Blockchain technology allows for a distributed ledger of transactions and digital events that is shared among participants in a network. It allows transactions to be verified through consensus, recorded immutably on the blockchain, and provides a verifiable record of all transactions. The document discusses how blockchain works through public and private networks and provides examples of applications in supply chain management, the Internet of Things, tracking origins of goods, and smart contracts. It also covers challenges and opportunities of adopting blockchain technology.
1. G. H. Raisoni College of Engineering
Department of Computer Science and Engineering
Blockchain Technology
End Sem Exam
Session: 2018-19
Report on
Supply Chain Management using
Blockchain
2. 1
What is Block Chain Technology?
A blockchain is essentially a distributed database of records or public ledger of
all transactions or digital events that have been executed and shared among
participating parties. Each transaction in the public ledger is verified by
consensus of a majority of the participants in the system. And, once entered,
information can never be erased. The blockchain contains a certain and
verifiable record of every single transaction ever made. To use a basic analogy,
it is easy to steal a cookie from a cookie jar, kept in a secluded place than
stealing the cookie from a cookie jar kept in a marketplace, being observed by
thousands of people. In the report, it distinguishes between multiple types of
blockchains and explains the two biggest platforms, namely Bitcoin and
Ethereum. While introducing those two platforms we explain the most
important technology and algorithms used such as proof of work concept.
Some of the security issues and solutions are also covered. We conclude with
some concrete Ethereum based applications that demonstrate the usage of
blockchain technology beyond cryptocurrency and illustrate current
developments in this field.
4. 3
Private blockchains. Public blockchains.
1. Conversely, a ‘private’
blockchain network is where
the participants are known
and trusted: for example, an
industry group, or a group of
companies owned by an
umbrella company.
2. Many of the mechanisms
aren’t needed – or rather they
are replaced with legal
contracts.
3. This changes the technical
decisions as to which bricks
are used to build the solution.
Ledgers can be ‘public’ in two
senses:
1. Anyone, without permission
granted by another
authority, can write data
2. Anyone, without permission
granted by another
authority, can read data
Usually, when people talk about
public blockchains, they mean
anyone-can-write.
Blockchain Applications
Blockchain demonstrates the potential to be used in many different fields of financial and
non-financial.
5. 4
Financial institutions
and banks no longer see blockchain technology as a threat to traditional business
models. The world’s biggest banks are in fact looking for opportunities in this area by
doing research on innovative blockchain applications. In a recent interview, Rain Lohmus
of Estonia’s LHV bank told that they found Blockchain to be the most tested and secure
for some banking and finance-related applications.
Non-Financial applications
opportunities are also endless. We can envision putting proof of the existence of all legal
documents, health records, and royalty payments in the music industry, notary, private
securities and marriage licenses in the blockchain. By storing the fingerprint of the digital
asset instead of storing the digital asset itself, the anonymity or privacy objective can be
achieved.
Blockchain—Risks and Opportunities
Having rapidly outgrown its early roots in cryptocurrencies (such as bitcoin)
Blockchain now has the potential to:
● Simplify and enhance transparency in core business functions such as
supply chain management, auditing, tax, compliance and back-office
operations
● Rapidly increase the volume of automated transactions
● Help reduce fraud through enhanced identity management
However,while Blockchain has the potentialto revolutionize the way we do
business, boards must also consider some of the associated challenges with
the adoption of the technology such as:
6. 5
● Regulatoryand legal environments are still under development and as
such is open for interpretation
● Implementing and standardizing Blockchain requires significant
investment, including legacy system integrationand retraining of the
workforce where appropriate
● A lack of real-world enterprise testing and the rapid development of
Blockchain platforms make it difficult to stay ahead of the curve
Problems Identified
If blockchain technology allows us to more securely and transparently track
all types of transactions, imagine the possibilities it presents across the
supply chain.
7. 6
Every time a product changes hands, the transaction could be documented,
creating a permanent history of a product, from manufacture to sale. This
could dramatically reduce time delays, added costs, and human error that
plague transactions today.
This means that there is a need to develop a mechanism so that the entire
Bitcoin network can agree regarding the order of transactions, which is a
daunting task in a distributed system.
Solutions Provided
Blockchain-protected supply chain framework
► The product ledger will hold the key properties of components, quality, quantity and
custody at a given point in time. These attributes are stored in a secure infrastructure
and can be represented in consumer- facing applications. It will be readable and linked
from pre-existing data sets.
8. 7
► Every relevant participant also will be an interested party in performing a quality
assessment, auditing the network and getting verification from the relevant performing
party. Participants are producers, manufacturers, registrars, standards organizations,
customers, certifiers and auditors.
A blockchain solution provides:
► Brand value for products
► Decentralized, the technology-shared
architecture
► Establishment of mutual trustless trust
Impact:
► Incomprehensible network of
product trace
► Supply chain mass contamination of products
► Counterfeit parts in product inception
Blockchain can provide secure IoT digital marketplace
► Blockchain provides secure, machine-to-machine communication and distribution of
smartly produced data.
