APPLYING BLOCKCHAIN TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT.APPLYING BLOCKCHAIN TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT.APPLYING BLOCKCHAIN TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT.APPLYING BLOCKCHAIN TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT.APPLYING BLOCKCHAIN TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT.
INTRODUCTION
Statement of the Problem
Blockchain technology is revolutionizing the logistics and supply chain management sectors by offering significant benefits such as reduced operating costs, enhanced service quality, and improved competitiveness for organizations Despite its potential to transform these industries, companies face numerous challenges when adopting blockchain solutions.
Blockchain technology holds the potential to address numerous challenges in logistics and supply chain management; however, its integration into existing systems poses significant challenges Adapting to this new technology is complex, as established supply chains often resist change Despite these hurdles, numerous projects are currently exploring the application of blockchain in global logistics, enhancing transparency and automating administrative processes.
Notable projects like Everledger, SmartLog, and the DHL-BMW Proof of Concepts (PoC) are tackling the challenges of modern logistics and supply chain management within the context of Industry 4.0 Although these initiatives operate differently, they share a common goal of providing innovative solutions Analyzing these projects and their current status can yield practical benefits for the future of the logistics sector and enhance our understanding of their extensive applications.
This paper aims to provide an overview of the current application of blockchain technology in logistics and supply chain management, addressing key inefficiencies that can be mitigated through its implementation It will also explore the barriers and challenges faced in adopting blockchain in this sector, while offering predictions for the future of the technology.
The Purpose of the Study
This study explores the application of blockchain technology in logistics and supply chain management by analyzing the literature reviewed in Chapter 2 and examining existing use cases presented in subsequent chapters.
This article explores the value propositions of blockchain technology in supply chain and logistics, highlighting its potential to enhance transparency, traceability, and efficiency It also addresses several challenges associated with its implementation, such as scalability and integration issues Furthermore, the article provides recommendations for adopters and forecasts the future impact of blockchain on logistics and supply chain management, emphasizing its transformative potential in streamlining operations and improving trust among stakeholders.
Research Questions
This research focuses on the logistics and supply chain management industry, specifically examining the integration of blockchain technology The primary objective of the thesis is to assess the feasibility of implementing blockchain solutions within this sector Additionally, it will include case studies showcasing various projects that have successfully applied blockchain in logistics and supply chain management.
To effectively address the problem statement, it is essential to utilize several research questions that will help navigate the problem area and provide the most accurate answers.
The following research questions have been seen necessary in order to answer my problem statement in the best way:
Question 1: How has blockchain been adopted in logistics and supply chain management?
Question 2: What are the challenges of applying blockchain in logistics and supply chain management?
Question 3: How could enterprises adopt better the technology and overcome the challenges?
This article will begin with a literature review that outlines the significance of implementing technology in logistics and supply chain management, along with an explanation of its operational mechanisms Following this, we will explore various ongoing projects to provide insight into the current landscape and global adoption trends in this field.
This article addresses Research Question 2 by summarizing the literature review and assessing the current state of projects that implement blockchain technology in logistics and supply chain management It highlights the key challenges faced when integrating this innovative technology into these sectors.
Research question 3 will be addressed through recommendations drawn from the experiences of the discussed cases, providing valuable insights for future projects in the logistics and supply chain management sector Additionally, it will offer predictions regarding the future impact of blockchain technology in this industry.
The gathered information from the literature study and the case study will then be the base of the application in logistics and supply chain management.
Thesis Structure
The paper will be divided into 4 chapters, including Introduction, Literature Review and Theoretical Framework, Analysis and Findings, and Discussion.
Chapter 1 will focus on the purpose of the thesis, and then introduce the problem statement and the research questions developed from it Chapter 1 will also give an overview of how the research design is built and the methodology used The methodology will introduce to the readers the overall approach and full details of data collection methods In chapter 2, a literature review and theoretical framework will be given after analyzing the published sources on the main subjects of blockchain and its applications that already been used in real life contexts Based on the thesis objectives, a number of literature will be reviewed for the references of the given topic Not all of the literature review will have the same importance of the papers further development, but in order to give a good overview and understanding and perspective on the subject, it has been needed to include anyway The main purpose of the literature review is to make a foundation for the case studies about on-going projects that applying blockchain technology in logistics and supply chain management.
Chapter 3 will deeply analyze the list of case studies about on-going projects that applying blockchain technology in logistics and supply chain management These projects’ achievements and remained problems will be summed up for a conclusion of the current state of blockchain technology in the logistics and supply chain management industry.
