The silent revolution that will outshine 3D-printing and IOT. By Igor Pejic

Manufacturing and industry underpin most of the global economy. They have done so for millennia. Enhancing the process of how things are produced often sent waves of unprecedented social and economic change rolling around the world, whether it was the steam engine or the conveyor belt. Such innovation put economies on the path of exponential growth, yet their significance became known to the broader public only years and decades after they made their first appearances on factory floors. This time, the revolution will spill over from another mega-industry in which backend systems are just as far from the public spotlight and where technological breakthroughs have similar transformative effects on the world: finance. Of course, the innovation I am talking about is the blockchain.

Blockchain was presented to the world a decade ago by a pseudonymous author (or authors) by the name of Satoshi Nakamoto as the mechanism that enabled bitcoin and cryptocurrencies more generally. This mechanism was a cryptographically secure way to keep track of changes of ownership, meaning that you could record all sorts of transactions and know exactly who still owns what. While banks can do the same thing, they require a complex web of intermediaries and trusted third parties, which often results in mind-boggling costs and processing times. On the blockchain, this process is done algorithmically. Ledgers are automatically updated by the participants of the network, and instead of each network participant having their own ledger, there is just one version of the truth. This one version of the truth is copied onto every participant’s system and updated with every new block of transactions. On top, the transaction record is tamper-proof and immutable. Of course no technology can guarantee 100 per cent security, but compared to the current state-of-the-art the blockchain performs better.

So how does this affect manufacturing apart from the way companies pay and are paid? The blockchain has been peeled off the crypto-currency idea, first by banks using it to power fiat currencies, then by companies and governments to safeguard the integrity of databases where multiple parties that don’t trust each other need editing rights. Manufacturing companies were among the first to realise that this immaculate record can smooth processes where they need to interact with partners or auditors. Tracking components quality, tracing asset maintenance, preventing counterfeit products, or controlling critical parts of the supply chain – application fields abound.

As of today, five per cent of all manufacturers with revenues above $5bn have some kind of blockchain deployed, says Gartner. According to their forecast, this figure will rise to 30 per cent in 2023. Of course these are mostly pilots and the real potential has been barely scratched, but such first efforts clearly indicate the most promising application paths.

Just like payments in finance, supply chain management is the best-defined use case in manufacturing. Immutable records in a distributed ledger will bring trust and transparency about the sourcing of materials, but also about the entire manufacturing process that is usually spread across multiple companies. Everledger was one of the first and best-known blockchain-startups to do so, namely by recording gemstones’ origin and authenticity. Countless other companies have followed.

Besides immutability, traceability is another great advantage offered by the blockchain. If there is a problem with a certain production batch, you can recall just the affected products without having to fret for the entire shipment. An average recall costs a manufacturer about $8m. Knowing exactly where the faulty batch items are, can bring costs down to a fraction. Food giants and retailers are already using it. Walmart, for example, tracks lettuce on the blockchain.

Blockchain can be a catalyst for other hyped trends such as the internet of things (IoT) and 3D printing. On a blockchain you can code so-called smart contracts, in which you define certain conditions that need to be met in order for automatic money transfers to happen or vice versa. If, for example, the sensors of my truck register goods being loaded, this can trigger the disbursement of money to the supplier.

The blockchain can also aid manufacturers with the protection of ownership rights, thus helping to unlock the potential of tech such as IoT and 3D printing. The ever increasing number of IoT-connected devices permanently produces exploding reams of data. As data is the oil of the 21st century how companies capture and sell it will ultimately impact their balance sheets. Social networks are already doing it with personal data, but information produced by machines will follow suite soon. Similarly, the blockchain can enable the effective commercialisation of 3D printing. Designs can be protected, copyrights saved transparently and visible to anyone. And with the aforementioned smart contracts (micro)payments can be triggered every time someone uses a protected template.

There is no exhaustive list of blockchain applications for manufacturing and chances are we have not yet identified some of the biggest bangs. After all, the history of innovation shows that it takes years, often decades until a new technology is applied to the most fitting problems. Often business conditions have to change first, before this can happen. Business cases are tricky to calculate with nascent technologies. Gartner tried to put a figure on the benefits side and reckons that the blockchain will add more than $3.1T by 2030. This bombastic claim obviously has to be taken with a grain of salt as forecasts about exponential growth are always bound to be wrong. It does however make crystal clear that blockchain will not just be making processes smoother, but radically changing them.

Igor Pejic
Igor Pejic is the author of Blockchain Babel, a book that documents how Google, Amazon, and other data giants will use the blockchain to try to break into finance. A guide using systematic research and strategic analysis to fill the void between speculation and overly complex explanation on blockchain, the book expertly tackles key myths surrounding blockchain to get down to facts. It creates a sober, actionable guide to the most disruptive technology of recent times, and shows what will happen with the institutions that have safeguarded our money for centuries.