If it would be to compare, it is more likely that the term ‘’blockchain’’ would be recognized in connection with a cryptocurrency such as Bitcoin. Meanwhile, financial service providers are not the only ones experimenting with the concept of it, but also companies from different industries – as they have recognized the potential inherent in this technology. Even the media coverage of the transport and logistics is referring a lot to the advantages of a ‘’logistics blockchain’’ – but why should logistics and transport companies really deal with the (supposed) wonder technology?
First, the question arises as to what blockchain is: Blockchain is a database that runs decentralized on many computers, safely recording and storing all changes made in real time. As a result, the encryption protects the database from external access. Blockchain allows logistics to track both goods as well as immaterial values (such as contracts, rights or cryptocurrencies) at any time. Anyone familiarized with the logistics processes will soon realize that the idea of blockchain becomes increasingly ideal for this type of industry.
The story begins shortly after the bankruptcy of the Lehman Brothers bank in late 2008, with a white paper that described the ability to exchange digital currency between two parties. The white paper was published under the name ‘’Satoshi Nakamoto’’. Who exactly hides behind it, is still not clarified until today. But one thing has clearer over the time: the process that Satoshi Nakamoto describes (and its currency based on Bitcoin) makes the middleman in transactions completely redundant. However, what the hard-core nerd has already predicted was the end of the banking system, but the broad masses initially ignored it, taking more than one year to be able to execute a payment with bitcoins.
Two principles are important to handle the cryptocurrency easily:
The basic idea is relatively simple and consists, as the name implies, of two elements: the block and the chain. The block is a highly-encrypted list of entries related to business transactions, such as the delivery status of products, persons involved in production or payment transactions between multiple parties. Everything that is important or relevant for a business can be documented in the block.
One of the main features is that the documentation does not take place in a single location, such as a server in the bank, but is shared among the users of the blockchain. There are countless copies, potentially millions, being distributed throughout the network. Chaining the blocks ensures that the contents of the blocks remain always confidential. For example, if something new is added to the block, such as a proof of payment, all computers across the network also check that the effectuated payment was valid. By combining encryption, decentralization with a variety of stakeholders and joint control, the system is almost impossible to penetrate.
A blockchain is best thought of as a digital book in which all transactions for a product or a delivery are entered chronologically. All entries are divided into data blocks, which are closed with a checksum. Each block contains the checksum of the previous block – which makes the book tamper-proof. In the analog world, this book would be stored and secured in a central location. Any changes, say transactions, would expand the book and would need to be controlled through this central location. Blockchain, on the other hand, makes many copies from the beginning and distributes them. If changes are made to the blockchain, they are recorded in real time within in all copies. All (authorized) participants can therefore control the blockchain at any time.
For technical implementation, so-called ‘’miners’’ are necessary. These ‘’miners’’ are digital accountants – they do nothing but provide computing power and verify the blocks. Anyone who wants to manipulate the network, would have to bring 51% of the participating computers under his control. How this is done for blockchains will become apparent only when the technology will find its way into our everyday lives.
Above all, the latter principle is the reason for the revolutionary and explosive power of Blockchain. To verify the authenticity of a document, banknote, contract or product, a one-stop-shop has been required so far, for example, in town hall offices, banks, notaries, etc. Ownership, sales, commercial and other type of rights need to be certified and authenticated. The blockchain takes on this task and saves not only a lot of paper, but also a lot of time while enhancing safety and increasing security against fraudulent manipulation.
As it can be seen from the attempt by IBM and Maersk, the use of blockchain in logistics might have found its place. If goods or at least pallets or containers are additionally equipped with RFID chips, complete traceability would be possible in combination with the blockchain technology.
But it gets even better: If a product, such as a sneaker, is equipped with an RFID chip during the manufacturing process, possible applications beyond logistics are conceivable: the RFID chip would contain the blockchain and thus authenticate the sneaker as an original product, always and everywhere. Forgeries would then be incredibly easy to spot and the supply chain would be protected. The RFID chip and blockchain would also enable automated inventory control, warehouse processing, object tracking and complete control of the supply chain. In the end, the consumer (or even the manufacturer) could control whether and, if so, how, when, where and by whom his shoe was disposed of and recycled.
Despite the enormous potential of the technology, the blockchain is still in its infancy. In a larger setting, the world is not ready for blockchain yet. Above all, it lacks the necessary computing power – one of the biggest drawbacks of blockchain remains its high energy consumption. In addition, the technology is not considered mature enough, which makes it susceptible to hacker attacks. The biggest obstacle for the introduction of blockchain technology in logistics is likely to remain the willingness of all actors to get involved in the process. The manufacturing industry, for example, would have to issue data on products. It is at least questionable whether the companies would join at that point. Furthermore, the benefits of blockchain are sometimes unevenly distributed among its individual actors. Thus, there would be a lot of discussion about who contributes with what share of the costs in the end. Nevertheless, the advantages of blockchain predominate – also and especially in logistics.
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