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Blockchain: four use cases transforming business

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Sky Matthews, CTO, Watson IoT, IBM, presented to a full house at the IoT World Forum, 2017, London, speaking about blockchain – arguably one of the hottest technologies around today, especially in IoT. Matthews discussed blockchain fundamentals and provided example customer experiences to illustrate how blockchain is being used to transform business networks in a wide array of industry settings.

What blockchain is not

The first point Matthews makes is that blockchain is not a silver bullet. It’s not magically going to solve all the issues facing us today – like security, for example. Blockchain is not going to absolve a manufacturing organization from the responsibility of having to secure its devices; it’s not going to prevent a user from creating lousy passwords; or, protect us from things such as the latest round of hacking with consumer cameras creating ghosts that caused DDoS attacks.

What blockchain can do, if a device gets compromised, is ensure that compromised device cannot disrupt or create false records inside a business process. In this way, even if the device is compromised, we can have confidence that once a business process is based on blockchain, a security infraction will not alter that business process – because it’s private.

What blockchain is

Blockchain technology comprises four main blocks that can lead to increased efficiency and cost reduction across the business network. The features that make blockchain trusted for business include:

  • Consensus, because all parties must agree to network verified transactions.
  • Immutability, because anything written on the ledger cannot be altered.
  • Provenance, because there are records of where each asset has been.
  • Privacy, because permissions and identity ensure appropriate visibility of transactions.
Figure: The elements of blockchain

Figure: The elements of blockchain

Secure, unalterable transactions using ledgers and smart contracts

Blockchain is not magic, but it does have the potential to dramatically transform how some of our business processes work – it can make certain transactions more secure, rendering the record of that transaction tamper-proof.

Because blockchain is a shared, unalterable ledger for recording the history of transactions, it increases trust, accountability, and transparency across business networks while streamlining business processes. A ledger is the system of record for a business. Business will have multiple ledgers for multiple business networks in which they participate. A transaction is an asset transfer onto or off the ledger and can be simple or complex.

A smart contract puts paper processes into a standard format so they can be executed on the blockchain. Smart contracts enable the business rules implied by the contract to be embedded in the blockchain and executed with the transaction.  A contract represents the conditions for a transaction to occur.

No single control over the record

Blockchain is a single record, distributed across parties that have an interest in that record – whether it’s a financial record, shipping transaction, maintenance for a car, or a record of an automobile part; it’s distributed and it has specific permissions about who is allowed to look at that record; and, because it is distributed, nobody has singular control over that record – meaning, if something should happen to a server – a fire or disaster – if something happens to that record, it’s not lost, that record still exists, in an unaltered state – a single instance of it.

A shared consensus is the heart of blockchain’s revolutionary nature

The way the record is created – agreed upon by all the members participating in the transaction – is called a shared consensus. Shared consensus is what increases trust and transparency – and it’s what lies at the heart of the revolutionary nature of blockchain. Using blockchain, a record of any transaction is agreed upon through a shared consensus.

Figure: Visibility, consensus and permanence

Figure: Visibility, consensus and permanence

Today’s business networks are inefficient, vulnerable and expensive

A business network is comprised of many participants – representing different roles – customers, suppliers, banks, partners and others. Business networks span communications, energy, transportation, finance, and manufacturing – there’s no limit. Goods and services are exchanged on this array of networks – however, keeping track of these transactions is a complicated, paper-intensive process because businesses have multiple ledgers for the multiple networks in which they participate. However, this system is inefficient, expensive and vulnerable.

Business networks – whether they involve buying something, getting goods shipped, manufacturing or maintaining assets – involves a network of participants cooperating with some shared and agreed upon hand offs and records. Historically, these records are manual – they are paper records. The problem with paper records is they are prone to risk. Manual-based processes are vulnerable and inefficient.

Figure: Business networks are vulnerable

Figure: Business networks are vulnerable

The faulty safety recall

Using the example of a car, what happens if one of its parts has a design flaw or a manufacturing fault that results in a part needing to be recalled? First, the supplier notifies the manufacturer; the manufacturer and supplier work together to determine where the fault lies; they then need to work out what models are being impacted.

