Why the auto industry should embrace Blockchain

(c)iStock/skodonnell

Technical innovations happen constantly in small and big ways across our modern society, but relatively few breakthroughs ever have far-reaching impact.

Consider Wi-Fi and the smartphone, to name a couple. Increasingly, savvy observers are adding blockchain technology to the list of creations that could transform our universe. 

Decidedly a hot topic today, blockchain is the protocol behind bitcoin digital currency, but it was around as a concept for years prior to enabling bitcoin in 2009.  Blockchain, which involves cryptography, digital transactions, databases and other elements, is a ledger of distributed records in batches called blocks that are securely linked together virtually. 

Each valid block is made of time-stamped transactions and linked to a previous block, with the whole forming a chain. Blockchain architecture allows a distributed network of computers to reach consensus without the need for a central authority or middleman.

There are thousands of entrepreneurs and investors betting on blockchain technology to reimagine transactions of all types, and not surprisingly, the financial sector is aggressively in pursuit.

Some are saying blockchain will someday revolutionize Wall Street, insurance, online content distribution, gaming platforms, messaging services such as Twitter, voting, and intellectual property. In other words, practically anything we do online.

While blockchain is currently in an embryonic stage, an industry that should step forward to take advantage of its many benefits is the automotive sector.

Why the auto industry?

The auto industry is not known for gambling on untested technology, nevertheless for blockchain, automotive players should consider the gamble and the benefits their businesses. The innovators in the vehicle space need to look no further than at what blockchain protocols can mean to another mammoth industry, financial services.

Consider that a central clearinghouse maintains its own central ledger and verifies all financial trades, at times taking days to settle a single transaction. Now imagine that transaction using blockchain, eliminating the clearinghouse and giving each financial institution its own copy of the ledger that happens automatically.

The result is transactions approved in seconds or minutes with increased efficiency, greater security and reduced costs. 

These benefits can be reaped in many other functions and industries. A place where blockchain could have an enormous impact in the automotive world is in the supply chain, the bedrock of a complex manufacturing enterprise like producing vehicles with thousands of parts.

Counterfeit parts aren't being discussed openly today, but this is the biggest nightmare with the autonomous car on the horizon.

The automotive supply chain is an obvious place to start investigating blockchain

While auto OEMs might maintain a secure connection with their suppliers, the rest of the process - components delivered from place to place - assumes too much. If no obvious physical tampering is noticed or the truck delivering the parts hasn't been stolen or the train delayed, OEMs assume their supply chain is to be trusted.

Meanwhile, dangers are lurking. Imagine what could happen if counterfeit parts failed to perform like the specified parts, causing breakdowns or accidents in autonomous cars.

OEMs currently must take a leap of faith and trust that parts from, say, Bosch, are what they say they are. Less catastrophic but significant is having a more immediate method that addresses supply and demand in real time in the whole ecosystem.

Each part receives its own unique identity as part of the supply chain.

A trusted protocol

Blockchain technology can create a trust protocol that really can be trusted. Today’s product ID can still serve as a basis for the supply chain while maintaining authenticity in a way that everyone can trust. How it works is that a unique token or ID is created for each part or action that is then communicated to the distributed secure database open to OEMs and their supply chain partners.  Enterprise blockchains ensure that within the supply chain, everyone knows what parts were created, how many, who built them, as well as other key data.

This establishes a system of checks and balance for the entire supply chain community, with cloud servers validating and recording everything. The digital public ledger of transactions provides transparency and trust with an open foundation that partners can build upon.

The ideal deployment for blockchain within an OEM environment is to establish an enterprise blockchain architecture that is then implemented by suppliers, which can expand if new suppliers are added to the chain.

Each part with its robust digital identity is visible in this tracking system. The OEM and suppliers have encrypted records within the ledger, which makes it easy to identify an incorrect or fraudulent part.  No other approach creates such an open, all-in-one system that establishes trust and identity without intervention.

The automotive supply chain is an obvious place to start investigating blockchain, but it is not the only area where the technology can deliver improvements and mitigate problems. 

The Internet of Things (IoT) is already finding its way into the auto industry and the adoption will only increase. IoT needs a full-proof method for confirmed identity and blockchain could be the solution.

As if these advantages weren't enough, the ultimate motivator for auto OEMs to consider blockchain technology should be the issue of human safety, a top-of-mind topic for auto executives and their legal and communications teams. 

An investment in new technology that improves products and saves lives is easily justified.

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BillabobJohnson
31 Jan 2017, 7:46 p.m.

Makes sense to focus on the digital financial transactions first - then move over to a physical process like auto parts. How much security is needed and at what cost. Once block chain is commoditized I can see it being used to displace UPC codes - but for the same reason not everything has an RFID tag (cost), the changes to process and backend compute for block chain adoption seem a bit premature. Certainly no issue in understanding the costs and planning for adoption.

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