In today’s Exponential Investor:

  • What does it do?
  • Who are the users?
  • Who is providing the technology?

When the word “blockchain” comes to mind, what’s the first thing you think of?

For many of you, the answer would probably be “cryptocurrency”.

And for good reason. After all, blockchain is the technology that underpins this new and exciting asset class.

The chances are not many of you would say “secure supply chain management” or “secure data transfer”.

In fact, the importance of blockchain is far more than its role in the crypto world. In fact, blockchain would play a valuable role in the global economy even if the crypto world did not exist.

Blockchain 101

Before going any further, it’s useful to remember what blockchain is.

The term “blockchain” is derived from the “blocks” of validated, immutable transactions, which link in chronological order to form a chain.

The important thing about each block is that it must be validated by all other users of the network before it is added to the chain.

A block cannot be created by forgery: nor can it be altered later.

In the crypto world, blockchain supports the creation of tokens (of which bitcoin is the largest and most famous) that can be exchanged on a peer-to-peer (P2P) basis: there is no need for an intermediary such as a bank.

For example, with bitcoin, network operators validate transactions on the blockchain by solving a complex algorithm, in what is known as bitcoin mining. This adds transactions to the blockchain, and miners are rewarded with bitcoin as a result.

However, what really matters for this version of Exponential Investor is that blockchain is actually and already being used to great effect in global supply chains.

Of course, supply chains involve a complex network of suppliers, manufacturers, shippers and distributors.

With millions of items moving through the supply chains at any point in time, a key question is: how do you reliably and efficiently keep track of them all?

Blockchain provides an answer. It creates a shared network infrastructure where records of goods, transactions and other data can be viewed by an entire supply chain.

For example, goods can be applied with blockchain-based tags, which can be tracked through to the end user on the blockchain.

Three benefits in the real – as opposed to the crypto – world

This brings several benefits.

Firstly, traceability. If a good gets lost, its record on the blockchain means that its provenance can be easily traced.

Secondly, trust. Often time, supply chains can unknowingly become infiltrated with counterfeit goods, due to striking similarities they can have with authentic goods.

Not only does this fund criminal activity, it can compromise health and safety of consumers, and have damaging financial and reputational costs for businesses.

In fact, by the end of 2022, the global economic value of counterfeit goods and piracy could reach $2.3 trillion.

A final benefit is product delivery. Blockchain allows faster and more cost-efficient delivery of products, because it reduces the need for human intervention (and possible error).

There’s no doubt that blockchain has what it takes to create functional and really efficient supply-chain systems.

A 13-fold increase in 2020-2026

As you can imagine, several companies are exploring its uses.

For instance, car manufacturer Ford is currently using a blockchain solution to help determine the provenance of its cobalt supplies. Cobalt is used in the production of electric car batteries.

Another example is delivery company FedEx. The company is using blockchain as a way to store shipment information amongst suppliers and retailers.

Although the use of blockchain in supply chains is still fairly limited, we believe that the current conditions in the global economy could accelerate its use.

With global supply chains still being hampered by pandemic-induced disruptions, improvements in efficiency are clearly needed.

In fact, over the past year, around 25% of businesses have invested $10 million or more in fixing supply chain disruptions.

Blockchain could provide a viable solution.

According to a 2019 forecast, the blockchain supply chain market size is predicted to grow from $253 million in 2020, to $3.27 billion by 2026, which is a 13-fold increase.

Specialist blockchain supply chain stocks are at a premium, as the majority of them are micro-cap companies with little investor exposure.

However, some tech giants are moving into the space.

IBM has its own blockchain solution called “IBM Blockchain” which provides supply chain management and transparency for customers.

In particular, IBM has deployed its solution to American retailer Walmart, which traces over 25 products from five different suppliers using IBM Blockchain.

IBM is also responsible for the tracking of Ford’s cobalt supplies, as noted above.

Oracle (NYSE: ORCL) also has its own supply-chain solution.

The company provides a cloud-based blockchain offering in which its customers can monitor their supply chains.

In particular, it has deployed its solution to energy giant Indian Oil, providing transparency on the provenance of its oil supplies.

Blockchain is not only powering a new financial system, but also, global supply-chain systems.

Blockchain has huge potential. Expect to hear a lot more about it over the next two years.

Until next time,

Elliott Playle
Contributing Editor, Exponential Investor