Chapter 4 will be the discussion in which the author discusses the results and conclude on the study’s findings, the findings in relation to the statement of the problem, and the research questions that were identified This chapter also brings up the limitations or weaknesses of the study’s design or findings and some recommendations for future areas of research that should be conducted related to my study, actions, policies, or procedures related to the study’s findings The final part will identify the critical conclusions about the study and its implications.
Methodology
The methodological approach significantly shapes the study's design, impacting both data collection and analysis Additionally, it determines the focus and importance of the literature review in the subsequent research.
The relationship between theory and reality can be understood through two primary approaches: deductive and inductive The inductive approach is exploratory, aiming to generate new theories by moving from empirical studies to theoretical insights In contrast, the deductive approach emphasizes testing existing theories by formulating propositions that can be empirically validated in real-world scenarios.
In 2007, Saunders highlighted that while two distinct research approaches exist, combining them can yield superior insights and advantages for drawing conclusions in a research process.
The research will employ both deductive and inductive approaches to reach final conclusions, leveraging the strengths of each method Initially, the deductive approach will test existing theories through a case study analysis Subsequently, the inductive approach will facilitate the development of a new risk management strategy, effectively transitioning from theory testing to theory building This dual methodology enhances the overall robustness of the findings.
This section introduces the research design and outlines the relevant methods for this project, providing readers with insight into the development of the thesis through literature review and qualitative data collection.
This paper addresses the challenges and overarching issues related to the implementation of blockchain technology in logistics and supply chain management It will present a literature review and pertinent theories on the subject, which will be applied to various case study projects to illustrate practical applications and insights.
The insights gained from the literature review and case study will serve as the basis for strategically implementing blockchain technology in companies This approach aims to prepare organizations for the upcoming transformations in logistics and supply chain management.
The research design of this assignment integrates both primary and secondary data through case study and literature analysis The primary data will be derived from the author's direct observations of the case project, while secondary data will be collected from company reports and scholarly articles to establish a solid scientific and theoretical foundation for the paper.
According to Andersen (2006), research methods can be categorized into three types: quantitative, qualitative, or a combination of both The primary distinction lies in the use of numbers, with quantitative research focusing on factual relationships between data sets, while qualitative research explores non-numerical information such as films, photographs, and objects The aim of qualitative data is to provide insights rather than statistical analysis Common qualitative research methods include interviews and observations, whereas quantitative research typically employs surveys.
This study employs a qualitative research method, focusing on in-depth investigations of various case studies while building on prior research It involves interviews with representatives and experts from the case company to gain deeper insights into the subject matter.
In research, information is categorized into two types: primary and secondary data Primary data is collected directly through methods such as interviews and observations, while secondary data consists of pre-existing information relevant to the research area.
This thesis utilizes both primary and secondary data, with secondary data comprising existing information sourced from the internet and scientific literature The following section will outline the specific sources and methods employed to collect the essential information for this study.
This thesis conducts an empirical study through multiple case studies focused on blockchain adoption in logistics and supply chain management, following Yin's (2003) methodology Each case will be explored using a set of open-ended questions addressing who, what, how, and why, allowing for insights based on both current and historical project contexts Understanding the definition and implications of "case study" is crucial to this analysis, as it shapes the research approach and findings in the realm of logistics and supply chain management.
Yin 2003 defines this in the following two citations:
A case study is an in-depth empirical investigation of a contemporary phenomenon within its real-life context, particularly when the distinction between the phenomenon and context is unclear This inquiry addresses complex situations where numerous variables exist compared to available data points, relying on multiple evidence sources that must converge through triangulation Additionally, it benefits from the prior formulation of theoretical propositions that guide both data collection and analysis (Yin, 2003).
This article aims to explore the application of blockchain technology in logistics and supply chain management through various case studies, highlighting the strategies and actions implemented in these projects (Yin 2003 p 41).
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
Background Knowledge
2.1.1 History of Logistics and Supply Chain Management
International trade encompasses a complex array of processes and facilities, evolving far beyond the straightforward exchange of goods and services seen in earlier times Initially, trade involved direct transactions between individuals, often culminating in the exchange of goods for money However, as global trade developed, it became influenced by varying resources, advantages, and technologies across different countries and regions, leading to a system where direct interaction is no longer a necessity.
The evolution of trade has led to the emergence of key concepts such as logistics and supply chain management, which have been integral to commerce since its inception Despite their long-standing application, many people still struggle to grasp the precise definitions and functions of logistics and supply chain management, as they are complex components of the trading process and not easily identifiable actions.
