In logistics and supply chain, we’ve all been approached about using blockchain technology as a solution to all of the issues the industry is riddled with. It’s a buzzword that seems to be very hot right now, but often times, we’re not being told the whole story.
Let’s get back to the basics for a moment here: what is a blockchain?
It’s essentially just a ledger of transactions that cannot be changed retroactively. That means that all of that data is secured, verified, and that everyone participating in the blockchain keeps a full copy of it. If one person tries to edit something or change the blockchain itself, it is rejected as invalid. This goes on ad infinitum.
So why is that important for logistics and supply chain?
- Increased Visibility and Traceability: Significant increases in communication, visibility, revenue, and efficiency for shippers and carriers
- Security: Encoded geographic data will improve cargo visibility and reward operators for safe and efficient delivery
- Parity: An open marketplace that will connect shippers and carriers directly, increasing profits for all parties involved
- Unification: A single unified platform that will be an open development environment, allowing others to integrate and build on top of that ecosystem
So here’s what you don’t always get told.
There are three primary consensus mechanisms. Well, first off, what is a consensus mechanism? A consensus mechanism is essentially several computers coming together to agree that what is being sent to them is correct. So how is that done?
The first way is proof of work. Proof of work means that millions of computers are calculating very difficult equations in a competition and the first one to solve it is rewarded. Proof of work is very secure and is the most proven. Bitcoin and Ethereum both presently use this method, but it requires very specific hardware that can be both expensive and energy-intensive.
Another way is proof of stake. Effectively, you are bonding your stake on the network. An amount of money is put up as a bond and then the network randomly agrees on who the next validator will be. Ethereum 2.0, also known as Serenity, is going to be moving towards this proof of stake. There are a couple other systems out there that are also using proof of state, but it’s not very common. It’s also not as resource intensive.
And then there’s proof of authority, where the singular leader of that network approves all blocks and validates all information. This mechanism is counterintuitive to blockchain’s basic principles in that it’s a single trusted source of information rather than distributed. While this has increased speed, problems can arise. When you have a singular source of information proving everything, what if it’s a competitor? If a competitor of yours has to approve all of your data, that’s obviously problematic.
So that brings us to private versus public blockchains.
Private blockchains are not decentralized — someone or some consortium of entities controls and owns them. It’s a centralized database solution that is almost effectively a cloud solution. The owners do have the ability to tamper with that data.
Public blockchains are decentralized. No singular person or company owns them and they are nearly impossible to hack or tamper with. They are not quite as fast yet, but as the networks move towards using proof of stake, they will speed up.
What are some key takeaways from this?
We are constantly flooded with sales pitches on blockchain, but be sure to take a closer look at what exactly you are being sold on. A lot of the popular options are actually private blockchains that do not offer the same benefits as a truly decentralized technology.
Don’t fear the word “public.” A public blockchain does not mean public data in any way, shape or form. It means increased security through distributed consensus and validation.
At the end of the day, you need to ask yourself: does what you’re doing really benefit from blockchain? It’s not a fix-all as it is often sold as. Would your company benefit from decentralization? Would it benefit from distributed trust and proof of provenance? If so, then think seriously about implementing a public blockchain solution.