Blockchain is THE hot topic that has been on everybody’s lips for the past few months, with all sorts of initiatives being launched everywhere. Blockchain can be used in many different fields: from voter registration to payment of music artists and from real-time proof of insurance coverage to tracking of intellectual property rights. In the supply chain, too, there are many applications, and blockchain looks particularly promising for traceability. Could all the challenges related to product traceability be solved by this technology?
Blockchain is a form of distributed ledger where records of transactional data are stored. One record of data is called a “block,” and the blocks are organized in a chain (hence the name, blockchain).
Each participant in the blockchain keeps a copy of the ledger, and when a new block is added to the blockchain, it is validated by a consensus algorithm. This algorithm ensures that the new block can be added to the chain by hashing. Everyone’s copies in the network are then updated. That’s why we say the network is decentralized: there is no central authority controlling the quality of the data in the blockchain.
It is, therefore, critical to have all the parties involved on board for the blockchain, i.e., to have an ecosystem around the blockchain. Also, once the block has been validated on the chain, it can no longer be changed; blockchain is permanent and immutable.
Oracles and smart contracts
One of the promising features of blockchain for the supply chain is the use of oracles and smart contracts. An oracle is an agent sending information from the physical world to the blockchain, and a smart contract is a self-executing contract triggered automatically when its conditions are met. One of many possible examples could be a device measuring the temperature of goods during transportation. The measured temperatures would be uploaded thanks to the oracle on the blockchain, and if they were no longer within a certain range, a number of designated individuals would be automatically alerted. To prevent hacking and the upload of non-authentic info to the blockchain, IBM is developing “crypto-anchors,” which can be compared to a product’s fingerprints.
So what is traceability?
Traceability is defined by the International Standards Organization as “the ability to trace the history, application or location of an entity, by means of recorded identifications.” Traceability can be internal (inside a company) or external (from raw material to the end consumer).
Many companies in different industries experience challenges with their traceability. It is estimated that businesses operating in the food and pharmaceutical industries lose approximately $30-75 billion per year due to fraud, counterfeiting, the gray market, and stolen products. Supply chains are becoming more and more global, and consumers and manufacturers want more transparency regarding the products they are buying.
Blockchain to the rescue
Blockchain is a potential solution to this issue, as the characteristics of the technology match traceability functional requirements:
- Tokens: Each traced product can be given a unique identifier on the blockchain.
- On/off-chain data storage: Any type of data can be stored on the blockchain. It’s also possible to store some information off-chain, meaning the blockchain will only contain a reference to the data off-chain. The hashing algorithm also ensures the consistency of the data stored off-chain.
- Oracles: It is possible to use these tools to supply physical data to the blockchain.
- Linearity: Blockchain is linear and can therefore represent the exact chain of events followed by the traced product.
- Access restrictions: It is possible to restrict access to information on the blockchain so that only authorized participants can read and add blocks.
Diamonds are forever on the blockchain
Blockchain is, therefore, a match for traceability theoretically. In practice, there are already companies that use technology to support the process. One of them is Everledger, which provides a blockchain-based solution to track the provenance of high-value assets. Their most developed use case so far is for diamonds. More than two million diamonds have been uploaded to the blockchain. For each one of them, you can trace its history almost instantly, from its origin to the end owner, with pictures or certificates each step of the way.
Traceability of food
IBM has partnered with the American retailer Walmart, as well as nine other firms involved in the food industry, to create the IBM Food Trust. The companies have been working on blockchain and traceability since 2016. The Trust’s ultimate goals are to build a more efficient and transparent food system, to identify health-related issues and risks in the supply chain in a better and quicker way, and to reduce the spread of illnesses caused by food. As an example, Walmart has already carried out two pilot schemes in this area: one to trace mangoes in Mexico and the other to trace pork in China. Thanks to the blockchain, the time spent tracing information about specific mangoes or pork has been reduced to 2.2 seconds instead of approximately seven days with traditional traceability methods. Walmart’s suppliers of leafy vegetables will now have to implement traceability via blockchain by next year.
The main challenges for blockchain as a solution to traceability, which are also expected with the implementation of any blockchain application, are:
Data put on the blockchain must be consistent: if there is any error with data on the blockchain, it cannot be rectified, as blockchain is immutable. If tools are used to upload information to the blockchain, they must therefore be reliable and send correct data.
Every party involved in the blockchain also has to trust the data that is uploaded. It cannot work if any of the participants doubt what they see on the blockchain.
Some participants are reluctant to disclose information about traceability on the blockchain, as they fear it might be accessible to their competitors or other parties that shouldn’t be able to see it.
- Involvement motive and incentives
This final challenge is reinforced by the other three: all parties associated with the traced product must be involved in the blockchain; otherwise, we might be missing important steps in the supply chain on the blockchain. In other words, an ecosystem is needed. When a big player like Walmart is involved, this is an incentive for other participants to join, but in some cases, it is more difficult to achieve.
Blockchain is, therefore, one potential answer to the traceability challenges, but it also has its drawbacks. The technology is still emerging, and there are other, more mature solutions available that can also meet traceability requirements.
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