How IoT Devices Communicate With Smart Contracts

The latest trend in the manufacturing industry incorporates advanced machine-to-machine communication in factory equipment and warehouses using smart sensors. This allows machines, Internet-connected devices, and smart sensors to talk to each other in a machine universe known as the Internet of Things (IoT). The development of smart contracts running on blockchain technology enhances the capability and usefulness of IoT devices.


When IoT devices communicate with one another in the manufacturing ecosystem, important operation data are obtained and used to improve efficiency within their subsystems. For example, better ways to optimize energy consumption and raw material usage can be gleaned through analytics of data from IoT devices scattered throughout factories and warehouses along numerous supply chains.

What Are Smart Contracts?

Smart contracts are a transaction automation algorithm built on the blockchain. Smart contracts enable transacting parties to set terms when a transaction could be executed automatically. Smart contracts can be deployed in a variety of platforms ranging from e-commerce stores to IoT platforms.


Smart contracts incorporate “protocols, user interfaces, and conditions via those interfaces to formalize and secure relationships on public blockchains. Using smart contracts, users can execute a script on a blockchain network in a verifiable manner solving many associative problems and creating a transaction system” that cannot be tampered or interfered with (Yuichi Hanada, et al).


This is made possible because users can place trust directly in, as Hanada puts it, “the deterministic protocols and promises specified in a smart contract rather than in a third party entity.” A smart contract has its own address and account on the blockchain. The contract can maintain its own state taking ownership of assets on the blockchain, enabling it to act as an escrow.


This year, the Stanford University has concluded the following after conducting a study on the possibilities and limitations of smart contracts for machine-to-machine communication: “Smart contracts expose an interface of functions to the network that can be triggered by sending transactions to the smart contract. Because a smart contract resides on the blockchain, each node can view and execute its instructions, as well as see the log of each interaction with each smart contract. A smart contract essentially acts as an autonomous entity on the blockchain. It can deterministically execute logic that is expressed as functions of the data that is provided to it on the blockchain.” (Yuichi Hanada,et al)

Example Use Case for Smart Contracts With IoT

Depending on the intent of an application on the IoT network, smart contracts can leverage automation of most of our day-to-day transaction needs. Consider a fuel station that provides gas to its customers based on smart contracts and IoT. A connectivity interface is provided between the fuel pump and the user’s car.


Both the car and the fuel pump are possible candidates of IoT. A decentralised application (dApp) developed with the fuel transaction algorithm can be deployed on both the car and the fuel pump. The gas station application would set gas information, verify deposits, and send fuel usage to a smart contract. Meanwhile the car’s decentralised app would call gas information and send deposits using a smart contract.


Using connectivity technologies such as WLan, Bluetooth, infrared, cable, Near Field Technology and RFID devices, device-to-device communication on a decentralised platform can be instantaneous—an essential feature for manufacturing and supply chain tracking.


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