Traceability
What is Blockchain, and How Can It Solve Problems for Electronics Manufacturers?
Solving “track and trace” problems, even in reverse.
by Quentin B. Samelson

To get a sense for how blockchain can address issues in the electronics industry, it may help to start with a story about an earlier technology. A young electrical engineer in 1980 had a job interview with an industry veteran who asked if he had ever heard of a thing called a “vacuum tube.” The young engineer admitted his semiconductor class had included a one-hour lecture demonstrating how field-effect transistors worked like vacuum tubes.

“When I was in college, they made us take a semester of tube theory because they thought it might be useful some day!” the veteran exclaimed. His outburst highlighted a common theme in emerging technology. More than 50 years later, it was easy for the next generation of engineers to see the number of new products enabled by vacuum tubes, even though by that time solid-state devices had already largely replaced them. But during the 1920s, when vacuum tubes represented the latest innovation in technology, it was difficult to see they would lead to radar, FM stereo, television, and rock concerts. In the same way, it’s doubtful the creators of the internet anticipated using it to watch videos, hail rides, or monitor a newborn baby in the crib. Even those of us lucky enough to apply the latest advancements in technology are unlikely to foresee all the ways new technology will be applied.

Figure 1. Each block’s hash code is based on key transaction details, including the date and time stamp and the hash code from the previous transaction.
Figure 1. Each block’s hash code is based on key transaction details, including the date and time stamp and the hash code from the previous transaction.

Many believe blockchain will have a similar impact, although – since it addresses a somewhat more specific problem set than, say, the internet or semiconductors – it may be a little easier to identify its future applications. But, like all major advances, it has already begun to be used in areas no one could have predicted just half a decade ago. Electronics companies are already using blockchain to solve a variety of problems. In some cases, blockchain provides a far more elegant solution than previous methods. In other cases, blockchain presents the only practical way to solve a particular problem.

So, what is blockchain?

Blockchain is a “shared, secure ledger that creates a permanent record of transactions.” That’s a lot to unpack, so it’s helpful to parse it out piece by piece.

First, blockchain uses a ledger. A ledger is simply a record of transactions, generally with a set of rules for how those transactions are recorded. A “shared, secure ledger” is, therefore, a record of transactions that is shared between at least two different parties, but is secure from unauthorized access and tampering. Almost all of us have experience with “shared, secure ledgers”; our bank accounts and credit card records are ledgers that are shared between us and those parties with whom we have decided to do business, but not with other parties.

Blockchain adds a critical additional feature: a truly permanent record of the transactions entered onto the ledger. Usually called blockchain “immutability,” this feature is important because it ensures all parties that have access to a particular record can view the transactions that led up to it, including mistakes and corrections when those occur. That is often a necessary precondition for ensuring trust between two or more parties (consider the difference between being told something will cost $5,000, and receiving an itemized breakdown of why it will cost $5,000).

Blockchain gets its name from the “blocks” of data that are chained together in a unique way.1 The chain is constructed using one-way hash codes, complex alphanumeric codes constructed from the data in the previous block (FIGURE 1). Each new block includes the hash code from the previous block. It’s easy to verify the hash codes, but almost impossible to deconstruct them, and it’s easy to determine if a hash code is missing (i.e., if there is a break in the chain). So, the blockchain is essentially “immutable”; it cannot be changed after the fact.

Using Blockchain

Blockchain is extremely helpful at simplifying complex, multi-party, “high-friction” processes. Generally, blockchain is a superior technology when:

  • the process involves an exchange of assets of some kind (often a product of some sort, but occasionally also information);
  • the process involves more than one party (usually, this means more than one company, but some companies have different legal entities or business units that operate so independently, they function as separate parties);
  • the process involves a number of manual, time-consuming steps (often due to a need for verification, to capture different information at different steps of the process, or due to potentially differing viewpoints or standards, missing information, etc.).

Another way to understand how blockchain improves processes is to look at how information is exchanged between parties in a multi-party process (FIGURE 2). Those processes almost always rely on multiple, coordinated, two-way exchanges of information, where it’s easy for discrepancies to creep into those exchanges, requiring audits, rework, and extra labor. With blockchain, however, all parties participate in the same transaction. Different parties may have different permissions, so Party D, for instance, can’t view data that are proprietary to parties A and B.

Figure 2. Before and after: On the left, a traditional multiparty process consists of multiple two-way exchanges; on the right, the blockchain process permits all parties to access (portions of) the same transaction data.
Figure 2. Before and after: On the left, a traditional multiparty process consists of multiple two-way exchanges; on the right, the blockchain process permits all parties to access (portions of) the same transaction data.

Problems ideal for blockchain generally have another characteristic as well, one that should be obvious but often isn’t: At least one party has to have a good idea of what the current dysfunctional process is costing them.

Let me use an example. Blockchain particularly excels at “track and trace” applications – processes that manage and verify the provenance of parts. Some companies may find they invest a great deal of time, resources and money verifying the source of components they use to build products, especially if those products are built by an outside assembler. Other companies may find their expenses are in the reverse supply chain – verifying the products coming back to them under warranty are, in fact, the original products they sold.2

Blockchain-based provenance applications have been developed and broadly implemented in a number of industries where being able to verify the precise source of supplied items is crucial, especially in the food processing industry. In electronics, we are beginning to see it in the reverse supply chain.

Electronics firms may also find blockchain is the best technology to use to enable a buy/sell process with component suppliers and EMS providers. Manufacturing operations may discover blockchain to be the most effective way to issue Kanban, or pull signals, to remote suppliers. And electronics companies that focus on installing equipment at customer sites (such as network hubs, data centers, weather monitoring installations, etc.), and therefore frequently must find reliable external contractors, can use a blockchain-based “trusted supplier” application.

The key to all these applications is the companies involved were able to recognize their current multiparty processes were time-consuming, resource-intense, and therefore costly. By enabling all parties to participate in the same transaction, blockchain offered a way to automate those processes in a way that would simplify them tremendously. More on that next month.

Endnotes
  1. Want to explore the key concepts behind blockchain in more detail? IBM offers a free downloadable book called Blockchain for Dummies, available at ibm.com/blockchain/what-is-blockchain (with other resources). You can also find a host of videos online that explain the basics of the technology or particular applications.
  2. Additional information on supply chain applications for blockchain, including a Forrester research study, is available at ibm.com/blockchain/industries/supply-chain.
Quentin B. Samelson is senior managing consultant, Electronics Center of Competence and Member of the IBM Industry Academy at IBM (ibm.com); qbsamels@us.ibm.com.