Understanding the fundamentals of blockchain opens an insight as to why, while being a great technology, it is not a solution on its own
Is there going to be a blockchain revolution? – By Jeremy Chapman
One of the most talked-about technologies in supply chain, logistics and shipping today is blockchain. According to almost everything written, it is set to revolutionise our lives and disrupt almost every aspect of our industry.
If you believe the hype, blockchain will remove document inefficiencies, streamline processes, massively reduce costs and eliminate the complexities of current electronic data interchange (EDI) systems such as EDIFACT and X12. But there are also words of caution and many ongoing projects that are only tentatively testing the technology.
There is a reason for this and it stems from what blockchain is. Understanding the fundamentals of blockchain opens an insight as to why, while being a great technology, it is not a solution on its own.
What is blockchain?Blockchain, as its name suggests, is a series of data blocks linked together one after another. The clever part is the encryption and linking of the blocks, the distribution of copies of the chain, and the validation involved in adding and accessing the data.
It is nearly impossible to modify the content once added. It is immutable. This gives a foundation for very elegant solutions. But those solutions will only be disruptive if they solve problems that are either expensive to manage currently or simply can’t be handled today.
Blockchain came to prominence because it solved the problems of digital currencies, making sure that money could not be duplicated or spent twice. Each financial transaction checks with the distributed blockchain, and only if all the copies agree does the transaction get made and the chain updated. It’s a distributed ledger that requires no central authority, is self-maintaining and secure.
Blockchain works for cryptocurrencies because it solves an intrinsic problem. It may turn out to be not the only solution, but it is the first solution that effectively and demonstrably allows truly digital currencies to exist. An important consideration here is that the blockchain is the currency and the blocks are the transactions – not a copy or a report of a transaction, but the actual transactions themselves. It’s a self-contained ecosystem that people interact with. There is no other way of doing a digital currency – any other technology would not provide the intrinsic requirements to make it work.
While digital currencies require no central authority, they are not without dependencies. Digital currencies based on blockchain require an industry to provide the infrastructure needed: the computer server farms, the vast quantities of electricity to run the machines, the internet bandwidth and power needed to maintain the communication of the distributed network.
According to an article in Nature, the international journal of science, it is estimated that the top two digital currencies have the same carbon footprint of 6.9 million average Europeans, producing 43.9 million tonnes equivalent carbon dioxide a year. Blockchain may be virtual, but it has a physical impact on the real world.
Uses of blockchainMany uses of blockchain have been suggested: tracking goods and containers, managing smart contracts, issuing documentation such as orders, invoices, transport notices, bills of lading etc. Most, if not all, suggested uses have two things in common: the data in the blockchain reports real-world business events or documents; and the data in the blockchain is shared between business partners.
The information reported is not reliant, fundamentally, on the concept of blockchain. It is just data – it could be sent by email or ftp or in any format: EDIFACT, X12, Excel, PDF etc. Blockchain is just another way of getting the information out there. Essentially, blockchain is a distribution technology. It manages evolving information and it allows that information to be securely available to anyone who has the appropriate key.
The information is discrete and standalone. Once data is encrypted in a block and added to the chain, it cannot be changed. This also means that the information must be accessed and decrypted to be useful. Effectively, you need to download a copy, process the data and then use it for some purpose.
Blockchain provides us with the opportunity for a potentially rock-solid method of issuing discrete packets of information and delivering them to someone, with both the sender and the recipient confident that they are looking at the same thing and neither of them able to change anything without the other knowing.
Not the whole solutionConfidence – this is what blockchain technology delivers. It makes no claim on the quality or nature of the information, only its transmission and evolutionary integrity. This is the point at which it starts to become clearer why, although blockchain is a great technology, it is not a solution to problems on its own.
The quality of the data itself still suffers all the problems that might be experienced today – if there is rubbish going in, it will be rubbish coming out.
Technologies take off if they solve problems or reduce costs. Many organisations use third-party EDI providers to manage their electronic interactions. Blockchain providers will undoubtedly compete for the distribution part of this business. It will be competition, but with very similar infrastructure costs and perhaps no great savings. A trusted electronic document could replace an important signed paper version and could disrupt the document courier business. Bills of lading would be a prime example, with the potential for a massive reduction in costs on international courier fees.
To take off, blockchain needs to provide an improvement that is so helpful to business that it can’t be ignored. It needs an email moment, an internet banking moment. There are a lot of people looking for that spark, working hard to create that moment. However, it is worth noting that blockchain is 10 years old this year.
The magic envelopeTo summarise, blockchain is the magic envelope that can deliver at the speed of light and is in many places at the same time. You can add to it, but you can never take away. Once inside, nothing can change. You can only open it and read it if you have the secret key. Someone is going to charge you for hosting it and each time you interact with it. Although it’s magic, it’s fitted with a little diesel engine that runs 24/7. It’s only useful if your partners use it, and it will only streamline your business and save you significant money if the information inside is both useful and you are not already getting it.
Jeremy Chapman has over 20 years’ international experience in the shipping and logistics sector, and works as an independent consultant, specialising in business process transformation and business development through technology; for further information, email email@example.com