In general, logistics is a chain of actions from taking the product at the production point to delivering it to customers.
Logistics involves delivering the correct product to the appropriate customer in the right quantity, condition, location, and time, all while managing costs effectively This concept, often referred to as the "7 Rs," emphasizes the importance of precision and efficiency in supply chain management.
Logistics encompasses a wide range of activities, including customer service, purchasing, production planning, warehousing, and transportation Historically, these functions were handled separately, leading to cumbersome and inconsistent management The emergence of the logistics concept has streamlined these processes under a single department, significantly reducing trading costs By focusing on the efficiency and effectiveness of daily operations, logistics optimizes the use of production resources.
The supply chain encompasses the entire network of organizations involved in the process, starting from the input phase and extending to the final delivery of products or services to the market According to Michael Hugos, this interconnected system plays a crucial role in ensuring efficiency and effectiveness throughout the supply chain.
In 2003, Supply Chain Management (SCM) was defined as encompassing all activities related to logistics, marketing, product development, and finance In contrast, logistics was viewed more narrowly, focusing solely on procurement, distribution, maintenance, and inventory management, often referred to as "traditional logistics."
The key distinction between new logistics and traditional logistics lies in the integration of third-party (3PL) and fourth-party logistics (4PL) providers While traditional logistics confines activities within a company's boundaries, new logistics expands this scope by leveraging external logistics services This approach helps manufacturers and producers reduce costs and optimize the use of trade facilities like ports, ships, and warehouses, ultimately facilitating the efficient delivery of products to customers Thus, the concept of new logistics has emerged to enhance supply chain efficiency.
Logistics and supply chain management are often confused due to their overlapping definitions, but they are distinct concepts that require different management approaches While logistics focuses on the movement and storage of goods, supply chain management encompasses the broader network of suppliers, manufacturers, and distributors Both elements are essential and complement each other in ensuring efficient operations.
Logistics is an increasingly dynamic sector experiencing rapid global growth, driven by the rise in international trade Factors such as reduced barriers to trade, increased foreign investment, and advancements in technology have contributed to this expansion Customs taxes, quotas, and capital controls that once hindered the flow between national economies are diminishing, allowing for quicker and more efficient movement of services, workforce, and capital across borders.
With the rise of international trade and the diminishing of borders due to globalization, the logistics sector has gained significant importance Today, logistics stands as one of the largest and most dynamic industries worldwide Products are designed in one location, manufactured in another, and demanded elsewhere, making swift and timely delivery crucial for both service and manufacturing companies to gain a competitive edge.
The logistics sector is crucial for global product delivery, storage, packaging, and customs clearance It serves as a competitive advantage for companies striving to thrive in a fiercely competitive market By optimizing logistics, businesses can produce high-quality products at lower costs, effectively market them, and achieve new levels of success in both quality and affordability.
Logistics is essential for success in marketing, production, and international trade, particularly in advanced industrial societies where customers expect timely delivery of their purchases The significance of logistics competence becomes even more apparent during extraordinary events, highlighting that effective planning can provide a substantial competitive advantage.
The logistics sector is experiencing ongoing global advancements, leading to heightened competition To remain competitive, companies must focus on continuous improvement in areas such as cost management, human resources, activity quality, management processes, operational efficiencies, and technological innovation.
Modern supply chain management is crucial for business success, going beyond mere cost reduction and operational efficiency It strategically aligns end-to-end processes to enhance market value and provide a competitive edge By integrating supply chain management, companies can significantly improve customer service, lower operating costs, and strengthen their financial performance, making it an essential component for achieving customer satisfaction and overall business effectiveness.
To boost competitiveness and performance in logistics and supply chain management, innovative technologies are transforming global business relations These emerging technologies present strategic opportunities for organizations to gain competitive advantages across various management functions However, success hinges on selecting the appropriate technology, ensuring the availability of suitable organizational infrastructure, and fostering a supportive culture and management policies In logistics, advancements in information, communication, and automation technologies have significantly enhanced the speed and accuracy of data identification, gathering, processing, analysis, and transmission.
2.1.2 What is blockchain technology and How does it works?
Blockchain Applications in Financial Areas
Initially created for cryptocurrency applications, Bitcoin has paved the way for the most significant use of blockchain technology in the banking and finance sectors This innovative technology enables secure and private recording and transaction of various assets, including money, equities, bonds, titles, deeds, and contracts By eliminating the need for third-party entities such as governments and banks, blockchain enhances the efficiency and security of financial operations.
