Blockchains, independent trust networks and their implications for supply chains

The digital currency Bitcoin has been attracting media attention for some time, but the most interesting thing about this ‘virtual’ currency is not the currency itself, it’s the technology that enables it to exist. This is something called the Blockchain and it may have a very profound impact across numerous industries including logistics and supply chain management.

So what is it and why is it so interesting?

The blockchain is a permanent digital record (or ledger) of transactions that is stored across a distributed network of computers. The way it operates avoids duplication and is almost impossible to modify or spoof by unauthorized parties. Although there is one clear master record, the computers involved are not owned or controlled by any single party or organisation.

The blockchain grows as new records are added and each record is secure from revision or tampering. The networks of computers involved are distributed and operate with consensus, often globally, with no single party having majority control. So anyone attempting to modify them would have to do so on a colossal scale.

To give this point some context, imagine an inventory management capability that only held data and information that was always a correct reflection of the real world, without duplications or false information. Blockchain provides the capability to do this, not only for inventory, but also for many other aspects of logistics operations.

The distributed nature of the blockchain means that it cannot be tampered with easily, (it’s actually very, very difficult and would require immense computing power to do so) so this means transaction information is very trustworthy. In fact, they are probably the most trustworthy mechanisms for maintaining a transaction ledger there is. This is why a large number of global banks are exploring the technology.

So how does it work?

A blockchain is a distributed database of records that as they are created, are individually time stamped and grouped in blocks that are linked to each other, as you would find in a chain. The data in the blocks cannot be altered retrospectively. Each transaction entered into the blockchain database is verified (authenticated) by a random number of computers across the network collaborating in this verification process. The numbers of machines involved are huge and although they are registered on the network, they are unknown to each other specifically and distributed globally.

Authenticated means signed by unique cryptographic key. Because all transactions are authenticated in this way it is possible to view the state and status of any and all transactions at any point.

Any attempt to modify or change an existing transaction recorded on the blockchain would require a large number of the machines involved in authenticating the specific transactions to agree to do so. However, to maintain the integrity of the blockchain after the transaction has been modified, they would then have to repeat that process on every subsequent block in the chain before any new blocks are added. Given that the machines involved in verification are not under the control of a single authority (they operate by consensus remember) and that new transactions are being added to the blockchain continuously, it becomes an almost impossible task to change history.

This is why this technology is viewed as ideal as a basis for maintaining financial ledgers, as it ensures complete accuracy and balance.

However, there is a downside with using this technology in that it also promotes transparency. Obviously, transparency is a good thing, as fraud or tampering with commercial and other financial records is usually done in secret, with the perpetrators seeking to remain undetected. But in many legitimate commercial agreements or contracts, confidentiality and secrecy is essential. A transparent mechanism underpinning these relationships represents an interesting dilemma if the parties involved in a transaction have a problem trusting each other.

There are ways to shield the identity of a participant while ensuring the validity and truth of the transaction without compromising the blockchain, but it remains to be seen if this is enough to convince the parties to use it.

Supply chains are essentially a series of contracts between numerous parties engaged in the buying of components, products and services to manufacture, verify, transport, store and sell to customers. Each element of these chains involves networks of participants exchanging data and information with varying degrees of accuracy and clarity.

Blockchain technology is ideal as a means to record and store a ‘single version of the truth’ for any (or all?) aspects of inventory, order and shipment activity.

Some organisations are beginning to explore the possibilities and recently Maersk announced their involvement in proof of concept exercise around Bills of Lading.

The notion of blockchains has only been possible thanks to the advent of a series of technologies. The Internet, which has enabled the easy connection of millions of devices and systems across the globe using standard communications protocols, cloud computing which is lowering the cost of providing huge computing power on-demand and advances in database design and the collapse in the price of memory and data storage.

Blockchains exploit peer to peer networks and have no need for a trusted third party. This challenges the operational models of many companies engaged in logistics and supply chain management in the same way that cloud computing services such as Amazon’s AWS and Microsoft’s Azure services are removing the need for in-house data centres.

Evolving manufacturing and supply chain networks are becoming harder to manage with conventional, hierarchical command and control information networks. It is impossible for one organisation to hold and govern all of the information for a large global supply chain. Many have tried but they have always failed when seeking to enforce (let alone manage) the integrity and consistency of all the data from all of the participants.

A blockchain that is built on a global peer-to-peer network could do this in a neutral, secure and robust manner. The most common example of this is seen in the virtual currency Bitcoin. Other initiatives are emerging such as who are seeking to address the problem of product authenticity, particularly foodstuffs. Fluent (recently renamed as Hijro), who are using blockchain technology to streamline financial transactions across supply chains, helping to lower operating costs and improve cash flow.

There will be many more as the potential is enormous. Imagine the benefits to managing inventory across a fragmented service parts network if an independent trusted visibility platform was available. The ability to guarantee authenticity of medical products moving through a supply chain from manufacture to patient at any stage in the process. The aerospace industry is also challenged by the proliferation of counterfeit parts, which could be prevented by the use of a secure and accurate visibility platform.

Transport Intelligence is interested to learn of any other initiatives using blockchain technology in the supply chain. If you are developing such solutions and would like to discuss, or comment on, its capabilities please contact Ti’s Sarah Smith.

Source: Transport Intelligence, November 22, 2016

Author: Ken Lyon