Three benefits of using blockchain in your supply chain (and three downsides).

By Geoff Taylor | December 20, 2017

You can hardly turn on the radio or read a newspaper these days without something being said about blockchain. It almost seems that everybody is talking about blockchain technology or bitcoin in one form or another. At ChainPoint we have our own interest in blockchain as well, since it has been stated that blockchain can potentially assist with traceability and transparency in supply chains. Recently we’ve been doing our own research into the use of blockchain technology for supply chains, and, so far, we’ve found both benefits and downsides to using blockchain, which we’d like to share with you.

The benefits:

There are certainly some benefits in using blockchain technology in supply chains, and, at the end of the day, quite a lot of the benefits offered by blockchain boil down to one thing… trust.

  1. Transparency and Collaboration

One of the big promises of blockchain technology, when applied to supply chains, is the idea of transparency. Since transactions are recorded chronologically on a blockchain that is shared with multiple parties, the idea is that those transactions can be made visible to these collaborating parties. In this way, collaborating parties step away from the idea of having their own individual data silos (to which access is usually very much restricted), and take a more open, transparent approach instead. The benefit to collaborating parties is that the data on a blockchain is auditable for all parties.

  1. Decentralization and Consensus

A blockchain is a network of collaborating parties with a database that is decentralized. This means that most parties that collaborate on a blockchain have their own copy of all the transactions that are stored on the blockchain. For business relationships where trust is paramount, the idea of owning your own copy of all the transactions can provide a lot of assurance. Compare having your own copy of a blockchain’s transactions to relying on a single, central entity providing you their own database of transactions… how would you know if that central party is always telling the truth? Blockchain technology also contains mechanisms to ensure that, when data is added to the blockchain, parties on the blockchain evaluate and agree on the data being added. Since the trustworthiness of all parties on a blockchain might not be guaranteed, being able to reach a consensus on new transactions being added gives better guarantees to all parties as a whole.

  1. Immutability and Encryption

When a transaction gets added to a blockchain it is said to be immutable, meaning that a transaction’s data can never be changed once it’s been added to the blockchain. In this way, a blockchain acts like an audit trail. Imagine, for example, that you added an incorrect transaction to a blockchain by mistake. The only way to correct the details of the transaction would be to add another compensating transaction to the blockchain. What matters here is that the audit trail of the blockchain still reveals the original, incorrect transaction that you made. You can’t just go back and change details in a blockchain to “cover things up”. Blockchains also use encryption to make sure that transactions are “signed” by the parties that add them. This is quite a big deal, because when a transaction is cryptographically signed by a party, all other parties on the blockchain have a guarantee that the transaction really did originate from the party who claims to have added it. In the world of blockchains it’s very hard to later dispute whether a party added a given transaction or not, since, if it’s signed by that party, they most certainly did add it. Encryption in blockchains also makes it extremely hard to tamper with data that has been added by any party, making blockchains very secure and robust.

The downsides

Although blockchain technology undoubtedly brings a lot of trust to the table for collaborating parties, it’s important to realize that blockchains are also not necessarily the magic solution for all our supply collaboration challenges. Blockchain technology certainly has its own challenges and shortcomings, and with all the intense interest in blockchain at the moment, this might be a good moment to also look at some of the potential downsides of using blockchain in supply chains.

  1. Adoption and scalability

A blockchain is, by very nature, a decentralized database, meaning that multiple copies of the blockchain, called nodes, will operate collaboratively to form a blockchain network. And it follows then that one potential obstacle with blockchain technology is simply the significant amount of coordination and agreement that’s necessary between collaborating parties to get the whole thing up and running and finalized. Getting wide enough adoption among parties might be a real challenge, compared to alternative, more centralized approaches where on-boarding might be far simpler. And what about integrating transactions from smaller, upstream parties in the chain who don’t even have access to technical expertise or infrastructure? This is certainly something to think about.

Another current issue with blockchain technology is scalability and performance. You see, all those advantages of blockchain in terms of trust don’t necessarily come without cost – the cost being scalability. It’s fair to say efforts are being made to increase the performance of blockchain technology. Nevertheless, compared to some other viable solutions for supply chain collaboration, blockchain still lags very much behind in terms of scalability. If you’re currently thinking of using blockchain technology for integrating supply chains with a significant amount of transactions, it would be wise to be sure about the scalability of the blockchain technology you’re considering.

  1. Data access controls

Depending on the blockchain technology you’re using, or planning to use, it’s really worth considering what guarantees blockchain can give not only to transparency, but also access controls. The point is, it’s all well and good starting together as a consortium on a blockchain with the idea of being completely transparent. However, circumstances may change as more parties become integrated over a period of time. One of the most common questions we get asked at ChainPoint relates to providing guarantees about data access controls – and more specifically, about having the ability to change access controls as a collaborative supply chain grows and adapts. It’s very common at ChainPoint that we see directly competing parties in a supply chain being integrated into one of our solutions and therefore sharing data. And you absolutely have to be able to give guarantees to these competing parties that data will be transparent where appropriate, but also guarded from access where necessary. Up to now our research in blockchain technology has shown that there are some mechanisms in place for guarding the level of transparency of data, but that these mechanisms may not be flexible enough at the moment to give the guarantees that even slightly complex supply chains might need.

  1. GDPR

As previously mentioned, transactions on a blockchain are immutable – data simply cannot be changed or removed after it has been submitted to the blockchain. Now, one particular side effect of this rigid, albeit secure, aspect of blockchain is how this is all going to play with the EU’s upcoming GDPR legislation. For the uninitiated, GDPR is one of the biggest shake-ups in data protection law that has ever been introduced. And it impacts countries outside the EU as well, being applicable to any company in any country that deals with any personal data of EU citizens. One of the articles in GDPR provides EU citizens with the “right to be forgotten”, which means that EU citizens can request that any data which can be tied to them at a personal level be removed from IT systems. In a traditional database, it’s certainly possible to comply with this request, however, in a blockchain where data is, by definition, immutable, it remains very unclear to us how this “feature” of blockchain is going to align with GDPR legislation.

Final Thoughts

 At ChainPoint, we will continue to research blockchain and consider how well it can be applied to supply chains. As we have pointed out, we feel that blockchain is not a magic solution for supply chains at the moment and that, despite some advantages, there are certainly potential disadvantages of blockchain that need to be considered and understood as well.

It’s also worth pointing out that some of the advantages of blockchain technology are also available in other technology solutions as well, even though the approach taken may differ somewhat. For example, our own ChainPoint technology offers quite a degree of audit trail functionality by logging the data changes made by users. Also, ChainPoint employs authorization controls in order to guard against data tampering.

Our final thought on blockchain is that the technology is promising, but it’s not fully mature and not without risks. Blockchain will undoubtedly continue to evolve and improve, but it’s worth bearing in mind that there are also other technology solutions which do an extremely good job of integrating data from supply chains for the purposes of traceability, transparency and collaboration.

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Posted in supply chain insight, Transparency, blockchain, blockchains, GDPR

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