Bitcoin, introduced in 2008 by the anonymous Satoshi Nakamoto alongside blockchain technology, has emerged in various forms, including Bitbond, BitnPlay, BTC Jam, Codius, and DeBuNe (Tasatanattakool & Techapanupreeda, 2018) Its key innovation lies in its decentralized core technologies, setting it apart from earlier cryptographic cash (Chaum, 1983) and virtual currencies (European Central Bank, 2012) Early adopters embraced Bitcoin primarily for its decentralized nature, reflecting a desire for a system free from central authority (Raskin, 2013).
Rainer Bửhme et al (2015) highlighted several advantages of decentralization, including the prevention of power concentration that could allow an individual or organization to dominate control This approach enhances the availability and resilience of computer systems by eliminating a central point of failure Additionally, decentralization provides users with a semblance of increased privacy, as it theoretically makes it difficult for eavesdroppers to monitor transactions by targeting a single point or server.
In response to criticism of high fees from credit and debit card networks, Bitcoin presents a viable alternative that may encourage these networks to reduce their costs for merchants Early evidence supports this potential, as Overstock.com began accepting Bitcoin payments in January 2014 and reported significant revenue increases, larger average order sizes, and appealing customer demographics Following Overstock's lead, other merchants like Expedia, Newegg, Foodler, Gyft, and TigerDirect have also integrated Bitcoin support Payment processors are assisting online retailers in adapting their websites for Bitcoin transactions While user reviews are mixed, with some experiencing technical issues, merchants are particularly satisfied due to the low-cost nature of Bitcoin payment processing.
Many computer scientists and entrepreneurs are enthusiastic about Bitcoin not just for its payment capabilities, but for its potential to establish a decentralized record for various applications Marc Andreessen (2014), coauthor of the first widely-used web browser Mosaic, articulated this perspective.
Bitcoin enables a secure and reliable transfer of unique digital assets between Internet users, ensuring that the transaction is transparent and verifiable, with no possibility of disputing its legitimacy.
Despite the potential of the Bitcoin platform, its application beyond payment services remains limited Various projects, such as alternative domain name systems, virtual property rights management, secure commitment schemes, and decentralized prediction markets, have emerged However, these initiatives have not gained widespread adoption and face stiff competition from traditional systems and established firms.
Rainer Bửhme et al (2015) identified several unique risks associated with Bitcoin that set it apart from traditional payment methods and stores of value These include market risk due to exchange rate fluctuations, the shallow market problem resulting from low weekly trade volumes, counterparty risk, transaction risk, operational risk, privacy-related concerns, and legal and regulatory challenges Users holding bitcoins are particularly vulnerable to market risk, and those looking to trade large amounts often face difficulties in doing so quickly without impacting the market price.
The centralization of the Bitcoin ecosystem has significantly increased counterparty risk, as many exchanges function like banks Users frequently convert their currency to Bitcoin and store it on these exchanges, which raises concerns about security and trust Notably, a study by Moore and Christin found that 45 percent of Bitcoin exchanges exhibit vulnerabilities that could jeopardize user funds.
In 2013, many cryptocurrency exchanges ceased operations, with high-volume exchanges often closing due to security breaches, while low-volume exchanges frequently vanished without notice Alarmingly, 46 percent of these closed exchanges failed to reimburse their customers To mitigate risks, users are advised to avoid keeping bitcoins on exchanges and instead utilize digital wallet services; however, these wallets have also become prime targets for cybercriminals A notable incident involved the theft of 4,100 bitcoins, valued at $1.2 million at the time, from the Bitcoin wallet service inputs.io, which ultimately led to the company's downfall.
($1 million) taken from Bitcoin payment processor BIPS the next month following denial-of-service attacks (Southurst 2013).
The irreversibility of Bitcoin payments increases transaction risk, as there is no built-in mechanism to reverse transactions in cases of error or fraud While buyers and sellers can mutually agree to rectify mistakes, the Bitcoin protocol lacks the ability to forcibly reclaim funds This characteristic places Bitcoin at a disadvantage compared to other payment methods, as consumers are likely to prefer systems that allow for the reversal of unwanted or erroneous charges.
Transaction risk in Bitcoin arises during payment receipt, as transactions are not finalized until confirmed on the blockchain, which occurs approximately every ten minutes This delay introduces risks, including the possibility of the blockchain being overridden by a majority of participants, potentially voiding recorded transactions Additionally, malicious actors may attempt to double-spend bitcoins through rapid transactions before the blockchain is updated While the Bitcoin protocol has implemented measures to reduce these risks, research indicates that vulnerabilities can still be exploited when Bitcoin is used for faster payments than originally designed.
