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What is blockchain?

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What is blockchain technology and how is it relevant to logistics and supply chains? SHD explores.

Originally created to support Bitcoin transactions, blockchain technology seems to split opinion: some see it as an exciting new science capable of delivering a massive boost to the effectiveness and profitability of all companies, while others dismiss it as merely another overhyped business tech solution.

In essence, blockchain is a digital ledger where transactions are recorded and distributed across networks of computer systems. It’s essentially a type of Distributed Ledger Technology (DLT) - a decentralised database that’s managed by multiple participants.

The underlying principle of blockchain is to provide a secure environment where encrypted business transactions between buyer and seller can happen without the need for third parties to intervene.

For example, blockchain technology supports transactions involving the digital crypto-currency, like Bitcoin, by providing a platform for creating and distributing a record of every Bitcoin transaction to thousands of computers linked to networks all over the world.

And, because the Bitcoin transactions and ledgers are encrypted, blockchain technology offers more security than the banking model. Furthermore, its instantaneous transmission via the internet eliminates the banks' two- to three-day clearing process and accompanying costs for transferring money from one account to another.

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“Blockchain is a trustworthy digital ledger that nobody can change, but anybody in a system can update,” says Gavin Parnell, Director of Go Supply Chain.

He continues:When an update is made, it is time-stamped and everybody in the system gets included in the update. Only one update can be made at a time, with each update to the ledger forming a ‘block’, and cumulative updates creating a chain of blocks – hence the term: ‘blockchain’.”

Individuals within the network keep copies of the blockchain on their personal computers and move on the information digitally by validating a transaction.

All the participants with a copy agree the state of the blockchain at any given time. It is this consensus and the use of cryptography (storing and transmitting data in a particular form so that only those for whom it is intended can read and process it) that ensures records can’t be counterfeited or altered - giving blockchain a high degree of security.

Of course, many of today's supply chains still operate without blockchain technology, so what value does it offer supply chain professionals?

While cloud-sharing of data has many benefits, blockchain’s more secure data-sharing has significant appeal. And, with more businesses hopping on the blockchain bandwagon, in theory supply chains will become more transparent and informed. The fact that blockchain facilitates the use of crypto-currencies is considered an added bonus too. 

Michael Henke of Germany’s Fraunhofer logistics institute, believes blockchain technology is particularly suited to supply chains.

He comments: “The conditions and problems in logistics supply chains, are similar to those of the finance and crypto industries. For example, many distributed entities exchange data among themselves along a supply chain. These data must be visible to everyone and yet securely stored. Many problems can be solved, such as for example, the problem of controlling the origin of goods and components of these products, piracy, and more.

“When goods are shipped, suppliers, consignees, hauliers, authorities and even financiers need to stay up to date and have the same level of information. That's exactly the strength of Blockchain . It works as a large, decentralized accounting.”

And according to Martin Barker, Finance Director of TGMatrix, who provide fully-automated, digital freight matching for shippers and carriers, blockchain has the potential to completely transform transport and supply chain practice and financing.

He comments: “Blockchain technology is gaining considerable interest due to it offering a secure, immutable and tamper-proof distributed ledger. Once a block of data has been recorded it is there in perpetuity, for all users to refer to. Information can be added but can’t be deleted retrospectively, and because the chain doesn’t reside on just one party’s systems, no single player ‘owns’ the chain.  Everybody in a transaction can trust the data, rather than having to ‘trust’ an individual or organisation.

“The effect is not unlike the ‘chain of evidence’ that the prosecution is required to establish in criminal court cases. Not surprisingly, blockchain is interesting supply chain players who need lasting certainty about the physical location and condition of goods, the existence and status of documentation – from proofs of delivery to customs papers and bills of lading – and to support payments and supply chain financing.”

While not everyone is a blockchain cheerleader, with a number of recent studies indicating that blockchain solutions can save industries billions, the technology and the improved transparency and security that it brings, is only likely to be more widely adopted across future supply chains.

 

 

 

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