Blockchain and IoT: catalysts for digital transformation

By | 10 minute read | February 16, 2017

IBM Munich HQ

What are the nuts and bolts of blockchain?

Blockchain is the biggest buzzword since IoT. It’s a technology that consists of three core building blocks:

  1. a ledger that can’t be changed
  2. a consensus algorithm – or a way for groups to agree
  3. the means for performing transactions on that ledger – how to make changes to that ledger.

How can businesses benefit from the convergence of IoT and blockchain?

Build trust

The distributed ledger makes it easier to create cost-efficient business networks where virtually anything of value can be tracked and traded, without requiring a central point of control. When combined, these capabilities enable organizations to build trust where they weren’t allowed to before, without having to rely on a trusted third partner or some intermediary. With blockchain, multiple organizations and participants can come to collectively agree what the truth is in that ledger.

Reduce costs

The second thing is the ability to operate independently as a group. With blockchain, people can come together and operate on their own as a group. They can be independent together, and in doing so they can reduce costs by eliminating middle men from the process, performing transactions moving along as a collective.

Accelerate transactions

By using blockchain technology and an appropriate consensus algorithm for a group that agrees to work together, you can accelerate transactions – reducing time, while also reducing costs. Some consensus algorithms are based on doing a really hard set of calculations which winds up taking time. But if you change that consensus algorithm to something that allows you to run transactions more quickly, you can accelerate those transactions, still trust one another, establishing trust, reduce costs, while working as a collective.

For the Internet of Things there are hundreds of thousands of manufactures, lots of data standards, and many different vendors. In the physical world, there are many instances where you are not in a position to be able to trust one another, or where you want to trust a 3rd party and give them some money. Whenever you have multiple parties, tools sets and business objectives, the ability to create generated trust between independently acting parties is useful. When you combine this with the ability to create an unalterable record, visible to everyone, in real time – whether it’s for forensics or auditing after the fact, or in transit condition verification– it’s a powerful advantage in the physical world.

Leveraging blockchain for IoT data opens up new ways of automating business processes among partners without setting up a complex and expensive centralized IT infrastructure. The data protection provided by blockchain ensures faster resolution of breached contracts, stronger working relationship with partners, and greater efficiency as partners learn they can rely on the information provided.

Blockchain use case examples are getting interesting

Blockchain and IoT use cases can be applied to manufacturing, automotive, aviation, and many other industries where there is a change in custody and transfer of goods and services. Anyone engaged in multiparty trades, warranties, transactions, such as supply chains, are well positioned to benefit from IoT and blockchain. Blockchain is a logical fit for shipping and logistics, parts tracking and maintenance, and metering and control. There are many situations in the physical world where blockchain makes sense. Here are just a few:

Frank Yiannas, Vice President of Food Safety at Walmart, number 1 in the Fortune 500 took to the stage. He asked the audience how many were involved with the food business – many hands were raised.

Can blockchain change the way food moves from farm to fork?

Frank asked the audience, ‘What one word would describe the morning’s sessions?’ Frank chose ‘change’. At the start of time we were hunter gatherers. We then cultivated plants and animals. A mere 100 years ago we saw the industrial farming revolution and the first supermarket. Now we have the modern supermarket, we have a global food system, we can get the foods we want, when we want them.

In the 1980’s 50,000 products were found in your local super-market, today, this is in excess of 50,000. Where will this go? With eCommerce, it can only become more with ‘the endless store’. It can be a challenge to eat only locally. The benefits of the global model are profound. Greater access to fresh produce. The benefits outweigh the risks, but there is an Achilles heel. Traceability and transparency are this vulnerability for the food network.

Traceability and transparency – the Achilles heel for the global food network

The ‘spinach outbreak’ with 199 cases in the US – caused by E.coli from bags of spinach leaves – illustrated the global food network’s Achilles heel of traceability and transparency. It took two weeks to locate the source of the issue to one supplying farmer. During that time, the spinach business was dramatically impacted. But what can be done?

IBM and Walmart have pilots in the US and China looking to address the issue. Frank used the story of a mango to illustrate the point – from tree to table. It take 5-8 years for a mango tree to mature sufficiently to bear fruit. Just before they ripen, they’re harvested, shipped to a packing house for washing and boxing. Then they’re transported to a processing facility where they’re washed, peeled, sliced and packed and go to the Walmart distribution centre. From here they’re moved across the country in refrigerated trucks where they reach the store and are displayed in a fridge before they’re purchase and reach a consumer’s table.

Frank Yiannis from Walmart explains blockchain for food supply networks at IBM Watson IoT's Genius of Things eventFrank Yiannis from Walmart illustrates the global nature of the food network

Blockchain enables food traceability

If there’s a food scare – how can you trace where this might have happened? IBM and Walmart believe that traceability  can be done in minutes or even seconds. And move beyond traceability which looks one step up and one step back, to transparency which has an entire view of the system – not just where the fruit has moved, but what systems have interacted with that food – the manufacturers, suppliers and the systems and processes that they’ve used. With blockchain, transparency is available today – this can even be communicated to the customer.

