How blockchain is revolutionizing the downstream digital supply chain
In the same capacity the internet changed global business, many experts believe blockchain may be on track to become the next mega disruptor to global business.
The most recent revolution in business was the internet, but no one was asking what HTTP and other protocols could do for them. Instead, it was about understanding how this new disruption (the “internet”) can change business through E-mail and webpages – both of which leverage the underlying internet protocols.
With blockchain, people are asking what “blockchain” can do for them. Maybe that is the wrong question, explained Martin Kaczynski, Director of Product & Operations for Citizens Reserve.
“When the Internet became mainstream in the 90’s, no one was asking what the protocols can do for them, but rather, what are the use cases for networking and how can E-mail and eCommerce change the way we do business? In a similar vein, asking ‘what can blockchain do for me?’ is like asking ‘what can HTTP do for my business?’ It’s the wrong question.”
Martin Kaczynski was speaking at Petrochemical Update’s Supply Chain and Logistic Conference in Houston.
The Digital Supply Chain Panel included: Matthew Costello, CEO of Voyager; Karn Sood, Business Development for Shell New Energies; Martin Kaczynski, Director of Product & Operations for Citizens Reserve; and Vincent Annunziato, Director, ACE Business Office for U.S. Customs and Border Protection (CBP).
U.S. Customs and Border Patrol’s Blockchain Program
Recently, the CBP created a free trade agreement proof of concept in blockchain and tested it against its existing system.
“We were able to find certain efficiencies,” Annunziato said. “Your importer, broker, and manufacturer are there at same time so when your information is coming in, it is informing everyone.”
“The interesting thing is when you put all that data together, the operator has no idea they are on blockchain and they never should,” Annunziato added.
The biggest thing the CBP did is called interoperability.
Interoperability is the ability of computer systems or software to exchange and make use of information.
“This is a bit different than open source. A software program can go on to any open source,” Annunziato said.
“Interoperability means it can go on to any blockchain software and work.
The Interoperability specifications are something that DHS and their contractor have been working on for about 4-to-5 years now.
“It’s a translation piece that sits in the middle and it can take data from any one of those software programs and accept it and also message back using existing protocol.”
The interoperability is important because the amount of customization it takes to get from one program to another, all gets eradicated in this scenario, saving money in the long run.
The U.S. CBP is the biggest government law enforcement agency of the United States Department of Homeland Security.
Everyone is talking about it, but not everyone understands it.
The online definitions give all the technical explanations.
A blockchain is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data, generally represented as a merkle tree root hash.
By design, a blockchain is resistant to modification of the data. It is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks.
Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority.
Most energy and chemical goods are sold using a trusted source such as a bank or hedge fund. But blockchain allows buyers and sellers to connect directly, removing the need for the third party.
Blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.
Image: B140970324 from Wikimedia Commons
Originally devised for the digital currency, Bitcoin, the technology community is now finding other potential uses for blockchain technology.
“With blockchain, you shift the paradigm of how to enable trust in the digital era. Imagine being able to generate a Purchase Order or Invoice or any document across your supply chain and irrevocably demonstrate that it was never altered? With Bbockchain, you can create unique digital data, from a technical perspective this leverages cryptography and a concept called hashing,” Kaczynski said.
Major oil companies BP, Shell, and Equinor have united with large banks and trading houses to launch a blockchain-driven platform Vakt for energy commodity trading.
The blockchain solution will enable major industry players to move from cumbersome paperwork to smart contracts, thereby helping to reduce time spent on operations and make trading more efficient.
Blockgeeks.com suggests that there are many strong use cases for blockchain, especially pertaining to the supply chain.
Among these ideas, distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met.
Ethereum is an open source blockchain project that was built specifically to realize this possibility. Still, in its early stages, Ethereum has the potential to leverage the usefulness of blockchains. At the technology’s current level of development, smart contracts can be programmed to perform simple functions.
By storing data in the blockchain, security is increased in the industry. Blockchain can be used for file storage, data management, even making customer and trend predictions.
Blockchain can likely handle supply chain auditing. Distributed ledgers provide an easy way to certify that the things purchased are genuine.
Transparency comes with blockchain-based timestamping of a date and location.
Traveling around the U.S. explaining what blockchain is and how it works, Annunziato often uses the Dropbox analogy to simplify the definition.
When someone puts a document in Dropbox, a group of people with assigned access can all get it at once, like what Blockchain does. Once people have the Blockchain access, it informs everyone on the Blockchain, the data is available.
“It’s actually the opposite of what we are used to today where we build a database, and everything is dumped into it. With blockchain, we have a transactional system that can reach out to areas we have not gotten to today,” Annunziato said. “In fact it is one of the safest ways to trade data over the internet. That is key.”
“If you are building a self-contained system, you probably don’t need Blockchain. If you are building something to get you out to something you haven’t had before, that is really where blockchain starts to become very useful,” Annunziato added.
Key words like trust are used often with Blockchain, Annunziato said.
“When you hear technical people use key words like trust, what they mean is that the system will compare transactions. This is important to understand.”
“They say blockchain is not hackable, but you can get into an individual block,” he explained.
This causes a problem for the government because of the availability of personally identifiable information, trade secrets, etc. that can’t be given away.
As a result, the government knows it can’t put every single data element on the block like Bitcoin did, so instead it must do kind of a hybrid. Some things go on chain some things go off chain, Annunziato explained.
“Each block contains an algorithmic number and the number prior. This is very tough to hack into that, but if a hacker gets into that and the blockchain is built right, then when the system does the system-to-system comparison, it will let you know what is happening,” Annunziato said.
Annunziato explained the analogy to counterfeiters of U.S. dollar bills who choose to go after big bills, not small bills.
“When someone goes into a blockchain and wants to hack into it, the amount of work it takes to go into that full chain becomes very complicated and probably not worth it,” Annunziato said. “There are other things the government is doing right now to make it even stronger.”
By Heather Doyle