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The true impact of Blockchain on global supply chains has yet to be realized
The value proposition of leveraging blockchain technology to transform supply chains is not new. The idea of a distributed, transparent and immutable ledger lends itself to imagining a world in which all participants involved in the process of production, distribution, storage, sale and consumption of a product can view its origin and status in real time . The benefits of such traceability include improved food safety, reduced fraud and optimized distribution of scarce resources.
However, like any emerging technology, the early years of blockchain saw the launch of numerous projects and a wide variety of use cases with mixed levels of success. Some reports conclude that well 92% of those first projects in the blockchain they have failed. While it is debatable whether all early technical experiments that do not turn out as expected should be classified as failures; it is essential to observe them closely, understand what happened and then exploit the learning.
What we learned
There are many reasons why technology-driven transformations fail, some of which are similar to those of any new venture: a lack of thorough strategy and planning or an inadequate understanding of market needs. If you don’t invest enough time to truly understand the problem definition, it can lead to disappointment: a metaphorical hammer looking for a nail. Other common challenges include woefully underestimating the time and effort needed for new regulatory frameworks – which is especially true for new markets or business models – or simply the inability to access sufficient, affordable talent at the right time, which can prove debilitating. for a new business.
These are all real challenges that are also applicable to the blockchain world and, for many failed projects, it is precisely a combination of all three that contributes to their termination. A clear example is the The Australian Stock Exchange’s (ASX) plan was to transform its clearing and settlement operations. It started in December 2016, originally planned for 2.5 years but finally scrapped in 2022. The main reason shared at the time was that the project had “significant technology, governance and delivery challenges that need to be addressed”. The team had decided to build a private blockchain infrastructure, which proved to be too difficult.
These common mistakes, while true, do not fully capture the lessons for future blockchain transformations. Further learning emerges from these innovation projects that gets to the heart of the true value of a decentralized network.
Understand the value proposition of decentralization
The unique and differentiated value of blockchain lies in the intrinsic characteristics of decentralization. If a use case doesn’t depend on this core quality, it could probably be delivered more quickly and cheaply using a more established technology stack and solution. In a decentralized network there is no central individual or organizational ownership and no gatekeeper is required. Many early failed projects lack this fundamental understanding.
For example, projects designed around the concept of a private network essentially try to implement blockchain but do not utilize its true superpower of privacy on a public blockchain. When companies attempt to reapply control using a private governance structure, they introduce a control mechanism that counteracts this very superpower.
Blockchain supply chain applications are based on two main elements: token services and decentralization. Token services, established by businesses, facilitate real-time visibility across the entire value chain. Meanwhile, decentralization allows independent entities to exchange and trust supply chain data securely, all while maintaining privacy. This type of visibility simplifies and automates overall supply chain management and essentially reduces inefficiencies and intermediaries, ultimately reducing overall costs.
Conduct transactions securely on a public network
Privacy is an essential ingredient for two businesses to transact securely. The concept of privacy in the context of a distributed ledger is often seen as a paradox; that there is no room for privacy in a transparent world. However, the very nature of a public blockchain operates with the goal of confidentiality.
There are two common theories on how privacy is achieved with blockchain. The first is through the creation of a private network or private governance. This approach may create a layer of protection for members over non-members, but will not directly address the need for confidentiality among members.
The second theory is that of anonymity; While anonymity on a public network offers a certain degree of privacy to individuals, the approach is not practical in the context of an enterprise. A company that is accountable to shareholders, regulators and consumers cannot transact anonymously. Anonymity is not confidentiality.
Confidentiality is critical to scaling supply chain solutions, so important that a lot of time is spent figuring out how to fix it. Using the Zero Knowledge Proof technology approach to provide private token transfers on the public blockchain features an integrated, optimistic Layer 2 (L2) rollup to increase throughput and reduce transaction costs. To solve the anonymity problem, some applications include a sophisticated decentralized authorization component, which hybridizes the best aspects of a public and private blockchain depending on the needs of the company. The next crucial goal in achieving blockchain scalability is to ensure affordability.
Supply chain scalability and accessibility
Like many emerging technologies, early versions of blockchain lacked the affordability and scalability needed for enterprise adoption. The advent of the Ethereum network, launched in 2015, made it possible to program the logic of business processes in a smart contract; however, at the time, the cost per transaction and performance were slow.
Much has changed since then. Over the past couple of years there has been an explosion of new L2 protocols available. Using L2 rollups essentially allows for bundling of transactions, resulting in an exponential expansion of scale. The Ethereum ecosystem today can undoubtedly handle millions of transactions per day, a fraction of the cost compared to years ago. Today we are entering the era where a company can start using solutions at scale.
With the reach and affordability of a public network now within reach, the focus shifts to creating value.
Looking to the Future: The Value of Supply Chain Transformation
The maturity of public blockchain technology is ripe for businesses to embrace and generate new efficiencies and address key challenges in the supply chain.
Learn from the innovators who came before, focus on the problems that inherently depend on a decentralized solution, and get started. The era of large-scale enterprise blockchain transformation is upon us.