Shaping a sustainable future with blockchain

Imagine a scenario where an individual must record each and every detail about their activities in a ledger, with one condition: once an activity is recorded it cannot be altered and/or deleted from the ledger. Every time an action is carried out, the data is recorded. Every time the person does something they did not intend to do; the data is recorded. Every time a mistake is made; this is recorded. The ledger created represents the most accurate footprint of the person’s activity. This is exactly what Blockchain is: an incorruptible digital ledger of economic transaction which can be programmed to record not just financial transactions, but virtually everything of value (Golosova and Romanovs, 2018). The applications of blockchain will almost certainly drive industries and businesses globally towards a more sustainable path.

Figure 1. Simple Blockchain Diagram (Department of Homeland Security (DHS), n.d.)

The key to supply chain sustainability

Despite their growing complexity, blockchain can drive the transition towards more sustainable supply chains. The technology facilitates access of information, for example regarding material flow, which can reduce working capital tied up in the supply chain. In turn, this decreases the likelihood of administrative error and prevents costly supply chain frauds. The transparency and immutability of blockchains allows all parties in the supply chain to have access to high-quality data, eliminating the need for any third-party intervention, therefore maintaining data integrity between agreed parties.

When it comes to payment processing, blockchain promises to lower transaction costs, through the lowered rate of errors and absence of centralised verification systems. Leading experts say that huge multi-nationals like PwC could reduce financial services infrastructure cost between US$15 billion and $20 billion per annum by 2022 (Di Gregorio, 2017). This could significantly reduce costs faced by all parties involved in the supply chain.

Incorporating this technology into global supply chains facilitates the streamlining of the chain for every stage: production, collection, transportation, arrival, and even disposal. A streamlined supply chain, like that of Walmart or Amazon, helps companies to optimise processes, generate new innovations, and increase productivity.

Here is an example of how Blockchain would transform the supply chain of car leasing.

Car leasing is quite complicated. A major challenge faced by today’s leasing networks is that even though the physical supply chain is usually integrated, the supporting systems are often fragmented. Each party within the network maintains its own ledger, which can take days or weeks to synchronize (see Figure 2).

By using a shared ledger on a blockchain network, every authorized participant can access, monitor, and analyse the state of the vehicle regardless of where it is within its life cycle (see

Figure 3).

Figure 2. Tracking vehicle ownership without blockchain (Gupta, 2020)

Figure 3. Tracking vehicle ownership with blockchain (Gupta, 2020)

The battle against counterfeit goods

Counterfeiting, a crime known for its devastating global economic impacts, also causes hidden damage to the environment, due to the unregulated manufacturing of products. Counterfeit chemical products are a prime example of this, which often do not comply with safety or environmental standards (OECD/EUIPO, 2019). Distinguishing authentic products from fake ones helps to combat counterfeiting and its subsequent environmental and economic repercussions. In 2014, counterfeit drugs provided approximately $75 billion in revenue to illegal operators, costing pharmaceutical companies an estimated $18 billion in lost profits (Gilbert, 2016). Blockchain technology helps to identify these fake products and any unethical suppliers and consumers early in the production and distribution processes. In the case of human rights and fair work, a clear record of product history helps buyers to be confident that goods being purchased are coming only from sources that have been recognized as being ethically sound (Welfare, A., 2020).

Blockchain has also been widely criticised, particularly due to its immense energy consumption. The global power consumption for servers running the software for blockchain-operated Bitcoin is almost that of Switzerland (McCarthy, 2019), calling into question its promised environmental benefits. Many large companies have spent vast sums of money on the technology without much reward, but tangible examples of success are beginning to generate some movement, such as JP Morgan’s peer-to-peer payments network, Interbank Information Network, which reduces payment delays, and multinational travel company, TUI group, which recently invested ~€1Million into blockchain technologies, expecting annual savings of approximately €100 Million (Pegus Digital, 2017).

It is clear that blockchain and its applications, especially to the supply chain, show promise for more sustainable (and more lucrative) business practices in the future. Given that the technology is relatively premature today, it might take some time before more companies around the world figure out how to successfully implement it in a way that is both profitable and sustainable.

By Aditya Chauhan

Reference list

Department of Homeland Security (DHS), n.d. Blockchain and Suitability for Government Applications, s.l.: Available at <https://www.dhs.gov/sites/default/files/publications/2018_AEP_Blockchain_and_Suitability_for_Government_Applications.pdf.>

Di Gregorio, M., 2017. Blockchain: A new tool to cut costs. [Online] Available at: <https://www.pwc.com/m1/en/media-centre/articles/blockchain-new-tool-to-cut-costs.html>

Gilbert, D., 2016. Blockchain Technology Could Help Solve $75 Billion Counterfeit Drug Problem. [Online] Available at: <https://www.ibtimes.com/blockchain-technology-could-help-solve-75-billion-counterfeit-drug-problem-2355984>

Gupta, M., IBM, 2020. Blockchain for Dummies. 3rd Edition ed. Hoboken: Wiley and Sons.

Golosova, J. and Romanovs, A., 2018. The Advantages and Disadvantages of the Blockchain Technology. s.l., ResearchGate.

JP Morgan, 2020. Largest Number of Banks to Join Live Application of Blockchain Technology. [Online] Available at: <https://www.jpmorgan.com/global/treasury-services/IIN>

McCarthy, N., Forbes, 2019. Bitcoin Devours More Electricity Than Switzerland. [Online] Available at: <https://www.forbes.com/sites/niallmccarthy/2019/07/08/bitcoin-devours-more-electricity-than-switzerland-infographic/#761e69421c0e>

OECD/EUIPO, 2019. Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris/European Union Intellectual Property Office. Available at <https://doi.org/10.1787/g2g9f533-en>

Pegus Digital, 2017. Blockchain Technology: Recent Success Stories. [Online] Available at: <https://pegus.digital/blockchain-technology-recent-success-stories/>

Welfare, A., Forbes Technology Council, 2020. The Circular Economy And Sustainability Powered By Blockchain. [Online] Available at <https://www.forbes.com/sites/forbestechcouncil/2020/01/13/the-circular-economy-and-sustainability-powered-by-blockchain/#3e5c9931b8cf>