While the modern internet was born in 1983, most of us didn’t notice until nearly a decade later in the 1990s. In fact, it wasn’t until the mid-2000’s that it took shape as the change agent we now recognize. Sometimes great things take time to evolve, waiting for our collective imagination to catch up or for early adopters and innovators to lay the path.
Blockchain may prove to be another nascent technology with the potential to drive substantive, global change. Conceived and implemented in the late 2000s, it debuted as a distributed ledger system for cryptocurrency. A decade later, it entered the mainstream of Finance. Today, we see blockchains expanding to support a variety of use cases across most industries.
A blockchain is an immutable public digital ledger that is decentralized and distributed across a network of computer systems owned by multiple parties. Ledger data is structured in a “chain of blocks”, with each block in the ledger containing a cryptographic hash of the previous block, a timestamp, and transaction data. The advantage of this architecture is that transaction data can’t easily be altered once it has been created and, if the ledger is edited or appended, all changes are replicated and copied to every other system on the network. Because of this design, blockchains are known to be secure, transparent, auditable, and efficient. Since there is no single point of failure, they are also highly resistant to outages.
There are four types of blockchain networks.
- Public – Can be joined by anyone with an internet ID. Typically used for cryptocurrencies like Bitcoin or public records of property ownership.
- Private – Permissioned blockchains created by enterprises. Suitable for internal supply chain management or asset ownership.
- Hybrid – Permissioned to protect privacy but allowing select data to be shared with external parties. These networks are suitable for use in real estate and healthcare.
- Consortium – Consortium blockchain networks are established by a group of collaborating organizations on a decentralized network. Ideal for large supply chains, banking, and payments.
The underpinning of most blockchain technology is Hyperledger, which is a collaborative open-source community hosted by The Linux Foundation to advance cross-industry blockchain technologies. It provides the frameworks, standards, guidelines, and tools from which most blockchain platforms are built. Hyperledger contributors include Daimler, IBM, Samsung, Microsoft, Hitachi, American Express, JP Morgan, Visa, CVS Health, FedEx, SAP, Swift, Walmart, and many others.
Blockchain platforms are too numerous to list but some of the more commonly known are Bitcoin, Ethereum, Hyperledger Fabric, and Skuchain. Today there are thousands of businesses are running blockchain services on these platforms, the likes of which include TradeLens, IBM Food Trust, GoDirect Trade, Global Shipping Business Network (GSBN), and Covantis.
Blockchain in Finance
The most recognized use of blockchain is also its most controversial: cryptocurrency. Once considered the currency of speculators and black marketeers and compared to Dutch Tulip Mania in the 1600s, crypto is slowly entering the mainstream. Bitcoin, Dogecoin, Binance Coin, Solana, and countless other cryptocurrencies are available for purchase and trade.
Because of their popularity in small-scale trading use and transfers to and from workers abroad, digital currencies have risen in popularity in emerging markets, such as Vietnam, India, and Pakistan.
Benefits such as simplified cross-border transactions, instantaneous transactions, and minimal-to-no currency conversion fees are very attractive to payment system giants like PayPal, Visa, and Mastercard. PayPal already enables people to make transactions using Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Visa is allowing transactions with stablecoins on the Ethereum blockchain to speed up international business-to-business payments, and Mastercard has recently announced that they’ll enable transactions with crypto sometime in 2021.
Blockchain and the Internet of Things
The main purpose of the Internet of Things (IoT) is to link the physical world with the digital world. In IoT, devices can be classified as either “things” (independent devices or devices attached to an object) or “sensors” that measure behavioral or environmental conditions, such as speed, acceleration, temperature, humidity, light, etc. With IoT, we’re able to collect a tremendous amount of data about whatever we wish to track, be it any combination of assets, conditions, and events.
By combining IoT with blockchain, we can create a transparent, immutable record of events and conditions, all of it contained in a tamper-proof and reliable consecutive flow.
Blockchain for Supply Chain
A supply chain is a system of organizations, people, activities, information, and resources involved in making a product available to a consumer. They can be extraordinarily large, complex, and difficult to manage, with an end-to-end process that starts with design and materials sourcing, entails manufacturing, distribution, and logistics, and ends with sales, delivery, and support. A single product supply chain can include hundreds of internal and external stakeholders, including partners, vendors, purchasers, and consumers.
As if sheer size and scope of supply chain networks aren’t daunting enough, outdated or inadequate supply chain technology and legacy operations are a material drag on supply chain efficiency and transparency, affecting how well companies are able to spot shifting consumer tastes and expectations, improve demand management, provide visibility for the entire supply chain flow, or track goods from raw material to end consumer.
Depending on industry segment, other challenges include authentication of source materials, validation of product conditions in transit, stakeholder distrust, lack of transparency between stakeholders, outdated means of data sharing, and regulatory compliance.
