Blockchain

Sean Culey

Talk of the Blockchain is everywhere. According to Gartner, Blockchain is currently at the peak of the emerging technology Hype Cycle, generating headlines declaring it to be ‘as big as the Internet’ – all for good reason. It could potentially transform industry operating models and create decentralised mechanisms the like of which we haven’t seen before. Originally developed for managing payments in with cryptocurrencies like Bitcoin, Blockchain has the potential to fundamentally change the way global supply chains share information and conduct transactions by automating the recording of product, asset & financial transactions.

By Sean Culey

Instead of a single centralized ledger and multiple users accessing only part of its data, Blockchain uses a completely different principle: a digitized, distributed public or private copies of the ledger that are time stamped and consolidate all transactions of a system. A Blockchain consists of a series of blocks that hold batches of valid transactions, from the start of the supply chain to the end. Once the transaction is completed, a block goes into the Blockchain as a permanent database, and a new one is generated including a hash (record number) of the previous block in the chain, linking the two. There is a countless number of such blocks in the Blockchain, connected to each other like links in a chain, held together in a linear, chronological order from manufacture to consumption, including all changes of ownership. The Blockchain therefore serves as an open ledger, where every transaction on the network is registered and available for all participants to see and verify, providing each member of the network with far greater visibility of the total supply chain.

The Blockchain was designed so these transactions are immutable, meaning they cannot be deleted. The blocks are added through cryptography, where computers from separately owned entities are used to follow a cryptographic protocol that continually validates updates to a commonly shared ledger. It therefore becomes increasingly secure the more people participate in it, and the data can be distributed and added to (via new blocks being appended to the chain), but not copied or altered.

Bridgett McDermott. IBM Blockchain VP summarises it as follows; Blockchain is a trusted system of record – that’s all it is, it’s that simple.”

Why it matters

The complexity and diversity of the different interests in a global supply chain present exactly the kinds of challenges Blockchain technology seeks to address. The globalised nature of trade means that, for example, food grown in an emerging company is picked from the field, put in boxes, moved by a packager to a temperature controlled distribution centre, shipped across the world, unloaded at port, moved on once again by another haulage company, placed in another distribution centre, picked and packed and finally sent to a retailer, who then sold to a consumer. Currently all the information relating to each one of these transactions and the partners involved in them – from field to fork – is sitting in silos that just don’t talk to each other. You therefore cannot view the end-to-end supply chain holistically, and this is a problem. You may trust your supplier, but do you trust (or even know) your supplier’s supplier. Or their supplier?

Recent examples that show why food traceability and transparency is important. In 2013, meat sold across Europe as beef was found to contain horse DNA. The fallout caused UK sales of frozen hamburgers to fall by 43 percent, frozen ready meals by 13 percent and supermarket Tesco’s to lose 360 million euro off its market value. A widespread investigation then took place, and found that 23 out of 27 samples of beef burgers also contained pig DNA; a major problem considering pork is a taboo food in the Muslim and Jewish communities. Just this year, an undercover operation into 2 Sisters, the largest supplier of chicken to UK supermarkets caught them altering the slaughter date of poultry, altering records of where chickens were slaughtered, mixing chickens slaughtered on different dates on the production line and returned chicken pieces were repackaged and sent out again to major grocers. These activities potentially hinder authorities from recalling contaminated meat during food scares and put the public’s health second to the company’s profits.

From a product traceability perspective, the Blockchain could therefore be transformative, addressing the product quality and safety issues that have arisen from this fragmented, multi-echelon, globalised supply chain. Through the provision of a single, constantly updated view, a Blockchain removes the need to transfer information between organisations using traditional, time-consuming and error-prone methods, as well as the laborious and often error-prone reconciliation of each party’s own internal records. It would enable the instantaneous digital tracking of the provenance and movement of food throughout the entire supply chain, allowing retailers and restaurants to have assurance that the products they receive and serve their customers are safe. Blockchain therefore represents the opportunity to provide a truly global system for mediating trust, traceability and transparency, addressing globalisation’s need to facilitate a broad range of supply chain relationships across a wide variety of different cultures, languages and systems. This level of transparency helps reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.

Key players: pioneers, early adopters in industry, key suppliers/developers

To address these kinds of worrying scandals and breaches of trust in the food supply chain, IBM has already partnered with Nestle, Unilever and Walmart in the development of a food standards Blockchain, and started traceability testing with foods like mangoes. Bridgett McDermott, IBM Blockchain VP stated that in testing they had reduced the time it took to identify the actual farm that had grown the mangoes that were in a pack of pre-packaged mango slices bought from a US retailer from 6 days, 18 hours and 26 minutes – to just a couple of seconds.

Back in September 2016, IBM also completed a proof of concept Maersk, the largest container carrier in the world, tracking a container of flowers from the Kenya coastal city of Mombasa to Rotterdam in the Netherlands. In the UK, software start-up ‘Provenance’ is already testing Blockchain technology with several supermarkets, financial houses and fashion retailers. In one case study, they tracked sustainable alpaca fleece from the point of shearing in the farm, through to spinning, knitting, and finishing in fashion designer Martine Jarlgaard’s London studio – creating a digital history of the garments’ journey.

The concept of a global, public encrypted open ledger that no-one controls but every party can access should therefore mean that we regain trust in the goods we buy – and their suppliers.

The Future

It’s still early days in the Blockchain journey, but its use is set to rise exponentially. Even though it is still primarily focused around the cryptocurrency Bitcoin, the growth rate to date is startling. In July 2012, the size of all block headers and transactions was 1,604MB. Five years later in July 2017 it had reached 127,000MB, or 221,000 transactions a day. As the IoT expands and chip and sensor technology advances, it is expected that the Blockchain will become almost semi-autonomous, receiving and translating data from the physical goods as they reach certain nodes, be that a port, plane or warehouse. Deliotte predicts that by 2025 at least 10 percent of the global GDP will be on the Blockchain. When combined with ‘smart contracts’, which contain all the relevant contractual rights and obligations for the entire supply chain, including all the terms for payment and delivery of goods and services, then it is expected that almost all necessary transactions could be processed by an autonomous system that’s trusted by all signatories. These could include validating the authenticity and accuracy of documents such as birth certificates, passports, wills, land rights, contracts, criminal records, medical records, building permits, health and safety inspections, business licenses, vehicle registrations, intellectual property rights, software and hardware licences and patents, copywrites and trademarks. Basically, wherever there is a transfer of ownership of anything of value, the Blockchain could be used to improve traceability and transparency. However, before governments get involved with Blockchain, industry must first agree on a set of best practices and standards of technology and contract structure across international borders and jurisdictions. Once the foundations are laid across national borders, then the Blockchain will be the way we conduct and record business in the future.