Insight: The Promise and Potential of Blockchain in the Supply Chain
As use cases, logistics companies provide fertile ground for sowing the seeds of blockchain into day-to-day operations. Its immutability, transparency and convertibility can speed up, secure and simplify the supply chain from end to end. But does the state of the technology today make it a viable option for logistics transactions?
In this article we will examine the promises and potential pitfalls of this technology that are encouraging transport and logistics players to take their first tentative steps into this particular realm of digital technology.
First let's try and briefly outline the technology itself.
What is blockchain?
A blockchain is a decentralized and distributed digital ledger of transactions that are executed over a given network of users.
The users jointly own and manage the network using their computers. From time to time new users are validated and added to the network.
Every transaction on the network is validated by every user or node of the network. Only when all validations are done is the transaction considered complete and a fixed and unchangeable unit of data is added to the blockchain.
This creates a transparent and secure chain of transactional data that does not need to be verified by any central authority like a bank or sovereign government.
One example of how this technology is used in shipping is the blockchain based electronic bill of lading or 'eBL'.
Replacing the paperwork that usually needs to be provided in duplicate or triplicate, the eBL makes every step of the supply chain from factory gate to the warehouse digital, transparent and efficient.
Blockchain vs a Regular Database
Transparency: All users of the network have a full 360-degree view of all transactions that have occurred on the network so far. This is unlike traditional digital databases that have a centralized command which has control over what parts of the database may or may not be seen. On the blockchain, all users can see every entry ever made.
Immutability: Once a transaction is complete and a block is created it can never be changed by anyone, ever. This creates a permanent data record that is impossible to erase, replace or modify in any way.
Censorship: As there is no central authority the data available on a blockchain is immutable it simply cannot be censored by anyone at any time.
Traceability: Thanks to its truly peer-to-peer structure anyone can trace all transactions made on the blockchain network from the time of its creation.
All the above features make blockchain a very attractive proposition for trade and logistics operations as all stakeholders can know exactly where their cargo is and where it came from, and the related documentation is authentic and accurate.
The transparent and immutable nature of the blockchain make its data reliable and dependable for all stakeholders.
Further, the immutability and lack of any kind of censorship ensures that malicious players cannot falsify or even hide data they dont want others to see.
This will go a long way in creating a transparent and secure supply chain that can be validated globally from any part of the world.
Blockchain vs Regular Databases: Disadvantages
Transaction speeds: As of today a bitcoin transaction can take anywhere between 2 minutes to over six hours depending on the number of network users, network congestion, network bandwidth and a host of other smaller factors.
Compare this to an international credit card transaction which takes just a few seconds at most.
Thankfully, transferring documents (not money) over blockchain is much faster and almost comparable to conventional databases. However, due to the nature of the technology itself, which does not have a centralised validation system, as the number of users/nodes on the network grow, the speed starts to come down as all users have to validate every transaction.
Different blockchain technology companies - like Ethereum for instance - have so far successfully modified their algorithms to speed up transaction speeds and make the technology more scalable.
Data Modification: Blockchain technology does not allow any changes whatsoever on past transactions. So even innocent errors cannot be rectified unless all the code in all the blocks is entirely rewritten, which can be time-consuming and expensive.
Cost of Implementation & Energy: Creating and maintaining a blockchain network is much costlier than a regular database. Further, businesses using the technology require meticulous planning - and sometimes extra investments - to incorporate blockchain technology into their wider digital systems.
Blockchain networks also consume a lot of energy as they are required to do vast amounts of computing to execute each transaction. Therefore, achieving a sustainable equilibrium is still a challenge for this technology.
Promise of blockchain
Despite its various challenges blockchain technology is gaining a firm foothold in the logistics industry.
Today, there are a host of technology companies offering blockchain-based solutions that are making logistics operations easier and more reliable.
With 5G networks being quickly implemented across the globe the speed issue of blockchain may soon be a thing of the past.
Even as of today the CargoX digital document transfer platform, for example, has onboarded over 107,000 companies so far with more than 4.3 million document transfers executed using blockchain.
All the hype and hoopla apart, the potential benefits of this technology being used in everyday logistics are tremendous but there a few challenges that still need to be overcome before we see mass implementation of blockchain in the supply chain.