Blockchain is on everyone’s minds at the moment. At least so it seems. I hear about customers thinking on how to utilize Blockchain, media is writing about it and a lot of projects are started to try to be in the front of the evolution. Some say Blockchain is the largest thing since Internet. So I have been thinking about it and put it in a context known to me – Supply Chain.
Blockchain started as a way of handling Crypto Currency and does that very well. But since then it has been a hunt for more areas where Blockchain can be of use. Logistics and Supply-Chain is one of them, and since my hart is closest to that field, I have been thinking a bit on this. And how I see the future development of Blockchain within this domain and how it differs (or not differs) from the evolution of current existing B2B solutions.
There is no doubt Logistics or Supply-Chain is a natural target for the use of Blockchain. Supply-Chain is by nature a chain of events where something of value is transferred both physically as well as a transfer of responsibility and ownership, often between several actors and with the exchange of many documents. So Blockchain should be a good match. And even better with the use of IoT to automatically track the physical goods and update the Blockchain.
The arguments for blockchain
There are a few typical arguments used for adopting Blockchain as a replacement for many of the processes running on typical B2B Integration Software today. Some are good arguments, some are less good, and some are dependent on the type of Blockchain.
Mainly there are three types of Blockchains.
- Public Blockchain – the type of Blockchain used by e.g. Bitcoin, and also by many other Crypto Currencies.
- Consortium Blockchain – typically a group of companies within the same business creates a consortium and a common Blockchain for those participants. This could for instance be a group of Logistics Providers with the similar needs creating a common Industry like Blockchain.
- Private Blockchain – A Blockchain like a intranet. Used only internally for one company.
So what is the difference on these three types, and where are the advantages of Blockchain playing a role?
Removing the middleman – cost and delay
One of the arguments is removing the middleman, and thus removing a cost and a delay. A financial institution as a middle man is usually the case in most Supply-Chain operations as well, to actually transfer the payments both for the goods and the payment to the different logistics providers along the route. Regarding delay, there are technology in use today that offers real-time payment. But there are still many financial institutions that have delays. So it is a valid argument, but at the same time I believe the current development within banking regarding real-time payment might be faster than the adoption of Blockchain. So the argument may over time become less valid. But only time will show.
Regarding cost, Financial institutions obviously take it’s share as a trusted middle man. In a public Blockchain, there are the miners, those nodes who use computing power to actually validate the transfer and write the block, that also take a share of the transfer. So the middle man is still present, but more integrated in the Blockchain itself, and maybe not that out in the open to see. So the cost is not totally gone, but in public Blockchains, it is considerably lower than traditional transaction cost. In a consortium or private Blockchain the cost will vary dependent on how the cost is calculated. The miners are your own or belonging to the consortium, so it’s more like an internal cost. But anyway, the cost argument is valid. But as always, there is no such thing as a free lunch.
Increase Visibility – One Truth
One of the main arguments of Blockchain is the shared, distributed ledger giving visibility into all previous transactions. Thus it is easier to avoid disputes, and if disputes arise, it is easier to solve them, since the Blockchain holds the truth. It is also not practically possible to tamper with the data since every block has a hash based on the result of previous blocks. So what is put on the Blockchain stays on the Blockchain. To be able to tamper with a block, you have to recalculate every block put on the ledger after the block tampered with to have the correct hash on every block. So in a public Blockchain it is practically not possible to tamper with a block.
But how about a consortium or private Blockchain? If one or a few actors owns the Blockchain and all it’s nodes, it is actually fully possible to tamper with the ledger. After all, we are talking about a database, so everything can be done if the ownership of the Blockchain nodes is on a few hands. But it is still very cumbersome and processing intencive. So in practice it is near tampering proof.
Another aspect regarding visibility on consortium or private Blockchains is that the visibility for one company might be distributed across several Blockchains. If a company is doing business with multiple companies (something most companies do), it is a good chance a company will have to deal with multiple Blockchains as well. At least when looking at how the use of Blockchain is evolving at the moment where everyone is testing out and building their own Blockchains. So with multiple consortium or private Blockchains, a company doing business with other companies will end up with multiple shared ledgers if not everything they do is happening either on one Blockchain or on their own Blockchain. And this brings me to the fascinating part of the current adoption of Blockchain. I feel I have seen this before…
Implementing Blockchain – have we seen it before?
So how will this look? I have caught myself thinking that it will be very much like the evolution of the current B2B/EDI networks. When EDI was young, it was about automating the communication of business documents. It was usually set up in a Pear-to-Pear fashion. So Company A set up a connection with Company B. And those two companies sent business documents between each other. Then Company A added Company C and Company D as well to do business with them. And maybe Company B connected to Company C as well. Like below.
Then, when someone figured out that P2P topology was complex and needed quite a lot of systems support, the VAN (Value Added Network) providers started emerging. The VAN Providers became middlemen in the EDI connections. Giving each company only one point to connect to. So VAN 1 had connection with Company A, B and D, and VAN 2 had connection with Company C. Then the different companies connected to it’s VAN and the VAN connected to the other Company either directly or through joint traffic with another VAN.
And I believe the same might happen with Blockchain as well based on the current development. Currently many companies is testing out Blockchain, and creating their own private Blockchains. And that will imply companies doing business with many companies to interact with several Blockchains in a P2P fashion. So if Company A and Company D has developed their own Blockchains, and Company C is doing business with both Company A and D, Company C has to interact with two different Blockchains. And then you are back to this P2P logic which over time, and with a lot of partners is hard to manage.
And with time, when companies again discover that P2P is too cumbersome, there might be an opportunity for those old VAN providers or similar to create new business out of a simplification need from the companies doing business together. And the middleman is back!
Another dimension is also inter-blockchain communication. If one Blockchain is to communicate with another Blockchain, it also have to go through a middle-man. For instance if a payment should go from one Crypto Currency to another Crypto Currency, there need to be a middle-man in between those two Blockchains. But Blockchain is still young, and I believe those issues will be solved.
So what is the conclusion of this? It is probably way to early to conclude, but I strongly believes that Blockchain has a lot of advantages and potential. But at the same time, I don’t believe it is a magic bullet able to replace everything we have today. As typical with Open Source, it starts out as something that should be beneficial to everyone, and should save money. But as we live in a complex world, there are always a degree of complexity that opens up for someone in the middle to handle that complexity on your behalf. So I don’t believe we ever get rid of the middle man in some shape or form. The middle man might move around, but it will always be there because it’s just not in a companies interest to deal with the complexity if that is not their core business.
I see a lot of potential in Blockchain mixed with technology like IoT. Where processes can be more automated. But of course IoT can also be utilized in current B2B Integration solutions, and automate those as well. So you don’t need Blockchain to take advantage of for instance IoT, but it is two technologies with a good fit.
Hopefully we will avoid the scenario described above with a lot of private and small consortium Blockchains, and instead get a few larger industry specific Blockchains. By having that there will be less integration between different Blockchains, and the full potential of Blockchain is emerging.
Right now most actors are thinking about every possible way we can replace existing solutions, and I believe there are many existing solutions that can become better on a Blockchain technology. But over time the focus might shift to see new opportunities and solutions emerge, not currently existing, where Blockchain can play an important role. When thinking about it, TCP/IP started as a way of sending messages or e-mails. But during the decades since the first e-mail was sent in the ARPANET, it has developed to play a very important role in our lives in ways probably not thought of by the developers. And that might be the same with Blockchain. It was created to create and transfer Crypto Currencies, and will probably develop to do so much more! Just have to see how long it takes.