About a decade ago, Satoshi Nakamoto shared an idealistic vision to remove the intermediaries – i.e. financial institutions – from monetary transactions between individuals. The Bitcoin network is a truly democratic solution, favoring autonomy, decentralization, and the greater good of the community. The rules surrounding its future growth and development are clear, and they bar any non-majority user groups from altering the core design.
The Bitcoin network owes its success to novelty; born of the modern world, it never had to contend with legacy transactions or link to physical assets. New bitcoins are simply “minted” directly into the network. However, the very features that make blockchain successful in this instance also hold it back from other use cases.
Below, we consider a couple of the promises – and letdowns – of blockchain technology, and why supply chain leaders shouldn’t hold their breath about its transformative potential just yet.
Problems of Entry & Ownership
One of the most appealing promises of blockchain technology – and the premise of Bitcoin – is its ability to simplify the process by removing the intermediary. However, trust is a factor we haven’t yet solved in use cases outside of Bitcoin.
Take the famous diamond tracking initiative, for instance. The precious stones should lend themselves perfectly to the process; each offers distinct inclusions and blemishes, providing a unique fingerprint to document digitally and record via blockchain. Once the diamond is discovered, though, the process requires a “trusted” agent to digitally register its attributes and origin. This is where it gets sticky. Such tracking initiatives want to avoid bringing conflict diamonds into circulation. Yet, the initial data entry is where a lot of the record tampering occurs, and blockchain only prevents doctoring after the data enters the system.
In other words, blockchain accommodates record keeping where there is no incentive to tamper with the data at the offset. It best serves cases that see increased risk over time. To avoid deceit, many industries would have to institute a costly network of trusted agents to facilitate the move between the physical, legacy world and that of the new digital ledger.
Moreover, there’s the simpler issue of entering and tracking items that aren’t unique, like anything made in bulk and mass-produced. The digital stamp can be made unique and immutable, but the physical products they represent, whether through a serial number or certification, cannot be. As such, digital entries are only as strong or enduring as their material counterparts.
As much as proponents would like it to be, the solution of digital immutability isn’t a panacea. As long as material items remain variable or open to interpretation, no blockchain record will save them from all eventualities.
Where Does Blockchain Fit in With Supply Chain Challenges?
There’s a reason why this technology is yet to celebrate comparable successes beyond Bitcoin. Apart from issues of entry and ownership, the innovation faces a couple of unique problems within the supply chain industry.
Many blockchain proof of concepts (PoCs) celebrated over the last few years have been addressing digitization challenges. Blockchains are, however, encrypted by design and lend themselves poorly to interoperability – an integral function of multi-enterprise supply chain business networks, which are taking a stronger foothold in the industry. Blockchains operate on single-purpose networks, be it financial or tracking, for instance, without any effective means of translating and connecting between transactions and order flows across the growing matrix – or “n-chain” networks – of these multi-enterprise partnerships.
The greatest hurdles to efficient and streamlined operations within the supply chain are digitization and interoperability. Too many organizations still run outdated legacy systems, and even those that embrace the latest innovations do so in silos at the cost of true transparency and collaboration. While the current blockchain PoCs are trying to address these problems, they are not best-suited for the job and can cost companies millions to implement.
Before considering any drastic overhauls, businesses would do better to ask themselves: How am I making my records – my part of the supply chain – visible to my partners today? Perceived values, like risk control, dynamic and intelligent decision making, and efficiency are already achievable through cloud technologies, and at a lesser cost.
As Adrian Gonzalez of Talking Logistics aptly notes, blockchain seems to be as overhyped today as RFID once was in supply chain management. The technology is still in its infancy, and the consensus algorithms it relies on promotes progress at a snail’s pace – as any good democracy does. While we’re waiting for the innovation to advance, and hopefully become more capable and integrated over time, we must simultaneously develop a proficient system to one day integrate that tool into.
There’s much to be hopeful and excited about with the future of blockchain technology – but you won’t make it to that future if you don’t address today’s challenges first.
MP Objects provides tools to digitize and automate functions across the supply chain, grow your multi-enterprise business network, and ensure it runs efficiently and cost-effectively. Reach out to us for a demo.