Blacklisting tainted Bitcoins, particularly those acquired through theft, introduces a separate transaction risk within the Bitcoin community Proposals suggest that a group of arbiters publicly announce these ill-gotten bitcoins, similar to listing serial numbers of stolen currency, urging users to reject payments linked to the blacklist However, this practice is contentious as it could lead to the rejection of already completed transactions, unfairly transferring losses to those who unknowingly accepted such bitcoins Additionally, blacklists complicate the transaction process and pose a risk of misuse by those overseeing them Furthermore, their widespread implementation could threaten the fungibility of bitcoins, as the public blockchain allows for tracing each bitcoin's transaction history, potentially leading market participants to assign varying values based on the risk of future blacklisting.
Operational risk in Bitcoin refers to any actions that threaten its technical infrastructure and security, including user errors, security vulnerabilities, and malware targeting wallet credentials Additionally, the Bitcoin platform is susceptible to risks arising from potential flaws in its protocol design or advancements in cryptanalysis A significant concern is the "51 percent attack," where a group controlling over half of the computational power could take over the system, leading to potential chaos and a loss of trust within the Bitcoin community Moreover, denial-of-service attacks pose a substantial operational risk, especially for users accessing Bitcoin through intermediaries.
Denial-of-service attacks inundate target firms with excessive messages and requests, rendering them slow or unusable These attacks can be motivated by various factors, such as disrupting a mining pool's operations to give other miners an advantage Such incidents can erode trust in cryptocurrency exchanges and Bitcoin, potentially allowing attackers to purchase Bitcoin at reduced prices Additionally, attackers may extort service providers, threatening further attacks that could compromise the service's functionality and customer confidence.
Blockchain in non-financial areas
Smart Contracts, invented by Nick Szabo in 1994, revolutionized the execution of contracts by automating agreements between parties Although initially underutilized, their significance surged with the advent of cryptocurrencies and programmable payments Today, Smart Contracts operate seamlessly with Blockchain technology to facilitate automatic payments when specific contractual conditions are met, establishing them as a pivotal application in the cryptocurrency landscape.
Smart Contracts, as defined by Crosby et al (2016), are self-executing contracts enforced by computer protocols, significantly streamlined by blockchain technology for registration, verification, and execution Open-source platforms like Ethereum and Codius are pioneering the use of Smart Contracts, with numerous companies in the bitcoin and blockchain sectors beginning to adopt this technology Smart Contracts can replace traditional methods where asset transfers depend on specific conditions, which typically require legal contracts and escrow services Escrow, explained by Banton (2020), is a financial arrangement where a third party holds assets or funds on behalf of two parties involved in a transaction, ensuring that disbursement occurs only when agreed-upon conditions are met.
Ethereum has generated significant excitement due to its programmable platform, enabling users to create their own cryptocurrencies and execute Smart Contracts Its native cryptocurrency, ether, is utilized for transaction fees and services on the platform Currently, Ethereum supports various applications across diverse sectors, including governance, autonomous banking, keyless access, crowdfunding, and financial derivatives trading, all facilitated through Smart Contracts.
According to Vujicic, Jagodic, and Randic (2018), the Ethereum blockchain differs from the Bitcoin blockchain primarily in its structure, as Ethereum blocks include not only basic elements like block number, difficulty, and nonce, but also a comprehensive transaction list and the latest state Each transaction in this list generates a new state by modifying the previous one Additionally, the Ethereum block header features the Keccak 256-bit hash of the parent block’s header, the address for the mining fee recipient, and hashes of the roots of state, transaction, and receipts tries It also includes the difficulty, current gas limit, total gas used for transactions, timestamp, nonce, and various extra hashes for verification, as noted by Wood (2018).
One major issue with Bitcoin's network is its reliance on ASIC mining, while Ethereum employs the memory-intensive Ethash proof-of-work algorithm, making it less compatible with ASIC miners According to Buterin (2013), Ethash is a modified version of the Dagger-Hashimoto algorithm Each node in the Ethereum network operates under the Ethereum Virtual Machine (EVM), executing instructions and processing smart contracts that are converted into EVM code Solidity is one of the most widely used programming languages for developing these smart contracts.
