Why logistics providers should use blockchain

Third-party logistics (3PL) companies that are hesitant to adopt blockchain for key transactions are missing out on how this technological record-keeping can improve supply chain management and trade visibility.

Blockchain is a valuable resource for providing shipping information. It optimizes the tracking of products from production to delivery for customers who outsource services to a 3PL, including overseeing a multi-channel sales and distribution strategy, managing inventory, ensuring post-purchase customer success and customer retention.

Brands and retailers also outsource to 3PLs the handling of purchasing, order fulfillment, storage and transportation of goods. A first-class blockchain could prove essential for these businesses and the companies handling their logistics needs.

With a public blockchain platform, organizations can register in digital form a list of machines, tools for construction and equipment, and create a decentralized, tamper-proof overview of all trades. This transaction history can be reviewed by anyone or a select few for the most proprietary data, reducing the need for paperwork and manual records. Purchases can be tracked from production to delivery or use. Blockchain also allows businesses to increase efficiency by enabling process automation and reducing paperwork.

Far from a futuristic concept, blockchain is in regular use today, and is already making a dramatic difference in worldwide commerce. It changes the way we do business and provides access to information now. Supply chain companies that still rely on legacy methods to track shipments and record transactions are at a major disadvantage.

“Supernode” for Super Speed

Nodes, the computers or devices that verify and keep track of blockchain transactions, are essential to ensure that the blockchain ledger is immutable. The number of nodes required depends on the customer’s specifications, but six or more facilitate the most secure types of transactions. While some will be tempted to minimize the number of nodes to avoid long waiting times, they risk compromising the platform’s security.

With the development of blockchain technology comes a concept called “supernode” middleware to support a higher data volume on a platform. A merchant who has outsourced services to a 3PL and requires a blockchain with six or more nodes is lucky; that platform can process millions of transactions every minute, allowing the 3PL to scale and provide the necessary speed for e-commerce during the busiest times.

Many supply chain networks suffer from a lack of visibility. Blockchain solves the problem through distributed ledger technology that provides a shared, single version of the truth. Users can view price, date, quality, certification and other important details. Increased visibility helps prevent losses from counterfeit products, and promotes ethical production and brand reputation. Blockchain technology enables faster action in response to unexpected events.

Expect blockchain to become increasingly important, not only for 3PLs, but also for their small and mid-sized retail partners. While large companies can control large parts of their supply chains – and provide them with an easy flow of data – smaller entities often struggle to influence their supply chains. Blockchain provides them with information from around the world, allowing them to act quickly and efficiently.

Clears up a misunderstanding

Some 3PLs are reluctant to adopt blockchain, due to the misconception that it is safer to keep data proprietary in a closed environment. But technologists develop blockchain platforms with security at the top of their minds, and improvements can always be made for additional layers of protection. They include establishing two-factor authentication, vetting trusted senders and recipients so they can enter their records on the blockchain, using unique passwords, configuring private key management, ensuring the latest security updates are installed, patching, understanding custodial services, using cold (hardware) wallet storage and VPNs.

Blockchain is a transparent way of recording data that can be seen by those who have permission to see it, and the recorded data is immutable. Technologists can build an even more sophisticated blockchain by adding sidechains where the heavier data lives. This type of platform ensures protection against data manipulation.

A highly sophisticated blockchain for use by 3PLs for supply chain management may consist of two layers, public and private. This makes it possible to handle sensitive, confidential and internal information on the private level, while all other transactions are transparent on the public level. Although the private layer requires users to be granted permission to view the data, the private and public layers live on the same blockchain in this scenario. In this way, the entire platform exists on a decentralized, transparent network.

We often hear the word “encryption” in cybersecurity, which also applies to blockchains for supply chain management. They can be designed with bit keys with encryption that protects against attacks by sophisticated cybercriminals.

Furthermore, by creating a master-mode encryption algorithm, technologists can encrypt all data passing through the blockchain. They can also devise a way to encrypt mnemonics and private keys with the user identity, prevent hackers from accessing the wallet or network, or perform other types of attacks.

For the future, or now?

Supply chain companies that want to grow need to stop thinking of blockchain as a concept far into the future. On the contrary, it is already helping to improve and expand today’s businesses. And it keeps getting better: the blockchain is becoming more layered, intricate, scalable and attack-proof, as technologists create new platforms to manage supply chain visibility.

In today’s supply chains, transparency and quick access to information are essential. A unified trading platform is needed to integrate technologies and provide all relevant data in the form of a “single source of truth”.

Suppose a 3PL wants to synchronize hundreds of millions of products from an inventory warehouse in Atlanta to another facility in New Jersey. To do that, it needs access to information, services and solutions immediately, with data synchronization that happens at the speed of light.

This is where the “supernode” middleware aspect of the blockchain platform saves the day, enabling the platform to work at a higher transaction capacity than ever before. This is particularly useful for supply chain and e-commerce businesses, although it also benefits many other industries, including insurance, healthcare and others that require background checks and verification, indexing and data sharing, and financial compliance.

An ideal, super-enhanced blockchain platform should be synchronized with other blockchain technologies and cryptocurrency networks, as well as with supply chain technologies for data analytics, asset tracking, artificial intelligence and machine learning, robotics, and other types of automation. Technologists can further ensure that blockchain is the most secure method of conducting transactions for supply chain customers by developing a sophisticated encryption protocol and using a firewall, which secures the platform from attacks by hackers.

“Proof of Effort”

Ethereum recently switched from being a “proof of work” platform to “proof of stake”. The latter is the more cost-effective option for validating the work of miners, one that does not require them to invest large amounts of money or use powerful computing equipment that consumes huge amounts of electricity. Proof of Stake also allows for faster transactions with greater security than a “proof of work” platform offers.

3PLs want to guarantee their customers visibility and transparency around product authenticity, shipping, tracking and all other aspects of supply chain management. Blockchain helps speed up cash flow and provides greater visibility into such transactions, accompanied by extensive product information. In the process, while simultaneously prioritizing security, small and medium-sized businesses can achieve the improved level of service offered to today’s giant corporations.

Shlomi Amouyal is co-founder and chief technology officer at Hosta cloud-based supply chain platform.