The industry is abuzz with the new poster child of ‘disruptive’ innovation. So chances are that you have heard of Bitcoin, the digital
currency that many predict will revolutionise payments. But how will this idea improve people’s life or transform your supply chain?
Let’s look at our current financial system first. We depend on banks, governments, and other intermediaries as middlemen to establish
trust in our economy. While they do a fairly effective job, the problem is they are centralised and their systems can be hacked relatively
easily, such as JP Morgan in 2014 and LinkedIn in May 2016. Banks also exclude millions of people, who may not have enough money to
open an account, from using their services. In addition, they charge up to 20 per cent just to send money overseas and they capture our
data without our approval. In essence, they appropriated the largess of the digital age asymmetrically. This leads to wealth creation that
grows in tandem with increasing social inequality.
The difference between Bitcoin & Blockchain
In 2008, following the financial crisis, Satoshi Nakamoto published a paper outlining his idea of developing a protocol for a digital monetary system that uses a crypto currency called Bitcoin. Nakamoto wanted people to be able to securely exchange money electronically without the need for a third-party, such as a bank or a company like PayPal. He based Bitcoin on cryptographic techniques that allow you to be sure the money you receive is genuine, even if you don’t trust the sender. But what is more interesting to learn about is blockchain, the technology underpinning the Bitcoin digital currency.
At a time when companies face new challenges in data management and security, blockchain is emerging as a way to let companies make and verify transactions on a network instantaneously without a central authority. According to Wall Street Journal, more than 40 top financial institutions and a growing number of firms across industries today are experimenting with distributed ledger technology as a secure and transparent way to digitally track the ownership of assets, a move that could speed up transactions and cut costs while lowering the risk of fraud. Some companies see an opportunity to use blockchain to track the movement of assets throughout their supply chains or electronically initiate and enforce contracts.
Rather than the Internet of Information, it is the Internet of Value or of Money. It is also a platform for everyone to know what is true—at least with regard to structured recorded information.
How does blockchain work?
At its most basic, it is an open source code: anyone can download it for free, run it, and use it to develop new tools for managing transactions online. As such, it holds the potential for unleashing countless new applications and as yet unrealised capabilities that have the potential to transform many things.
Each blockchain runs on computers by volunteers around the world so there is no central database to hack. The blockchain is public: anyone can view it at any time because it resides on the network, not within a single institution charged with auditing transactions and keeping records. And the blockchain is encrypted: it uses heavy-duty encryption involving public and private keys—like the two-key system to access a safety deposit box—to maintain virtual security.
If you wanted to steal a Bitcoin, you would have to rewrite the coin’s entire history on the blockchain in broad daylight. That is practically impossible.
Blockchain’s challenges
One obstacle to widespread enterprise adoption of blockchain technology is the need to get the network of participants, all of which have their own mix of back-office systems, to agree on a common network protocol and technology stack. In addition, there are not yet clear standards to govern how blockchain will be implemented across the enterprise. Some companies may choose to use the Bitcoin network, while others may opt for “permissioned” or semiprivate blockchains. The development of the technology will also bring its own regulatory hurdles and potential cybersecurity threats, experts say.
Many questions around security and privacy still linger. In financial services, for example, it is still unclear exactly how much information about a trade each participant needs to be able to see to verify a transaction while still keeping the other contents private. Bitcoin has also been on the receiving end of some bad press, such as due to the collapse of the Mt. Gox Bitcoin exchange in 2014. However, the Mt. Gox story is not necessarily an indictment of Bitcoin. Bitcoin is just a mechanism for transacting on the blockchain and the blockchain is the key innovation.
Why is it important for the supply chain industry?
The modern supply chain continues to seek more cost savings and greater transparency and efficiency in all processes. While large, centralised systems have been created to manage the flow of goods and data, a single problem remains. This data can be changed from its original form, causing some to feel the supply chain is not being fully transparent with supplier, manufacturing and logistics processes. However, blockchain possesses the potential to change how the supply chain communicates and operates.
Think about traditional supply chain functions in relation to payment processing and order fulfilment. The payment is collected by a bank during a transaction. Now, the only information the customer has access to is when a product may be shipped.
Through blockchain technology, the customer could gain access to more information about where the product originated, which includes specific supplier information, by tracking the blockchains along the path. In other words, blockchain technology allows all participants in a given system to have access to information about what went into producing and order in a given product. This technology could be leveraged by consumers to see how quickly a given product has been received and what type of feedback is available.