Where does blockchain go from here?
Since it made the leap about six years ago from the then-obscure world of cryptocurrencies to business applications like supply chain, the story of blockchain has been compelling. But recent events have observers asking whether the final chapters are now being written.
For many, blockchain has offered the promise of revolutionizing supply chains by removing third parties, bringing complete transparency to transactions and offering verifiable traceability of goods’ origins. For others, it has seemed more like a solution in search of a problem.
From promise to death
Blockchain made its first appearance in the Gartner Hype Cycle in 2016. In what may now seem like a foreshadowing, it bypassed the first phase of “innovation trigger” and immediately landed at the “peak of inflated expectations”. In the two years that followed, driven by solutions developed by startups and consultancies, there was a dizzying array of pilots and use cases.
For the supply chain, the activity generally revolved around two core activities. The first was recording a ledger of transactions to provide complete traceability of goods. Brought to light by an almost apocryphal story about Walmart demonstrating the power of blockchain in recording the origin of mangoes, it culminated in 2018 with the announcement in the Wall Street Journal that Walmart, in partnership with IBM’s Hyperledger blockchain solution, would require all suppliers to use Hyperledger to provide traceability data under the Food Trust initiative. Global food giants such as Nestlé, Tyson and Dole were on board, and it seemed like a pivotal moment where blockchain would transition from a pilot darling to a scaled technology.
However, since the initial splash of the launch announcement, the project has gone quiet. Updates on distribution and new partners have proven hard to come by. On the IBM Hyperledger site, the company announced in early 2021 that it was shutting down the marketing department of the business unit, with an internal source saying, “Expectations for enterprise blockchain were too high.” Blockchain as a solution for tracking and reporting provenance appears to be at a dead end.
The other core activity that received attention from blockchain innovators was an application called smart contracts. The underlying concept is that movements recorded on a blockchain can trigger automatic transactions without human intervention to slow things down. This seems to fit perfectly with international freight shipments, which are notorious for heavy documentation requirements to satisfy international letters of credit, customs submissions and changes of ownership. To the extent that there are many steps to track, each step is properly recorded and accessible to a blockchain. It has obvious inefficiencies; It is perhaps crucial that there is no one central institution that can act as a credible repository for the wide range of state actors. A trustless, distributed solution like blockchain, which powers efficient smart contracts, will address all of these weaknesses.
To that end, Maersk and IBM Hyperledger launched a joint venture to use smart contracts to automate and fluidize international shipments under the name TradeLens. The company succeeded out of the gate in bringing together several carriers, brokers and port authorities and looked to be the first blockchain breakthrough in the supply chain. But the onboardings slowed, eventually stopped, and last week news broke that IBM and Maersk had made the decision to discontinue TradeLens. The other promising avenue for blockchain in the supply chain also seems to have disappeared.
Is there another chapter?
If there is to be a future for blockchain in the supply chain, it may lie in returning in some ways to the roots of the technology in Bitcoin – not exactly as a cryptocurrency, but as a ledger for the balance of digital assets. Blockchain was originally developed to solve the “double spend problem” of cryptocurrencies, a term of art to describe the risk that two entities will claim a given token. With this in mind, there are fields in the supply chain that may yet prove fertile ground for blockchain.
In a comprehensive survey in 2018, Capgemini found that only 3% of supply chain blockchain initiatives reached what respondents considered “at scale”, and this was before the high-profile disappointments of the Food Trust and TradeLens. In the same survey, Capgemini identified another blockchain use case that was both simple and had high potential for adoption: trade finance. However, several promising initiatives failed to gain traction and failed in 2022. These efforts were focused on smart contracts in international letters of credit, a process alongside the international shipments TradeLens hoped to revolutionize.
Another dimension of trade finance worth considering is factoring, where a business sells its accounts receivable (ie invoices) to a third party (called a factor) at a discount. This activity seems to fit well with the original spirit of the blockchain, where the distributed ledger could allow parties to transact without banking intermediaries or the risk of the same invoice being sold twice. Some effort is actually being made in this area.
Perhaps this can show the way forward. Despite non-fungible tokens (NFTs) being a bubble that burst, blockchain’s role was to provide a decentralized trustless chain of ownership. As with factoring, blockchain can play a role in the supply chains of digital products, from e-books to products in the metaverse. While it may be a stretch to consider these supply chain applications, it may just need to be done going forward.
Just as with other technologies that promised a supply chain revolution only to become another tool in the toolbox, such as RFID nearly 20 years ago, blockchain may yet settle into a productive, appropriate niche where it can add value. Not a revolution, but not too shabby either.
For further reading on the latest industry trends in the global supply chain agenda, please read this articlebased on the third edition of the IMD Global Supply Chain Survey.
