Introduction to Blockchain Technology and Supply Chain Management
Following the over two decades of scientific examinations in order to seek principles, technical advances and theories, there have been immense acceleration in the areas of decentralized (peer-to-peer) compute networking as well as communication security (cryptography).As a result of this, today, it has become quite frequent to hear about the blockchain technology. It is defined by (Wright & Filippi, 2015) that blockchain technology refers to a distributed, encrypted database, which is a public depository of information that connot be reversed and is incorruptible. It is further added that “Blockchain technology enables the creation of decentralized currencies, self-executing digital contracts (smart contracts) and intelligent assets that can be controlled over the Internet (smart property)” (Wright & Filippi, 2015).
Blockchain technology is not only used for digital contracts and decentralized currencies but it can also be used for developing new governance systems that have a better decision-making system in terms of being more participatory and more democratic and removal of human intervention from decentralized organizations which operate through a computer network (Wright & Filippi, 2015). In addition to all these, there are several arguments where blockchain technology is somehow related to the internet. (Dhaliwal, 2017) states in his article that blockchain technology is revolutionizing the way we live our lives and it is why Blockchain technology is often referred to as the next internet.
Apart from what is stated by (Dhaliwal, 2017), (Wright & Filippi, 2015) states that just like internet was led by decentralization communication systems, Blockchain technology carries the potential to decentralize how the data is stored and the information is managed. Thus, heading away from what is stated by (Dhaliwal, 2017) and (Wright & Filippi, 2015), it can be stated that blockchain technology has the potential to touch the way people are living and also the way several businesses are operating.
While defining the Blockchain technology, it is essential to define the roles taken in the Blockchain. According to (ONC Project Tracking, 2016) Blockchain technology is composed of 6 main roles as; participants, nodes, miners, participant keys, transactions and blocks. The functions of those roles are defined by (ONC Project Tracking, 2016) as follows; Participants simply possess keys that they use to sign transactions between one another. Nodes take the role of storing all the transactions in the distributed ledger. Miners calculate a ‘nonce’, which is referred to as a random piece of information, by taking blocks from the nodes.
Participants of Blockchain Technology and Supply Chain Management
Participant keys are used to sign transactions in a digital way by simply being public key cryptography key pairs. When it comes to transactions, it is stated by (ONC Project Tracking, 2016) that they are the interactions that take part between the participants of the Blockchain. Lastly, blocks are responsible for storing the transactions in the Blockchain. There are several blocks in the blockchain and each of these blocks contain at least one transaction that takes part between the participants of the blockchain.
The above 6 main roles that take part in the Blockchain can be understood by the aid of using a visual. In that sense, it will be appropriate to give the main architecture of a blockchain in a simplified way. (ONC Project Tracking, 2016) visualizes what was being told earlier in this paper about how the participants in the blockchain work as in Figure 1. An overview of the function of this simplified figure is given as “The heart of Blockchain is a shared, distributed “ledger” that is replicated among multiple nodes and broken down into a “chain” of blocks containing transactions between the participants” (ONC Project Tracking, 2016).
After all the insights about what blockchain technology is and how that technology works, it is essential to mention the benefits of blockchain technology for its users as well. It is stated by (Fanning & Centers, 2016) that blockchain has several advantages that makes the technology favorable to use. The same article, (Fanning & Centers, 2016) suggests that one of the main advantages of blockchain technology is having no single point of failure as a peer-to-peer network. This means that, if any one of the nodes which were explained earlier in this article fails, the other nodes still operates independently and as a result the overall system continues to operate.
In addition to this, it is stated that “almost the entire documentation is digital and can be easily applied to many different applications” (Fanning & Centers, 2016). As a third advantage of blockchain technology, all the participants in the Blockchain can see all the transactions carried in the blockchain by other participants. This advantage of blockchain technology makes the whole system more trustworthy and increases auditability (Fanning & Centers, 2016). The trust and honesty issues in the blockchain technology are touched up by different writers by stating that “In a blockchain system, a majority of participants need to agree on data being added before it becomes part of the definitive blockchain. This is very different to central, often secretive ledgers held and controlled centrally.
When multiple parties have a say over what data is written, the ability to alter data, or remove dubious data, it creates a more honest system” (Lewis & Larsen, 2016). As a result of all these advantages of blockchain technology, it is stated that the elimination of third parties, lowering the costs of tansaction and causing transformation in many industries will become possible for the participants in the blockchain technology.
As stated earlier in this paper, blockchain technology has become widely used and the increasing popularity of blockchain technology has some effects on different industries. This paper takes into account the effects of blockchain technology on shipping industry and Blockchain Technology and Supply Chain Management. Before continuing with how this paper is going to analyze these effects, it is essential to give the insights about shipping industry.
Blockchain Technology and Shipping Industry
Shipping industry has long back history as trading. Shipping companies are strictly following new trends in the flow of commodities, thanks to the big data made this available for users to predict new efficient routes. Several databases (centralized) that provide information of ships’ identities, ownership, certification and technical specs, position and status together with classification society and flag state status. Shipping industry is still highly dependent on the paper based contracts and lagging to catch up with the new technologies thus remained inefficient in terms of connectivity and efficiency. The role and number of the governments, local authorities, trade companies and other related parties make whole industry too complex.
