I spent the last few days researching something called blockchain… so now my head is reeling and I still don’t have a great grasp of it. I hadn’t even heard about it before joining Supply Chain Insights.
The good news is, I also don’t really understand the ins & outs of how email, the internet, or the apps on my phone work, yet I still use them constantly. So maybe I don’t need to know what blockchain is!
I will still attempt to explain it since I spent so long trying to understand it. Blockchains are databases where data/information/transactions/records of some kind are validated and secured. A set of records make up a block which is then linked to a chain of previous blocks making up the blockchain. There is only one version of the blockchain containing these records.
The blockchain database is distributed, meaning there is not one huge server storing all the data, instead it is stored on multiple computers, or nodes (aka every computer running the required client software).
Some nodes do the work of validating the latest group (block) of records to add to the blockchain. They are called miners. Miners verify that a block of records meet certain conditions, and then secure the block by assigning a code to it. Assigning a code to a block involves using computing power to solve a math problem – basically finding a random code of letters and numbers that meet certain conditions. This unique code assigned to the block is called a “hash.” The block with its hash identifier is then added to the blockchain by referencing the hash of the previous block of records that was validated in the chain.
The word immutable is used to describe blockchains, meaning that once they’re created, they cannot be changed. This is because the hash identifier is specific to the set of records within the block, and if anything were to change in the block, the hash would no longer be valid. Since each block references the previous block, all subsequent blocks would no longer be valid as well.
The records stored in the blocks can be many things. Blockchain technology is currently used to support bitcoin, a digital currency. Multiple transactions moving bitcoins from one party to another are recorded in a block. (Alphanumeric addresses are used for the parties in the transaction, and usually you use a different address for each transaction.) There is no bank required to facilitate the transactions, because they are validated and recorded in the blockchain. The blockchain is the source of truth, and provides the trust that a bank would normally provide, without nearly as high a transaction fee.
The analogies that I like are those that compare blockchain to Google Docs, Wikipedia, or even crowdsourcing. Basically, there is one version of the truth out there and multiple people contribute to it, in the case of blockchain by verifying new blocks in the chain. The difference is that once something is verified and added to the blockchain database, it cannot be changed.
In terms of how blockchain could be used in supply chain, I think where we use a third party to verify the value of something or govern something, blockchain could potentially be used to facilitate this or even potentially eliminate that third party. As with bitcoin, what if we used blockchain as the ledger for exchanging money between companies in supply chain? This would eliminate the time lag in money transfer and the majority of fees required by third parties.
I used to work in supply chain quality and we always ran into issues with product traceability. When a product was managed by a third-party warehouse with a different warehouse management system, it was difficult to get information on the end-customer for the product. Similarly, tracing an issue with a product back to the raw materials or components was a complicated process.
Corporate social responsibility is becoming more important to consumers. How can they trust that the products they purchased met certain ethical standards?
People are excited about the possibility of using the blockchain technology for traceability of product quality and ethical manufacturing in the supply chain. (There is even talk of using information from internet of things technologies, like history of product temperature exposure, to ensure products meet requirements in the supply chain.)
Agreements made between product manufacturers and their customers in terms of service and quality expectations could be put on a blockchain. I saw a lot of buzz in my research around smart contracts maintained on the blockchain, where if the conditions of the agreement are met, money could automatically be transferred between the parties.
So similar to the internet, it’s hard to understand exactly what exactly blockchain is… but I think that’s okay. If we have a general sense of the advantages of blockchain technology compared to things like the internet, other databases, and third party verifiers, we should focus instead on how can we USE this technology in supply chain. Instead of transferring copies of information, the blockchain contains the original copy and therefore the VALUE associated with it. And isn’t supply chain all about value?
Let me know your thoughts and if you have any other better ways to describe blockchain or ideas on how it could be used in supply chain!
Lora Cecere has written a blog on hyperledger (the business application of blockchain technology) called Seven Use Cases for Hyperledger in Supply Chain and she will be hosting a webinar May 24th 2017 on Blockchain and Bitcoin - The Transformation of Supply Chain Finance.