What is Blockchain and Why is it Going to Revolutionise Logistics?

In late 2017/ early 2018, blockchain was cropping up in conversations all over the world. At the time, it was mainly being discussed in relation to Bitcoin, the cryptocurrency whose value rose stratospherically in that same period.

The fervour surrounding Bitcoin has died down since then, but blockchain technology hasn’t. In fact, more and more industries are starting to look at how they can utilise blockchain and it’s estimated that by 2021, $9.7bn will be spent on blockchain technology.

But what is blockchain? Whilst it has been mentioned in passing by many beginner crypto-investors, its application and the thinking behind how blockchain works has commonly been misunderstood, if understood at all.

A Super Simple Explanation of Blockchain 

The blockchain is essentially a digital diary which is impossible to alter or forge. To use an example, it works to decentralise systems or transactions, providing security and anonymity for those that are using it. The way it does this is as a ledger or log which records examples.

The easiest way to illustrate how this works is to use the example of a currency. So lets pretend that we’ve invented a new currency which is going to be regulated through blockchain. Let’s call it MorrisCoin.

When this starts, Person A, B, C, D, E F and G all have 10 MorrisCoins in electronic wallets. Person A buys something from Person B for 2 Morris Coins, so electronically sends the coins to Person B’s wallet.

This transaction generates a unique ID which is specific to that amount being transferred at that time. There is no pattern, code or logic to this ID – it is randomly generated and acts as a record of that happening. This ID number is then noted as an entry in the public diary.

Once it’s in the diary, it’s in. The record exists forever, and everyone involved from Person A to G can see it. If Person A tried to tamper with the record, say to steal the money back without Person B’s consent, everyone else would see that the record in the public diary had changed and sound the alarm.

This is what happens, but on a much bigger scale, with thousands of people and millions of transactions taking place. Also, all the users are totally anonymous so, for example, Person C wouldn’t know it was A giving money to B, they would just know a transaction had taken place at that time between 2 wallets.

That’s an incredibly simple explanation of blockchain but for the rest of this article, it (hopefully) does the trick. For a much more in depth and potentially better-explained version, take a look here.

The beauty and benefit of blockchain technology in the financial space is that it eliminates the need for middlemen, i.e. banks. This means no more transaction fees, faster transfer times and a whole host of other benefits.

So why does it matter for logistics?

Blockchain Meets Logistics

If the $9.7bn due to be spent on blockchain technology in the next 2 years is a large amount it is dwarfed by the size of the $8.1 trillion global logistics industry. An industry which, for many years has been reluctant to embrace new technology and has stuck to old habits.

For more about tech in logistics, read my colleague Aaron’s article here.

In logistics, just as in finance, blockchain provides transparency. An international long-distance shipment can take over 30 different people’s approval and over 200 different supply chain stages along the way. Each stage would take at least a two-way agreement between parties and comes with its own paperwork and regulatory issues. This can take an unnecessarily long time if those people cannot get access to the relevant documents immediately. But should these documents be readily available on the blockchain, this problem disappears.

This massively speeds up these bureaucratic processes, saving vast amounts of money in the process. There are other benefits, too.

Added Security

Information security is crucial for industries that are highly regulated: Healthcare, Pharmaceutical and Food industries are a few examples. Blockchain ensures quality assurance for goods that must comply with regulatory standards. It ensures that all supply chain events are recorded and validated for each uniquely coded product. This information cannot be altered or removed from the blockchain by fraudulent parties, as it would be noticed by the vast network of other users who have access.

The traditionally old-fashioned companies are now starting to catch on, too. A.P. Moller Maersk have recently partnered with IBM to create a bespoke blockchain platform, ‘TradeLens’ in 2018. According to the CEO of Modern Terminals, Peter Levesque, this platform “uses blockchain technology to create an industry standard for the secure digitization and transmission of supply chain documents around the world.” So far, more than 90 participants have signed up, including CEVA, DAMCO, AGILITY and Port of Rotterdam.

When names like that associate themselves with a new technology or system en masse, it’s usually safe to say that others will follow and, when mass adoption eventually takes place, blockchain will no longer be confined to rueful conversations between regretful bitcoin investors, it will become an integral part of the way we move goods around the world today.

What effect do you think blockchain will have on logistics, or in any other industry?