Despite plenty of technical terms that make it sound futuristic, blockchain offers real advantages when moving goods
It has plenty of technical jargon, terms such as cryptocurrency, bitcoin, attestation ledger, ASIC, genesis block, permissioned and unpermissioned ledgers. It includes a bit of futuristic thinking, and it requires trust, a lot of it. Blockchain technology may be a hot term right now, but it likely is not a passing fad. And it will likely disrupt the supply chain in ways that are only being imagined today.
So, what exactly is blockchain technology?
According to the Institute for the Future, “A blockchain is an online database that stores information across a network of personal computers, making it not just decentralized, but distributed. This means no central company or person owns the database, yet everyone in the network can use and help run it, but not tamper with it.”
Joseph Ciccolo, founder and president of BitAML, a provider of compliance solutions for bitcoin companies, says a blockchain is only partially about technology.
“A lot of people think that blockchain is the technology, but it really is the artifact [of a transaction],” he says.
According to Bernard Marr, writing as a contributor to Forbes, blockchains were first created in 2008 by Sartoshi Nakamoto. The first blockchain implementation took place a year later as part of bitcoin. Marr writes that the blockchain is the public ledger part of bitcoin.
What is a blockchain?
Understanding the purpose of blockchain, particularly in the supply chain, is difficult to until you understand exactly what blockchain is and what it is not.
“The core idea behind blockchain is it is a [system] that lets multiple parties agree to the [facts],” Peter Kirby, CEO of Factom, tells FreightWaves.
Factom is an Austin, TX-based blockchain company. Kirby says the company provides solutions that run on blockchain technology.
“It’s, at the end of the day, a record-keeping tool,” he explains. “And supply chain and logistics involve a lot of record-keeping which is why we think it fits.”
But what is a blockchain, really? A blockchain is a collection of distributed computing databases that are joined together to create a chain. Data is then added to the chain in blocks. Each entry is time-stamped and unchangeable, giving a documented, verified ledger entry. To access a blockchain, a unique “cryptographically created key” is needed, providing security. One of the special features of a blockchain is that everyone included in the chain has access to all the data in the chain – complete transparency – but can only alter their part of the chain.
Trust and security are major components of any blockchain.
“No one can edit a blockchain without having the corresponding keys,” Marr writes. “Edits not verified by those keys are rejected.”
The first use of a blockchain was to transfer cryptocurrencies such as bitcoin.
“At the most basic, the bitcoin blockchain allows all the transactions to be visible, but not who made them,” explains Jeremy Kirshbaum, research manager with the Institute for the Future. He notes that a blockchain can be either private, available only to those who have been whitelisted, or transparent.
In the supply chain this would allow a shipper, for instance, to enable visibility of shipment tracking to the end customer but not necessarily all the arrangements made between the carrier and shipper.
Blockchains can effectively replace current processes of tracking goods which rely on decentralized computers and a patchwork of customers, receivers, shippers and trucking companies each with their own agenda to move freight, says Kirshbaum. The ability to create a single blockchain at the beginning of the process provides transparency through the entire process.
“I think the real applications for distributed computing are off in the future,” he notes, “but there are things that it can be used for today. Particularly where you have many different parties who are not in a cooperative relationship. A blockchain can serve as a neutral third party.”
How can blockchain help?
Until recently, blockchain technology was thought to be a financial tool used by banks and other financial institutions to securely move money. Bitcoin is the most known public use of blockchain. But more areas of development are underway and the supply chain is one area that Brigid McDermott, vice president of Blockchain Business Development for IBM, believes is ripe for change.
“The potential here is phenomenal,” she tells FreightWaves. “The match between what blockchain offers and the industry pain points is incredible.”
McDermott says that the key to blockchain is the trust. “Blockchain is all about trust and what blockchain gives you is a digital record in the supply chain ecosystem,” she says, adding that she sees three main transformation areas of the supply chain because of blockchain technology: visibility, process optimization, and demand management.
“For instance, if I think I have 42 pallets of something, do you think I have 42 pallets, or do you think I have 24? And if we don’t agree, we can get on the phone and find out who changed the numbers,” McDermott explains.
“Transportation is one place that can initiate a transaction and every step of the process, it can be recorded,” Kirby notes. “It lets you prove there are no holes along the way.”
Automation of business rules is another area. For instance, border crossings produce a lot of paper records for compliance purposes which can all be incorporated into a blockchain, reducing paperwork and time at Customs. But what about fuel or highway use taxes? That can be placed on a blockchain as well, creating an easy-to-read digital file.
“How do you know when [crossing state lines] happens,” McDermott asks. “And if I tell you it happens, how can you trust me? People have been trying to digitize the supply chain for decades, but what they haven’t had is trust” which blockchain technology provides.
The potential is also there for more accurate fuel price charges for carriers who charge shippers for actual fuel used. Again, because the fuel transaction is digitized, there is a trusted digital document that should end disputes as to how much the trucker paid for the fuel. Basically, McDermott says, if it can be digitized, then it can be added to a blockchain.
But, Ciccolo notes, while the blockchain is about trust, it doesn’t mean that everyone on the chain needs to trust each other. That is the basis of how bitcoin works.
“The part about bitcoin is everyone on the blockchain doesn’t trust each other, but it works because they’re willing participants who’ve agreed to the code that blockchain is based on,” he says.
Kirshbaum’s advice to any company, though, is to keep an open mind and experiment with blockchain technology.
“If you’re a big company, there is no reason not to start playing with it today,” he says. “This is still very new and in the early days, but there’s an advantage there for a big company to influence the future of blockchain.”
It’s important to remember, though, that blockchain is not a technology that will cause workforce disruption.
“I don’t think blockchain is going to change the experience of drivers or people in the warehouse,” Kirby says. “The work will look like it did last year. Blockchain is just a way to provide a record of activity.”
Supply chain companies interested in using blockchain technology do not need to invest heavily in new software products, Kirby says. Factom provides an open-source API that companies can use and Kirby says a search for blockchain within an API Marketplace such as Amazon will turn up plenty of options.
“Companies just sign up and they can start loading stuff onto a chain,” he says. “The blockchain is really just the platform that [allows companies to place data]. It is, at this point, really just read and write.”
Limitations of the blockchain are restricted only by the innovations of company leaders. As McDermott says, “if it can be digitized, it can be placed in a blockchain.”