Blockchain Technology in the Supply Chain: A Beginner’s Guide
The Blockchain is an undeniably ingenious invention – the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto. Original devised for the digital current Bitcoin it has since evolved into something greater and the tech community has now found other potential uses for the technology.
What is Blockchain?
By allowing digital information to be distributed but not copied, Blockchain technology creates the backbone of a new type of internet. Simplified, Blockchain is a time-stamped series of immutable record of data managed by a cluster of computers not owned by a single entity. Each of these ‘blocks’ of data are secured and bound to each other using cryptographic principles (i.e.: chain).
“The Blockchain is an incorruptible digital ledger of economic transactions that can be
programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott authors: Blockchain Revolution (2016)
The Blockchain network has no central authority — it is the very definition of a democratised system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything that is built on the Blockchain is by its very nature transparent and everyone involved is accountable for their actions.
How does Blockchain work?
Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the Blockchain. The Information held on a Blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits.
The Blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralised version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
The three pillars of Blockchain technology
To understand Blockchain we must understand the three pillars the technology is based on:
Before Bitcoin came along, we were more used to centralised services. The idea is very simple. You have a centralised entity which stored all the data and you’d have to interact solely with this entity to get whatever information you required. The traditional client-server model is a perfect example of this. Centralised systems have treated us well for many years; however, they have several vulnerabilities.
- Firstly, because they are centralised, all the data is stored in one spot. This makes them easy target spots for potential hackers.
- If the centralised system were to go through a software upgrade, it would halt the entire system
- What if the centralised entity somehow shut down for whatever reason? That way nobody will be able to access the information that it possesses
- Worst case scenario, what if this entity gets corrupted and malicious? If that happens then all the data that is inside the Blockchain will be compromised.
So, what happens if we just take this centralised entity away?*
In a decentralised system, the information is not stored by one single entity. In fact, everyone in the network owns the information. In a decentralised network, if you wanted to interact with your friend then you can do so directly without going through a third party. That was the main ideology behind Bitcoins. You and only you alone are in charge of your money. You can send your money to anyone you want without having to go through a bank.
One of the most interesting and misunderstood concepts in Blockchain technology is “transparency.” Some people say that Blockchain gives you privacy while some say that it is transparent. While a person’s identity is hidden via complex cryptography and represented only by their public address. So, while the person’s real identity is secure, you will still see all the transactions that were done by their public address.
This level of transparency has never existed before. It adds that level of accountability which is required. If for example you know the public address of one of the big manufacturing companies, you can simply pop it in an explorer and look at all the transactions that they have engaged in. This forces everyone to be honest and eliminates counterfeiting, proves origin and so other huge benefits in the supply chain.
Immutability, in the context of the Blockchain, means that once something has been entered into the Blockchain, it cannot be tampered with. The reason why the Blockchain gets this property is that of cryptographic hash function. In simple terms, hashing means taking an input string of any length and giving out an output of a fixed length. In summary instead of just containing the address of the previous block it also contains the hash of the data inside the previous block.
While technical there is just one property that you need to be aware of and it is called the “Avalanche Effect.” If someone tries to change data because of the properties of hash functions, a slight change in data will change the hash drastically. This means that any slight changes made in block 3, will change the hash which is stored in block 2, now that in turn will change the data and the hash of block 2 which will result in changes in block 1 and so on and so forth. This will completely change the chain, which is impossible. This is exactly how Blockchain attain immutability.
explain how the company can track food products through its supply chain.
How will Blockchain technology benefit the Supply Chain?
Blockchain technology presents a significant step-change in business solutions for the Supply Chain:
- Supply Chain auditing
Consumers increasingly want to know that the ethical claims companies make about their products are real. Distributed ledgers provide an easy way to certify that the backstories of the things we buy are genuine. Transparency comes with Blockchain-based timestamping of a date and location — on ethical diamonds, for instance — that corresponds to a product number.
The UK-based provenance offers Supply Chain auditing for a range of consumer goods. Making use of Blockchain, a provenance pilot project ensures that fish sold in Sushi restaurants in Japan has been sustainably harvested by its suppliers in Indonesia.
Blockchain records are always instantly available to all supply chain members. Data accessibility makes decisions and operations flow quicker and easier, with simplified processes.
- Smart contracts
Simplify and improve stock arrivals, departures and movements, changes in ownership, and more.
- Product recalls
All supply chain members will have access to required information, in real-time.
- Reduce administration, automate procedures, reduce cost
Shared data, data visibility will enable more seamless commerce across the supply chain.
- Product counterfeiting
Decentralisation and encryption means records cannot be deleted, hidden or tampered with, and are safe from unauthorised access. This should eliminate or identify product counterfeit as soon as it enters the supply chain.
- End-to-end traceability
Track the origin of all assets, properties and movements across borders. Identify fraud, theft and damages, and apply firewalls to prevent failure in advance.
- Compliance & certifications
Blockchain technology makes it easy to manage compliance, verification and certification of goods and staff.
- Seamless collaboration
Blockchain networks allow multiple entities and participants to effectively communicate using electronic signatures, instant document exchange, automatic contract verification, and more.
- Customer satisfaction
Blockchain networks enable the accurate tracking of product quality and origin, and hence significantly improves inventory management. It reacts to changes in customer demand faster.
- Fair trade and other such product claims
Blockchain-based tools can validate stock origin, manufacturer, materials, and more.
- Trade flow facilitation
Blockchain’s streamlined processes facilitate the development of cross-border connections, bridging operational differences.
- Transport optimisation lower carbon footprint
Managing the carbon footprint of a product, minimising the carbon emissions required to deliver that product to the end consumer.
- Competitive advantage
Blockchain-based solutions allow businesses to address and optimise wide-ranging cross-industry challenges, providing a competitive edge.
In-DEX and Blockchain
Our worldwide patented unique referencing (UR) mechanism is the backbone of our product suite and is based on the principals of Blockchain. No transaction can occur without the previous UR existing and provides full forwards and backwards traceability throughout the supply chain.
Principal Logistics Technologies have the technology and platforms available now to allow companies to embrace the rapidly changing and dynamic environment in which we and our customers operate.
We just love to develop innovative solutions that improve on our customer’s operations and ROI. If you’re experiencing Warehousing or Supply Chain operation issues or bottlenecks – or just need improvements to stay ahead of the competition – then ask us how, today.
Joe O’Shea, Director, Principal Logistics Technologies
The above text and images are a summary of one of the best articles on Blockchain I have read to date. This is from an Article by Ameer Rosic entitled “What is Blockchain Technology? A Step-by-Step Guide For Beginners” and published here.
* Source: Blockgeeks