Note: This article is written based on my research dissertation at De Montfort University with the title of “Supply Chain Management on Blockchain”.
I have seen from some articles that people are leaving Blockchain behind. It has something to do, but not limited to, the lack of regulation, environmental cost, and complexity. Nevertheless, I am still believing in this technology and trying to create an awareness of how robust this technology through this article.
A Gentle Introduction
Blockchain technology (read first article), defined as a ledger that performed without central entity. Hence, a transaction on the blockchain, which represented into a form of block, has to be verified through a consensus of majority participants in the network.
I have introduced blockchain adoption to several sectors on my first article, for instance healthcare and supply chain management (SCM) (Wüst & Gervais, 2018; Tripoli & Schmidhuber, 2018; Siyal, et al., 2019). On the healthcare sector, essentially, it can be used for merging patient’s clinical record and showing it in a real-time manner. Besides, one of the most useful application of it is for the SCM as it could increase in efficiency, transparency, and trust. But, before getting into that part, we need to first understand about the basics. I realised that on my first article I have not specifically explained all the underlying technologies underpin. Hence, I will try to explain briefly those concepts on the next part.
- Hash Functions, a function that takes an input as an arbitrarily long string of a message then maps it to a fixed k length message (ISO, 2016). Hash function is important to the blockchain as it is the backbone of blockchain architecture to ensure the immutability of transactions.
- Merkle Trees, which is a data structure where each leaf node contains the hash of a data block. They are critical in the blockchain to prove the integrity of data as well as its efficiency. It is efficient because the structure of the tree maps the large amount of transactions and put those transactions into just one block (Merkle Root). To illustrate (see fig. Merkle Trees), suppose that there are four transactions. Every two transactions are hashed separately with the result are stored in each leaf node. Then, each result is hashed again so there will be two pairs of a hash function. These two pairs then hashed again until becoming a root trees called Merkle root. The Merkle root is put into the block along with the block header and the previous hash of the last block. Each block is connected to each other, hence blockchain.
- Digital Signatures, When talking about digital signatures, we have to understand first about asymmetric cryptography (aka public key cryptography). Basically, asymmetric cryptography is an algorithm that consists of public key, visible for everyone to see, and a private key that only available to the owner. You might be wondering then what is the relation between digital signatures, asymmetric cryptography, and blockchain. Yes, digital signature is the application of asymmetric cryptography. It is a technique to provide authenticity and integrity within messages or documents. On the blockchain concept, users’ public key is their blockchain wallet (e.g. Bitcoin or Ethereum address) that is visible to everyone. The private key in this concept is used to digitally sign a transaction for ensuring that particular transaction is indeed generated by the sender, is stored safely in a crypto wallet.
Digital Currencies, Blockchain and the Future of Money | Data Driven Investor
Now that we have covered some of the fundamentals. You might be thinking, when there is no central authority in the blockchain network topology, then how does the verification process taking place. The answer to that is consensus mechanism, which is a mechanism to reach an agreement by waiting to the confirmation by most of the entities in the network. This mechanism also is the answer to prevent if there is a fraudulent transactions (Kubilay, et al., 2018). There are a number of consensus mechanism. However, this article only covers Byzantine Fault Tolerance (BFT), Proof of Work (PoW), and Proof of Stake (PoS).
Byzantine Fault Tolerance protocol (BFT) is a possession where consensus is reached despite a possibility of some nodes being tampered. Well, to be clear, 1/3 nodes being corrupted simultaneously (Zheng, et al., 2017). We can also say that BFT it not fully decentralised since it has one “leader” that gives access rights to write and read transactions to other entities within the network.
Another consensus mechanism is called Proof of Work (PoW) as implemented by the famous cryptocurrency Bitcoin. POW works when someone is trying to solve a so-called “mathematical problem” or people call it puzzle in order for to add a new block to the chain. The solution of that problem basically is an evidence or proof of what they have done. Thus, you get proof after successfully solve the puzzle. Note that the puzzle is a code of SHA-256 output where the user tries to find a certain number of leading zeros by adding a new field called nonce. Again, this mechanism also suffers from several problems. Their biggest problem is the slow confirmation rate, which only around 7 transactions per second alongside the energy consumption problem (Arabaci, 2018).
The alternative to the PoW is Proof Of Stake (PoS), that came up from the idea of stake. The more money people put to the stake, the bigger change they will be chosen to add a new block (Yaga, et al., 2008). This is the reason that PoS does not need an expensive computation resource, hence, able to address the energy issue from PoW.
Here are some of the real implementations of these consesus:
- BFT: Ripple, Corda, Quorum
- PoW: Bitcoin
- PoS: Cardano
We have managed to cover some of technical things. Now, it is time to move on to the benefit of blockchain other than financial transaction.
Blockchain for the Supply Chain Management.
I will start with the definition of SCM. It is the strategy from one business functions to another that escalate a value of goods, services, and information to the customers (Janvier-James, 2012). The main objective of SCM is adding a value or maximising all the processes in the supply chain to deliver the best products or services to the customers (Shukla, et al., 2011). SCM focuses on managing the relationship across entities to give the best value of products or services to the end customer and it is obviously emphasises on collaboration, if not communication. But then, traditional SCM have numerous limitations. One example of this is Bullwhip effect: a phenomenon of how inaccuracy of information, lack of transparency, and lack of synchronisation between production and real-time information (Aprile & Garavelli, 2007). But, the critical part is that traditional SCM still depends on a centralised system. Now, if the central node got attacked, let say data breach, then it would affect to another processes in SCM.
Blockchain plays a role to address some of the issues that mentioned before. The transparency of blockchain can be used in the SCM by providing end-to-end visibility to share a secure information between members as well as the traceability of each processes in the SCM will be reached. I know it still a bit vague, so, here is some of the notably examples of a blockchain-based SCM
- VeChainThor: The integration of blockchain and IoT in the case of temperature-controlled (Cold-Chain) logistics such as seafood or frozen food where it needs thermal and iced packaging. IoT sensors is used to track the information such as key humidity, temperature, and location of products in real-time situation. Information is uploaded to the VeChainThor Blockchain that obviously visible to all SCM members.
- Ambrosus: It was previously on the Ethereum with the integration of IoT devices to record information. However, in April 2019, they have released their own blockchain network and token that able to connect to the Ethereum main network. Ambrosus constructed a token bridge used as a connector to the Ethereum main network that able to transfer AMB token to Ethereum or vice versa.
There are a lot of possibilities in the blockchain-based SCM. In fact, researchers are still trying to find the best way of this scenario. Not to mention other potential sectors that would get benefit of blockchain technology. To conclude, blockchain still showing some promising features as it has been considered as disruptive technology that potentially disrupt people’s life (of course in a good way) similar to the internet.
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Shukla, R. K., Garg, D. & Agarwal, A., 2011. Understanding of Supply Chain: A Literature Review. International Journal of Engineering Science and Technology, 3(3), pp. 2059–2071.
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