Confused by Blockchain? What Logistics Pros Need to Know
This is the first in our two-part series on blockchain and freight forwarding. Check out part two here.
If you’ve been following the hype about crypto-currencies like bitcoin, then you’ve probably also come across the term “blockchain.” But the two are not interchangeable. Bitcoin is a virtual currency that is built “on the blockchain” -- but the blockchain itself is a fundamental approach to data systems that has the potential to change nearly everything about our economy, and maybe even our society.
The nitty-gritty of blockchain can get very complicated and abstract. But the basics are pretty straightforward, and it’s worth a few minutes to get the gist of what it is and how it can affect the logistics industry.
Blockchain is simply a list of events or transactions, sometimes called a ledger. It is completely secure, and an entry cannot be changed once it’s been made. Think of it as the world’s biggest spreadsheet. Let’s use a really simple example to explain: renting an apartment. Think about each step that needs to occur for this to happen:
- Owner of the apartment signs an agreement with a realtor to put it on the market
- Prospective tenant submits an application through the realtor
- Owner runs a credit check through a credit bureau
- Owner approves the new tenant
- Tenant signs the owner’s lease
- Tenant hires a moving company to move in…
...and so on
Each of those events represents a transaction between two or more parties. In the real world, those are seldom tracked in one place (if at all)...they just kind of happen in order, and the evidence of these actions (the credit report, the lease) may exist in different places. Even if the middleman, let’s say the realtor, is keeping a detailed spreadsheet of every step, there are lots of problems with this kind of record-keeping. Who’s responsible for initiating and maintaining the spreadsheet? Someone could go back and change the spreadsheet. Perhaps not everybody has access to the information. And a hacker can go in and steal or alter the information.
Using the blockchain instead of a spreadsheet solves all these problems. So let’s see how blockchain technology provides four of its most important advantages:
Secure: There are no easy metaphors to explain the technology behind blockchain security, but suffice to say that the chain is not protected by a traditional “permissions” system for access. In other words, it’s not just about having a password (not even a really long one). Getting access to a blockchain involves providing “proof of work” which inherently demonstrates your qualification to access the chain.
Trustworthy: The inherent security of the blockchain doesn’t just protect it from bad actors. It also ensures data integrity: Everyone authorized for a chain is viewing the same data in the same order, with the guarantee that it has not been changed. You can see how this would be critical when tracking the flow of funds, goods, or services.
Transparent: The same way the blockchain limits access from outsiders, it also provides reliable transparency to all parties to a transaction. This is especially important in complex, multi-step transactions where outcomes rely on having perfect information about what other parties are doing or have already done.
Decentralized: The blockchain is not a piece of software. There is no controlling authority or a “blockchain world headquarters.” There are certainly unique technologies involved, but think of it more as a method or a system. So you can’t go to a website and download blockchain software per se. A result of this is that there is no government, financial system, or outside entity that can interfere with a given blockchain unless it is already a party to its transactions. This of course triggers many regulatory concerns, but it also enables the many advantages of the blockchain.
Following along? Good! See, it’s not that complicated.
Hopefully, it’s already becoming apparent how the blockchain, once adopted, is poised to disrupt the world of logistics -- including, of course, ocean freight. We’ve decided to make this a two-part post because we know it’s a lot to take in, and we wanted to get the basics out of the way first. In the next installation will provide a deep focus on how, when, and why, the logistics industry will be transformed by the blockchain.
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By: CoLoadX on March 22, 2018, 12:51 p.m.