What blockchain is and isn't
Date: Friday, March 16, 2018
Source: American Shipper
It's hard to go anywhere these days without hearing about the magical powers of blockchain, but logistics practitioners should understand how the technology is actually unique.
I’m the last one to dampen the spirits of those in the logistics and shipping industry eager to embrace new technology. And count me in the group who believes blockchain will ultimately be an integral part of that picture.
But I do want to point out something I’ve noticed when it comes to the discussion about, and embrace of, blockchain in the world of supply chain.
For the most part, blockchain is not something that creates something that does not already exist today. It is a community-based ledger that theoretically works perfectly in supply chain because of the number of individual companies that have to coordinate to ensure smooth delivery of a shipment.
But let’s not pretend that multi-enterprise tools to coordinate shipments have not been around for years.
If anything, the rise of multi-tenant, browser-based, portal-oriented transportation planning and execution software has brought this capability to bear for shippers and their ecosystem of supply chain partners. Those platforms give any party with permission the ability to input or view data. That powers visibility, smooths hand-offs between parties, reduces data entry and increases data accuracy.
These are the building blocks of what has broadly become known as logistics automation. And, in a way, the blueprint for blockchain has been laid by these widely accessible tools.
So, in light of that, let’s dive deeper into what is and isn’t unique about blockchain.
For one, logistics blockchains will be underpinned by application programming interfaces (APIs). I’ve written a ton about the importance of API adoption in logistics, but they are absolutely critical in a blockchain context. Blockchains essentially are heavily encrypted, transparent databases, so they will rely on data pulled from or pushed to systems. APIs are the best way to do that, not EDI or flat files. There will surely be blockchain providers that can ingest data in any format, but to get real benefit from blockchains long-term, the data should be real-time and APIs are the only way to deliver data in that manner.
As I said earlier, a community ledger basically mirrors the concept that browser-based network software providers have championed the past decade. Those platforms were built around the idea that data would be inputted only once, leading to the now ubiquitous phrase “a single source of truth.” Blockchain would memorialize this network data approach in a different way, but it’s not really a different concept, just a different structure.
I’ve had discussion after discussion lately about a fundamental difference in the blockchain adoption curve compared to other hyped technologies. It seems blockchain is being driven from the top down, not the bottom up. By this, I mean that blockchain interest is being led by executives or the C-level more than it is by IT or operations. The traditional path for investment in logistics is that someone in a logistics role discovers there is a solution for a particular pain point, and presses for funds to invest in the tool. Maybe there’s a cross-functional business case, or maybe IT is brought in early to provide support, but the demand usually comes from the bottom up. Blockchain is all over business journals these days, and has caught the eye of executives, who are charging their troops with the task of figuring out how it would fit within their business. This leads to the now common refrain about blockchain: “a solution looking for a problem.”
There are some unique characteristics about blockchain.
This is a technical point, and frankly it bogs down conversations about the benefits of blockchain-backed solutions, but the structure of blockchain means it’s inherently less hackable. There are weedy reasons for why blockchains have stronger encryption, and in truth, the stronger encryption is a fundamental part of blockchain and part of its marketability. But this part of the discussion often drags things down to the detriment of more interesting discussions about benefits. Let the IT wonks get lost in the technical discussions.
In addition, blockchain does create greater transparency, hence why so many of the early supply chain use cases for it are centered around product traceability and audits. A ledger that can’t be easily hacked means everyone with permission can immediately figure out who made an error, or who entered data incorrectly, or whether an invoice doesn’t match up to a contract. Some of that transparency is still sorely lacking in those logistics platforms that enhanced network accessibility. That’s because those networks are still typically “owned” by a single party, whereas (theoretically) a blockchain is owned by the community.
Perhaps the biggest second stage opportunity within blockchain solutions is the ability to structure data more effectively, and then use that data for other opportunities. That might mean, for instance, a shipper being able to irrefutably prove that shipment delays were caused by a carrier and thus price that information more systemically into future procurement cycles.
This is not an exhaustive of list of similarities and differences, but the ones that I see coming up the most in recent discussions with blockchain and logistics experts. Again, blockchain is, on balance, a worthwhile concept to study and invest in for almost any company. But we should all be clear on what it is and what it isn’t as we go boldly down this path.
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