Blockchain: decentralized, fast, secure

In many cases, blockchain and distributed ledger technologies are the prerequisite for putting Industry 4.0, new logistics concepts and new business models into practice. They are not a panacea for all difficulties in the context of digital transformation – but anyone who is not dealing with them today has already lost.

Blockchain is on everyone’s lips

Most have heard of Cryptocurrencies like Bitcoin, which is based on blockchain technology. The interesting thing about it is that the blockchain makes it possible to create currencies independently of central banks. This is because the transactions take place transparently and are forgery-proof, without the need for a neutral entity – also known as a middleman. No one can rise to a dominant position. Blockchain is a special type of distributed ledger technology (DLT) that, unlike traditional databases, has no central data storage or management functionality.

All data from a DLT transaction is recorded in detail and stored in multiple locations simultaneously. DLT thus provides a verifiable history of all information stored in that particular record. No wonder, then, that there is a gold-rush atmosphere in many places. There is already talk of the “new Internet,” everyone wants to stake their claim, and there is great euphoria among analysts and financiers. Market researchers at Gartner forecast that business activities in the blockchain environment will reach a turnover of 176 billion US dollars in 2025. According to Coindesk, total venture capital investments in blockchain technologies already amounted to USD 1.7 billion in the first half of 2018 – almost three times as much as in the whole of 2017.

Large IT companies and German SMEs are also showing extreme interest, and time seems to be of the essence: “Many blockchain pilots are now moving quickly into real-world applications because companies and government agencies are now clearly seeing the benefits of distributed ledgers and smart contracts,” says Robert Parker, group vice president of manufacturing and retail insights at IDC.

On the other hand, it pays to remain sober

If the number of parties involved is manageable, or if there aren’t very many transactions to be made, if there are hardly any boundaries to be crossed within companies or between companies, and if traditional accounting systems are sufficient as a basis, why introduce a new technology? Above all, “Those who struggle with digital transformation cannot suddenly solve all their problems by relying on blockchain and DLT,” emphasizes Oliver Gahr, Program Director Client Innovation & Blockchain at IBM’s Research and Development Center in Böblingen.

In many cases, however, the DLT advantages then hit home vehemently: Decentralized structures, no middle man, transactions that can be stored once and for all in an accounting system (in English: ledger) in a way that is forgery-proof and inaccessible against subsequent manipulation, combined with the ability to make even small payments at virtually no additional cost – all these features make it highly attractive to industry. After all, there would be plenty of interesting use cases for it. If it weren’t for the serious disadvantages of blockchain technology, which rule it out for use in industry from the outset. For this, a brief look at cryptocurrencies, the origin of blockchain technology.

  • To determine whether a transaction has proceeded in a compliant manner, a computationally intensive task must be solved. The first person to accomplish this is rewarded with a Bitcoin unit.
  • This process is called “mining.” In the meantime, mining has proven to be so financially interesting – especially in times of rapidly rising Bitcoin prices – that integrated circuit manufacturers now even produce special ACICs (application-specific integrated circuits) that work in the mining servers.

The transactions, however, eat up a lot of energy and take a long time. High transaction costs, long transaction times: For many potential applications in logistics and industry, these are simply knockout criteria. But fortunately, there are ways out: many companies are working on modifying blockchain technology so that it is suitable for industry. Or they’re going straight for more DLTs that are easy to tailor to industry needs.

Blockchain and DLT revolutionize logistics

The range of applications is enormous. Take logistics, for example: Until now, the transport of containers on trucks, trains and ships around the world has been a highly complex process in which transport companies, shipping companies and logistics firms have been just as involved as the authorities in many countries. The result is a costly and resource-consuming paper war. It is almost impossible to track which container is where at any given time. All of this could soon be a thing of the past, because DLT could be used to automate all of this.

The impact on logistics would be enormous. Samsung Electronics, for example, wants to save on delivery costs with the help of its own blockchain Nexledger platform. That doesn’t sound spectacular at first. But Samsung expects to save no less than 20 percent, which means billions of dollars per year – truly not peanuts! Others see it that way, too: Earlier this year, IBM and Maersk formed a joint venture to provide a jointly developed digital platform for global trade. It is based on open standards and tailored to the global shipping ecosystem.

Data economy without transaction fees

Take industrial production, for example: Huge amounts of data are generated in industry. In most cases, third parties cannot use it because the companies do not want to hand it over. First, there are security concerns, and second, the data cannot be bought and sold because billing would be too complicated and expensive. Not, however, on the basis of DLT. One company that has relied on DLT from the beginning is IOTA. In the legal form of a foundation, the company wants to make the technology available to third parties, which does not work like the conventional blockchain, but on the basis of directed, countercyclical graphs (DAG), the so-called tangle. There are no prospectors here. So validation is an inherent property of the network and can no longer be separated from the use of the network. “This is how we get around the blockchain disadvantages,” says Ralf Rottmann, board member of the IOTA Foundation.

IOTA also includes a cryptocurrency because it’s the only way to realize the transaction-fee-free data economy IOTA has in mind. “Transaction fees are a relic of the centrally organized payment economy,” Rottmann said. That has apparently convinced companies like Bosch, Deutsche Telekom, Fujitsu, Microsoft, Schneider Electric and Volkswagen, which are working with the IOTA Foundation to develop IoT systems. In the first quarter of this year, VW and IOTA plan to unveil a Digital Car Pass for identifying cars, which should significantly reduce fraud in the used car trade.

3D printing technology is emerging as a key component of Industry 4.0. Here, too, the key is to send data from the developers of the products to the machines, which can be located anywhere around the world – tamper-proof and impossible to manipulate. Dr. Martin Holland, Head of Strategy and Business Development at PROSTEP, is working on setting up blockchain technology as part of the Secure Additive Manufacturing Platform (SAMPL) joint project. Currently, a transaction is completed within one minute.

Digital marketplaces for data trading

Others have also discovered the potential. Founded in 2014 in San Francisco, Identify3D uses blockchain technology based on Hyperledger to ensure the designs of parts, their manufacture and their traceability in digital manufacturing – where 3D printing plays an important role. The goal: to ensure the integrity of data flow from design to production and the protection of intellectual property.

Meanwhile, Identify3D works with leading 3D printer manufacturers, including Siemens. “We need to distinguish between the internal value of the data to a company and the external value of the data to other companies. We care about the external value of the data,” says Henri Pihkala, Streamr’s co-founder and CEO, adding that Streamr has developed an accompanying network, not the blockchain itself.

This is the basis for a marketplace where anyone can sell their own data and buy data from others. Initially, Streamr has integrated its system with Etherium, but in principle it can work with all DLTs. As in the early days of the Internet, it is not yet clear which techniques and which companies will become widely accepted and what the business models will look like in detail. The prerequisite would be that the blockchains or DLTs can cope with such diverse participants as IoT, Big Data and AI, and – very importantly – also government regulators. Above all, they must be flexible enough to adapt to new developments that cannot be foreseen today.