While blockchain technology appears to hold substantial promise for logistics and supply-chain management, it faces a number of obstacles to realizing its full potential.
That was the mixed message delivered by a panel of industry experts at a recent meeting of the San Francisco Roundtable of the Council of Supply Chain Management Professionals.
Countless pilots deploying blockchain technology have been launched in recent years, a good number of which pertain directly to the supply chain. Blockchain’s application to that sector would seem a natural, given the many partners that make up global supply chains today, and the need to record and validate the transactions between them.
By spreading a ledger of transactions across multiple computers, blockchain creates a redundancy that prevents alteration. “No single person can mess with it,” said Alessandro Voto, West Coast director of ConsenSys.
Blockchain’s original purpose was to record the transfer of Bitcoin and other virtual currencies. But it’s useful for more than just monetary purposes, Voto said. The ownership of any asset, whether physical or virtual, can be verified on a blockchain. So can the various stages through which product must pass, from raw materials to production to distribution and final sale.
IBM is piloting blockchain applications in part through the open-source initiative known as Hyperledger. Former IBMer Sloane Brakeville, now chief executive officer of Fr8 Network, Inc., said the logistics sector in particular stands to benefit from the technology. It could be applied to freight marketplaces to help carriers build full truckloads, handle disputes and speed up payments to drivers.
Balaji Renukumar, founder and chief executive officer of Sensfix, is focusing on “smart city” applications of blockchain. For example, he said, it could potentially aid in the operation and repair of streetlights. Billing would be recorded in such a manner that taxpayers know precisely how their money is being allocated for maintenance.
In the area of supply chain, blockchain can support the tagging and tracing of fish and other types of food, documenting the identity of the exact supplier and tracking product all the way to when it hits the store and is purchased, Renukumar said. Such a capability would go a long way toward pinpointing the source in the event of a recall triggered by contamination.
Aly Megahed, research group lead with IBM, said blockchain can help to identify or prevent the distribution of counterfeit merchandise, especially drugs. And Ray Sikka, founder and chief executive officer of Sensitel Inc., noted the value of blockchain in tracing the presence of conflict minerals all the way to the mine. By establishing a mineral’s provenance, producers can accurately report on their purchases from legitimate suppliers.
That could be a valuable tool for the electronics industry, which uses large quantities of gold and other minerals. The Democratic Republic of the Congo produces some $16bn worth of gold each year, Sikka noted, but less than a few hundred million dollars of it is taxed.
All well and good, but blockchain remains an immature technology for which hype outpaces real-world applications. A major obstacle is the technology’s inability to scale up to the level required of complex global supply chains. Current models, especially in the area of public blockchains, face a “fundamental threshold” with digital ledger technology, said Voto.
“It’s a matter of trading off speed for security,” he said. “It takes longer for more nodes to receive information, until the core technology can grow.” In the meantime, key transactions will have to be logged outside the blockchain in order to achieve the required speed of data transfer.
Visa’s credit-card network processes 2,000 transactions per second, versus blockchain’s ability to handle between seven and 10, said Sikka. On the other hand, he noted, blockchain offers a secure means of protecting data. That became ironically evident with the recent death of the founder of the Canadian cryptocurrency exchange QuadrigaCX. The key to his encrypted wallet couldn’t be found, locking up (and possibly erasing) some $137m in crypto assets.
With so many projects being launched by disparate entrepreneurs, blockchain lacks the degree of standardization that’s essential to attracting a broader community of users. Brakeville likened the situation to the introduction in the mid-1950s of the standard-sized ocean container, which revolutionized intermodal shipping. Still, he was optimistic about efforts to create a set of underlying rules that would ensure the flow of shipment information among all supply-chain partners.
Proponents of blockchain stress the immutability of the ledger once it’s in place. But Voto cautioned that information must be accurate from the very start in order for that condition to be of any value. “You can lie into the database,” he said, noting the “garbage-in, garbage-out” theory of data input.
Also in question is the value of virtual coins or tokens to finance blockchain initiatives and incentivize companies to participate in them. Because the earliest blockchains were created to keep track of cryptocurrency transactions, they continue to be linked to that type of activity. But there remains substantial confusion over what constitutes tradable “security tokens” and “utility tokens,” with issuers of the latter claiming that they don’t fall under the jurisdiction of the U.S. Securities and Exchange Commission. In many cases, SEC disagrees.
New tokens continue to pop up at a rapid rate. Fr8 Network, for one, is in the process of releasing a utility token for its users, Brakeville said. But many blockchain initiatives involve no form of token or cryptocurrency at all, opting to finance their efforts through more traditional means.
Panelists agreed that the logistics and supply-chain industry has yet to see a “killer app” that would prove the value of blockchain at sufficient scale. Early adopters are applying the technology to targeted areas where traceability is key, such as certain raw materials, perishable foods and diamonds. Successes in those areas could eventually propel blockchain to a level of general acceptance.
“There are lots of pilots and active use cases,” said Megahed. “But people are still getting comfortable with totally trusting this technology.”
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