“A blockchain is, in the simplest of terms, a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity.”
–Ameer Rosic, Blockgeeks
“Blockchain can only be updated by consensus between participants in the system, and once new data is entered it can never be erased.”
–Lucas Mearian, Computerworld
“Declaring a technology impregnable to criminal activity is as much an act of hubris as declaring the Titanic unsinkable — and there’s an iceberg out there with blockchain’s name on it.”
–Bill Virgin, Seattle Business Magazine
“I would estimate there are only a couple thousand developers in the whole world who understand these concepts at a deep level, even after the technology’s been around for almost ten years.”
–Crystal Stranger, Founder of PeaCounts
Blockchain is a technology innovation that many people talk about but few people understand. It was designed to solve a legitimate problem in the world today: how do we execute digital transactions in a secure and efficient way. Unfortunately it only works to some extent, and comes with several significant costs and complications. In the realm of supply chain transparency, it’s actually a bad idea.
Before we get to the problems of blockchain, let’s talk about the benefits.
- It’s decentralized: therefore data is not owned or controlled by a single entity (like, a corporation)
- The chain of data (i.e. the blockchain) is immutable, so no person or entity can tamper with the data.
- The data is cryptographically stored, for greater security.
- The blockchain is transparent, so any user can track the data if they wish to.
Here’s an example. When you send money to someone via PayPal, you send money in the form of data through an intermediary (PayPal), who then sends it to the recipient. PayPal, of course, charges a small fee for this service. If PayPal wished to tamper with this data, it certainly could. And if PayPal was hacked, the data from this transaction could be “stolen.” This is an example of the traditional centralized structure of data transactions.
Blockchain works differently. In the scenario above, there is no need for an intermediary like PayPal. Your transaction is sent directly to the recipient in the form of a unique, unfalsifiable record that is verified by thousands—if not millions—of computers throughout the network. Tampering with even a single unit of data is impossible, because every single block of information is connected to every other block of information—sealed with unbreakable computer cryptography—in the form of a chain.
Sounds nice, right?
In the realm of cryptocurrency, blockchain can certainly be useful. But for most other kinds of data transactions, it can be extremely counterproductive. Jimmy Song, author of The Little Bitcoin Book: Why Bitcoin Matters for Your Freedom, Finances, and Future, breaks down the many pitfalls of blockchain in his key article Why Blockchain is Hard. Here’s the quick and easy summary:
1. Development is stricter and slower: “Why can’t you just fix the database or start over and move on? That would be easy enough to do in a centralized system, but this is very difficult in a decentralized one. You need consensus, or the agreement of all players in the system, in order to change the database.”
2. Maintenance is very costly: “A traditional centralized database only needs to be written to once. A blockchain needs to be written to thousands of times…The costs of maintaining a blockchain are orders of magnitude higher.”
3. Users are Sovereign: “You may be thinking that you can simply refuse service to malicious users, which would be very easy to do in a centralized service. However, unlike a centralized service, refusing service is difficult because no single entity has the authority to kick anyone out…You simply have to deal with malicious or misbehaving actors, possibly for a very long time.”
4. Scaling is really hard: “Finally, scaling is at least several orders of magnitude harder than in a traditional centralized system. The reason is obvious. The same data has to live in hundreds or thousands of places rather than in a single place. The overhead of transmission, verification and storage is enormous.”
Hardcore proponents of blockchain claim that these problems can be solved by using private blockchains. But then you’re basically back to using a centralized system, which largely defeats the purpose of blockchain in the first place. So what’s the point?
Why Orijin does NOT use Blockchain
In addition to all the reasons laid out above, there are several other reasons why blockchain is specifically ill-suited for a supply chain transparency platform.
- Honesty and Accuracy: Blockchain doesn’t magically ensure that all information in the database is honest and accurate, especially in a supply chain system with many points of human interaction. As Orijin’s Chief Technology Officer, Salla Mankinen, is fond of saying: “Shit in, shit out.” If false or inaccurate data is inputted into the system, the data remains false and inaccurate throughout the life of that transaction chain.
- Operational Concerns: One major operational concern was already stated above: the engineering limitations and enormous cost of maintenance associated with blockchain. But you also have to worry about who is responsible for maintenance and development, which is an organizational problem on top of the engineering problem.
- Environmental Concerns: Cryptography within blockchains is typically framed within a “proof-of-work” protocol. This requires a massive amount of computing power, which in turn requires an enormous amount of energy consumption. A new model, called “proof-of stake,” may address this problem. As it stands, “proof-of-work” blockchains like Bitcoin is just one more thing that is eating up the world’s natural resources.
Blockchain works for a cryptocurrency like Bitcoin, but not as a supply chain transparency platform. Says Song, “A blockchain doesn’t get you anything that you can’t do a thousand times cheaper with a centralized database.” There it is.