceeded

With that. We are now. We are able to write a contract that is going to hate French fries are in. Their delivery is high quality in a different price if there are quality that deliver coffee, stop. With that in equilibrium, where are going to get a high-quality delivery when delivery, of course? Because there is, if it's possible to write a contract that gives property sent it just having smart. Contracts is not taking away the problem that if the price, that's the transportation companies, going to receive for high-quality

is exiting the liver. Cause then again, the transportation companies, not going to see action. If it's not being paid, their Fortress company is not going to pay and therefore transportation company does not want to sign a contract in the fridge. So it says, what are the sensors are increasing the quality of deliberate? They are not improving on the region. Where Contracting is not happening because we are too high. So they make trade efficient, when did Fredo Cars

Smart contracts and the sensors then we can write emojis of contracts. That is distinguishing between refrigerator and refrigerator a delivery and at the same time we can eliminate the possibility of chrisp company reneging no pay because now the payment could happen automatically upon the reading of the sentence with that we are achieving efficient, efficient phrase for all parameter regions. So while each of the Technologies could not fully achieved efficiency for any, then together, they can achieve efficiency,

So what we have shown with this simple game, is that Define the smart contracts and sensors affect the interaction, they have different effects on the outcome of the contract, and whether the contract is signed in the first place, so increase the state Department's can contract, they give more information and smart contracts reduced. So they can be. What is important is that they can be implemented separately. They don't have to be implemented together and implementing each of those those Technologies bring different benefits and

of course they had separate. So, what we were saying from this offering the summer table here is that smart contracts when we Implement smart contract, we are extending that possibility. Has been extending situations in which the contract is signed at all, but if we have sensors, then we are going to improve the quality of the service went. So they have those two technologies have different result in contrasting. No, with that we actually can say more about whether it is beneficial to adopt one of the

technology to other technology or both of them together and they may or may not always be best to implement both on may not always be beneficial to implement smartphones oratene commence. So what what is beneficial depends on? The cost of implementing are smart contracts, cost of implementing the Senators and the legal costs. Illegal Call Saul DragonForce here because this is where smart contracts are that automatic execution in Des Plaines. So what we

find is that under some conditions, I think II technology brings no benefit when we have Smart contracts than Internet of Things. Nobody can eat there. If we have sensors, are smart, contracts or not. And in other times, it is beneficial to implement one technology only if it makes sense to implement So, one of them are in itself is not adding benefit only together through this importance to see, under, what conditions? We get. Different different results. So, first of all, if the legal costs are relatively low or medium

in this graph is, the legal never make sense to implement smart contracts, if the smart contracts, because they do not bring additional efficiency in contracted, however, in the smartphone sucks medium between, then it makes sense to implement smart contracts but only without the sensors. Where is for Real? When it makes sense to implement the scissors. Then I think smart contracts is not adding any more value. So they're going to cost for the smart contracts without you be detrimental to death to the Surplus to be bearing the past without any

additional value to death to the tray. Whereas if we have a large then there are regions when it makes sense to implement smart contracts only but if you commenting sensors is not too costly, then it makes sense to implement sensors. But only if we can do it together with smart contract only, if it makes sense to wear the cost of implementing both acknowledged, Fort locks legal costs of implementing just sensors is actually not, adding any any value is not improving and improving. This is for social deficiency. This is when it would be best for the for the

training benefits. Overall, trading benefit to implement, want to go Fitness. It might be different, then the individual incentives. So, while it was created by implementing, this technology is going to be divided between the two parties is divided. Depends on their bargaining, power, relative Virginia, for our dead, in some cases, like, for example, for smart contract, when the transportation company has low bargaining power and we have no legal Different company will having sent it to impose smart contract which are not necessary.

They would drink no overall benefit to the trade surplus. There would be an additional cost of implementing a plus from the Transportation Company so they would have consented to go for it. Such a less efficient action and his boss to implement more technology. And also, if Transportation costs low bargaining power, they may be worse off with implementation of sensor, so it will increase the overall social surplus, but it will decrease the price, the price versus the quality of the service provided that the Surplus, that's the transportation company, I guess.

And if we account for the fact that the individual incentives to adopt, Mako contrary to disappoint especially in the context of sensory, if they are implemented, even though who destroyed the social stopwatch, the last point is actually the subject of our next project. And to summarize this project, We have right here. We have built them. Although too carefully separate the effects of smart contracts and so connected answers and we recognize its sensors increase, the state space over which we can

contract and smart contracts to reduce the strategy space so that you can take. And I'm with said they have different effects on that. You can see all the contract. And as they have different effects on the efficiency of the Contracting and they have different cop station where it is, socially optimal to adopt one of the Technologies or both of them together. And later we also analyzed they sent this to adopt and we showed that even though the technology that may be socially optimal,

there may be one, one party that will either oppose or we'll lose on the implementation of of the technology which may lead to several times. So we're dad's with me. Thank you. And I look forward to that you and I thank you very much.