Almost every time I interact with a customer or an investor, there comes the moment that I get asked the inevitable. It’s usually after we have discussed the critical problems of the disconnected supply chain and agreed upon what leads to a disconnected supply chain. Right before I can actually present our solution they interject – in the knowledge that I am going to discuss a blockchain approach- with “why is blockchain the right technology to deal with the problem, can’t it be a cloud? can’t the ERP vendors handle it?” My personal favorite being “it seems that blockchain is a technology that is looking for a problem, if blockchain is a hammer than everything looks like a nail for it”
First let’s get the obvious out of the way – blockchain is not the right solution for every problem, not even for most problems. It’s probably the correct solution for a range of very specific problems.
I try to look at a problem from three perspectives to decide if it warrants a blockchain approach.
- How many people contribute data into the ecosystem?
- Are there conflicting interests in the ecosystems that would cause people not to trust each other’s inputs?
- Who resolves if there is a dispute?
You can probably find a simpler and more efficient governance solution than blockchain if there is just one person or few people that are the information or transaction contributors. As it’s simple to “govern” one person, one person probably will not cheat himself, we know who will decide what’s right. Things are pretty straightforward in that situation.
Things get interesting, when the ecosystem consists of many people who contribute information to the network. This can lead to conflicting interests which in turn leads to distrust in information. If all the people reside in one governed body – say a company then there is always a person that can resolve a dispute – it can be the CEO, COB or a nominated party. But in cases where the ecosystem consists of people from various different companies, problems can start to arise. As there is no one person that gets to decide (a case can be made that that’s the role of courts).
This is where blockchain fits in. It can facilitate in a situation when people need to trust information across the ecosystem and they know the ecosystem can decide what’s right.
In a typical supply chain, information is shared amongst manufacturers, different members of the logistics service provision, importers and raw materials providers. The transfer of information across such an extensive network of participants can have frictions. For example, Logistics service providers can have conflicting interests with the manufacturers. Witnessed by many logistics service providers that are increasingly reporting that time and energy is spent on disputes due to a lack of governing body or structure that can decide what’s right and wrong.
It is at this point that our discussion takes a turn, with some people asking, “can’t I use my cloud based ERP?” My usual response is – “on an ERP there is always someone responsible for an approval – what happens if there is no such person? What happens if the ecosystem is using many ERP systems and participants don’t necessarily trust one central point, can they have a decentralized system that is not controlled by any of them?”
Summarizing the approach – blockchain will be more appropriate in case where there are many transaction contributors, they have conflicting interests and there is no one person that is authorized to govern the system.
This is a typical conversation that my colleague and I have with customers and investors daily. I am sure we are not the only ones. Share your thoughts below about other considerations and situations for when you feel blockchain is the right or wrong solution for a problem.