Blockchain in Supply Chain
Suppose you order a shirt from an e-commerce site and the shirt gets delivered to you. How would you confirm whether the shirt is authentic? How would you make sure that the shirt is not made in a sweatshop? How would you make sure that middlemen involved in the process did not tamper with your shirt? That shirt cost you a pretty handsome amount of money so you have to be sure. You would probably say that the shirt is authentic as it was bought from a reliable source. You cannot be sure, however. There have been reports of fraud even in reputed organizations, so you can't say for certain that your shirt is authentic.
Is there any way to do this?
Let’s find the loopholes in the current process and then try to address them.
Why is somebody getting a chance to cheat you?
It is because other people don’t have information about that person.
Consider a very simple case that your shirt is being made in a sweatshop which that website owns and then gets delivered to you with the help of a delivery agency (assume that the delivery agency does not do any fraud).
In this case, you and the delivery agency do not have any information about the product, about whether the shirt is original or not. The delivery agency has nothing to do with the product if it is legal, so it does not ask for any verification. Hence, a fraud is possible.
Then what’s the possible way out?
One way would be if the delivery agency asks for verification. That, however would hamper its business. As long as the material is legal the delivery agency does not ask for any verification.
The other way would be to have a system like Google Sheets in which the information about every process is there and everybody has access to that information and nobody can tamper with that information.
Consider a new system in which every person (including those who are not involved in the transaction) has the information about the processes that your shirt has undergone. For example, suppose your shirt is at the delivery agency, then you, the delivery agency, the manufacturer, the website and the other people on the system like other buyers and sellers, will have information about the processes, like shirt was manufactured in ABC factory, delivered to the website’s warehouse and then given to the delivery agency. You can think of the system as very secure Google Sheets where data is secured with the help of hashing and cryptography.
You would think that the website owner, instead of buying a shirt from ABC factory, would produce that shirt in his own sweatshop and would tamper the information in the system, claiming that the shirt was produced in the ABC factory and produce fake branding. This is not possible though. As the data is distributed over you, the website, the manufacturer, the delivery agency and people like other buyers and sellers, the website owner has to update that information over all these users which is physically impossible because the number is very large.
This is the uniqueness of the new decentralized system which makes it tamper-proof. By decentralized, it is meant that there is no single organization which is controlling all the data in the system.
NOTE: The website owner doing fraud is just one example. Since there are many processes and middlemen involved in getting your shirt to you, anyone can have a chance of cheating you. Our new system forbids them from doing that.
This new system is called BLOCKCHAIN TECHNOLOGY.
Blockchain is a decentralized public ledger of all transactions across a peer to peer network. With this technology, participants can confirm transactions without the need for a central certifying authority.
HOW DOES IT WORK?
1. REQUEST: A person requests a transaction. Everyone in the network holds a unique digital signature which is a combination of public and private cryptographic keys. The main purpose of this component is to create a secure digital identity.
2. TRANSACTION: The transaction is transferred to a P2P network built of computers(nodes).
3. VALIDATION: The network validates the transaction and the user with an algorithm. The transaction can be cryptocurrency, contracts or any other form of information.
4. BLOCK: Once confirmed, the transaction is combined with other transactions to create a block.
5. ATTACHING THE BLOCK: The new block is attached to the existing blockchain(it is permanent and cannot be altered).
6. COMPLETION: The transaction is completed and stored on a public ledger.
Hackers can hack one, two or even hundred computers in the system but they cannot hack all the computers in the system. There are two reasons for that. First, they have to hack all the computers simultaneously, otherwise other computers will find out that some breach is there. Second, there being a large number of computers, it is not possible.
That’s why this system is hacker-proof and it is being used to trade in cryptocurrencies like Bitcoin.
Blockchain technology is in its infancy stage, and most of the organizations are not implementing it because they will have to change all of their infrastructure. However, it is growing at a rapid pace and organizations like IBM, MAERSK, Deloitte, etc. are working hard to implement it.
