What is Blockchain?

Blockchain or to be formal, Distributed Ledger Technology, (DLT) is not just the IT process enabling Bitcoin. It is real, valuable, and coming to a supply chain near you.

Put simply, DLT involves encrypting and encoding chunks of data into time-coded blocks. These link to previous and subsequent blocks in the chain through self-generated ‘hashes’. If a new block isn’t compatible with the existing chain (and so doesn’t receive the ‘assent’ of the other parties), the hashes will differ and the block won’t be accepted.

That sounds trivial but it isn’t – it means that in a properly set up blockchain, spurious data will not be accepted. More fundamentally, nobody can go back and retrospectively alter previous data blocks because the new hashes generated wouldn’t match and the interference would be obvious. What’s on the chain stays on the chain – if a record needs to be corrected, that creates a new block but it doesn’t overwrite or delete the previous entry. That’s the ‘ledger’ bit.

The other significant feature is architecture. Under DLT there is no distinction between client and server – the full file exists at every user node within the Peer-to-Peer group (although that need not mean that every user can see everything). Changes and updates require authorisation from the full peer group, which is obviously a machine-to-machine process. That’s the ‘Distributed’ in DLT.

Blockchain is immensely resilient to one or even hundreds of servers going down. It is also immutable – nobody can erase the record of previous transactions. So while security in terms of access is only as good as the encryption and the authorisation processes, even if illegal access is achieved, nobody can alter or erase this ‘single version of the truth’.

Blockchain in the supply chain

In general terms then, blockchain enables the ‘creation, authentication, sequencing, time stamping, replication and completion of a transaction’. So where does this fit in to the supply chain?

In theory, anywhere where data has to flow and there is:

  1. A contract or agreement (which in this context is often called a Smart Contract, which just means a contract that can in theory be managed and fulfilled by machine), given;
  2. A set of ‘business rules’ that govern the execution of the agreement, and;
  3. Completion – the conditions specified have actually been met.

And in a supply chain, there will typically be many parties involved in several interlinking and overlapping agreements: Purchase Orders, Bills of Lading, contracts for carriage, service level agreements and also ‘agreements’ with agencies such as Customs – which cover what data you present, and how, to get your goods in.

A very large proportion of delay and cost in supply chains is caused because data is absent, erroneous, contradictory, or late. DLT forces compliance. As a crude example you can set up a system where it is impossible to create a Proof of Delivery if there isn’t a matching despatch note, or to generate a Quality Assurance certificate before the system gains the block of data that shows the product has actually been manufactured.

So much to be gained…

There are many potential gains from blockchain. Accelerating supply chains, because actions can be planned and executed on sound data, is an obvious example. One estimate, inevitably highly speculative but quoted by IBM and Maersk, is that blockchain could add 5% to world GDP and 15% to world trade volumes. Another gain is improving supply chain finance by releasing funds against incontrovertible evidence that a particular milestone has been achieved. There is a whole raft of issues around health safety and security: a meat product tracked back to the individual animal; a critical aviation spare with unarguable provenance (or a complete audit of a remanufacturing process); combatting physical criminality such as counterfeiting and theft, as well as fraud. In addition, having large quantities of verifiable authentic data enables advances in analytics and machine learning.

DLT isn’t entirely without problems. Unless very well set-up, transaction times can be far from instantaneous and DLT does take a lot of processing power.

Standards issue

More significantly, there is a current absence of Standards, although ISO Technical Committee 307 has begun a process, and there are industry bodies such as the (US) Blockchain in Transport Alliance, which has many industry leaders from UPS and FedEx to SAP in membership. But it may be that, rather as with EDI, we end up at least for a period with sector or regional Standards (like Odette for EDI in the motor industry) rather than the truly global.

And it has to be admitted that no one has yet commercialised the ‘killer app’ that will suddenly make DLT a must-have for supply chains.

Meanwhile, at TGMatrix, we are working with a leading University research department to explore how best to combine our agent-based freight matching technology (and other comparable, task-specific technologies) with blockchain for the complex transaction processes of which our solutions are just one element.

We hope you enjoyed this blog and would love to hear your thoughts and comments on the subject.  In the meantime, please follow us on Social Media, to be sure to get the latest updates.

   

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