Despite the use of satellite systems and high end navigational systems, adoption and deployment of new IT technologies is compelling due to international and intercontinental operations. In liner shipping, a single container making its way from East Africa to Europe could require stamps and approvals from as many as 30 people. By the time it reaches its destination, it would have gone through over 200 different interactions. By using Blockchain, container shipping operators can get rid of all the paperwork and make the process smoother and faster. When customs officials upload a copy of a signed document approving a container to the Blockchain, everybody involved would be able to see it.
They could just check the Blockchain if anything seems amiss instead of digging through mountains of paperwork. Unlike regular electronic files such as PDFs, documents saved in the Blockchain have to be approved by all involved parties and any changes can be detected immediately. Implementation of such data base could take years to be able to fully deploy its use, considering all the people and channels it typically deals with. For the system to work, all the clients and customs authorities in every country along the way should be on board. As a result, the application fosters trust between participants as well as eliminates the risk of documentation fraud, reduces errors in documents and most importantly increases the speed of the overall document transfer process.
Challenges and Benefits of Blockchain Technology
The problem that this research focusses on is simply how this new technology is adopted by the shipping industry wıth challenges and benefıts. The solution will help to manage and track the paper trail of tens of millions of shipping containers, by digitising the entire supply chain process to enhance transparency and security of sharing information among trading partners. Adaptation and exploration of application of Blockchain in shipping industry is significantly complicated and fuzzy, so that conducting a research on research question will provide insights about what bullet points, milestones should attract attention of facilitators of the Blockchain applications in shipping industry.
On top of professional reasons such as working in shipping industry witnessed numerous events, parted in numerous casualty investigation had hard times to reach the transparent data during these researchö my interest in shipping industry is comıng from personal interest in the industry. Moreover, immersing in new technologies and gaining a holistic point of view in new trends that will shape the existing markets and industries, combining physical world and virtual world for better and effıcient operatıons, is extremely interesting. Evidently, adaptation of new technologies comes with challenges.
Blockchain technology has gained reputation and application areas not only financial sector but also in other sectors in which transparent, secure and time stamped data is essential. Industries failing to adapt new technologies to make operations and transactions faster, better and higher will soon be behind global norms. Some companies act swiftly to adapt Blockchain such as Maersk, container giant has partnered with IBM for use of Blockchain technology in container shipping for reducing heavy paper works. Strict control of governments and other authorities as well as heavy paper work in shipping industry slows down pace of the operations as well as conjoint financial transactions.
However, impact of such partnership will be limited with the capacity of the company of handling of its containers as long as other shipping companies refrain to collaborate. Moreover, considering number of stakeholders in single transportation, apparently, Maersk will be obliged to collaborate with freight forwarders, customs, charterers too for deploying such technology; thus makes the project even more complicated.
On the other hand paper work is not the only challenge that shipping industry faces, transparent and seamless supply chain has long history among enterprises with corporate culture in which Blockchain technology serves as a life-saver technology due to its nature. Meanwhile several start-up companies are striving for adaption of this technology for storage and tracking of the cargo to increase transparency in companies supply chain. For example Chipotle (a Mexican grill chain) customers suffered from E.coli that severely damaged companies reputation.
Although number of people who are affected by such incident remained very limited impact of the incident was extremely high plummeting the share value of the company in the stock market. Investigation was held elaborately however supplier of the meat, slaughterhouse, origin of shipment could not be verified. Blockchain technology that resistant to modify previous records and provides transparency is the solution to the cases above.
Taking all the applications and information about the Blockchain technology into consideration, it becomes a necessity to make a research about “‘How Blockchain Technology disrupt Shipping industry, Challenges and Benefits’.
Moreover, several sub-question needs to be studied in order to evaluate the how Blockchain disrupts shipping industry. Firstly, a proposed data network architecture must be analyzed and deep dived to have insights about what solution is proposed. 9 Secondly trends in corporations trying to find solution for adaptation of Blockchain should be studied structurally. Finally, since Blockchain data network are highly dependent on users’ participation, users that are also organizations reactions and acceptance of new technologies should be studied. The sub questions that will be studied in this paper are highlighted below:
- What are the network architecture of Blockchain and current shipping data bases and how stakeholders participate or benefit from this structure.
- How decentralized data will be kept; publicly or privately.
- What are the roles of the participants in the architect (nodes, miners) and how they are introduced to the system.
- Which are companies (Start-ups and prominent corporations) doing what to adapt such technology to empower shipping industry.
- Which problem of the industry that each start-up company tackle?
- Use cases of Blockchain for Shipping, advantages and drawbacks of the used cases.
- How organizations and individuals react for adaption of new technology and how to measure it?
- What is the relationship between Blockchain Technology and Supply Chain Management.
- How does Blockchain Technology and Supply Chain Management affect trading worldwide.