Blockchain

Next Generation Industry 4.0 Technologies

Blockchain

Blockchain has matured in the last few years, but Gartner’s 2018 curve analysis still places the technology at “peak hype”. IBM has been investing heavily in the technology for the last three years; it donated code to Linux Foundation Hyperledger Fabric project back in December 2015. Industry 4.0 magazine tracked down the Blockchain CTO for IBM’s Blockchain Solutions business to find out whether Blockchain is on a fast-track journey to the trough of disillusionment or whether there’s a more positive story to be told.

Krishna Ratakonda, IBM Fellow & CTO, Blockchain Solutions

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Some 90 percent of world trade is carried out by the international shipping industry using more than 50,000 merchant ships. However the industry still relies on many manual and paper-based processes. To help connect the global shipping ecosystem and improve efficiency, the IBM and Maersk TradeLens platform uses blockchain technology to help provide real-time insight to critical data about shipments.

Krishna Ratakonda was made an IBM Fellow in 2014. Since then his work has featured prominently in IBM Investor briefings, and in the press – from AI-inspired recipes with Chef Watson in 2013, through social analytics in 2015, to how Blockchain can be applied to financial services in 2016.

Much of the focus of his recent work is on Blockchain as applied to global trade – with implications for manufacturers and their logistics and retail partners.

When we speak with him, he begins by pointing out that while the early variations of Blockchain – most notably bitcoin – were all about the exchange of value by anonymous participants, today’s Blockchain solutions are much more interesting in terms of their potential.

“Blockchain technologies allow for the exchange of information in a secure and automated fashion. This lends itself to the exchange of information between partners; for example, for smart contracts. In this way, Blockchain is beginning to look like traditional data communications but with some new properties. This makes it much more interesting from a manufacturing point of view.”

Video:

IBM Blockchain Car Lease Demo

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The Principles of Blockchain

Ratakonda identifies three key principles which underlie this new generation of Blockchain technologies:

• Immutability

• Identity

• Privacy

“When you start to appreciate the special characteristics of this type of network, you can start to understand ‘how can I use this?’,” he says.

Most people are familiar with the concept of immutability as it pertains to the Blockchain world. The distributed ledger technology depends on a quorum of network participants to agree on the state of the legers, thereby underwriting its immutability.

The second characteristic – that of identity – is where Blockchain has evolved the most since its early days. At the start, Blockchain was designed to be anonymous.

“That anonymity came at a price,” explains Ratakonda. “You have to have a stringent way of checking that transactions aren’t fraudulent. But once you turn that around and say ‘on this Blockchain network we do need some

Ratakonda way of checking people are who they say they are’ and actors need identities, then we can bring identity to Blockchain making it more suitable for use within the enterprise.”

This evolution has had some serious implications for the performance of Blockchain networks. Now transactions can happen much more quickly. Using similar certification tools to the Verisign application we all know from standard Internet financial transaction processing, identities can be confirmed and this means actions can happen much faster.

Ratakonda explains, “Once identities are known there are much more efficient algorithms that can distribute data around the participants. To give you some idea of the scale of magnitude: Bitcoin tops out at around 10 to 20 transactions per second. It’s hard to go beyond that because of the nature of the necessary checks required. With the newer kinds of identitybased Blockchains, what we call Permissioned Blockchain, this actually goes up to something like 2,000 to 3,000 transactions per second.”

Finally, privacy is another key aspect. The data that is shared must be only visible to participants in a secure manner.

Ratakonda asserts, “You don’t want data to be visible to people who are not party to the transaction.”

The Continued Evolution of Blockchain

With these three principles guiding its development, Blockchain has moved on significantly in the last few years. There is a ubiquity to the potential use cases, argues Ratakonda.

“It is like the Internet, but it has more guarantees about the data that is being shared. You have a clear line of sight to who shared the data, when they shared the data, and how the data that they shared has never been modified by other parties.”

The launch of Hyperledger Fabric – which IBM uses as the foundation technology for its own Blockchain platform – represented a huge leap forward.

Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration, hosted by The Linux Foundation, which includes leaders in finance, banking, Internet of Things, supply chains, manufacturing and Technology

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About Hyperledger

Not since the Web itself has a technology promised broader and more fundamental revolution than blockchain technology. A blockchain is a peer-to-peer distributed ledger forged by consensus, combined with a system for “smart contracts” and other assistive technologies.

Together these can be used to build a new generation of transactional applications that establishes trust, accountability and transparency at their core, while streamlining business processes and legal constraints.

Think of it as an operating system for marketplaces, data-sharing networks, micro-currencies, and decentralized digital communities. It has the potential to vastly reduce the cost and complexity of getting things done in the real world.

Only an Open Source, collaborative software development approach can ensure the transparency, longevity, interoperability and support required to bring blockchain technologies forward to mainstream commercial adoption. That is what Hyperledger is about – communities of software developers building blockchain frameworks and platforms.

Read more: hyperledger.org/about

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IBM launched IBM Blockchain Platform in March 2017.

Hailed as the most secure enterprise-ready Blockchain services for Hyperledger Fabric, it launched on IBM Cloud. It was the first commercial deployment of opensource Hyperledger Fabric and IBM hopes to create open, integral business networks through its deployment.

One such initiative is the IBM Food Trust network. This uses Blockchain technology to create unprecedented visibility and accountability in the food supply chain.

It is the only network of its kind, connecting growers, processors, distributors, and retailers through a permissioned, permanent and shared record of food system data.

It launched commercially in October 2018 and is currently being piloted by some of the largest global retailers and suppliers, including Nestlé, Dole, Carrefour and Walmart.

“This is not something abstract,” says Ratakonda. “It’s happening in the market already. You can see the whole provenance of a food item.”

What Are the Opportunities for Manufacturers?

The Food Trust network illuminates a key opportunity for all manufacturers: Blockchain is an ideal fit with solutions for demonstrating trusted traceability and provenance.

“These days, the supply chain has become truly global. Goods trade hands many times. With that, comes the possibility that bad actors can enter the supply chain,” continues Ratakonda. “Whether they do it intentionally or unintentionally, how do you know when someone is introducing bad quality food into the supply chain? Without the ability to trace information in a secure manner, you are relying on each of these parties’ record keeping abilities. Blockchain turns that around: the onus is not on individual participants but, rather, the network itself will maintain the record of where each item came from.”

The other key benefit is the universality. Participants within the same trading network may start using a variety of different systems to records date, from Excel spreadsheets or an MES system for their recordkeeping or no system at all. Blockchain offers a common model of how the data is shared and how the provenance is recorded.

“At present you will never get the level of traceability you need because data often remains in siloes,” says Ratakonda. “Blockchain fundamentally changes that equation.”

With Permissioned Blockchain, IBM envisions that the model will be similar to how other networks operate. Small farmers aren’t going to build up the infrastructure to run their own Blockchain node.

Ratakonda explains, “We’re playing the role of network operator, but we don’t operate the nodes. The network is openly governed by a governance council of members that can make sure that any bad actors in the system are disabled. In the true Blockchain spirit, the larger participants take on the responsibility of making sure the network itself is healthy; that there are enough people who have copies of the transactions to make sure that you can trust the data on the network. Each participant on the network owns their own data and can control who sees it and what gets shared.”

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“IBM and Maersk announced today more than 90 companies are piloting TradeLens, a blockchain shipping platform designed to increase transparency and efficiency across the global shipping ecosystem.”

Wider Applications

While Food and Beverage is an obvious candidate for this type of solution, the same model applies to many other sectors, argues Ratakonda.

“Traceability is important for pharmaceuticals, especially in the European Union. But how trustworthy that supply chain is isn’t always obvious and it isn’t always easy to enforce standards. Blockchain becomes a way to democratise the network. Even smaller providers can submit their piece of the puzzle.”

Ratakonda identifies ethical mining and sustainable practices as other key areas of potential application. Indeed, Ford began working with IBM at the end of last year to initiate a Blockchain pilot that will improve the traceability of the cobalt used in its electric cars’ lithium-ion batteries. Another project is underway with Seagate to track the provenance of its HDDs in a bid to reduce counterfeiting.