Despite concerns regarding Ethereum's scalability, the network achieved over one million unique transactions within a 24-hour period, averaging approximately 11 transactions per second (Filiba, 2017) The upcoming "Serenity" prototype, which utilizes the Casper consensus algorithm, aims to facilitate a shift to a proof-of-stake mining model In this new paradigm, miners will receive rewards based on their coin holdings rather than computational power, meaning that users with larger coin balances will gain greater rewards.
In 2013, Vitalik Buterin outlined various potential applications of Ethereum, including token systems, financial derivatives, identity and reputation systems, file storage, insurance, cloud computing, and prediction markets Among these, decentralized applications (Dapps) stand out as the most significant use case Notable examples of Dapps include Golem for supercomputing, Augur for prediction markets, Civic for identity verification, OmiseGO for public blockchain exchanges, and Storj for hard drive space rental Many of these projects successfully raised funds through Initial Coin Offerings (ICOs) to establish their presence in the cryptocurrency market.
Figure 2.5: Buying a house on Ethereum
Smart Contracts face significant security challenges, with approximately 34,200 Ethereum smart contracts valued at $4.4 million in ether being susceptible to hacking This vulnerability primarily stems from poor coding practices that introduce bugs.
That is the alarming conclusion five researchers from the U.K and Singapore posited in their report entitled “Finding The Greedy, Prodigal, and Suicidal Contracts at Scale."
The authors of the paper identified three primary categories of smart contracts that are particularly vulnerable to hacking: greedy contracts, which lock funds indefinitely; prodigal contracts, which allow funds to leak to arbitrary users; and suicidal contracts, which pose significant risks.
Smart contracts operate on a decentralized blockchain network, offering ease of use and cost efficiency However, despite their advantages, they remain susceptible to cyberattacks, raising concerns about their security.
“Finding The Greedy, Prodigal, and Suicidal Contracts at Scale" analyzed
970,898 smart contracts and discovered that 34,200 of them are easy targets for hacking That means about 1 in 20 smart contracts are at risk.
Intellectual property (IP) encompasses the protection of commercially valuable ideas and information According to Cornish et al (2013), there are three main types of IP: patents for inventions, copyrights for literary and artistic works, and trademarks for marketing symbols This article emphasizes copyright, which safeguards against the unauthorized copying of cultural, informational, and entertainment productions created by authors, artists, and filmmakers Copyright is automatically granted to literary and artistic works once they are written or recorded, protecting the specific expression of a work rather than the underlying idea.
Digital technology poses a significant challenge to copyright, as it has simplified unauthorized access and distribution of copyrighted works This ease of digitization has transformed how copyrighted material is shared and consumed, raising important concerns for creators and copyright holders alike.
Scholars suggest that the current understanding of intellectual property (IP) may not endure in today's digital age, with many arguing that IP primarily serves to prevent activities like piracy rather than promote positive entitlements Despite legal actions, efforts to combat issues such as peer-to-peer file sharing have seen limited success, as these platforms remain challenging to dismantle The rapid evolution of digital technology has strained copyright laws, creating a significant disconnect between legal frameworks and actual user practices Additionally, the processes surrounding royalty payments are often slow, inefficient, and lack transparency, making it difficult to determine whether labels, publishers, or collection societies are managing payments effectively.
Distributed ledger technologies (DLTs), including blockchain, are proposed as potential solutions to address issues caused by malicious users A distributed ledger functions as a decentralized database designed to enhance security and trust Specifically, blockchain is a type of distributed ledger that consists of a series of cryptographically linked blocks, each containing grouped transactions.
Blockchain technology offers three key benefits for creating a distributed intellectual property (IP) database: it ensures authenticity by binding metadata to data files like songs and films, records provenance by tracking usage and ownership, and enables faster royalty payments through direct-to-fan models that eliminate intermediaries These advantages have attracted numerous start-ups, funded by traditional venture capital or token sales (ICOs), which allow public participation in early-stage projects Unlike crowdfunding platforms like Kickstarter, token sales enable rapid fundraising, often generating millions in seconds, even for companies without a product However, it's crucial to note that the value of tokens can vary significantly, with only a small fraction providing fractional ownership in the underlying organization.
In their paper “A Critical Examination of the Application of Blockchain Technology to Intellectual Property Management”, Ito, K., & O’Dair, M.
(2018) had proposed potential problems of using blockchain technology for IP management from an operational perspective They are Authenticity Problem, Provenance Problem, Royalty Stability Problem, and Tentative Solutions.
Blockchain in Logistics and Supply Chain Management
2.4.1 Potential blockchain applications in the logistics and supply chain industry
Blockchain technology holds significant promise for enhancing logistics and supply chain management (SCM) processes Despite its potential, a recent study indicates that awareness of blockchain among logistics professionals is limited, with even fewer actively pursuing implementation strategies (Kersten et al 2017).
