Is Blockchain Technology a Solution for Supply Chain Integrity

In the age of technological advancements and global trade liberalization even the most sophisticated supply chains face various issues associated with integrity of goods, trust, tracking, and information security (Wang).

Despite many improvements and revolutionary breakthroughs that made supply chain more efficient and resilient, the real-time information was not always readily available due to the lag between participants (Wang). It wasn’t until the introduction of blockchain technology that companies finally found a way to increase the speed of data transfer, make it more accurate and secure.

While blockchain significantly improves and simplifies supply chain management, the technology itself is quite complex and sophisticated.

Blockchain consists of many information “blocks” and is a distributed public ledger containing all the transactions ever executed (Wang). Every new block is added in a chronological order and is linked to the previous one with a unique hash value computed by a mathematical relationship called the “trapdoor” function (Wang).

The data stored in Internet nodes is permanent and visible to all the users of the network.

Nodes, in contrast, are anonymous and only linked to a couple of other nodes (Wang). Each node automatically downloads an entire version of the blockchain after joining the network, therefore, the copies of the existing authentic ledger are distributed among all participants in a supply chain (Wang). Since each operation is signed digitally to guarantee its authenticity, the ledger itself and its existing transactions are highly reliable (Wang). Moreover, any new data must be verified by the digital signature algorithm to ensure its integrity and matched against the set of transactions before it could be permanently added to the chain (Wang).

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There is a strong belief that blockchain technology could revolutionize the management of the supply chain. Numerous specialists claim that blockchain could become a leading global supply-chain operating system due to its advantages and extensive range of applications: shorter transaction process with greater security, integrity, and validity, greater transparency, innovation, and real-time transaction processing (Wang). In particular, the blockchain provides a unique opportunity for companies to record where the product originated as well as track its movement throughout the supply chain up until the final delivery to the customer. Scalability is another advantage of the blockchain technology. It enables storage of the information on the Internet nodes rather than on a central server (Wang). This forms a large database that can be accessed by any number of people at any time (Wang). For instance, it could be applicable in health care where digital patient records could be accessed by authorized people including doctors and insurance company agents.

Furthermore, blockchain technology provides a potential to decrease the number of cyber-attacks (Wang). Since permanent ledger not only tracks every transaction but also requires significant effort and high cost to alter the transaction history, many cyber criminals would be more reluctant to attack the network (Wang). Finally, the real-time transactions that are possible with blockchain technology can increase efficiency and eliminate inconsistencies within the supply chain. The information remains consistent throughout the supply-chain network as all network participants receive access to the original source (Wang).

Like any other emerging technology, adoption of blockchain does not come without its challenges. For instance, many businesses currently do not have sufficient capability in terms of computer power and network speed to accommodate transaction validation speed of 450 thousand trillion solutions per second (Deloitte).

The combined electric consumption of blockchain computers is estimated to be sufficient to provide power to 135,000 American families (Ferenzy). Furthermore, while strong encryption and more secure types of this technology exist (private or permissioned blockchains), hacking remains a great threat due to open sharing of data between the users of the system (Deloitte). If the network security becomes compromised at even one node, the entire network and data stored can be jeopardized.

Moreover, although blockchain technology helps cut transaction costs drastically its initial setup requires significant capital which is a major challenge for many small and medium-sized businesses.

In addition, the transition to this new technology would require replacement or redesign of the existing operating systems that would add to the cost. Scalability of the blockchain technology also comes into question. While initial testing confirms its scalability different applications will encounter different issues as the number of transactions and data volume increase (Deloitte). Cost associated with data storage is a major obstacle to its scalability as the individual blocks are increasing in size.

Lastly, its wide adoption is obstructed by many federal regulations governing financial institutions and other industries (Iskowitz).

Regulations do not keep up with the latest innovations and technological breakthroughs which significantly impedes widespread adoption of the blockchain technology (Iskowitz). Despite possible disadvantages blockchain technology could revolutionize supply chain management by making transactions more transparent, preserving product value and integrity throughout production and delivery service, allowing real-time data transmission between participants in the supply chain, and eliminating information asymmetry (Wang). Furthermore, there are many potential applications of this technology across multiple industries such as banking, entertainment, energy, and automotive. For instance, consumers would be able to authenticate purchases electronically instead of having to physically visit a dealership (Casey).

The middle man and the salesperson could be eliminated, giving the financial institution direct contact with the consumer (Casey). A transaction could be approved in minutes with reduced costs and efficient results. Blockchain technology has a potential to not only improve supply chain management but also unlock limitless possibilities for entrepreneurs to innovate new uses and applications.

However, before it can be used on a global scale, some of the improvements should be made to overcome its weaknesses. Specifically, due to high threat of hacking, cyber security concerns would have to be addressed before any personal or financial information of the public could be widely processed by the blockchain. In addition, new standards must be introduced regarding proper access of the network as well as authentication and authorization protocols. Besides relaxing the existing laws, new regulations must be developed to establish some guidelines for financial reporting and auditing of the distributed ledger transactions as well as information-sharing to protect companies and the privacy of their customers.

Various laws must be introduced to mitigate risks associated with widespread adoption of blockchain technology such as money laundering, terrorist funding, and fraud. Cost of building blockchain infrastructure should be slightly reduced so that various companies can invest in this technology as potential cost savings are significant and can be passed down to the consumers. For instance, as energy management has been historically a highly centralized industry, blockchain could possibly offer a low-cost, reliable way for transactions to be validated and recorded across a network without a central authority. Energy could be traded between “nodes” of the blockchain at a minimal cost.

Finally, blockchain technology implementation needs to move beyond supply chain. One possible new application is to increase transparency of the electoral voting system. The use of blockchain technology could serve as a medium for casting, tracking, and counting votes to reduce the question of voter-fraud or lost records.