Blockchain as a method to enhancing value
Abstract: The trend for increasing speed of
transactions and creating greater transparency is driving disintermediation and
could be a long-term risk to Arrow as a value added distributor. However, Arrow
is in a unique situation as a key player in the technology supply chain. In addition, vendors require greater assurance
that Arrow transactions are aligned with contractual obligations, which
increases the cost of doing business.
Emergence
of a New Transactional Paradigm
As suppliers look for opportunities to enhance
value directly with customers (“DTAM to TAM” or “disintermediation”), a
significant opportunity exists on how supply chains operate. An emerging concept that is gaining
popularity in further accelerating disintermediation is blockchain that
improves efficiency, provides greater transparency, provides complete assurance
of transaction validity.
According to
a recent article by PwC, “blockchain may result in a radically different
competitive future … where current profit pools are disrupted and redistributed
towards owners of highly efficient
blockchain platforms. Blockchain can
guarantee the authenticity of transactions across organizations reducing the
overhead and cost of transacting business between partners.
In
fact, Blockchain is gaining momentum with backing from respected companies and
industry groups. One such example comes
from the Wall Street Journal:
Guided by the Linux
Foundation—the non-profit that oversees the Linux operating system, the
software that serves as the foundation of the modern Internet—a new
blockchain-like effort has developed the Hyperledger Project. Hyperledger’s stated objective is “a
collaborative effort created to advance blockchain technology by identifying
and addressing important features for a cross-industry open standard for
distributed ledgers that can transform the way business transactions are
conducted globally.” The Project
includes as its members big tech names including IBM, Intel, and Cisco as well
as financial outfits such as JP Morgan, Wells Fargo, the London Stock Exchange,
and the DTCC.
Finally, the Wall Street Journal
recently reported that IBM is developing a blockchain service that enables
companies track items through the supply chain.[1]
What is Blockchain?
Blockchain is a distributed ledger that
provides a way for information to be recorded and shared by a community. Each member maintains its own copy of the
information and all members must validate any updates collectively. It has the
potential to reduce the cost and complexity of getting things done. The information could represent transactions,
contracts, assets, or identities.[2]
Blockchain is the digital equivalent of
public ledgers that were once used in towns to record important events and
transactions.
Blockchain enables value to be transferred
securely through a distributed network.
Users of the network create transactions which are loosely passed around
a network. The definition of what constitutes
a valid transaction is based on the system implementing the block chain. The block chain is encrypted to record recent valid transactions
into "blocks". Each block
includes the prior timestamp, forming a chain of blocks, with each additional
timestamp reinforcing the ones before it.
Each blockchain record is enforced through encryption and hosted on
machines working together to check the validity of each transaction.
In order to ensure the integrity of the
transaction, each block in the blockchain builds on the blocks that preceded
it. Any alteration of the blockchain by
one party is rejected and invalidated by the other members of the network.
How is
Blockchain different?
The
current transaction paradigms require a central authority (e.g. middle man) to
enable the transmission and validation of transactions. Each entity has its own independent ledger
that records its own transactions. Each
party involved in the transaction relies on the central authority as the
transactional facilitator.
While blockchain is seen by some to further
propel the elimination of third party intermediaries, a need by many
organization will remain to protect market share and proprietary
information. In these instances a
semi-private blockchain could be used by a consortium of companies or a “market
facilitator.”
Blockchain
Use Cases
Blockchain has the flexibility to encode any
data that requires validation. For example, a smart contract is an
implementation of blockchain where logic can be included in the blockchain that
automatically executes transactions based upon pre-set critieria. The contract is both tamper-proof and
self-executing without the need for trusted third parties. Given that
transactions are recorded in the distributed ledger in real time, GRNI and
other accounting that is currently required because of timing issues could be
greatly reduced.
Other
use cases where blockchain could increase transactional efficiency could
include the following:
·
Refunds
·
Warranty claims
·
Returns
·
Payment / wire instructions
·
Software licensing
[1]
http://www.wsj.com/articles/ibm-pushes-blockchain-into-the-supply-chain-1468528824,
accessed July 18, 2016
[2]
“Blockchain: Democratized trust,” Tech Trends 2016, Deloitte University Press,
p.81
