Blockchain was first invented as the underlying infrastructure for a form of digital currency called Bitcoin. It was used as a digital ledger to hold all the transactions made with bitcoins. The technology is still in its nascent stage and far away from reaching mainstream enterprise adoption. However, its wider recognition in the corporate world is expected to fast track its development for financial and non-financial applications.
What Exactly is Blockchain?
Blockchain is a transparent, open distributed ledger system that can keep track of financial, data, and material transactions. It is a sequential chain of blocks, where each block holds information about valid previous transactions in order of time. Each block has information in encrypted form. The transactions in the ledger can be viewed and new transactions can be added as blocks to the chain but not without sufficient authorization. In short, each transaction is stored as a block and a copy of the transaction information is held by all the network participants and to add or modify a transaction, authorization from all the participants is necessary.
This makes blockchain architecture immutable, transparent, and highly secure. Blockchain enables two parties who do not know each other to transact over the Internet without any third party. In the Industrial IoT era , data exchange security concerns and cyber security threats are major roadblocks and are slowing down adoption rates. Blockchain through its innate architecture offers indestructible information security to all data exchanges and can simply be laid over IIoT to become truly powerful.
This Frost & Sullivan perspective aims to introduce blockchain to an industrial setup and discuss potential opportunities, gaps and uncover the future role of blockchain in industries.
The Hidden Advantage in Blockchain
Transparency: As all the nodes on the network hold a copy of the transaction ledger, data auditing and reviewing can be done in real-time. This high transparency level makes all transaction visible to everybody on the network reducing dependence on trust, to make legit transactions.
Resilience: Decentralized architecture distributes the risk of network failure when compared to centralized systems with a single core control. This makes Blockchains immune to malicious threats and offer improved resistance.
Blockchain and Industrial IoT
Industrial IoT envisions the convergence of IT-OT powered by ubiquitous connectivity and global collaboration of subject matter experts in real-time. With a vast network of sensor relaying data to the cloud in real time, and a host of analytic tools working over it to reveal intelligent insights, information security is gaining utmost importance amongst factories. The factory system is made up of transactions starting from raw material stage up until the recycling stage. The supply chain is a series of system entities comprising transactions of people, material, knowledge, process, and financial contracts. While IIoT facilitates real-time transactions and decisions, Blockchain facilitates secure and transparent real-time transactions creating the ideal IIoT ecosystem and a robust solution to the threat of cyber security.
Blockchain Application in Industries
One of the key challenges in industries is product traceability. The trail of the product begins only during the final stages of production, making it impossible to track it in the raw material level. Apart from products, there is also a continuous exchange of material, information, process, and people in the industrial system, which need to be tracked for transparency. In addition, the enormous scale of supply chain operations makes it extremely difficult to have an overall view of the supply chain in real time. These result in segments of information being stored in multiple central locations which are accessible only by certain players in the system and usually the customer is left in dark with access to only snippets of information. This low level of transparency and transactional traceability ultimately affect the level of trust in the industrial ecosystem.
This calls for a system to handle and protect transactional data with distributed storage and network system. The decentralized network architecture of Blockchain fits in as a custom made solution to manage the countless industrial transactions in the era of Industrial IoT.
Redefining Trust Transactions in the Factory Supply chain
Blockchain’s decentralized system in collaboration with the IoT network can be used to collect, store, and manage key product information of each product throughout its life cycle. When Blockchain is superimposed on IoT network, it distributes information blocks creating a secured and shared record of each individual product along with specific product and process transactional information. From its initial stages, a product moves through various supply chain participants such as raw material producer, service vendors, manufacturers, distributors and finally reaches the consumer. In a blockchain enabled industry, each supply chain participant will be given a unique identification code for logging in transactional details. The unique identification will be provided by a third-party identity auditor who will verify and certify the participant’s profile in order to maintain the trust level in the system. Each participant’s profile can be viewed by any supply chain participant, elevating system transparency.
On the ground, each raw material before being shipped will be attached to a unique digital signature by barcodes, RFID tags, or QR codes. The raw material supplier creates the first block pertaining to the product. The block contains time stamp, location, product specifics, environment centric data and also transactional details about the trade. The trade exchange between the parties is closed once the raw material is scanned at the manufacturer’s end. During the subsequent production stages, a new digital signature is created when distinct parts are manufactured from the same raw material batch or when multiple parts are assembled together to create a subsystem. This way, the details of all the sub components that constitute the final product can be traced back to the raw material stage. As each transaction has to be approved by all the network participants and a real-time automated ledger copy is maintained by all the participants, all the transactions become hack proof and transparent at the same time. This allows manufacturers to buy and supply to vendors whom they have never been associated with, without the necessity of identity verification
The introduction of smart contracts into the system prevents fraudulent financial transactions, as the trade offer can only be received by the parties involved in the transaction. The transactional block will be added to the chain only after it has been validated, accepted, and completed. However, challenges such as access to Internet in remote areas, expansion of IT infrastructure, introduction and embedding RFID tags and readers throughout the supply chain are expected to become implementation bottlenecks once blockchain becomes enterprise ready in the future. However, the experience with the penetration of digital payments in the business world presents a positive outlook for industrial blockchains.