This section explores potential blockchain applications in logistics through the lens of Rogers' (1962) diffusion of innovation theory, highlighting key attributes such as relative advantage, compatibility, complexity, trialability, and observability.
Blockchain technology offers significant advantages in logistics through its core features of immutability, transparency, and decentralization Research by Kim and Laskowski (2018) and Crosby et al (2016) emphasizes the importance of accessible data, as information is securely stored across multiple computers, creating a synchronized and duplicated ledger This ensures that digital bills of lading remain unaltered, as the original data is always visible, preventing any secret modifications (Morley 2017).
Digital bills of lading can streamline processes and lower costs by minimizing the paperwork traditionally involved in business practices (Hackius and Petersen, 2017).
Moreover, the ability to trace the origins of goods or to gain more knowledge about them in the current logistics system is rather limited (Yang,
The blockchain technology offers a secure platform for stakeholders to share and exchange information about their goods By enabling transparency and verifying that products come from safe and sustainable sources, businesses can enhance customer loyalty and ultimately boost profitability.
The growing awareness of the environmental impact of freight has led logistics providers to offer sustainable options However, the complexity of subcontractors in transport processes complicates the verification of eco-friendly standards By utilizing blockchain technology, customers can trace goods back to their initial transport node, gaining insight into the transport route and carrier selection Additionally, smart contracts can significantly lower transaction costs by leveraging blockchain's recording and auditing capabilities, along with the potential for automatic payment execution.
Three key blockchain innovations offer significant advantages for global supply chains: verifying goods, minimizing paperwork, and enabling end-to-end tracking These supply chains often involve valuable goods and complex documentation, such as letters of credit and bills of lading, which are susceptible to forgery, theft, and alteration By implementing blockchain solutions, the risk of manipulation is greatly diminished, as information recorded on the blockchain remains immutable.
Adopting blockchain technology can significantly streamline the management of cumbersome administrative paperwork, reducing the time-consuming processes and potential human errors associated with consignment validation and control Currently, companies track shipments through their internal systems, but this often only provides limited information, such as timestamps when a package enters the logistics provider's system (Shermin, 2017) By registering packages on the blockchain, businesses can enhance visibility throughout the supply chain, gaining more accurate and comprehensive information regarding delivery times.
The literature highlights the complexity surrounding the understanding of blockchain technology, which is still viewed as relatively immature, leading to varied definitions and subsequent misunderstandings (Kshetri, 2018) This complexity arises because "everyone has their own definition of it, and it is a very abstract concept" (Di Gregorio, 2017), resulting in a lack of common understanding Consequently, organizations may create their own blockchain systems that are not designed for interoperability In logistics, for instance, this could result in the development of transport tracking platforms tailored to the needs of only a limited number of stakeholders.
Recent literature indicates that companies are increasingly testing blockchain solutions, with numerous proofs of concept being developed to highlight the technology's value However, the immaturity and limited scalability of blockchain make it challenging to evaluate empirical results, necessitating further research and practical applications before drawing definitive conclusions Despite this, IT vendors are already estimating cost savings from reduced labor and documentation expenses based on these proofs of concept Di Gregorio and Nustad suggest that potential savings from blockchain can be easily hypothesized and quantified by comparing them to existing business process costs, particularly through automation and efficiency improvements.
Table 2.1 Potential blockchain applications in the logistics industry
- Exclusion of a centralized governmental institution
- Open access to information concerning the activities within the supply chain
- Provides actors with the choice of buying sustainable products and transport
- Customers gain the ability to evaluate the product or supplier before making a decision Compatibility - Provides customers with the information they want concerning product origins and the freight route
- Reduces risk in regard to fraud or counterfeit goods
- Easier to execute transactions by using hashes instead of physical documents
- Use IoT for vehicle to vehicle communication
- Enables monitoring, tracking and tracing transports
- Better tracking, tracing and recycling of the product lifecycle Complexity - Ease paperwork processing
- Effective usage of QR-codes, RFID, NFC-tags, WiFi, or iBeacons
- A network working on a platform in purpose of exchanging intangible and tangible resources
- Make load boards more reliable
- Multiple active platforms to just access both private and public Trialability - The extent of participation and information sharing is determined and regulated by the user
- Active participation is not compulsory Observability - Effective tracking of fleet and vehicle performance history
- Operate the internet of things
- Simplifies exchange of goods and payment systems
- Gradual increase of blockchain start-ups, and active platforms 2.4.2 Transformation phases of blockchain applications in logistics
Iansiti and Lakhani suggest that the implementation of blockchain applications will unfold through various transformation stages, necessitating varying degrees of collaboration and consensus, alongside legislative and regulatory initiatives.