Blockchain may have the ability to address some of these issues. In a blockchain-enabled supply chain, itemized data related to products are collected in real-time, creating an immutable instantaneous historical record with timestamps, locations, and conditions, from origin to consumer. With blockchain’s reliable identity management, all parties know not only who is participating in the supply chain, but which actions have been performed, at what time, and where. The immutable data record provides stakeholder visibility to the entire product flow, fomenting trust. From autonomous and self-executing smart contracts to blockchain-enabled document and process digitalization, blockchain reduces human touchpoints and eliminates the need for third-party intermediaries and local ledger reconciliation. All transactions are auditable, serving as a record of truth that can be easily accessed by regulatory bodies.
Blockchain in Action
The more complex a supply chain, the more potential benefit from blockchain or some other distributed ledger system. Unfortunately, the more complex a supply chain, the more difficult a blockchain implementation becomes. How do you plan a rollout of new technology across a broad ecosystem of external stakeholders? How do you convince various partners and suppliers to invest and onboard? How is data shared in a network that may crisscross with competitors?
It seems reasonable, then, that initial uses of blockchain in the supply chain are focused on a specific need or outcome rather than overall supply chain management.
One highly successful venture in blockchain has been TradeLens, a joint effort between IBM and A.P. Moller-Maersk to digitize the global maritime supply chain. Their goal is to bring together all parties in the supply chain – including traders, freight forwarders, inland transportation, ports and terminals, ocean carriers, customs, and other government authorities – to enable information sharing and collaboration, increase industry innovation, reduce friction, and promote more global trade. Since its launch in 2018, it has onboarded roughly 50% of container ships around the world. In 2020, it processed 1 billion shipments, 30 million containers, and 14 million documents, more than double the previous year.
Point of Origin Validation
A compelling use of blockchain in supply chain is to authenticate the origin of materials. Diamond companies like De Beers are using the Everledger blockchain to root out “blood diamonds” to appeal to socially conscious consumers. LVMH is using blockchain to track products and fight counterfeiting of brands such as Louis Vuitton, Bulgari, Prada, and Cartier.
This “point of origin” focus extends to food, as well. Starbucks customers and farmers alike can trace their coffee beans from origin with blockchain. French supermarket chain Carrefour is tracking more than 30 product lines on the blockchain, including farm-raised eggs, Norwegian salmon, and Rocamadour cheese. Products are tagged with a QR code that customers can scan to trace the origin of their food. Wyoming cattle ranchers are on the Beefchain blockchain, where consumers can verify the authenticity of the pasture-raised meat they’re consuming.
Food safety is another compelling use for blockchain. Walmart’s Food Traceability Initiative uses blockchain with IOT technology to track the origin and supply chain route of nearly 500 grocery items including fresh leafy greens, coffee, seafood, and meat. Last year, it assisted the FDA with six investigations into food safety and was able to provide detailed information on the original source of potential contamination within an hour. As this initiative grows, Walmart could become a change agent in the industry, forcing their vast network of food suppliers onto their FoodTrust blockchain.
Small food cooperatives like the Edge Dairy Cooperative are finding a competitive advantage with blockchain, using both blockchain and IOT to improve food safety in the production, processing, and transportation of the product. Not only can they differentiate their products as “real dairy foods”, but they are also able to create a system of trust, where every participant in the supply chain can check to validate every detail of information supplied.
Improving Supply Chain Management
Despite the difficulty of putting an end-to-end supply chain network on blockchain, the dream is far from over. Larger companies are starting small with blockchain, hoping to roll early successes into bigger supply chain management victories.
Cargill initially used blockchain to start tracking turkeys through its pre-Thanksgiving supply chain in 2017. In 2020 it expanded its use of blockchain by becoming one of six partners in the Covantis platform creating an immutable record of every step in the process of moving grain and oilseed cargoes around the world.
CONA Services, owned by the 12 largest North American Coca-Cola bottlers, is moving orders and shipments between bottlers to the blockchain that will eventually include external suppliers of raw materials, aluminum cans, and more.
Nestle, the world’s biggest food company, uses blockchain for traceability in supply chain operations, including precise tracking of raw materials, sub-components, production processes, and final products.
Preparing for Blockchain
Widespread adoption of blockchain hinges on its technological ability to overcome both implementation challenges and technical limitations.
While supply chain participants may be willing to board the blockchain train, they may not possess the capability of punching their ticket. Blockchain requires full digitization of documents, such as electronic bills of lading (eBOL) as well as the automation and digitalization of adjacent processes. These things are a worthwhile effort on their own merit but for blockchain they’re a must.
Another potential issue with blockchain adoption is the lack of technology standards. Data interoperability and even blockchain interoperability can only be assured by the establishment of, and wide adherence to, some set of agreed-upon standards. The Hyperledger Project is helpful here, as may be industry-specific data standards such as the GS1, which is already anticipating the need for standards that will support supply chain visibility in blockchain applications.