Blockchain technology is primed to take over the world! At least, that’s the way it seems. Companies are converting assets to cryptocurrencies, allowing customers to pay for services with the currencies and some are even rebranding their entire organization around the technology.
Cryptocurrencies were the talk of 2017. The software that supports it will be the talk of 2018.
Blockchain technology is set to revolutionize several industries, including the supply chain. This hot topic and its revolutionary ability have been circulating on many different industry blogs. The topic has also been confusing a lot of people who don’t understand the need for cryptocurrencies or the blockchain technology that allows them to thrive.
Most blockchain experts will tell you, you don’t have to know how it works to understand the benefits.
When it comes to blockchain technology I’m no expert, so I’ll let the experts do the talking. Along with research, I interviewed President of Blockchain in Transport Alliance (BiTA) Chris Burruss. (Interview questions in green)
I’ll attempt to break down the basic knowledge needed to get a grip on this complicated new software. Along the way, we’ll find out just how ‘revolutionary’ blockchain tech will be within the supply chain.
What’s the difference between cryptocurrencies and blockchains?
Bitcoin is a type of unregulated (currently) digital currency that was first created by Satoshi Nakamoto in 2008. According to Matt Lucas, who works on IBM’s Global Blockchain Engagement team, “It was launched with the intention to bypass government currency controls and simplify online transactions by getting rid of third-party payment processing intermediaries.”
This pretty much just means, knowing this currency would be international, they didn’t want to involve banks and governments and taxes (this might explain why people think Bitcoin is the currency of criminals). Soon they realized there needed to be a secure way to transact business with this new cryptocurrency hence the blockchain was born.
What is blockchain anyway?
Blockchain was also invented by Satoshi Nakamoto in 2008. In the most basic terms: a chain of ‘blocks’ make up a list of transactions between different computers or ‘nodes’. No one person controls the blocks. It’s decentralized, working on a user-to-user basis opposed to the point-to-point system currently in use.
Blockchain is a way to keep track of transactions that is supposedly incorruptible and unhackable. It’s like a Google doc for the parties involved, updating instantly, for all to see, with no one person in control of edits. Like Wikipedia for business transactions, except even Wikipedia has some centralized control.
Blockchain technology was invented for the cryptocurrency Bitcoin, but that is just one of its many ‘protocols’. There’s a good bit of speculation that Bitcoin and the other digital currencies are just ‘bubbles’, like Tulip mania in 1637, and they are going to pop eventually. While that may be true for some, there is a wide variety of applicable value behind some of the uniquely crafted protocols.
Here are a few other popular ones:
- Litecoin (LTC)
- Ethereum (ETH)
- Ripple (XRP)
- R3’s Corda
- Zcash (ZEC)
Why are there so many?
Each one was created because the previous one didn’t support an aspect that was later needed. Each one was created to fill a specific niche within different industries.
Ether was created because Bitcoin (originally) didn’t support smart contracts or cryptocontracts. Smart contracts help eliminate the cost associated with transactional fees and the third parties needed to verify and enforce them. They are also secure thanks to blockchain’s security and decentralization.
Ripple was created for international monetary exchanges because the current system is severely lacking. Let’s say Sally is an exchange student in Europe. Her parents decide to send her money because Europe is expensive. With the Internet of Things (IoT) and the instant communication era we’re in you would think that that transaction would be simple and quick. But, it’s not. It’s a complicated process involving currency exchange rates and international bank systems that take time and money to complete.
Kodak just introduced its own currency to help photographers maintain their digital rights to photos. This gives photographers the rights to the value attributed to their photos instead of a third party stock photo site. There are mentions of this technology being applied to the music industry giving artists the ability to get paid for their talent instead of popularity.
What are some practical applications specific to the supply chain?
Let’s forget all about cryptocurrencies for a minute. I know that’s a difficult request but this post isn’t about weird-sounding money. It’s about the seemingly boring tech created to keep up with these transactions. It’s this tech that is set to disrupt the current models in several wide-reaching industries.
The increased security alone should be enough to pique the interest even the most skeptical. Even companies within the supply chain are in danger of hacking. Maersk had to deal with a cyber-attack recently that disrupted the operations of several port terminals in the US, India, Spain, and the Netherlands. This disruption was felt globally within the supply chain, considering 90% of world trade comes by sea.
Besides the much needed security upgrade, blockchain would increase transparency throughout the entire supply chain. But, some critics are worried this would create too much transparency. They’re worried lane rates or contract terms could be seen by anyone, including their competition.
What is currently being used?
There are several different systems currently in use. There is EDI (Electronic Data Interchange), XML-based messages or API-based interactions. These systems replaced basic paper transactions with computer-to-computer transactions. The drawback to using a point-to-point system is the time wasted waiting for the exchange. Additionally, all documents must be in a standardized format or they won’t interact properly. If you think about it, it is definitely time to update the technology we use to transact business in the trucking industry. Blockchain technology would synchronize these systems and create instant, secure transactions.
Do you think we will ever fully abandon EDI?
“EDI gets a bad rap due to the numerous problems experienced in the supply chain. The interesting thing about that though is standards were developed around EDI technology but they were never adopted or universally used. It’s hard to say if EDI will ever be fully abandoned, but I suspect it is safe for a good while.”
What are some challenges in adoption of blockchain technology?
With the implementation of any new tech, there are going to be challenges. Right now, there is a lot of speculation, misunderstanding, and a lack of trust in the tech. The availability is still very limited too. This will work itself out in time as more companies within the supply chain warm up to the idea of the change. The lack of regulation also scares a lot of people in heavily-regulated industries, like trucking and logistics.
What do you think will be the hardest part of transitioning to this technology? Convincing companies? Or, actually implementing the tech?
