1.1 Disrupting the Business of Trust – The Emergence of Block chain Technology For centuries, businesses and in some cases entire industries have been built on the simple principle of trust between multiple parties. However, this business of trust is about to be disrupted and transformed with the advent of block chain technology. Block chain can be defined as a distributed ledger technology that can record transactions between parties in a secure and permanent way. By ‘sharing’ databases between multiple parties, block chain essentially removes the need for intermediaries who were previously required to act as trusted third parties to verify, record and coordinate transactions. By facilitating the move from a centralized to a decentralized and distributed system , block chain effectively liberates data that was previously kept in safeguarded silos.
This is because global supply chains are highly complex, with diverse stakeholders, varying interests, and many third-party intermediaries – challenges that blockchain is well suited to address. In the logistics industry, blockchain can be harnessed in two key ways, namely, to drive efficiency and enable new business models:
- Drive efficiency: Blockchain can potentially improve efficiency in global trade by greatly reducing bureaucracy and paperwork. For example, a multi-stakeholder process with a lengthy paper trail could be replaced with an automated process storing information in a tamper-evident digital format.
- Enable new business models: Micro payments, digital identities, certificates, tamper-proof documents and much more can be introduced and radically improved using blockchain-based services. For example, driver training organizations could replace easy-to-fake paper-based certificates with tamper-proof digital versions that can then lead to new identity-related services. Just as the Internet began a revolution of communication, blockchain technology could disrupt current business practices and models.With significant benefits in sight, the overall market for blockchain is expected to boom with some estimates projecting growth of blockchain technology from USD $411.5 million in 2017 to $7.68 billion by 2022.2 Reasons for this rapid growth are the rise in banking, financial services and insurance applications including digital currencies and identities, as well as the continuing development of this technology and growth from major vendors. And while blockchain is not yet fully mature, its huge potential suggests this is the right time to learn more. Companies need to understand how blockchain techno- logy can empower groundbreaking innovations, what obstacles must be overcome, and the likely value and tangible rewards it can deliver, especially in logistics.
WHAT IS BITCOIN?
Bitcoin is a leading digital currency stored on a global, decentralized peer-to-peer block chain Bitcoins are digital assets or crypto currency, meaning they are designed to be used as a medium of exchange Block chain is the underlying technology which enables transactions to take place in a secure and trusted manner between pseudo-anonymous parties Anyone can participate in the bitcoin block chain and ownership can be digitally transferred without the need for an intermediary Other digital currencies are available, including ether on the block chain-based ethereum platform .Bitcoin’s price volatility, high liquidity as well as its role in enabling transactions to bypass trusted banks and financial institutions has led to criticism The creation or ‘mining’ of bitcoins is done through computers solving complex equations. Currently, it is heavily energy-intensive, requiring improvements in energy efficiency Whether bitcoin will be sustainable as a digital currency is yet to be known.
How Block chain Technology Works – An Overview of Key Features
Blockchain technology does not introduce an entirely new paradigm. Rather, it builds on the old template of a ledger – something that is used to log transactions over a period of time .Traditional ledgers are owned by one entity (such as a business, organization or group) and controlled by a designated administrator (for example, an accountant). This administrator can implement changes to the ledger without requiring consensus from all of the ledger’s stakeholders.In contrast, blockchain is a shared, distributed ledger among a network of stakeholders that cannot be updated by any one administrator. Instead, it can only be updated with the agreement of network participants and all changes to the distributed ledger are auditable. To illustrate how this operates, figure 5 shows a financial transaction recorded on a blockchain. A similar process can be used to trace other types of asset transfer, to commit new data to a blockchain, and to update data in a blockchain.
The transformative power of block chain comes through the unique combination of its differentiating features and characteristics. Below is a summary of the four key features – these are data transparency, security, asset management and smart contracts.
1. Data transparency – Block chain technology includes mechanisms to ensure stored records are accurate, tamper-evident, and from a verifiable source. Thus, instead of multiple parties maintaining (and altering) copies of their own data set, now every stakeholder receives controlled access to a shared data set creating a single source of truth. This gives confidence to everyone working with this data that they’re using the most recent, accurate, and reliable data set.
2. Security – Traditional ledgers typically provide a blanket layer of security which, once breached, allows access to all stored data. In a block chain-based system, the security mechanisms make sure that individual transactions and messages are cryptographically signed. This ensures essential security and effective risk management to tackle today’s high risks of hacking, data manipulation, and data compromise.
3. Asset management – Blockchain techno- logy can be used to manage the ownership of digital assets and facilitate asset transfers. For example, it can be used to track the ownership of titles (e.g., land titles and diamond certificates) and rights (e.g., copyright and mineral rights). It can also be used to manage the digital twin of a physical object in the real world.
4. Smart contracts – Manual processes that are normally guided by legal contracts can be automated with a type of self-executing computer program called a smart contract. A smart contract is a component of a block chain-based system that can automatically enforce stakeholder-agreed rules and process steps. Once launched, smart contracts are fully autonomous; when contract conditions are met, pre-specified and agreed actions occur automatically.
Key Challenges Facing Blockchain Technology Today:
- Blockchain has the potential to deliver vast savings by improving operational efficiency and generating value through new business models. However, as with many emerging technologies, considerable challenges must be overcome before blockchain can achieve mainstream adoption in all industries.
- Gaining industry adoption is the most critical challenge and this will determine the success of blockchain technology in logistics. Being able to accurately and safely exchange infor- mation within a community is a key advantage of blockchain and stakeholders benefit the most when their com- munity contains many relevant members. Therefore, similar to Facebook, the value of the community increases when it is adopted by a growing number of relevant stakeholders.
- Another challenge is the development of standards and governance of blockchain in each industry. There will probably be not just a single blockchain-based system in the logistics industry; instead, there will likely be multiple.
- Organization and culture play a significant role in the success of digital transformation in any industry. Particularly with blockchain technology, this cannot be overlooked as its adoption will require a collaborative mindset to engage with a large number of stakeholders. Therefore, within organizations, a culture of embracing new opportunities from blockchain technology should be fostered. Managers, particularly those in IT functions, must gain blockchain expertise to proactively push organizational exploration and, if applicable, adoption of blockchain-based solutions.
- It is necessary to make progress with blockchain technology itself in order to overcome current technical limitations. This is especially required for companies moving from a pilot implementation to full-scale deployment. For example, some blockchain implementations have been known to scale poorly and suffer from high latency although new innovations are being developed to address these scala- bility and performance issues. In some specific applications (such as large-scale, public cryptocurrency networks) there are issues with energy consumption and computing power requirements. These obstacles will need to be addressed for blockchain to reach maturity.