What will transparency do? It will eliminate anonymity. Blockchain can shine a light on the food chain system. So the benefits:

1.    enhanced food safety
2.    fresher food
3.    reduced food waste
4.    deter food fraud
5.    promote responsibility
6.    build trust

Frank concluded that transparency and traceability are two sides of the same coin – and with blockchain we can move to a global food network everyone can trust.

Using smart contracts to move a packages along the supply chain

Consider the complex world of trade lanes and logistics. Imagine how a freight container moves from the manufacturer where it’s loaded, moved on to a freight consolidator, and then along to a shipping organization. In the process, there are multiple parties involved in the shipping process – ranging from insurance brokers, customs agents, dock employees unloading the container, warehouses storing the contents of a container, vehicles – trains or trucks – moving things to retail outlets, and more. Right now, that process is coordinated through text messages, emails, phone calls – it’s not automated.

With so many touches along the way, participants across a supply chain need a way to transparently trace the journey from owner to owner, end to end, even across international boundaries where there are multiple systems, and different parties who might not be able to trust one another. What happens when the insurer and the shipper have different versions of the truth in terms of what happened – did that shipping container experience temperatures above its recommended temperature, did that container experience any impact along the way?

Let’s look at the example a container of frozen food on its way to a retail outlet. Along its journey from the supplier, a package or shipment is equipped with a temperature sensor that sends data to a blockchain. As the package moves from train to truck, these sensors can confirm that the food has remained frozen at the requisite temperature throughout the journey. In this instance, the train shipper has fulfilled its duty, the owner and insurer can verify the hand-off and release payment. The package is then handed off to the truck shipper where monitoring continues until the shipment reaches its final destination.

Smart contracts can help to ensure accountability for individual packages along a chain of custody as they are shipped. The container scenario illustrates perfectly the need to coordinate the entire journey of a container – in a way where everyone who concerned with the ‘outcome’, destination, and condition of that container has the exact same version of events. A single trusted ledger provides all players total visibility so that they can manage their resources and streamline their activities without the need for expensive integration of their systems.

From theory to practice: an early adopter

A consortium in Finland, Kinno, has created a blockchain IoT capabilities that allows you to measure the position and condition of shipping containers so when it arrives at a particular port, and the condition is satisfactory, the system is triggered to release a payment to the agent handling the container at that stage, while also notifying the owner. This kind of transparency enables everyone to know exactly what happened, when it happened, while allowing them to use whatever system they want to open, as long as that individual or organization is a member of the blockchain community.

It is now possible for information from devices such as RFID-based locations, barcode-scan events or device-reported data to be used with IBM Blockchain. Devices will be able to communicate to blockchain-based ledgers to update or validate smart contracts. For example, as an IoT-connected package moves along multiple distribution points, the package location and temperature information could be updated on a blockchain, allowing all parties to share information and status of the package as it moves among multiple parties.

When you are able to combine these capabilities with the efficiency of business automation, plus the ability to observe a containers condition along the way using connected IoT devices, it becomes possible to not only track the progress, but also the condition of that container. As a result, having one unalterable record of what happened means no one is beholden to anyone else, and, there will be less opportunity for loss or disappearance of containers.

The supply chain of the future

The convergence of IoT and blockchain has the potential to deliver improved customer service and new business models by infusing cheaper, faster, and more secure transactions into an IoT system that can understand, reason, and learn.

It’s easy to envision moving into the realm of cognitive where a device could potentially participate in the buying and negotiating process – for example, based on collected data from sensors and devices, it’s conceivable that a container could help to identify the most cost and time effective way to a destination – because they can actually transact.

Returning to the frozen food example, imagine there’s a delay along the route – a traffic jam, or incident that could potentially result in spoiled products being delivered. What if this information could be used to alter the journey, to avoid the delay, and therefore avoid the possibility of goods not being delivered in satisfactory condition?

In this instance, the ledger starts out as a means to visibility – visibility to what’s happening in that unalterable log that is shared amongst the interested parties, but with cognitive, it can now move into a decision making mode, where based on the information a device has been collecting, it can not only influence, but actively participate in route planning, making alterations resulting in better outcomes for the container and its contents.

The supply chain of the future has the instrumentation, interconnectedness and intelligence to predict, if not prevent, disruptions before they occur. It relies on new approaches that use sensor technologies, new analytic capabilities and simulation techniques to not just sense and respond, but anticipate and act.

Learn more

Keep an eye on the blog for the latest news from the Genius of Things summit in Munich this week. Interested in working with us? Learn more about our cognitive solutions by visiting the IoT website, or speak to a representative to find out how we can help you take the next step in bringing the IoT to your business.