Does blockchain really hold promise for creating a more efficient supply chain, or will it be dragged down by the weight of lead known as Bitcoin?
The recent fall in the value of bitcoin and other cryptocurrencies has many observers wondering if blockchain, the distributed ledger designed to record the buying and selling of digital coins, can survive as a standalone concept. to manage key business transactions.
In particular, blockchain was touted as an innovative method to trace the provenance and journey of products through the supply chain. By uploading relevant data to a supposedly immutable ledger, spread across multiple computers, shippers can prove that certain raw materials and manufactured goods were sourced sustainably and ethically.
So the theory goes, and there have indeed been a number of successful blockchain pilot projects in recent years by major retailers such as Walmart and Target, and technology leaders such as IBM.
Blockchain has shown particular promise in the agricultural sector, where it can be difficult to determine the precise origin of a given product. An example of an early success is the TraceHarvest Network, an initiative to track and trace the “complete life cycle of agricultural products, starting with the seed source”. It was launched in 2020 by blockchain platform provider BlockApps, in collaboration with Bayer Crop Science. In Africa, blockchain is being used to gain visibility into the livestock supply chain, as well as linking farmers, distributors and retailers in efforts to boost agricultural production.
But those who tout blockchain as a panacea for global supply chains often gloss over the complexities that come with it. One is the persistent link between the blockchain and virtual coins and tokens, which are generated as part of the process of creating or “discovering” blocks containing transactional data. Typically, these are set up by “miners,” individuals who are rewarded with some form of digital currency for their efforts in building blockchains through solving mathematical equations. The precise form of the coins varies – some are securities that can be traded like any other instrument regulated by the United States Securities and Exchange Commission. Others are limited to specific uses, such as the purchase of products or services. (Want to pay for your dental services with digital currency? Try Dentucoin.)
Another concern associated with blockchain is the huge amount of energy consumed by the process. Bitcoin mining, on the other hand, requires huge expenditure of energy – by one estimate, as much as any data center in the world, with a carbon footprint matching that of the entire city of London. Again, the nexus between cryptocurrencies and blockchain puts the latter on a collision course with efforts to create greener and more sustainable supply chains.
All of the uncertainties surrounding Bitcoin and cryptocurrencies in general are clouding the prospects of blockchain for the supply chain. But Geoffrey Garrett, dean of the Marshall School of Business at the University of Southern California, believes that associating blockchain with Bitcoin “is a narrow way of thinking about what blockchain could make possible.” Speaking at the recent USC Marshall Global Supply Chain Excellence Summit, he said the supply chain is generally a “perfect growth area” for innovative technologies, especially when blockchain is combined with sensors and the Internet of Things (IoT).
This stellar future might not be obvious to those focused on the fate of Bitcoin. “You would be considered crazy right now if you invested in the Ethereum-based supply chain management protocol,” Garrett said, referring to the popular open-source blockchain for digital money, global payments, and related applications.
At the moment, Garrett added, cryptocurrency is considered by many to be “fool’s gold.” Yet venture capital investments in supply chain technology are on the rise.
So what’s going on? Can the leash that binds blockchain to crypto be cut, allowing blockchain to fulfill its potential? The key, Garrett said, is time. He compared the maturity of blockchain to the dawn of the internet in the mid-1990s. “We’re in the very early innings,” he said. “I suspect that over time blockchain and IoT are going to be less and less about tokens.
“That’s not where the action is going to be,” he continued. “It will be in massive applications of decentralized technology.”
It remains to be seen who exactly will benefit from the rise of blockchain. Every advance in modern digital technology has promised a “democratization” of apps, for users big and small. But Garrett suggested that the actual use of blockchain in the coming years will be mostly by big players leveraging the technology at scale. “I suspect it will be more of that, as opposed to an idealistic [future]without any company involvement.
Nonetheless, he sees blockchain as a technology that is here to stay, once it gets rid of the shackles of cryptocurrencies. “If the big supply chain theme over the last few years has been…globalization,” Garrett said, “I suspect that going forward it’s going to be cutting-edge technology, the interplay between IoT and blockchain looking the most promising.”