While most applications of blockchain to date have focused on financial services, IBM is pushing the technology as ideal for supply chain monitoring, particularly to track items with high valure, as the Wall Street Journal reports:
While firms such as Nasdaq Inc., Depository Trust & Clearing Corp., J.P. Morgan Chase & Co. and Bank of America Corp. are experimenting with blockchain, only a handful of companies, including Toyota Motor Corp., have explored using it to monitor their supply chains.
A blockchain is a data structure that makes it possible to create and share a digital ledger of transactions. It uses cryptography to allow anyone granted access to add to the ledger in a secure way without the need for a central authority. Once a block of data is recorded on the blockchain ledger, it’s extremely difficult to change or remove.
Proponents say these traits make blockchain well-suited for logging and monitoring large amounts of data, such as short-term loans or the millions of parts coursing through the aviation industry’s supply chain.
IBM is offering a cloud-based blockchain service that uses its LinuxONE servers on the back end. An early user is Everledger, which is using it to build a system of record for tracking diamonds as they move from mines to retail stores, as the WSJ notes:
Everledger is testing IBM Blockchain for a global rollout possibly by the end of the year, said CEO Leanne Kemp.
Today, many diamond transactions rely on paper, which can be altered or forged, Ms. Kemp said. “It’s a 150-year-old industry that trades in trust.”
Analysis: Blockchain or Bust? Not So Fast
Time will tell how much penetration blockchain gains in the supply chain world. In the meantime, it's important to consider what blockchain is at a high level.
Blockchain is closely akin in many ways to the IoT (Internet of Things), says Constellation Research VP and and principal analyst Andy Mulholland. "Both are terms that cover such a wide range of definitions and purposes that any use of the terms should be followed by a definition of the role and purpose being discussed."
"More importantly both create value thorough decentralization, which after more than two decades of ERP centralization introduces the real game change," Mulholland adds. "Supply chains are increasingly looking less like chains with consistent linkages and stable processes and are becoming dynamic orchestrations on demand as enterprises embrace agile digital business."
Enter blockchain, which can ensure the flow of outcomes has occurred properly in such an environment, providing a "full, decentralized audit with no single poInt of dependency," Mulholland says. "The technology of such forms of blockchain owe little to the world of Bitcoin, and much to the pragmatics of the basic principles of the mathematics."
What's important for IBM, other vendors and end-customers eager to apply blockchain to new areas to understand is how necessary it truly is for their use case, says Constellation Research VP and principal analyst Steve Wilson.
"By all means, explore blockchain technologies but please, let's be clear about what they do," he says. "Because in all the excitement, the stories tend to overlook the most important part of the puzzle—key management and end user management."
"The actual blockchain is designed to solve double spending by getting a P2P mesh to vote on the order of transactions," Wilson adds. "You don't need such an elaborate and expensive structure if there is no equivalent of the double spend problem in your use case. And you don't need the overhead of blockchain if you have umpires and third parties in your database management structure. This point obviates blockchain for almost every non-Bitcoin use case I have ever seen."
"With enterprise applications, we have access controls," Wilson adds. "Which means you have an admin—someone who says for example, this particular person at the diamond mine is an authorized agent. And if you have people in charge, you don't need blockchain to distribute the database admin. These different roles need to be defined and managed, and privileges revoked when someone strays outside the rules."
"All this talk of decentralization becomes frankly vacuuous when you remember all the necessary layers of control in serious enterprise ledgers," he adds. "The raison d'être for blockchain just evaporates. Some other type of distributed database or ledger might make sense in IoT or supply chain applications, "but at some point they have to stop calling it blockchain."
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