From there, some kind of communication about the affected vehicle needs to be sent to the owner of the car in order to take action to resolve the problem. Typically, the notification happens through a paper letter or an email notification, notifying the owner, asking them to take the car into a dealership to have it fixed.

For a safety recall, the system seems inherently inefficient – vulnerable to problems. To have to rely on something so important being delivered to the right owner, at the right time, can leave both the consumer and organization (manufacturer and / or supplier) exposed. And, this sort of vulnerability is not unique to the car manufacturing and supply chain – any business network can have similar risks or exposures.

Going back to the example of the car recall – using the consensus element, when we put a record on the blockchain, if there are other members participating in the transaction, all members have to agree on the process. If a part is found to be faulty, part of the business process says there should be a notification to the manufacturer, and then that manufacture takes some corrective action. Using blockchain, in this instance, this event can be codified as part of a smart contract so that when the supplier discovers a fault the smart contract automatically kicks in, sends a notification that all parties have agreed on, and puts a record of the fault discovery on a blockchain.

Blockchain is not magic, but it is revolutionary

Overall, there is a very unique set of mechanisms which work together to enable blockchain – which really make it revolutionary technology. Organizations can now re-imagine fundamental business processes with blockchain. Using a distributed ledger, participants can share transaction and contract records. Trust no longer needs to be enforced (or verified) using potentially vulnerable or expensive mechanisms like auditors, third party intermediaries, etc.

Blockchain can eliminate more vulnerable mechanisms – by enabling us to automate and digitize these other mechanisms we have traditionally used to enforce trustworthiness. With blockchain, we can embed trust into the fabric of our business networks, thereby removing cost, time, and risk.

Advantages of embedding trust and trustworthiness in our business networks using blockchain

  • Save time by accelerating transactions – we can reduce transaction time from days to near instantaneous. Every order taken might require a signature that needs to be digitized, sent to someone and approved. Removing steps like this through automation is huge time saver. An even bigger time waster is when something goes wrong. Tracking down what went wrong, why it went wrong, who in the chain is responsible, what needs to be done to recover? All these issues take a tremendous amount of time and can cause delays.
  • Remove costs by reducing overheads and cost intermediaries. Every mechanism – lawyers, auditors, intermediaries – all have costs associated with them, they all contribute to additional layers of complexity. By embedding some of these capabilities digitally into smart contracts, some of these costs will disappear from the system.
  • Reduce risk of collusion, tampering, fraud and cyber crime. The opportunity for people to fraudulently tamper with or remove records is reduced. More importantly, the opportunity to make mistakes – through accidental omissions in the paper trails and record keeping is greatly reduced.
  • Increase trust between parties (and devices) through shared processes and record keeping. Having a shared, distributed ledger generates trust more than paper-based systems.
  • Improve discoverability. When everyone on an exchange can view the same ledger, it is easy to broadcast an intention (or offer) by appending it. For example, in a trading network, all asks and bids would be visible to every network participant.
  • Automate trusted processes. Unlike a centralized system where only the network operator can create a generalized solution that fits every user’s needs, Blockchain networks allow each participant to create customized solutions using their own proprietary business logic while running on the same common ledger.
  • Ensure trusted record-keeping. By design, no one party can modify, delete, or even append any record to the ledger without the consensus from others on the network, making the system useful for ensuring the immutability of contracts and other legal documents.

Four transformative blockchain use cases

Not everything is right for blockchain. Making implementation decisions regarding where and how we use blockchain needs to be assessed. Across our business networks, we need to understand exactly what critical records should be put on the blockchain. Not all data collected from every IoT device should be put on the blockchain. Rationalizing the importance of our business transactions that span disparate networks – and where within those transactions there might be scope for efficiency and automation – is a good place to start. Here are a few examples to think about:

Figure: Four use cases

Figure: Four use cases

Use case 1: Improving workflow and real-time visibility on the status of shipments

  • Container contents
  • Electronic documents – bill of lading, customs, etc.
  • Transit tracking
  • Transfer/handoff of goods
  • Exceptional events

Ninety percent of goods in global trade are carried by the ocean shipping industry each year, however, the supply chain is slowed by the complexity and sheer volume of point to point communication across a loosely coupled web of land transportation, freight forwarders, customs brokers, governments, ports and ocean carriers.

