We began in our prior post with a brief primer on a new database technology called blockchain. Today, we’ll look at its potential impact on supply chains and other areas.
Blockchain has the potential in supply chains to save costs, and of course reduce errors. Since all sides have the same view of a common transaction, there is no re-scripting or recording. According to Blythe Masters, CEO of Digital Asset Holdings, in an interview with the Wall Street Journal’s Kimberly Johnson on 6-20-16, the major market infrastructure providers – think: exchanges – are operating on decades old infrastructures. In banking alone, she estimates, there are billions of dollars out there in potential savings.
In supply chain coordination, you are “managing the movement of money in return for the provision of goods and services,” notes Masters. And the most efficient way to do that is when “there’s no disagreement between those parties about the timing of when cash should flow… and/or goods are needed to be supplied [or] manufactured, as you work your way back in the manufacturing process.”
Essentially, blockchain then is software, in that it allows you to share information in a secure environment between different points on a network. And importantly, it doesn’t require all new, capital intensive hardware infrastructure.
What blockchains ultimately will do, of course, is greatly improve the speed of transactions, which saves costs all up and down the chain. In the finance arena, for one, transactions that originally required, days to be consumed for legal or administrative reasons will now happen in seconds. Eliminating these delays, whether in banking or in supply chain, frees up capital, eliminates the need for most low-value-added handling processes done largely by back office operations spent tying together two or more different records of the same transaction, and lubricates the flow of trade and money.
Circling back to bitcoin and crypto-currencies one last time, a later article in the Journal mentions yet another “hot thing in cryptocurrencies,” one of the newest variants on blockchain. It’s called “Ethereum” and it’s an open-source software platform with a currency called “ether.” It too is a public blockchain ledger, with all the “tools for building so-called smart contracts that automatically make payments when their terms are fulfilled.” With Ethereum’s open-source software construct, anyone can develop applications that take advantage of its code.
The Journal notes in a June 21st article (“Bitcoin Rival Gains Steam”) that the investors in Ethereum are part of a growing revolt “against the centralization of the internet under big companies like Google and Facebook by creating financial structures that can run themselves.”
But, just like bitcoin, the platform has its challenges. It recently suffered a large theft of its virtual security when “a hacker rewrote some of the startup’s code and funneled money into a private account.” The price of ether dropped 43% upon disclosure of the hack. Still, as the Journal notes again, the underlying technology that underpins currencies like these “open and immutable transaction ledgers” could transform a wide variety of commerce for millions of consumers, in particular in finance and banking.
Ultimately, these blockchains are going to grow, becoming more transparent, efficient and secure than existing online platforms. Still, critics say they have a long way to go before it reaches stability and mainstream adoption, and that the technology is largely unproven.
But then, we’ve heard that about just about every technology that’s come before. Including of course, the Internet.