Blockchain and the Digital Supply Chain

Blockchain is gaining momentum across a wide range of industries because it has the potential to change the way we do business. It is a very disruptive technology that could affect many different aspects of our society.

When I talk to people about Blockchain, their very first thought is often about bitcoin. Let’s be clear: Blockchain IS NOT Bitcoin. Blockchain is the technology that initially made Bitcoin possible, but Blockchain is much more.

Even if Blockchain is a recent and emerging technology, we have seen an evolution to support multiple use cases over time: Blockchain 1.0, 2,0, and 3.0

· Blockchain 1.0 is all about cryptocurrency. It is a platform to support digital payment and currency transfer. Bitcoin and other cryptocurrencies rely on a the Blockchain 1.0 platform. This first version of Blockchain was released around 2008–2009 with the creation of Bitcoin.

· Blockchain 2.0 is bit more sophisticated. It supports financial markets not only to exchange assets (e.g bonds, stocks, loans, mortgages…), but also to apply business rules during transactions (smart contracts).

· Blockchain 3.0 is the latest evolution of Blockchain, and the main idea is to support use cases out of the financial sphere. Blockchain 3.0 can apply to different domains such has government, health, culture, internet of things, or supply chain. The technology can potentially enable any digital transaction.

Blockchain in a nutshell — They key components.

Now that we have talked a bit about Blockchain history and evolution, let’s have a look of what is Blockchain. Gartner defines Blockchain as “a type of distributed ledger in which value exchange transactions (in bitcoin or other token) are sequentially grouped into blocks. Each block is chained to the previous block and immutably recorded across a peer-to-peer network, using cryptographic trust and assurance mechanisms. Depending on the implementation, transactions can include programmable behavior.” (http://www.gartner.com/it-glossary/blockchain).

First, Blockchain is about collaboration between multiple participants (partners, clients, suppliers, providers…). When a business process is shared across multiple stakeholders, Blockchain provides a mechanism to support peer-to-peer transactions.

One key aspect of Blockchain is the notion of a shared, distributed ledger where transactional information is logged and stored. This ledger is a single source of truth that participants can rely on for their business processes.

As most commercial transactions are complex, support for simple asset exchange is not sufficient. So Blockchain provides a mechanism to enable more advanced processes: the smart contracts. Smart contracts are business rules to apply when a transaction occurs. A smart contract can be a simple line of code, or a more sophisticated application to automatically trigger events and integrate with multiple systems.

With information shared in a common ledger, privacy and trust are obviously a concern. Participants need confidentiality and they want to be sure that the information they have access to is reliable. Remember that Blockchain 1.0 was exclusively focusing on cryptocurrency. So authentication, encryption, non-repudiation, immutability and consensus are all part of Blockchain’s DNA.

The value of Blockchain

When considering Blockchain adoption, every organization will try to identify the value of this new technology. It may vary a bit depending on use cases, but the typical value themes are around efficiency, accuracy, reliability, and cost.

When multiples entities are involved in a business process, they often have their own private IT systems. Information from other stakeholders has to be replicated and reconciled, with is a error prone and time consuming process. With a shared ledger, a single source of truth is available to all stakeholders anytime. This facilitates access to accurate data on current transactions, but also to all past transactions.

With Smart Contracts, Blockchain also provides a mechanism to enforce business workflows. This is a nice capability to support the digital economy. When a transaction happens, a process can automatically be triggered with no need for human intervention or paperwork. This facilitates cooperation between business partners, as predefined terms and conditions can be defined and linked to specific transactions. Moreover, automated smart contracts ensure predictability and repeatability of business processes.

Last but not least, Blockchain is a platform where transactions are endorsed by participants. No need to deal with a third-party intermediary. Processes are streamlined, less risky, and more cost effective. The gain is obvious for those who have to deal with problem resolution and settlement delays between multiple parties.

Blockchain for Supply Chain scenarios

As mentioned before, Blockchain could be a major disruptor for many different domains, and supply chain is no exception. The digital supply chain needs a reliable mechanism to facilitate and automate transactions between multiple parties (producers, suppliers, distributors…). Blockchain could definitively be one (among others) option to support the digitization of a shared, distributed business process. As it becomes more mature, Blockchain could align very well with multiple supply chain use cases.

· A supply chain is always quite complex as it involves multiple participants, a significant amount of data and a lot of events over time. Retailers, distributors and manufacturers need to find ways to connect heterogeneous systems in order to exchange information. The Blockchain distributed ledger provides a mechanism to ensure the information is not duplicated, and to minimize the risk of discrepancy between multiple systems owned by different stakeholders.

· Transparency and traceability can both be critical for some goods. Think about proofs needed for organic food, fair trade products, or cold chain compliance. Built-in traceability capabilities in Blockchain can support those needs and automatically provide the information needed during audits.

· The management of the flow of goods and services involves a lot of transactions and the transfer of assets between multiple parties (asset ownership). Electronic receipts, custody management, bill of lading can be managed by a Blockchain, and automated process can be enabled using smart contracts.

· Access to historical records is often required during audits or conflict resolution between multiple commercial parties. By design, data stored in Blockchain is immutable and signed. It is always possible to access past transaction and to know who was involved (signature authenticity and non-repudiation). Blockchain historical data is also valuable to support settlement scenarios. When a problem occurs between participants, Blockchain will allow to track back to the source of the problem.

· With the adoption of IoT (Internet of Things), automated communication between sensors and smart system will become prevalent. An IoT network is an ecosystem of devices (participants) that exchange information. The decentralized nature of an IoT network is aligned with the distributed architecture of Blockchain. Shared ledgers can be leveraged to track IoT transactions, and smart contracts are simple mechanisms to trigger events for autonomous IoT. Blockchain could potentially be the backbone of autonomous IoT networks: industry 4.0, connected stores (retail), smart transportation, etc…

Next — What needs to be improved

The Blockchain revolution is coming, but a lot has to be improved in order to support more business-critical use-cases.

(Leadership)

First, Blockchain leaders have to emerge. For now, a lot of different organizations are trying to become Blockchain experts and providers. But it is still not clear who will be leading the pack in this ecosystem. There are many different Blockchain offerings today, such as Ethereum, Hyperledger, Blockstream, or Ripple just to name a few. Microsoft and IBM are currently providing Blockchain as a service on Cloud. Large bank or financial organizations are also proposing their Blockchain services. With so many different options, Blockchain early adopters are taking a risk when choosing a platform as it is difficult to forecast who will become the prominent Blockchain player (what if you choose a platform that no longer exist in a few month).

(Standards)

Because Blockchain maturity is still low, standards have not yet been defined and agreed upon. Clear leadership in the Blockchain ecosystem will help define standards. As a Blockchain early adopter, you may wonder if the solution you have selected will still be appropriate in a year from now. Open standards are critical to wide Blockchain adoption to ensure interoperability between different platform.

(Performance)

At the time of writing, Blockchain may not be appropriate for massive real-time transactions. Blockchain performance is determined by network performance, and the intent is not to replace high-volume transactional databases. Blockchain performance will improve over time, but the best use cases may be around limited volumes.

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As different industries adopt Blockchain, it is obvious that these different constraints will disappear. Blockchain is a major disruptor, and may potentially redefine digital business.