International trading parties require both improved workflow and better visibility. They need a faster, security rich and more efficient way to handle the documentation processes needed to move goods across international borders. The costs associated with trade documentation processing and administration are estimated to be up to one-fifth the actual physical transportation costs. A single vessel can carry thousands of shipments, and on top of the costs to move the paperwork, the documentation to support it can be delayed, lost or misplaced, leading to further complications.

IBM and Maersk are addressing these problems using blockchain to exchange event data and handle document workflows. For example, in 2014, Maersk found that just a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, including more than 200 different interactions and communications among them. Using a blockchain solution will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process.

By using blockchain technology to establish transparency among parties, the solution can help reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.

In order to prove the potential value of a commercial trade digitization solution, IBM and Maersk teamed up with a number of trading partners, government authorities and logistics companies. The blockchain solution based on the Hyperledger Fabric and built by IBM and Maersk, the global leader in transport and logistics, will be made available to the shipping and logistics industry.

The solution helps to manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process from end-to-end to enhance transparency and the highly secure sharing of information among trading partners. When adopted at scale, the solution has the potential to save the industry billions of dollars.

By enabling the real time exchange of original supply chain events and documents through a digital infrastructure, or data pipeline that connects the participants in a supply chain ecosystem, blockchain promotes sustainable transport by integrating shipping processes and partners, and establishing evaluation frameworks through increased transparency and trusted access.

How it works

  • Blockchain, an immutable, security rich and transparent shared network, provides each participant end-to-end visibility based on their level of permission.
  • Each participant in a supply chain ecosystem can view the progress of goods through the supply chain, understanding where a container is in transit. They can also see the status of customs documents, or view bills of lading and other data.
  • Detailed visibility of the container’s progress through the supply chain is enhanced with the real time exchange of original supply chain events and documents.
  • No one party can modify, delete or even append any record without the consensus from others on the network.
  • This level of transparency helps reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.

Use case 2: Asset lifecycles and history

  • Parts history and provenance
  • Maintenance and repair history
  • Damage events
  • Transfer of ownership

Asset lifecycle is a great example – any industry where there is a long lifecycle associated with a complex business critical, not to mention life critical, piece of equipment – mining equipment, tractors, and telecoms equipment – are types of critical assets which have very long lifetimes – anywhere from 10 to 30 years.  Take the example of an aircraft, which over the course of its lifetime, might have as many as three or four owners. An aircraft certainly has different parts replaced over its lifetime. Are the parts on an aircraft – over the full course of its life – with multiple owners genuine, in good working order, original and not counterfeit? How do we know if a record has been falsified?

Take the example of an airplane – we want to be sure we know the parts used within an airplane are fault free. Using a combination of IoT, instrumentation and device authentication – right down to the part number – every part that is used in a complex piece of equipment has an indisputable provenance and history in an unalterable record on the blockchain. For the buyer, and more importantly, the passenger of the aircraft, the safety and reliability of that aircraft is traceable – and trustworthy.

Damage events are something an organization wants to know about over time. For aircraft, the number of hard landings is tracked as a key indicator of the wear and tear on the aircraft.  What if we could track and record the number hard landings on a blockchain. We would have a very high degree of trustworthiness in that aircraft’s history.

The automotive industry is another area where blockchain can make a huge difference with regards to parts and provenance – reducing the potential for counterfeit parts. Blockchain could have an enormous impact in any part-intensive industry – where the supply chain is critical to a manufacturing organization. Although a manufacturer might maintain a secure connection with its direct suppliers, the surrounding processes – for example, components being delivered from site to site, may not be as airtight. Trust along the supply chain is assumed unless there are signs of physical tampering, a delivery truck is stolen, or transport delayed.

