Blockchain for Automotive
By Matthew Jones | 5 minute read | March 23, 2017
This is the first of several blog posts that examine how the Automotive industry will be impacted by Blockchain in the near and not so distant future.
- First, let me remind you what Blockchain is.
- Second, I will highlight Blockchain’s most powerful features.
- Third, I will introduce promising use cases for Blockchain in Automotive.
And fourth, and in future blog posts, I will seek to elaborate these use cases in more detail and to explore which parts of the Automotive ecosystem are likely to impacted first by adoption of Blockchain technologies.
What is Blockchain?
Blockchain is a distributed ledger technology that enables the creation of an immutable record of transactions to share with multiple participants in a business network.
For the purposes of clarity, ‘immutable’ in this context means that the transaction record cannot be edited or erased; it can only be appended. If details of a transaction are incorrectly recorded to the shared ledger, a new transaction must be submitted with the correct information.
A ‘transaction’ could be an event that’s happened, such as the transfer of an asset between two parties or it could be a status update informing that the state of the asset has changed. The asset could be physical such as a vehicle; it could be financial such as a loan; or it could be digital such as a software package.
A ‘participant’ in an Automotive business network could be one or more of the following parties; a supplier, a manufacturer, a distributor, a dealer, a finance provider, a regulator, a customer, or something else entirely.
Powerful features of Blockchain
- Access to the shared ledger is permissioned; only authenticated parties get access to the ledger and permissions are configurable. The benefit is that ledger access can be controlled so that only parties that you want to access it can do so.
- The shared ledger is replicated and distributed; every permissioned participant gets a copy of the same ledger. The benefit is the increased transparency of information.
- Transactions are encrypted; only those parties with separately provided security certificates can un-encrypt transactions. This means that transaction details remain secure and unreadable to all but the transaction’s explicit stakeholders.
- Transactions are immutable; sets of transactions are grouped up into blocks and the blocks are then written to the ledger. Each block also holds the hash value of the previous block; creating a linked chain of blocks that can’t be changed. This enables assets to be traced back to their origin through every update stored in the transaction record and linked by the chain.
- The shared ledger is final; participants in the business network agree that the shared ledger is the single source of truth or System of Record, which brings the benefit of fewer disputes about discrepancies in records of transaction details between parties.
Advantages of a Blockchain system
Overall increased transparency of information in the business network will mean:
- Reduced cost in resources and time to resolve disputes
- Fewer disputes between parties
- Lower settlement period required to fulfil contracts
- Reduced messaging complexity because participants agree a common data format for transactions shared on the Blockchain
Blockchain will encourage increased trust between business network participants; lubricating the frictions of doing business today and allowing participants to free up working capital to re-deploy elsewhere.
Blockchain use cases for the Automotive industry
The Automotive industry is a complex ecosystem with multiple parties involved in the design, production, distribution, marketing, selling, finance and servicing of vehicles. Outlined below are some example scenarios. I will go on to explore each of these in more detail in future blog posts.
- Supply Chain
Inbound Plant Logistics. A manufacturing plant must coordinate effectively with multiple tiered suppliers, 3rd party logistics and transportation companies to ensure timely delivery of parts and optimised inventory levels. A Blockchain based system would enable greater transparency of accurate information between the different parties; improving just-in-time logistics, reducing erroneous orders and raising inventory turns.
- Manufacturer Finance
Supply Chain Finance. A car manufacturer must wait several weeks or months before it receives payment for a shipment of vehicles from an importer/distributor/dealer. With multiple parties controlling different steps in the chain; the issuing of a Letter of Credit by the purchaser’s bank or submission of a Bill of Ladling by the manufacturer are still processes with a heavy flow of paperwork. A Blockchain based system would enable greater transparency of accurate information between the different parties, faster processing of export/import and banking documentation and ultimately reduce the settlement period before the manufacturer receives payment for cars delivered.
- Retail Sales, Service & Finance
Vehicle History. A consumer auto finance provider does not know about the real driving behaviour of its car drivers or their vehicle’s service history. A Blockchain based system would enable driving patterns and service events to get sent to a shared ledger that all parties had access to. Transparency of information about a vehicle’s real wear and tear would help the auto finance provider to more accurately gauge residual value of the vehicle as the lease approached its end of contract date.
- Vehicle & Brand Experience
Personal Mobility Profiles. A car manufacturer may want to offer subscribing customers access to additional vehicles in its range for limited time periods. For example, a family that owns a people carrier for commuting to and from work and dropping the kids off at school during the week also gets access to a 2-seater sports car for a limited number of weekends or a camper van for a vacation trip. A Blockchain based system would enable the car company to securely transfer the owner’s personal mobility profile including preferences for seat settings, climate and infotainment between multiple vehicles and even third-party partners, such as car sharing or multi-modal transport providers.
- Spare Parts & Warranty
Genuine Parts. A car manufacturer is concerned that service centres and garages are knowingly (or otherwise) fitting counterfeit spare parts to their customer’s vehicles. A Blockchain based system would enable the service centre, the car manufacturer and the customer to trace the provenance of spare parts back through every step in the supply chain to its original manufacture date and location. This would reduce damage to brand reputation and warranty costs for the car manufacturer if counterfeit parts are under-performing or worse, causing accidents.
Hyperledger Fabric is the open source Blockchain platform sponsored by IBM and other industry leaders which incorporates features to meet the needs of both large enterprise and start-up businesses. To find out more about the Hyperledger.
IBM and Maersk collaboration
IBM and Maersk have recently announced a collaboration to create an industry-wide global trade digitization solution built on Blockchain to transform global, cross-border supply chains.
IBM and Walmart collaboration
IBM and Walmart have recently announced a collaboration to improve food safety through enhancing traceability and transparency in the global food supply chain.