Moreover, organizational processes, capabilities, and infrastructure have to be established in order to facilitate the implementation of these blockchain applications.
Determining the ideal blockchain application to begin with is crucial for businesses The framework developed by Iansiti and Lakhani aids in categorizing various usage scenarios based on their novelty and coordination efforts This approach enables managers to pinpoint appropriate business opportunities and effective starting points for implementation.
Table 2.2 Transformation phases of blockchain applications in logistics.
Single-use - Enables monitoring, tracking and tracing in-house transports
- Effective tracking of fleet and vehicle performance history
- Gradual increase of blockchain start-ups, and active platforms Localization - Ease paperwork processing
- The extent of participation and information sharing is determined and regulated by the user
- Active participation is not compulsory
- Provides actors with the choice of buying sustainable products and transport
- Customers gain the ability to evaluate the product or supplier before making a decision
Substitution - Provides customers with the information they want concerning product origins and the freight route
- Make load boards more reliable
- Reduces risk in regard to fraud or counterfeit goods
- Easier to execute transactions by using hashes instead of physical documents
- Open access to information concerning the activities within the supply chain
- Effective usage of QR-codes, RFID, NFC-tags, WiFi, or iBeacons
- Better tracking, tracing and recycling of the product lifecycle
- Use IoT for vehicle to vehicle communication Transformation - Operate the internet of things
- Simplifies exchange of goods and payment systems
- Exclusion of a centralized governmental institution
- A network working on a platform in purpose of exchanging intangible and tangible resources
- Multiple active platforms to just access both private and public
Logistics companies should begin their blockchain journey by focusing on single-use cases, which reduce risk and require minimal coordination with third parties Developing proof of concept or prototypes for these cases enables organizations to build essential skills for more complex applications Another effective strategy is to utilize blockchain internally as a database for managing physical and digital assets, recording transactions, and verifying identities, allowing stakeholders to learn the intricacies of blockchain in a controlled setting This approach can also help companies streamline multiple internal databases and offer a platform for small-scale testing before broader implementation It is crucial to involve all relevant stakeholders during the pilot phase to foster a collective shift from internal success to multi-party onboarding and network-wide testing, paving the way for localization.
Localized applications are essential for logistics companies to address specific cross-border transaction challenges A prime example is the international container transport sector, where shipments from East Africa to Europe necessitate approvals and stamps from approximately 30 individuals, involving over 200 interactions This complex paperwork process not only heightens the risk of fraud related to bills of lading but also incurs significant costs, estimated to account for 15% of the overall logistics expenses.
Blockchain technology has the potential to address inefficiencies in the logistics sector, which currently incurs 50% of costs related to physical transport A notable initiative by IBM and Maersk has led to the development of a blockchain solution that connects shippers, carriers, ports, and customs authorities globally The initial outcomes of this platform, which securely stores all relevant documents and approvals on the blockchain while providing partners with complete visibility of container statuses, indicate promising success (Allison, 2017).
Conclusion
Blockchain technology is a revolutionary innovation within the 4.0 industry, poised to transform future business practices across various sectors Its diverse applications highlight its potential to reshape how transactions and operations are conducted, making it a pivotal development in modern commerce.
Recent studies highlight the adoption of blockchain technology across various sectors, addressing real-world challenges such as transparency, miscommunication, and mismanagement While this paper reviews only a limited selection of literature, it is evident that the benefits of blockchain, including enhanced transparency, traceability, and cost reduction, generally outweigh its implementation challenges In particular, research indicates significant potential for blockchain in logistics and supply chain management, demonstrating its transformative capabilities for widespread use.
The literature reviewed highlights the significant potential of blockchain technology across various sectors; however, adopters face unique challenges that hinder the commercialization of this innovation In the logistics and supply chain management industry, several firms are experimenting with blockchain integration, yet further research is essential to understand the current state of adoption This knowledge will serve as a valuable lesson for future adopters and prepare businesses in this sector for a time when blockchain could revolutionize operations and investment strategies.
This paper aims to enhance the understanding of blockchain applications in logistics and supply chain management by analyzing real-world cases of blockchain adoption It offers valuable recommendations for future adopters based on a comprehensive literature review and established theoretical frameworks.