“I think it’s a little of both. The ROI case is going to have to be strong in order for companies to adopt. Right now, some of blockchain technology still remains theoretical so there is work to do there.
If you think of a technology adoption curve, innovators and early adopters represent 2.5% and 13.5% respectively. The bulk of adoption occurs in the early majority and late majority; 34% each. I would say we are still in the innovation phase. The implementation of blockchain, once you get past the coding, standards, forms, etc., should be fairly straight forward.
From a trucking perspective, we have been slow to adopt new technology for any number of reasons but I believe it is largely due to cost without a solid ROI. Blockchain technology is coming and in the long run, those who refuse to participate will be behind the curve.
There are some challenges with adoption today:
- Scalability – currently public blockchains are limited to 3-20 transactions per minute. Contrast that with Visa which is capable of approximately 56,000 tps (transactions per second).
- Data Privacy – By definition all data is held by all participants. careful protocols have to be agreed to encrypt commercially sensitive data in any ecosystem.
- Collaboration – Many applications of blockchain require agreement of protocols within industries.
- Commercialization – Blockchain application codes are generally open source and can be utilized anonymously, so IP is difficult to protect.”
Are people in the supply chain industry open to this change or hesitant?
“From the response we have seen to BiTA and standardization (we just eclipsed 1000 member applicants this week) there is widespread interest and they are open to the concepts. But keep in mind most are still getting their minds around just what blockchain is and what problems can it solve.
Blockchain won’t solve every problem so the important first question is, “what problem am I trying to solve?” and then “can blockchain solve it?”. I would characterize the interest as cautious rather than hesitant.
There is also a great deal of speculation as to what industry casualties there might be. Blockchain allows trade (purchase) without intermediaries (intermediaries meaning banks, brokers, attorneys, etc.). Because blockchain is a trustless system, we don’t have to trust or even know who we are trading with.
Think of of it this way: When you buy a home, how many middle-men (or women) are involved in that transaction? You have agents, title companies, banks, government agencies, etc. Each one taking a piece of the pie and recording its own version of the truth. Records can be manipulated or deleted. Because it is a centralized system, it can be hacked. The distributed nature of blockchain prevents the blocks from being altered or deleted once sealed; it is immutable and unhackable.
So will there be casualties? With respect to the supply chain, I think voice brokers, factoring companies, law firms and similar 3rd parties will be forced to rethink their business models and purpose.
Like many technological advancements, business may need to adapt to the new normal.”
With increased transparency, is there a risk to companies’ privacy with respect to contract rates, shipping patterns, etc.?
“There are essentially three types of blockchains: Public, Permissioned and Federated or Consortium.
A public blockchain is permission-less meaning anyone can participate. This type realizes the full potential for efficiency and transparency of blockchain because it is completely distributed with no centralized ownership; it is owned by no one and everyone. But as the name implies, that creates problems with information that entities don’t want in the public domain like rates, driver qualification files, etc.
Permissioned and federated or consortium blockchains, as opposed to a public one, doesn’t allow just anyone to have access. They tend to be faster due to a smaller network which means it is more scalable. However, these blockchains aren’t fully distributed meaning it is controlled at a certain level. They also lack the transparency of the public chains.”
How will it happen?
What will ultimately convince the late adopters?
“The marketplace, customers and competition. Back to the adoption curve, the innovators and early adopters will be ahead of their competitors for a period of time and will benefit from that (just like any other tech). There is a risk/reward in being in that initial 16%. At some point, the late adopters will be left with no choice but to adopt if they wish to continue to compete.
Trucking companies in that space will likely be pressured by their customers as well.”
How do you start the transition? Augmentation to current EDI tech?
“I think it will start with individual use cases. Things like smart contracts, proof of delivery and provenance, payments and settlement solutions, etc. I believe it will be inclusive of EDI technology. I also believe there will be an initial dive into private or consortium (federated) block chains.”
How soon do you think blockchain tech will penetrate the majority of supply chain operations? 5 years? 10 years?
“That’s a crystal ball question and I don’t trust my crystal ball. There is a lot of innovation occurring at a rapid pace and I believe that will speed up. One of the keys to success and adoption is going to be interoperability across the spectrum. The promise of blockchain is greater efficiency and reduced cost. It is likely there will be numerous blockchains in the supply chain. To the end user, having to use/tap into multiple blockchains doesn’t scream greater efficiency. It is going to be important that the various blockchains are able to “talk to each other”. This point is a primary focus on BiTA’s standards development.
I suspect we will begin to see the needle of penetration begin to move within the next two years.”
So, is it the ‘Year of the Blockchain’? You’re darn tootin’.
Where does this lead us? Are banks in danger of extinction?? Will this eliminate the need for debit and credit cards?
Is the future NOW?? Nah, probably not. But, it won’t take long. In less than 10 years, 10% of the global GDP will be stored on the blockchain, World Economic Forum predicts.
Early adopters with the most capital will be the ones who adopt first. They’ll have to deal with all the initial glitches. The rest of us will wait until they work out all the kinks.
The effect of blockchain on the supply chain may be huge but it’ll take a while for companies to fully implement the technology. The supply chain industry will have to start by augmenting current technology in order to even begin to tap into the strength of the blockchain.
There’s no question that blockchain technology will profoundly change the supply chain industry.
The only question remains is: when?
Collins White, President of AMX Logistics:
“I believe that blockchain technology will have a positive impact on the trucking industry. At AMX, we look forward to promoting and using its ability to provide more transparency between shippers and carriers. Blockchain should further strengthen relationships within our long-term customer base creating more trust through increased transparency. Being a member of BiTA, we hope to be actively involved in creating best practices for this technology — with our customers best interests in mind. We are excited to implement the technology as it becomes available.”