Understanding Blockchain

What is Blockchain?

So, what is blockchain? Everyone has heard of it, but it can be hard to get a concrete answer on what it exactly is. Blockchain is a type of database. At its core concept, it is fairly simple to understand. Data comes in, is recorded, and stored in what is called a “block” or packet of information. When new information comes in, it is stored in a new block which is chained to the previous one in chronological order. Once the current block is filled with information, it is sealed away, never to be changed, and the new block is “chained” to the previous one like filling all the pages in one notebook and moving onto the next. This process creates a digital ledger with recorded transaction history.

Blockchain specifically refers to the type of system utilized to record this data. Blockchain is a system, like encryption, and can have many applications and uses. Decentralized blockchains like Bitcoin are immutable meaning that data entered cannot be reversed. This is like the difference between writing on a paper ledger with a pen versus a pencil. Decentralized blockchains are subject to change i.e. if you make a payment, your balance will be reduced, but the transaction history will be recorded indefinitely, and cannot be reversed or erased.  

When you make a change to a spreadsheet like Microsoft Excel, the old information is deleted and lost, but with a database, a version history exists. Most databases are owned by one company or network of computers with the power to control the system. The blockchain relies on a decentralized network of computers for computing power, storage space, and information verification. If a change is made on one computer, it can be cross-referenced against thousands of others to pinpoint where the problem has occurred.

How can Blockchain be used?

Although the term blockchain has been floating around the collective consciousness for several years now, this is still a young technology. There are many potential uses for the technology behind blockchain, and as adoption increases, even more applications will certainly be discovered. The more computers in the network, the more powerful, secure, and fast transactions will become. Since this is primarily a data storage technology, any industries or functions that rely on data could find practical uses for blockchain.

Information on monetary transactions lends itself well to the blockchain. Cryptocurrency is primarily based on blockchain tech with complicated mathematical algorithms called cryptography as its underlying basis. All types of transaction data can utilize blockchain. There is visibility built into the system so changes can be made, but they can be easily tracked. For example, if your computer was hacked and your Bitcoin was stolen, they could still trace it. And, the blockchain works 24/7 in every location around the world. If a transaction is made on nights or weekends, it can go through the system and be updated immediately regardless of business hours. The decentralized nature means that no company or government can effectively control the process. Important records cannot be changed, they can be trusted to be kept without the threat of getting lost, altered, hacked, or in other ways misused. They are very secure, private, inalterable, and efficient, although there are still some uncertainties around technology costs, transaction speed, uses, and regulations that are being borne out.

Why Blockchain for Shipping and Logistics?

Although the world of finance receives most of the attention for its adoption and potential uses for blockchain technology, the field of supply chain management has an immense number of uses for the platform. Marine insurance is a financial service, and the end-to-end supply chain for products involves so many moving parts that database management is invaluable to companies in the space no matter their specific role in the process.

As discussed in Volume 2 of Falvey Foresight with the topic of cybersecurity, one of the most significant threats for companies in the supply chain comes from the partner and vendor relationships. There are so many involved parties that it can be very difficult to verify information and communicate on important topics. Any one break in the chain can pose issues such as a cybersecurity breach from hackers gaining access to the system, data security breach with thieves attaining sensitive information, or a lack of verified information leading to operational issues.

Let’s take an example of how blockchain technology could be utilized to guard against these potential issues in the supply chain through the lens of a Falvey Loss Prevention services hypothetical use scenario. We will take ABC shipper and imagine they are shipping widgets from China to the US for distribution from a 3PL distribution center. Product verification and supplier quality management information could be stored and monitored on the blockchain starting from the facility in China, so we are certain of the class of the product.

From there, we could monitor things like packing procedures, shipping and handling instructions, and carrier performance all on the blockchain. This would be secure unchangeable information updated right into the system for each checkpoint in the process. Data access permissions can be granted to the appropriate parties, so truckers, for example can know the product origin and destination without knowing the content, while customs would have full authority to know contents, packing procedures, and clearance status on the cargo inside.

Best practices such as delivery inspection could be built into the requirements for handoff to the facility in the US, and smart contracts can be used to sign and acknowledge responsibility. The blockchain could then be used as an inventory management system in the distribution center, with the ability to automatically link to a retail system so end customers could buy items online and arrange for carrier delivery themselves automatically. All of this could be done with visibility throughout the whole process, and much less complication than what is possible now. The opportunities to link with Internet of Things (IoT) devices and automated equipment will offer even more possibilities in the future.    

Conclusion

In this article, we have covered what the blockchain is in common terms, how blockchain can be used, and why it is important for the supply chain management industry to be cognizant of developments of blockchain. However, we have only just scratched the surface on both the underlying complexities of the technology and the impact blockchain can have on the way we do business. Whether you believe this is the start of the 4th industrial revolution – as some are calling it – or an over-hyped piece of tech, the underlying process will unquestionably be utilized in future technological developments. If an industry or process can be improved from more complex data tracking, more visibility, real-time updates, or increased security, then it could be improved by the blockchain.

Blockchain Definition: What You Need to Know (investopedia.com)

us-blockchain-to-drive-supply-chain-innovation.pdf

Building a Transparent Supply Chain (hbr.org)

Blockchain technology for supply chains--A must or a maybe? | McKinsey

Blockchain for Supply Chain - IBM Blockchain | IBM

8 Ways Blockchain Is Revolutionizing Transportation And Logistics (winnesota.com)

Examples of blockchain in logistics | OpenLedger Insights