How relevant is blockchain for logistics?

Stefan Seufert, CTO/Vorstand EIKONA AG
Blockchain ermöglicht synchrone Datenbestände durch eine dezentrale Datenbank.

Blockchain technology is all over the news; prices of bitcoins, which are based on this technology, always cause a stir. Blockchain is a frequent topic of discussion in logistics, too. However, to judge whether this technology can help solve a particular problem, you have to look behind the scenes.


Blockchain is much-used term that refers to a decentralised database that allows everyone to exchange documents and engage in financial transactions securely and directly. In logistics, blockchain offers a way to share shipment data faster, increase transparency along the supply chain and thus speed up processes – from billing to orders to customs formalities. All entries build on the previous ones. All the information is automatically placed in chronological order. In that sense, it acts much like a bank statement or cash journal, where the balance is recorded for each entry. If someone wanted to change the journal's data history, they would have to update the entire journal from the time of the change or, in other words, "rewrite history".


Security

Blockchain makes logistics processes even more trustworthy

Since the data is stored on the computers of all the blockchain participants, changes have to always be transmitted to all other participants. These recipients, however, can detect that history is being rewritten based on algorithms and will reject unauthorised requests. An example from logistics: Events along the supply chain are documented in detail in a blockchain journal so that the history can be accessed in the event of damage. Because data can no longer be changed, there is also no way for individual parties to argue their way out of responsibility for any damage they may have caused by subsequently adjusting documents. If they try, they will leave a timestamp in the journal that all the other participants can clearly see, showing that this message was processed later.

Disagreements about what the correct version of the story is can be resolved by majority voting, known as the consensus. Ultimately, this means that the history in the journal is unchangeable unless someone manages to get more than 50 percent of the participants on their side. This is also the most important reason why processes are tracked using blockchain: the technology makes it possible to agree on a generally accepted data history based on a majority vote without needing a central authority.


Database

Improve verifiability with synchronous databases

When competing companies want to collaborate, blockchain lets them maintain a reconciled, synchronised database without bringing in a "trustee" who could alter the data. This method can be used to exchange information reliably and verifiably, for example. If you want to tell another participant something, you simply write it in the journal. The recipient reads the journal and thus receives the message intended for him or her. As soon as the receipt of the message has been confirmed by the majority of the participants, the recipient can demonstrably claim that the sender sent exactly this message to the recipient at the specified time. In logistics, this message could involve additional information needed to deliver a shipment to a customer, for example.


Smart contracts

Blockchain accelerates payments

Smart contracts can also be deployed to a blockchain. These are contracts in which certain actions are triggered automatically within the journal if certain data-related conditions are met. They are often based on virtual currencies, tokens, that come with these technologies. To stay in the logistics world, for example, a smart contract for general cargo could stipulate that the shipping forwarder has to transfer a certain number of tokens to the smart contract as soon as he enters his waybill in the journal. If the receiving forwarder reports that the delivery was successful and no objections are made, it can claim these tokens as payment for the delivery. This could theoretically make clearing unnecessary. It is not that simple in practice, though: the tokens will have to be able to be exchanged for hard currency at some point. One option would be exchanges for publicly trading tokens such as bitcoin. However, token prices are highly volatile. An alternative is to find an entity who promises to buy tokens at a defined rate. However, this would undermine blockchain's inherent independence from central authority.


Challenges

Even blockchain has its limits

The amount of data that can be transmitted over a blockchain is limited. Only a few hundred bytes are usually allowed. This is enough for a simple status message such as Shipment XYZ was delivered today at eleven o'clock, but not for exchanging complete shipment data, delivery receipts or damage photos. In other words, blockchain is not a primary data exchange protocol. Large volumes of data must still be exchanged via other protocols but can be additionally authenticated via checksums in the journal. That means companies need to maintain communication channels other than blockchain. This has its advantages. Information shared over these channels does not become part of the journal, which not only simplifies data protection – everything in the journal is publicly visible to all participants – but also limits data volumes. This matters because every participant must always keep a copy of all the data, regardless of whether it is intended for them or not, on their local IT systems.


Transaction speed

In logistics, blockchain can quickly reach its limits

Transaction speed is particularly relevant for logistics. Today, more and more data is generated over a shipment's or product's life cycle. It takes much longer to write this data to a decentralised journal than a traditional database. The large number of shipments being transported simultaneously quickly push the system to its limits. To provide a sense of scale, Bitcoin currently processes less than ten transactions per second, versus several thousand for traditional payment providers like Visa. However, blockchain-type protocols such as IOTA or private chains can definitely keep up with that rapid pace. You should generally be aware that these approaches will always have higher data processing costs than a centralised solution since the data has to be held in multiple places and checked multiple times.

Conclusion

Blockchain is a useful tool for logistics providers

Blockchain offers new ways to put cross-company collaboration on a solid, trustworthy footing. However, to avoid unpleasant surprises, you have to "get your feet wet", be a full participant and understand the technology's limitations. Once you have met all those criteria, blockchain will be a useful addition to your existing organisation. For logistics, blockchain provides an exciting way to accelerate processes and increase transparency and security up and down the supply chain. However, there are (still) challenges – especially technical ones – that keep blockchain from being a must-have technology for logistics companies. Centralised architectures are often a more cost-effective alternative for processing large data volumes and high transaction volumes as long as everyone can agree on a trusted provider.


Stefan Seufert
Stefan Seufert
CTO

As a design guru, the software developer delves into logistics service providers' requirements like no other. He is passionate about exchanging information securely and efficiently and thus speeding up the physical logistics process.


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