Top-5 Benefits Private Blockchains Bring to B2B Exchanges
For those of you, who have been reading my blog posts for the past eleven months, you must be quite clear about the tangible benefits that Blockchain technology offers. And you also know that the type of Blockchain to which I refer (private or permissioned Blockchain) has nothing to do with the kind of Blockchain networks (public Blockchains) that feed some of investors’ worst nightmares due to the volatility of the cryptocurrencies exchanged on those platforms, along with the frequent security breaches, money laundering schemes, and other (mostly dictatorial) governments that steal Bitcoins to finance their covert operations. No, it’s all about private Blockchain networks and how they revolutionize B2B exchanges, thanks to increased security, efficiency, transparence and trust among trading partners.
Here is how Blockchain technology can benefit B2B exchanges:
1. Transparency: The network isn’t controlled by a single entity. Instead, each node is controlled by its own administrator (or business). Blockchain is indeed a decentralized system. Each time a data is recorded inside a node, it is also recorded inside all the other nodes across the network, making Blockchain a distributed system of ledgers (or databases or nodes). All participants (businesses involved in the network) have the ability to read the exact same data at any time. This element creates or reinforces trust among B2B trading partners. The data isn’t anyone’s sole property. Instead the data belongs to the network’s participants, who are also the businesses involved in the network.
2. Eradication of Errors: Prior to being stored inside a block in a node, a data is validated via the solving of a complex algorithm. This is the mining process. Moreover, the validated data written to the Blockchain is immutable, which infers that once it is stored, it cannot be compromised (updated, deleted). No one has the ability to create a data inside the Blockchain either. Only transactions that have been validated via the mining process can be written. Therefore, the data inside a Blockchain network is clean and error-free. Thus, human-induced errors (discarding a document inherent to a transaction or wrongly keying data manually in a system) and machine-induced errors (poor connectivity between supplier and customer, for example) disappear.
3. Security: A Blockchain network audits itself every ten to fifteen minutes, which means that if there were an error inside one of the nodes, the entire system would pick it up, send an alert to each administrator and flag the incriminated data, prior to correcting itself. Also, to compromise a Blockchain network means compromising all nodes, which is virtually impossible, given the amount of computer power and therefore financial resources that would be needed to override the entire system. To schematize, remember that hacking a Blockchain network equates to all the efforts, technical knowledge and resources necessary to hack a data warehouse multiplied by the number of nodes in the network… Finally, private Blockchain networks are implemented specifically to isolate a business environment or ecosystem. In other words, solely transacting participants are allowed to administer a node. The reason behind instating a private or permissioned Blockchain network lies in the necessity to secure data from the public. Therefore, the mining process that consists in validating transactions in this specific type of Blockchain (known as “Proof of Stake”) is handled by a trusted stakeholder, and not by some unknown miner, as it is the case in a public Blockchain network.
4. Faster Automated Transactions: Thanks to smart contracts, B2B transactions are automated, faster, indisputable and needless of intermediaries. Smart contracts are computer programs. And automation is made possible thanks to the business rules (terms, execution, etc.), which are embedded inside the contract’s code. As soon as the contract is executed, an action is immediately triggered. The latter can either be the execution of another smart contract or the sending of an alert to a financial institution for example, so a payment can be scheduled. Smart contracts just like the data stored in the Blockchain are immutable and cannot be altered or deleted. Finally, they automate transactions between stakeholders in a pure peer-to-peer fashion, which means that the intervention of intermediaries is not required.
5. Great Use Cases: In the Healthcare industry, for example, there is a major issue around the large presence of counterfeit drugs in the medical supply chain. Here is how the problem can be mitigated, thanks to Blockchain technology:
- Step 1: The code bar associated to a batch of raw material is scanned. The reference number is sent to the Blockchain. A smart contract that consists in associating a unique authentication key or hash to the reference number is executed. The hash is recorded in the Blockchain.
- Step 2: The pills that are produced out of the same batch of raw material are scanned and their reference number recorded in the Blockchain; via the execution of a smart contract, they are assigned the same hash as previously, itself stored in the Blockchain.
- Step 3: The reference numbers of the packaging in which the pills are placed are scanned and stored in the Blockchain. This action triggers the execution of a smart contract that assigns the same authentication code to all the packages.
- Step 4: Packages with a similar hash are placed inside a box that contains a bar code. The latter is scanned, and its reference number is pushed to the Blockchain before being assigned the same authentication code via the execution of a smart contract.
- Step 5: The box is shipped to the drugs wholesaler. GPS and bar code scanning track the merchandise. Each time a bar code is scanned, or a GPS signal is detected, the information is sent to the Blockchain, which triggers a smart contract that assigns the same hash to each action, and so on… The last stage being a bar code scanned at the pharmacy as a customer purchases the meds. The information is sent to the Blockchain, which triggers a smart contract and assigns to the operation the initial hash.
Traceability from the producer of raw material to the end-user is irrefutable, thanks to the immutability aspect of the Blockchain network that stores all the data pertaining to the process. This is a very simple model that can be applied to any supply chain activity.
It's actually when you take a look at the different use cases inherent to Blockchain that you can get a full sense of what this new technology can deliver for all B2B exchanges. Having said that, the implementation of a Blockchain network requires much computer resources, which in turn needs heavy financing. Also, there is a level of complexity that increases as the volume of participants involved grows. Does each business partner have the proper IT resources to manage their own network node? If not, what are the financial ramifications on the peers that do? Consequently, at the end of the day who should bear the cost of implementing and maintaining the network? Those are questions that need to be considered thoroughly prior to envisioning the start of a Blockchain project.