► Its decentralized server adds a layer of security to file storage and transfer,
determines roles and permissions, provides trustless peer-to-peer messaging, and
offers secure and distributed data sharing and healthy equipment coordination.
► It can facilitate tracking production, distribution and consumption, and automatically
detect problems to initiate a cost-effective response rapidly.
9. 8
Impact:
► Data gathered in IoT network is futile
► Centralized cloud infrastructure
► Manual tracking of production, distribution and consumption
A blockchain solution provides:
► Safe distribution of smartly produced data
► Secure transfer of financially sensitive information
► Automatic installation of service requests
Blockchain can provide information around the origin of
goods
► Blockchain provides an immutable, trusted and shared record of transaction data.
► With its verifiable and decentralized nature, retailers and manufacturers can track the
origin and location of a product at any point along the supply chain at any given time.
► Blockchain could eliminate the burden on one trusted centralized party when dealing
with multiple parties in multiple jurisdictions that are exchanging multiple physical
goods and multiple documents and settlements by decentralizing the authority.
Impact:
10. 9
► Lack of confidence in retailer
► Possibility for contamination
► Potential for mislabelling of goods
A blockchain solution provides:
► Reassurance to customers, particularly those with requirements, e.g., kosher and
halal
► Helps avoid public relations disasters
► Helps maintain status as an ethical retailer
This mathematical puzzle is not trivial to solve and the complexity of the
problem can be adjusted so that on average it takes ten minutes for a node
in the Bitcoin network to make a right guess and generate a block. There is
very small probability that more than one block will be generated in the
system at a given time. First node, to solve the problem, broadcasts the
block to rest of the network. Occasionally, however, more than one block
will be solved at the same time, leading to several possible branches.
However, the math of solving is very complicated and hence the blockchain
quickly stabilizes, meaning that every node is in agreement about the
ordering of blocks a few backs from the end of the chain. The nodes
11. 10
donating their computing resources to solve the puzzle and generate block
are called “miner” nodes” and are financially awarded for their efforts.
The network only accepts the longest blockchain as the valid one. Hence, it
is next to impossible for an attacker to introduce a fraudulent transaction
since it has not only to generate a block by solving a mathematical puzzle
but it has to at the same time mathematically race against the good nodes to
generate all subsequent blocks in order for it make other nodes accept its
transaction & block as the valid one. This job becomes even more difficult
since blocks in the blockchain are linked cryptographically together.
Market Competition
Blockchain technology is finding applications in both financial and non-
financial areas that traditionally relied on a third trusted online entity to
validate and safeguard online transactions of digital assets. There was
another application “Smart Contracts” that was invented in the year 1994 by
Nick Szabo. It was a great idea to automatically execute contracts between
12. 11
participating parties. However, it did not find usage until the notion of
cryptocurrencies or programmable payments came into existence. Now two
programs blockchain and the smart contract can work together to trigger
payments when a preprogrammed condition of a contractual agreement is
triggered. Smart Contracts are really the killer application of the
cryptocurrency world.
Smart contracts are contracts which are automatically enforced by computer
protocols. Using blockchain technology it has become much easier to
register, verify and execute Smart Contracts. Open source companies like
Ethereum and Codius are enabling Smart Contracts using blockchain
technology. Many companies which operate on bitcoin and blockchain
technologies are supporting Smart Contracts. Many cases where assets are
transferred only on meeting certain conditions which require Lawyers to
create a contract and Banks to provide Escrow service can be replaced by
Smart Contracts.
Ethereum has created a lot of excitement for its programmable platform
capabilities. Ethereum allows anyone to create their own cryptocurrency and
use that to execute, pay for smart contracts. Ethereum itself has its own
cryptocurrency (ether) which is used to pay for the services. Ethereum is
already powering a wide range of early applications in areas such as
Governance, autonomous banks, keyless access, crowdfunding, financial
derivatives trading and settlement using smart contracts.
13. 12
Conclusion
Much of the thought leadership regarding blockchains in financial services
has focused on the context of Western Europe and the US but little has
been explored within Asia. This is ironic given in the US, trust across state
lines is high and uniform; in Europe, the market is more closely aligned by
regulation. But Asia is still behind in terms of levels of trust enabling greater
economic activity. Asia’s geopolitical context is unique globally – the region
consists of loosely coupled countries who want to trade with each other, yet
levels of trust between countries are disparate, preventing the region from
realising its potential.
We believe that the most transformative blockchains will be those that can
work across geopolitical boundaries. Southeast Asia has the most potential
that can be unlocked with this technology, but we acknowledge that it may
also be the hardest blockchains to implement.
We now have the technology for trust. With political will, investment, and
industry collaboration, we believe that blockchains can improve the way
business is done in Southeast Asia and increase economic prosperity as a
result.
