Blockchains for Blockheads. I think I finally get it, Part II.

This post originally appeared on the DC Velocity blog. See the original post at https://blogs.dcvelocity.com/public_sector_logistics/2017/11/blockchains-for-blockheads-i-think-i-finally-get-it-part-ii.html

This is the second installment of a series on Blockchain. See last week’s post, or click here to read Part I, a primer in Blockchain.

Remember the Clipper Chip?  In the early 90’s, the NSA made a valiant attempt to insert a back door into private email communication so the government could monitor internet traffic.  The effort began in 1993, and by 1995 the effort was over.

George Santayan said, “Those who cannot remember the past are condemned to repeat it.”  Keep an eye on Blockchain.  When the government realizes what is happening, we may see something like the Clipper Chip initiative all over again.

Over the past several decades, supply chains have evolved from hierarchical organizations with top down command and control to become the continuously evolving amorphous network reaching around the world.

It’s not your grandma’s physical network.  Today, logistics networks are about horizontal cross-functional integration.  That network includes B2B as well as B2C. 

If you order a product over the internet you may just get a box that was packed in China and wholesaled by a US operation, never touched by American hands.  Or, you may get a product including subassemblies sourced from Latin America, Europe, and Asia, assembled somewhere in the United States.

But the associated transactional environment remains stuck in the past.  Blockchain is going to change that.  In fact, it’s already impacting information exchange and transactional execution in the financial world.

I’m a box kicker at heart, so I don’t do well with abstract statements.  What does Blockchain mean to me?  In simple terms, Blockchain is an evolution from a system based on information intermediaries to a system based on protocols.”

Think about a purchase where you use a credit card.  There is a buyer, a seller, and an intermediary, the credit card company.  Everything flows through the credit card company, who is in effect the channel master for the financial pieces.  They are a broker sitting in the middle, in disintermediating the buyer and the seller.

The credit card company is an information overseer providing validation of the financial transaction.  For this service – undoubtedly valuable – the credit card company takes a few percentage points off the top. 

The costs add up, fast.  Letters of credit.  Reference checks.  Escrow.  You get the picture.  If I owned a credit card company, or a bank, I’d be worried.  Blockchain is a disruptive threat to their core business.

Widen the scope, and you see this sort of similar complexity all over logistics.  In our world, we don’t simply do pairwise transactions.  We are involved in multinational trading networks that evolve over time. 

What if we apply Blockchain innovation – now proven and being widely adopted in the financial world - to logistics information exchanges in general?

We may be on the cusp of a revolution in logistics information exchange.  Does the government understand the change that’s already happening?  Is Blockchain going to trigger an attempt at new regulation, a new incarnation of the Clipper Chip?