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Blockchain in Manufacturing Industry

Blockchain in Manufacturing Industry
November 08, 2018

Blockchain has arrived and it is headed to be a technology which will have a major impact in many industries across the globe. The hype around blockchain is growing with many technology majors experimenting this technology for various use cases.

Introduction

Blockchain is the core technology that is being utilized by cryptocurrencies like bitcoin and Ethereum. In a blockchain, transactions are recorded on a public, distributed ledger and need for a third party is not needed in most cases. The technology is believed to be more secured and faster by enthusiasts and is being tested for many industry use cases including finance, health records, and blockchain Supply chain.

Blockchain is the technology that underlies cryptocurrencies like bitcoin and Ethereum.

There are three types of blockchains based on their roles:

  1. Public blockchains

    Public blockchains can be accessed by anyone on internet and have no restrictions on its uses. Till date, some of the most successful business cases of public blockchains are Bitcoin and Ethereum.

  2. Private blockchains

    Private blockchains are owned by corporations. Participation, operations, and administration are controlled solely by the corporation who has implemented the blockchain. Main purpose of using private blockchains is to utilize distributed ledger technologies, while simultaneously keeping autonomy intact.

  3. Consortium blockchains

    A consortium blockchain is semi-decentralized and permissioned, but instead of a single organization controlling and owing it, a number of participant companies might operate a node on such a network. Here, consensus process is controlled by a set of nodes which are preselected.

Blockchain in manufacturing

Blockchain has many practical use cases and new applications of the technology are continuously introduced. As per a prediction by WEF in 2015, 10% of global GDP will be stored on the blockchain after 2027. Although majority of research projects are still focused on the technology itself and applications in the finance industry, the interest in exploitation of blockchain technology in the manufacturing industry is gaining momentum across the globe. Several start-ups are investigating in the application of blockchain for supply chain management and auditing.

There are many use cases being tested for combining blockchain technology with IOT and 3D printing to enable new and smarter manufacturing processes. This essentially defines Blockchain technology’s role in Industry 4.0 along with IoT, Artificial intelligence and other technologies.

How does blockchain help in building trust?

One key question in our daily transactions is how much should we pay to trust each another? We pay bank interest and fees and hidden charges to verify balances and accounts so that payments could be made to strangers. Thousands of dollars are spent on lawyers to sort out incidents where our trust gets broken to write and create contracts, because we are not quite sure how another person will behave. We pay our insurance company to oversee the risk around our health, car, home, and even life. We also pay estate agents thousands of dollars to stand between the prospective buyer, the current owner, and us to buy a house. It looks like we pay a lot to so called trusted third parties to control our lives and double-check what is happening.

Now, since this ‘immutable ledger’ technology that embeds trust has arrived, all the intermediaries or the third parties who are being paid currently to facilitate our trust as mentioned above will have to prove their value if they don’t want to be replaced by blockchain.

Smart Contracts

Smart contracts are bulk of coded logic or procedures which are embed in the blockchain platform alongside the ledger. There are several benefits of using smart contracts as they enable automatic commencing of business operations. By cutting out third parties transaction costs, reduction and better transparency can be achieved.

Smart contracts are bundles of coded logic or procedures which sit beside the entries in the ledger.

How to identify blockchain use case that are beneficial?

PwC developed a framework to answer this question for specific use cases. There are databanks, as well with traditional software, which can also fulfil most requirements. There are certain conditions that are needed to be met to utilise the benefits of blockchain.

A decentralized collaborative system is beneficial only when multiple parties that need to update or share data reliably are involved. The third parties can be cut off as they are only the medium for verification. Since these intermediaries increase costs and complexity, and provoke delays, this business model might be beneficial for reducing costs. Due to less intermediary and trust-related actions, the duration reduces and the efficiency increases.

Implementing blockchain technology might be beneficial especially if there are multiple transactions that interact with each other. Below framework is used to analyse some manufacturing industry applications.

Use Case

Per above image, a framework has been presented to assess the benefits of applying blockchain technology for certain applications. Here, the PwC model is used, where four out of six criteria should be fulfilled. Table 3 presents the blockchain applications with the highest potential in manufacturing from the Cross-Potential-Matrix in Figure 2. The six criteria are applied and positive answers are signalled by checks. As a result, all potential applications satisfy the criteria of the framework.

Conclusion

According to the above use cases, there is a huge potential of blockchain technology for manufacturing industry. Additionally, there have been many other use cases identified. Per experts, the first marketable solutions specifically for blockchain shall emerge in three to five years down the line. As of now, the hype surrounding blockchain is either already at the peak or short before. One should, therefore, expect a decline in buzz about this technology in a year or two. There are still few technical challenges for businesses if they want to use blockchain but for the future, we believe that these problems can be solved and that blockchain will become a key technology in bringing transformation in several industries.