Blockchain technology is a novel technology that promoters have highlighted in recent years, and it holds the potential to explore and control supply chain risks. According to a recent research paper, “The blockchain is a new organizing paradigm for the discovery, valuation, and transfer of all quanta (discrete units) of anything, and potentially for the coordination of all human activity on a much larger scale than has been possible before”. Blockchain is a distributed ledger technology that can record transactions between parties in a secure and permanent way.

By ‘sharing’ databases among multiple parties, blockchain essentially removes the requirement for intermediaries who previously needed to function as trusted third parties to verify, record, and coordinate transactions. By facilitating the move from a centralized to a decentralized and distributed system blockchain effectively liberates data that was previously kept in safeguarded silos. Blockchain technology does not introduce an entirely new paradigm. Rather, it builds on the old template of a ledger – something that is used to log transactions over a period of time.

Blockchain in Logistics:

The problems of traditional technology, which include a centralized ledger, are manifold. These problems include, but are not limited to, reduced scalability, a single point of failure, and susceptibility to fraud that typically emerges when dealing with third-party ledger keepers. The use of a distributed ledger technology inspired by blockchain technology could alleviate the aforementioned limitations.

The global supply chain market size reached a value of US $15.85 billion in 2019, with a projected increase to US $37.41 billion by 2027. Therefore, it becomes crucial to bridge the gap between customer trust and the uncertainty associated with the supply chain process.

The blockchain technology, which is a distributed ledger system, makes sure that all the transactions that happen in a network are completely transparent and builds customer’s trust. Such a paradigm is imperative in tracking the efficiency of the logistic service that a customer is paying for and has a higher degree of control in its operation as well.

Blockchain Latency:

Since all the transactions take place over a single network in a blockchain, the network bandwidth and latency play a major role in deciding how smoothly a client can utilize the blockchain for their use-case. While Transactions-Per-Second (TPS) may be the poster child for measuring the performance of a blockchain, it is only one half of the equation. Similar to how internet connections need both high bandwidth and low latency to deliver speedy services, blockchain platforms need both high throughput and low transaction latency to do the same.

Take for example, Bitcoin. Although reports indicate a capacity of 7 transactions per second (TPS) for the Bitcoin network, executing a transaction still necessitates a minimum of 10 minutes, as a new block is generated every 10 minutes. This implies that even if there is only one person conducting a transaction (hypothetically) on the Bitcoin network, it will still require 10 minutes for the chain to record the transaction.

The above example shows how slow a blockchain network can become when many clients are attempting to make a transaction at the same time. Such delays can be detrimental to the trust that the logistic services are attempting to build with their clientele.

Mitigating network latency: Blockchain technology

Because of its decentralized architecture, all or a majority of nodes participating in the network approve each transaction within a blockchain network. This approval process limits the throughput of a blockchain network; for example, Bitcoin, a public blockchain, can only process from 3 to 30 transactions per second, as mentioned earlier.

One of the drawbacks of such public blockchain networks is the substantial amount of computational power that is necessary to maintain a distributed ledger at a large scale. More specifically, to achieve consensus, each node in a network must solve a complex, resource-intensive cryptographic problem called a proof of work to ensure all are in sync.

An invitation is necessary for a private blockchain network, and either the network initiator or a set of established rules by the network initiator must validate it. Businesses who set up a private blockchain will generally set up a permissioned network. This places restrictions on who is allowed to participate in the network, and only in certain transactions. The access control mechanism could vary; existing participants could decide future entrants; a regulatory authority could issue licenses for participation; or a consortium could make the decisions instead. Once an entity has joined the network, it will play a role in maintaining the blockchain in a decentralized manner.

Blockchain Transforming Supply Chains: Efficiency and Transparency Boost:

There has been significant progress in the paradigm of using such permissioned and private networks to let the users/clients participate without experiencing significant delays in their transactions within the supply chain.

Recently, el Maouchi introduced TRADE, a fully transparent and decentralized traceability system for the supply chain that leverages blockchain technology. It is a single system in which multiple participants can transfer and track products flowing through the supply chain. Additionally, it enables customers and other parties in the system to view and verify product data. Experiments show that each actor on the TRADE system can create 351 and validate 437 transactions per second.

Since August 2020, IBM and Maersk (the world’s largest shipping company) have teamed up to create TradeLens, a blockchain-based system for the global supply chain. TradeLens aims to create a platform for multiple trading parties to securely share databases containing massive amounts of transactional information, and to build a more collaborative environment for global trading. This system is a powerful tool for establishing a single and consistent shared status of each transaction in near real-time while maintaining stakeholder confidentiality. Reports show that TradeLens significantly reduced delays caused by documentation errors and reduced the transit time associated with shipping packaging materials to manufacturers in the U.S. by up to 40%.

Uncertainties and Challenges:

Private blockchains often rely on a central authority to manage and maintain the network, which can make them less decentralized and less resistant to censorship. Furthermore, Private blockchains may require more resources to set up and maintain than public blockchains, as they may require specialized hardware and software. Lastly, Private blockchains may not be compatible with other blockchains or DLTs, which can limit their interoperability and adoption.

What’s Next?

Despite several critiques, Gartner, a leading research and advisory company, has estimated that blockchain technology will potentially lead to an industry that would be worth more than US $176 billion of business value by 2025, and it will increase to US $3.1 trillion by 2030. This forecast implies that there would be increasing research engagement on ways to mitigate network delays in public as well as private blockchain in logistics, while still maintaining the core integrity of the technology.