Projected impact: Disruptive
Timeframe: Within 2 years
Blockchains are distributed ledgers that create a transparent, permanent, and tamper-proof record of transactions with digitalized asset representations. As a technology, the blockchain has a disruptive impact on supply chain management in three main ways:
- it enables transparency in immutable data records that are widely shared yet kept anonymous at the same time,
- smart contracts can reduce manual work, and
- it is a protocol for secure and trustless value exchange that enables interoperability and has the potential to disintermediate the supply chain.
These claims seem impressive, but how is it possible? A blockchain’s technical features are the result of a unique combination of three domains of knowledge: cryptography, distributed networks, and game theory. Cryptographic hash functions secure an immutable trail of data records where it is possible to audit and trace material flows and responsibilities. Cryptography also ensures enables data to be publically shared yet intelligible only to the extent necessary and to those who need it. Distributed networks maintain this data state and ensure that there is not necessarily a central point of influence of failure. Game theory opens up for the ability to design human interaction in these distributed networks to an extent that was never possible before.
The specific way these three domains are combined varies between different blockchains and their suitability are highly context dependent. For instance, some blockchains rely on cryptography to obfuscate transactions, others do not. Some blockchains run on publically distributed networks without any central coordinating authority. Others run on consortium networks. Some run on private networks. Finally, some blockchains utilize mechanism design to incentive certain behaviours and punish others, other blockchains do not as they can rely on established legal systems. This variability between blockchains makes it very hard to clearly define what a blockchain actually is and what its properties are.
This lack of definitional clarity makes it hard to understand what a blockchain is by simply looking at one specific implementation. The technology allows for an amazing range of customization and offers the ability to design solutions according to preferences in data access and data availability. Although highly customizable, it is important to keep in mind that a blockchain is not some go to solution for distributed databases. The technology works best for situations characterized by low trust, where efficiency is reduced because of intermediaries, and/or where there is a need to establish an auditable trail of goods and material flows.
It is also important to recognize that the technology, disruptive as it may be, is still nascent and rapidly developing.
By Peter Altmann, Chalmers University of Technology, Sweden
Examples from industry
Maersk and IBM:
Port of Rotterdam launches blockchain lab