Blockchains for Blockheads. I think I finally get it, Part II.

This is the second installment of a series on Blockchain.  Click here to read Part I, a primer in Blockchain.

Remember the Clipper Chip?  In the early 90’s, the NSA made a valiant attempt to insert a back door into private email communication so the government could monitor internet traffic.  The effort began in 1993, and by 1995 the effort was over.

George Santayan said, “Those who cannot remember the past are condemned to repeat it.”  Keep an eye on Blockchain.  When the government realizes what is happening, we may see something like the Clipper Chip initiative all over again.

Over the past several decades, supply chains have evolved from hierarchical organizations with top down command and control to become the continuously evolving amorphous network reaching around the world.

It’s not your grandma’s physical network.  Today, logistics networks are about horizontal cross-functional integration.  That network includes B2B as well as B2C. 

If you order a product over the internet you may just get a box that was packed in China and wholesaled by a US operation, never touched by American hands.  Or, you may get a product including subassemblies sourced from Latin America, Europe, and Asia, assembled somewhere in the United States.

But the associated transactional environment remains stuck in the past.  Blockchain is going to change that.  In fact, it’s already impacting information exchange and transactional execution in the financial world.

I’m a box kicker at heart, so I don’t do well with abstract statements.  What does Blockchain mean to me?  In simple terms, Blockchain is an evolution from a system based on information intermediaries to a system based on protocols.”

Think about a purchase where you use a credit card.  There is a buyer, a seller, and an intermediary, the credit card company.  Everything flows through the credit card company, who is in effect the channel master for the financial pieces.  They are a broker sitting in the middle, in disintermediating the buyer and the seller.

The credit card company is an information overseer providing validation of the financial transaction.  For this service – undoubtedly valuable – the credit card company takes a few percentage points off the top. 

The costs add up, fast.  Letters of credit.  Reference checks.  Escrow.  You get the picture.  If I owned a credit card company, or a bank, I’d be worried.  Blockchain is a disruptive threat to their core business.

Widen the scope, and you see this sort of similar complexity all over logistics.  In our world, we don’t simply do pairwise transactions.  We are involved in multinational trading networks that evolve over time. 

What if we apply Blockchain innovation – now proven and being widely adopted in the financial world - to logistics information exchanges in general?

We may be on the cusp of a revolution in logistics information exchange.  Does the government understand the change that’s already happening?  Is Blockchain going to trigger an attempt at new regulation, a new incarnation of the Clipper Chip?  

Comments and opinion welcome.

Blockchains for Blockheads. I think I finally get it.

I think I finally understand blockchains. Blockchains are a concept that is creeping into the logistics literature. Pay attention; we might be looking at a fundamental shift in how business gets done.

I own a house. It is an interesting house, built three hundred years ago. Yup, the house is older than the United States. It was built in 1718 and is listed in the National Historic Register.

I’ve actually gone to the Registry of Deeds to read the file. It begins with a land grant from the king and that deed is in the file. The original homestead was huge, covering a big chunk of this side of town.

Obviously, I don’t live on an estate of hundreds of acres in suburban Boston. Instead, while I do live in the original house, the residence sits on about a ten thousand square foot plot that is all that remains of the original land grant. The rest of the estate has been peeled away over the years.

Starting from the bottom of the pile of documents at the Registry of Deeds, I can start with the deed from 1718. Stepping through transactional record, on paper, I can walk forward across the chain of actions. I can see every action that connects back through the pile to the original land grant, or block, all the way forward to the current deed on the top of the pile. The piece of paper at the top of the pile is my home.

What blockchain could do is take the paper in the file and make it digital and distributed. Once any transaction is encrypted and shared, there is no need for a central repository at the Registry of Deeds.  Copies of the chain could be shared virtually with all of the participants in the chain. 

Integrity is maintained by links among the copies of the transactions embedded in the chain residing with each participant: If any of the records get out of synch, the distributed technology flags the discrepancy.

Integrity is maintained by encryption: Anybody not involved in the transaction doesn’t have the key.

Integrity is maintained by an architecture that is inherently opaque: People can’t peer inside the transaction and understand what is happening, so hackers attempting crack a pile of encrypted records can’t find the on ramp to a successful hack.

Think of blockchains as information stored in stealth packets; you know that something is out there somewhere but you can’t see it so you can’t hack it.

I think I feel the world shifting. The financial community is leading the pack with block chain, and the supply chain is sure to follow. But we have a slash of the Titans coming. Should the government have the right and the power to read your transactions? Or do individuals have a right to transactional privacy? This is going to get interesting.

For more on this topic, please check out this column by DC Velocity columnist Clifford Lynch.