Determining provenance all along the way can help reduce the appearance of counterfeit parts within the supply chain. The automotive industry is one example where thousands of parts are sourced from multiple vendors – inclusive of sensors. It’s critical to ensure these parts are genuine – especially with the advent of autonomous cars.

Blockchain minimizes reliance on blind trust, while enabling real-time visibility into supply and demand – across the entire ecosystem. Using blockchain and IoT ensures each part receives its own unique identity as part of the supply chain.  To explore the use case more fully, check out the video.

Use case 3: Infrastructure management

Infrastructure management is an interesting area because it’s very difficult to enforce a service level agreement (SLA) on telecommunications partner. It’s difficult because there are a tremendous amount of hand-offs between systems, involving a massive amount of data. In the telecommunications industry, FCAPS has become a proven approach to network management that works very well in a centralized, single-provider environment.

Figure: FCAPS

Figure: FCAPS

The opportunity is that blockchain technology can also facilitate distributing FCAPS capabilities across multiple administrative domains. By instrumenting and tracking each of these FCAPS on the blockchain –  as a way to track records across a distributed network where multiple suppliers and vendors participate in the business network – such as the telecommunications industry, it’s possible to create and enforce service level agreements.

This also applies to a transportation infrastructure, energy, or water network – any business network where we depend on processes that span a broad ecosystem of partners and suppliers. Knowing the condition or key performance indicators of any infrastructure we work with is an interesting use case to explore because it guarantees that we have transparency into the operation of the network using blockchain.

Use case 4: Guaranteeing the safety and reliability of the food supply chain

Ever wonder where the ingredients from a store-bought tiramisu came from – how far they traveled, if they are safe? The issue of being able to track and trace where food comes from, and how it flows from farm to fork, has always been something organizations have had an interest in, however up to now efforts have been inconsistent, with few standards.

There’s a lot of complexity in the food supply chain – involving many interim processing steps. For instance, one farmers produce might first enter a food processing facility, then move on to a distribution center. Each point in the chain has a one-step view up or back, there’s no full view.

Figure: Complexity in the food supply chain

Figure: Complexity in the food supply chain

The process uses disparate methods, pretty much on paper – which means it’s not fast and it is error prone, and there’s no visibility along the whole chain. There have been some very visible examples in the last few years ranging from spinach to peanuts. The time it takes for organizations like Walmart to react to something like an e-coli outbreak is critically important. Sometimes it can take weeks to figure out the source of a problem – the food’s origin, where along the way it became contaminated.

What happens if one of the many ingredients in a tiramisu is tainted, or there’s been some issue in the supply chain detected regarding a health risk? Think about the network of suppliers used to supply an ingredient?

Figure: Tiramisu – establishing food provenance in processed foods

Figure: Tiramisu – establishing food provenance in processed foods

What if one batch is not right – and has caused health issues? With multiple ingredients, sourced from different suppliers, brought together through different facilities, and then distributed across a network of transportation vehicles, being able to pinpoint exactly where the source of the problem is – whether it’s eggs, chocolate, cream or a batch of cinnamon – is critical.

Does it make sense to have to halt the entire set of suppliers while waiting to identify the exact origin of the problem? Doing so could be economically devastating to smaller suppliers. As processed food-stuffs are brought together, mass produced and then shipped – the faster an issue is identified at the source, the more quickly the problem can be resolved – with minimal disruption to the rest of the suppliers.  Walmart is making big strides towards tackling issues associated with tracing food content and provenance by bringing traceability and transparency to the food supply chain network using blockchain technology.

Using a combination of IoT sensors and blockchain, retail giant Walmart is hoping to address these issues – radically improving the speed, traceability and trackablility, using a trusted network along the blockchain. By using blockchain, if anything is tracked to a particular supplier, the wider network is not adversely impacted. Watch the video, to learn more about how Walmart is using blockchain technology.

Learn more

Blockchain will have a big impact in IoT.  Understand more about Blockchain and what it can do for your business networks. Talk to IBM and Cisco about your use cases; identify areas for improvement where a trusted ledger could help simplify and optimize business processes; consider participating in IoT blockchain community activities – through Trusted IoT Alliance, and, the Hyperledger Project.

 

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