Can Blockchain Cut Ties to Cryptocurrency?

Does blockchain really deliver on its promise of creating a more efficient supply chain, or will it be dragged down by the lead weight known as Bitcoin?

The recent plunge in the value of bitcoin and other cryptocurrencies has led many observers to question whether blockchain, the distributed ledger developed to record the purchase and sale of digital coins, can survive as a stand-alone concept for managing important business transactions.

In particular, blockchain has been touted as an innovative method for tracking products’ origins and journey through the supply chain. By uploading relevant data to a supposedly immutable ledger, spread across multiple computers, shippers can prove that certain raw materials and manufactured goods were sourced in a sustainable and ethical manner.

So goes the theory, and indeed there have been a number of successful blockchain pilots in recent years by major retailers like Walmart and Target, and technology leaders like IBM.

Blockchain has shown particular promise in the agricultural sector, where it can be difficult to determine the exact origin of a given product. An example of an early success is the TraceHarvest Network, an initiative to track and trace “the entire life cycle of agricultural products, from the seed source.” It was launched in 2020 by blockchain platform provider BlockApps, in partnership with Bayer Crop Science. In Africa, blockchain is being used to achieve visibility of the cattle supply chain, as well as connecting farmers, distributors and traders in efforts to increase crop production.

But those who tout blockchain as a panacea for global supply chains often gloss over the accompanying complexity. One is the persistent link between blockchain and virtual coins and tokens, which are generated as part of the process of creating, or “discovering,” the blocks that contain the transaction data. Typically these are set up by “miners”, individuals who are rewarded with some form of digital currency for their efforts in building blockchains through solving mathematical equations. The exact form of the coins varies – some are securities that can be traded like any other instrument regulated by the US Securities and Exchange Commission. Others are limited to specific uses, such as the purchase of products or services. (Want to pay for your dental services with digital currency? Try Dentucoin.)

Another concern related to blockchain is the enormous amount of energy the process uses. First, the mining of Bitcoin requires enormous energy expenditure – by one estimate, as much as all the world’s data centres, with a carbon footprint to match that of London. Again, the link between cryptocurrencies and blockchain puts the latter on a collision course with efforts to create greener and more sustainable supply chains.

All the uncertainty surrounding Bitcoin and cryptocurrencies in general makes the blockchain outlook for the supply chain unclear. But Geoffrey Garrett, dean of the Marshall School of Business at the University of Southern California, believes that associating blockchain with Bitcoin “is a narrow way of thinking about what blockchain can make possible.” Speaking at the recent USC Marshall Global Supply Chain Excellence Summit, he said the supply chain in general is a “perfect growth area” for innovative technology, especially when blockchain is combined with sensors and the Internet of Things (IoT).

The wonderful future may not be obvious to those fixating on the fate of Bitcoin. “You’d be seen as crazy right now if you invested in the Ethereum-based supply chain management protocol,” Garrett said, referring to the popular open source blockchain for digital money, global payments and related applications.

At the moment, Garrett added, cryptocurrency is seen by many as “fool’s gold.” Nevertheless, venture capital investment in supply chain technology is on the rise.

So what happens? Can the tie that binds blockchain to crypto be cut, allowing blockchain to realize its potential? The key, Garrett said, is time. He compared the maturity of blockchain to the beginnings of the internet in the mid-1990s. “We’re in very early stages,” he said. “I suspect that over time blockchain and IoT will be less about tokens.

“That’s not where the action is going to be,” he continued. “It’s going to be in massive applications of decentralized technology.”

Exactly who will benefit from the boom in blockchain remains to be seen. Every step forward in modern digital technology has promised a “democratization” of applications, for users large and small. But Garrett suggested that the real use of blockchain in the coming years will be mainly by large players leveraging the technology on a large scale. “I suspect there’s going to be more of that, as opposed to an idealistic one [future]without corporate involvement.”

Still, he sees blockchain as a technology here to stay, once it shrugs off the cryptocurrencies. “If the big theme in the supply chain in recent years has been … globalization,” Garrett said, “I suspect going forward it will be cutting-edge technology, with the interaction of IoT and blockchain looking the most promising.”