Blockchain, the distributed, encrypted, tamper-evident ledger platform that gave rise to Bitcoin, has birthed a new, foundational market concept to execute business transactions, Karim Lakhani, professor of business administration at Harvard Business School, said as he led a panel talk on blockchain tech for supply chains at Automate 2019.
Blockchain is part of an emerging pattern of applications in industries that will solve problems related to sustainability, traceability and peer-to-peer business transactions, he said.
Blockchain is a decentralized register made up of endless, connected cryptographic blocks. Data is stored, time stamped—and automatically distributed to many servers at once. Blockchain is tamper evident: Any change is immediately apparent to all involved. Where multiple entities are involved as on a multiple-tier manufacturing supply chain, blockchain creates a record of every transaction. If someone adds to the data, the widely distributed ledger shows when and where that addition happened.
Smart contracts on blockchain will drive the transformation in a variety of settings, notably supply chain, Lakhani said. That transformational change, however, will take a long time and involve many battles among competing interests to control the technology, he added.
“All of the activities are being seamlessly transmitted across and because blockchain is programmable, we can build in some logic,” he said. “That enables us to do things that were not possible before or that we couldn’t conceive of.”
“We’re moving from a construct of the World Wide Web to the World Wide Ledger,” Everledger CEO Leanne Kemp said. Her firm uses blockchain to help verify the provenance of diamonds to ensure the gems are not blood/conflict diamonds, are not fake and have not been lost or stolen. “We are all in the data business. Once that realization comes to the forefront… that has value across the supply chain, whether it is in the simplicity of telling the story of the provenance of that item, or the digital footprint of that widget.”
For example, the diamond industry relied for 500 years on cheap labor, a handshake and a promise to pay, she said. But now banks have pulled out of the industry, as they are unwilling to continue to rely on that trusted handshake and that promise to pay.
“We have an $80 billion industry and a $5 billion problem,” Kemp said. “We have concerns in supply chain finance. The cost of certification is a huge variance within industry.”
This need to verify that diamonds are not used to finance armed conflicts created an opening for blockchain to move the industry into the 21st century and restore trust.
“Everledger began in 2015. We have the production platform that enabled the traceability of diamonds and the source of the mine,” she said. “We have over two million diamonds where we created a digital twin of that object. We capture that scientific thumbprint and put it back into the chain. We capture the mine, the time the diamond was cut and polished in India, when it was set and then when it was presented in the retail framework.”
Within the industry, people are asking challenging questions and developing new goals, she said, noting that Everledger has now expanded to other gems and fine art.
“The industry is facing a series of challenges and it’s going to be an existential challenge that they need to be able to address,” Kemp said. “The reality is, if I’m sourcing emeralds from Colombia, then the retailer needs to have some responsibility and shared values of that supply chain. Part of the work that Everledger (one strain of blockchain) provided for the diamond and art industries was to understand what the good international standards are and how we can bring an industry up to those standards alongside the normalization of technology.”
Along the food supply chain, Cargill is using blockchain to allow consumers to discover the farm that grew the turkey headed from the grocery store shelf to their table, said David Cecchi, architecture and solutions lead for data and business intelligence at Cargill.
Shoppers can type in a code on the turkey and get information about that turkey and the farm where the turkey was raised, he said. Cargill is now considering other potential use cases for blockchain technology along its supply chain, he added.
“I think more obligations are being recognized in certain industries that it’s just the right thing to do,” Cecchi said. “Now we have the technology and capabilities to help us make what was formerly maybe an unsolvable problem at least something that we can look at.”
Challenges for those undertaking blockchain include speed and the scalability of performance, said Michael Reed, blockchain program director at Intel.
“Intel recently worked with the Hyperledger community and IBM to help improve the performance of Hyperledger Fabric to over 1,200 transactions per second, he said. “That’s 150 times faster than Bitcoin—the original blockchain—which operates around three to seven transactions per second.”
Other challenges involve privacy and security, Reed said. Companies are using technology solutions to selectively share transaction data on private blockchains with suppliers and customers.
There is ambiguity, Cecchi said, in whether users should think of blockchain as a utility that is very open and transparent for those using it or as a closed, proprietary system. “People are not going to put up with a thousand different variants,” he added.
Normalizing the process is a key challenge for broader blockchain adoption, Reed reiterated: “We should call blockchain a ‘team sport.’ It only gets interesting when you bring a lot of participants together in a common infrastructure. It’s difficult enough to do in one corporation with multiple conditions but when you bring on new corporations, that’s where the challenges lie.”
Banking applications have taken hold first in blockchain, followed by opportunities in supply chain, he said. Trade finance—where banking and supply chain come together—is another opportunity, he said.
The blockchain movement is just beginning, Kemp said. “There are a lot of questions about being in a blockchain and other forms of technical disciplines where we need to move to a digital global commons,” she said. “Once we get there, the rest of it will fall into alignment.”
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