“Blockchain levels the playing field for smaller manufacturers. If you’re in the market for a certain part, you’d rather go to an established manufacturer that has a long history for delivering at the right time to the right quality,” proposes Ratakonda.

“For new people to break into the market, there is no easy way. With Blockchain, because of its immutability, you can use the records on the Blockchain to prove you have a good track record. So supplier scoring is a big aspect of it as well creating greater inclusion of more suppliers.”

Dispute resolution, maintenance and servicing records, auditing and quality assurance are other convincing use cases.

“Today car manufacturers are really only assembling piece parts. The software and various parts and components are coming from many different suppliers. How do you know they will all work together?” Ratakonda asks. “Blockchain can provide an opportunity across this diverse ecosystem to see how your car was put together, where all of the parts came from and how it was updated over time. This way, if there is a problem, you can identify the cause much faster or understand the origin of a part in the event of a recall.”

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The Five to Ten Year Vision

Gartner’s analysis puts the date of Blockchain entering the main stream at five to ten years hence. IBM seems to be operating at the closer end of this spectrum – perhaps it might pass over the “trough of disillusionment” altogether – particularly, in the context of its IBM Food Trust network. What advice does Ratakonda have for manufacturers in other industries if they wish to explore the potential of Blockchain?

“Everyone in the Blockchain network needs to have some incentive for why they are sharing data with other people in the Blockchain network. The networks that fail are the ones that start with the notion ‘I really need this data so I am going to create a network and everyone else can send me this data’. But everyone needs an incentive as to why they need to send the data and everyone should mutually benefit. For example, in the case of traceability networks we’ve spoken about, the motivation is: recall is a very costly business.

A clear incentive to share the data has to be starting point.”

Making the information visible to the end consumer is one powerful motivation.

This might be made more attractive through one of the features Ratakonda highlights as another future evolution for Blockchain, the ability to prove something without sharing the actual data. “With zero knowledge proofs it can be more nuanced, with new possibilities to share just enough of the right information.”

How Should Manufacturers Engage with Blockchain?

Ratakonda recommends that interested parties look to join a network that already exists

“Start with a community that is already in existence,” he recommends. “Building from scratch requires a decent amount of learning in terms of how you want to share data in the network – so start with a network that already exists. On the IBM platform we have a number of networks around trade-related data, and traceability, that already have a lot of participants. These are very active networks with millions of transactions happening each day on them. So starting there is probably a good idea. There are also directories of blockchain networks that can be consulted. Then you can decide which way to go.”

If there are no existing networks, you need to think about what incentives exist to make everyone want to participate in a new network and share their data.

“Blockchain is like a communications protocol but with some very unique characteristics that make it ideal for the right business applications because it enables trusted, encrypted, real-time interactions,” concludes Ratakonda.

“It’s almost like getting electricity. You get your network connection and you establish an identity. As long as the other parties on the network are ones you want to exchange information with, you can always share only a certain type of information. Maybe you started wanting to share traceability data, but now you want to create some kind of smart contract. There is nothing to stop you doing that. When you think about it, when we first got the Internet all we did was use it to surf the web. Now our phone service has migrated to the Internet – everything has consolidated to just this one wire coming in.

“Similarly, with Blockchain there will be consolidation overtime. Provided you join a network where most of the people you want to communicate with are already there, there are ways of setting up different types of data you want to share. Over time, we envision there will be a network of blockchain networks, many interoperable and interconnected.”

Find out more: www.ibm.com/blockchain

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Issue no 10 - April 2019 industry 4.0

Steps for Implementing Blockchain

• Think about the incentives structure for participants: what will motivate them to share information?

• Think about what information you want to share and why?

• Pick the technology, e.g. IBM offers a platform based on Hyperledger that is designed for the enterprise.

• Understand how the blockchain network is governed and how decisions are made.

• Work with a trusted and experienced solutions partner, such as IBM, to set up the network and implement the solution.

“Building from scratch requires a decent amount of learning in terms of how you want to share data in the network – so start with a network that already exists.”

Find out more:

ibm.com linkedin.com/company/ibm twitter.com/IBM

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