How Blockchain Technology Will Optimize Supply Chains
We continue our series on blockchain technology in business processes. This time, jointly with QBT expert Andrei Lukashenkov, we will explore how distributed ledger technology could digitize logistics and optimize supply chain management.
Let’s, however, try a different approach first and see whether it is even possible to implement full decentralization and anonymity at all economic levels. To do that, we will examine how blockchains can be used in real estate transactions.
A Decentralized World
Ideal decentralized apps, or DApps, run on a decentralized network. All interactions between users are direct, with third parties and middlemen excluded from the system.
As a fairly successful example of such an app, take Bitcoin. Formed as an alternative to PayPal, Visa, and MasterCard — key players in the market of web payments — Bitcoin was supposed to offer an independent infrastructure open to any user. However, after making a claim for a new technology paradigm, Bitcoin to this day fails to compete with centralized systems in terms of both technological advancement and prevalence.
Opinions on decentralization divide into two camps. Decentralized zealots believe that DApps could, and with time will, fully revolutionize and reshape our reality, weeding out outdated processes and institutions. Those who take a more flexible approach treat blockchains, a technical framework of DApps, as a new paradigm, which can be leveraged to boost efficiency of existing market players and processes.
Real Estate Transactions
Solutions for the real estate market have always been among the most promising DApps. They heavily focus on purchase and sale transactions with a simultaneous transfer of ownership.
It is vital to understand that processes specific to the real estate market are there for a reason. All parties to a transaction play a major role in risk minimization.
DApp developers promise to create a super efficient process with no third parties or middlemen. Such scheme implies that the app itself will become the principle guarantor of security. For many people, buying an apartment is a big move, the most important transaction of their life. The question of security and risk minimization is thus greater than ever. Both the seller and the buyer want the transaction to go smoothly and be impossible to challenge. The real estate market always poses some sort of risk related to the history of an apartment, its condition, or current ownership, which cannot be resolved by writing it in a blockchain. At this point of our development, we cannot remove middlemen, lawyers, or appraisers out of the process, for their participation minimizes the risks and ensures legitimacy of the deal.
However appealing, the idea of a peer-to-peer transaction allowing you to buy an apartment with Bitcoin or Ethereum right in the app or automatically register your deal, bypassing appraisers, banks, or third parties, is out of touch with reality.
Very few buyers and sellers can put all their trust in an abstract DApp developer. A fully decentralized system leaves open many legal questions related to deal registration or housing disputes.
For such a system to work we need a drastic change of all processes related to title registration and of the entire real estate market. The system should have a credible e-register of all property rights, ideally on a blockchain, which would be linked to the digital identity of property owners. While the state does not fully lose its functions as a regulator, particularly concerning cross-border transactions, the real estate market becomes more autonomous. How many years would pass before such a system could come into existence? Unfortunately, there is no definite answer yet.
So let’s now shift our attention to more down-to-earth examples of blockchain application.
Automatizing Supply Chain and Logistics with Blockchain Solutions
Blockchain technology allows participants of various business processes to have a common information representation at several levels — financial, logistic, and applied. As the key principle of every blockchain platform goes, “I see what you see. I trust what I see, and I know that you see the same.” It is this transparency that helps companies to boost their efficiency, as compared to disconnected internal systems. There is no need to verify and convert data when transferring it from company to company or from system to system. Many sources of error are eliminated. Access to up-to-date information becomes faster, resulting in more efficient and competent management decisions.
The number of blockchain solutions for supply chains grows by the day. Among the most notorious cases is TradeLens, IBM Food Trust, Everledger, and Provenance. Blockchain solutions for supply chain allow to track all movement of the goods as well as retrieve data on their production: primary products, place and date of manufacture, time of dispatch, etc.
More and more use cases appear every day. Tmall Global, a B2C platform of the Chinese giant Alibaba, has recently started testing a blockchain system for tracking imported goods. The solution will allow customers to have complete information about the product and do not question its authenticity.
At the end of 2018, IBM Food Trust was launched, a partner network bringing together farmers, processing companies, wholesalers and retailers, distributors, manufacturers, and other market players. The platform is powered by Hyperledger Fabric and aims at adding transparency and ensuring full monitoring of an entire supply chain. Such market giants as Carrefour, Nestlé, Dole Food, Tyson Foods, Kroger, Unilever, and Walmart have already joined the network.
To add or find information on diamonds one can use Everledger, a blockchain powered platform developed by the British startup with the same name. The platform aims at bringing together manufacturers, middlemen, and customers. The register stores data on every diamond — its origin, carat weight, color, cut, and other characteristics. This allows end users to promptly verify whether their gem is real or fake. As of today, over one million diamonds are digitally stored in the database. Everledger partners with Taylor&Hart, a London-based jewelry company, and the U.S.-based Rare Carat.
The Provenance platform developed by a British company with the same name allows customers to track their products all the way from production line to store. Each product has its unique digital passport — this adds transparency, ensures confidence, and strengthens relations with customers. The platform partners with Co-op, one of the major British retailers.
Global platforms, such as IBM Food Trust and TradeLens (which we discussed in our previous article) bring together existing market players. Entering in blockchain projects with other industry members not only fosters new infrastructure but also helps businesses find new clients and potential partners.
Blockchain solutions for supply chain have proved their efficiency — they allow to easily track a product from a manufacturer all the way down to a store, verify quality and authenticity. Applying blockchain technology will help suppliers boost sales, build trust with customers, and become part of the global network of companies operating in the same area.
Companies that seek partners to jointly develop their own blockchain-powered solutions for supply chain can consider interacting with the community of blockchain consortia. Such associations have their advantages and disadvantages, which we will address in our next article.
We will keep shedding light on the practical angle of blockchain application and will soon examine platforms for trade finance and their mechanisms. Stay tuned!
