The value proposition of harnessing blockchain technology to transform supply chains is not new. The idea of a distributed ledger, that is transparent and immutable, lends itself to imagining a world where all participants involved in the process of producing, distributing, storing, selling, and consuming a product can view its origin and status in real time. The benefits of such traceability include improved food safety, reduced fraud and optimization in the distribution of scarce resources.
However, like any emerging technology, the early years of blockchain witnessed the launch of numerous projects and a wide variety of use cases with a mixed level of success. Some reports conclude that as many as 92% of those early projects in blockchain have failed. While it is debatable if all early technical experiments that don’t turn out as planned should be categorized as failures; it is critical to look at them closely, understand what happened and then build on the learning.
What We Have Learned
There is a wide range of reasons why technology-led transformations fail, some of which are similar to those of any new business: a lack of thorough strategy and planning or an inadequate understanding of what the market needs. If insufficient time is invested in truly understanding the problem definition, it can lead to disappointment — a metaphorical hammer looking for a nail. Other common challenges include woefully underestimating the time and effort needed for new regulatory frameworks — which is especially true for new markets or business models — or simply not being able to access sufficient, affordable, talent at the right time, which can prove to be debilitating for a new venture.
These are all real challenges that are also applicable in the blockchain world, and for many failed projects, it is indeed a combination of all three that contribute to the ending them. A prominent example is the Australian Stock Exchange (ASX) project envisioned to transform clearing and settlements. It started in December 2016, originally planned for 2.5 years but finally dismantled in 2022. The primary reason shared at the time was that the project had “significant technology, governance and delivery challenges that must be addressed.” The team had set out to build a private blockchain infrastructure which proved too difficult.
These common failings, while true, do not fully capture the learnings for future blockchain transformations. There is additional learning emerging from these innovation projects that gets to the heart of the true value of a decentralized network.
Understanding The Value Proposition of Decentralization
The unique and differentiated value of blockchain lies in the inherent characteristics of decentralization. If a use case does not depend on this core quality, then arguably it could be delivered quicker and cheaper using a more established technology stack and solution. In a decentralized network, there is no central individual or organization ownership and it does not require a gatekeeper. Many unsuccessful early projects miss this core understanding.
For example, projects that are designed around the concept of a private network, are essentially trying to implement blockchain but are not utilizing its true superpower of privacy on a public blockchain. When enterprises attempt to reapply control by using a private governance structure, it introduces a control mechanism, which counters that very superpower.
Blockchain applications for supply chain rely on two primary elements: token services and decentralization. Token services, established by enterprises, facilitate real-time visibility throughout the value chain. Meanwhile, decentralization empowers independent entities to exchange and trust supply chain data securely, all while maintaining privacy. This type of visibility simplifies and automates the overall management of the supply chain and, in practice, reduces inefficiencies and intermediaries, which ultimately reduces overall costs.
Transacting With Confidence on a Public Network
Privacy is an essential ingredient for two businesses to transact with confidence. The concept of privacy in the context of a distributed ledger is often viewed as a paradox; that there is no room for privacy in a transparent world. However, the true nature of a public blockchain operates with the goal of confidentiality.
There are two common theories of how privacy is achieved with blockchain. The first is through establishing a private network or private governance. This approach may create a protective layer for members from non-members, but it will not directly address the need for confidentiality between members.
The second theory is that of anonymity; while it is true that anonymity on a public network offers a degree of privacy for individuals, the approach is not viable in the context of an enterprise. An enterprise that answers to shareholders, regulators and consumers cannot transact with anonymity. Anonymity is not confidentiality.
Confidentiality is critical to the scaling of supply chain solutions, so important that quite some time is spent figuring out how to solve it. Using the approach of Zero Knowledge Proof technology to provide private transfers of tokens on the public blockchain has a built-in, optimistic Layer 2 (L2) rollup to increase throughput and reduce transaction costs. To solve the issue of anonymity, some applications include a sophisticated decentralized permission component, which hybrids the best aspects of a public and private blockchain depending on the enterprise's needs. The next crucial focus in achieving blockchain scalability is ensuring affordability.
Supply Chain Scale and Affordability
Like many emerging technologies, the early versions of blockchain lacked the affordability and scalability needed for enterprise adoption. The advent of the Ethereum network, launched in 2015, made it possible to program business process logic into a smart contract; however, at the time, cost per transaction and performance was slow.
A lot has changed since then. In the last two years, there has been an explosion of new L2 protocols available. The usage of L2 rollups, essentially allows the bundling of transactions, driving an exponential expansion of scale. The Ethereum ecosystem today can arguably handle millions of transactions a day, a fraction of the cost compared to years ago. Today, we are entering the era when an enterprise can start to run solutions at scale.
With scale and affordability on a public network now in reach, the focus shifts to value creation.
Looking Ahead: The Value of Supply Chain Transformation
The maturity of public blockchain technology is ready for enterprises to embrace and generate both new efficiencies and to address key challenges in the supply chain.
Learn from the innovators who have come before, focus on the problems that inherently depend on a decentralized solution, and get started. The era of enterprise blockchain transformation at scale is ahead.
