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Blockchain Technology Could Reinvent The Auto Industry
Published on 12/20/2016 | Technology
Breakthrough technology often makes its way slowly into cautious industries, the automotive sector being an example. This is unfortunate because organizations that more quickly adopt new paradigms can often benefit the most from them. In the case of blockchain technology, a sizzling new exemplar for making verified, authentic transactions digitally instead of physically, the auto industry with its massive supply chains has much to gain. Unfortunately, this technology is nowhere on the current horizon for automotive OEMs.
While blockchain has been called revolutionary and a transformative development in the technology world, it hasn’t yet achieved the word of mouth of other critical advancements such as cybersecurity, big data, analytics, cloud, etc., which are seeing massive investments, new companies, attention and even their own trade shows. But like cybersecurity and big data, blockchain could have a profound impact on people and devices in the modern world, including the vehicle sector.
So what is blockchain and why does it matter? At a basic level, it’s a distributed database that maintains an always-growing list of records that are protected from tampering and can’t be altered. Each valid block is made of time-stamped transactions and linked to a previous block, with the whole forming a chain. Blockchain architecture enables a distributed network of computers to reach consensus without the need for a central authority or middleman, creating a digital public ledger of transactions shared among the network. It uses cryptography and advanced algorithms for security and verification to add new blocks to the chain.
The first manifestation of blockchain was in 2009 in the digital currency bitcoin, not incidentally created by a cryptographic expert or experts. The currency required no involvement of third-party financial institutions since it exists online and also needed digital methods for making transactions between willing entities. The result is an ingenious, simple protocol allowing transactions to be both anonymous and secure within a tamperproof public ledger.
Recently, potential applications of the blockchain approach have been exciting various companies and organizations, particularly in financial services. The advantages are obvious and profound. Consider the fact that financial trades are often verified by a central clearinghouse that maintains its own central ledger, possibly taking days to settle a 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 and reduced costs.
Blockchain and the Automotive Supply Chain
While many banks and financial institutions are looking for experts and designing projects to try out blockchain, the auto industry seems unaware of this significant development, despite the major benefits this technology could deliver. In the automotive world, the supply chain is somewhat old school. 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. With the autonomous car coming, a huge potential nightmare is counterfeit parts. Imagine what could happen if such parts failed to perform like the specified parts, causing breakdowns or accidents. 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.
Blockchain technology can create a trust protocol that really can be trusted. Today’s product ID can still be a basis for the supply chain but while maintaining authenticity in a way that everyone can trust. How it would work 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 and other key data.
This establishes a system of checks and balances for the whole supply chain community, with cloud servers validating and recording everything. With this digital public ledger of transactions, there is transparency and trust, with an open foundation that partners can build on.
It Starts with the OEMs
The best approach is for an OEM to establish an enterprise block chain 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 every supplier has an encrypted record in the ledger, which makes an incorrect or fraudulent part instantly identifiable. No other approach creates such an open system that establishes trust and identity all in one without intervention.
Alas, nobody in the auto industry is currently investigating this potentially monumental technology. And establishing a blockchain supplier system will require new skills not found in the industry, like those who can develop cryptographic algorithms, which are the computer science foundation of blockchain architectures.
The benefits of creating an enterprise ecosystem for OEMs and suppliers are obvious because the identity and tracking inherent in blockchain would solve 90% of the security problems. This architecture rolls up a number of key functions like encryption services, cryptographic services, gateway services, data services, overall management and operations. Just think if the housing industry had implemented blockchain architectures in the previous decade. Houses couldn’t have been sold over and over in collateralized debt obligations, which might have headed off the housing crash.
An Emerging Technology
Blockchain technology is greatly promising but not a panacea because it’s currently in its infancy so not yet foolproof. The inherent caution of auto OEMs is understandable due to the industry’s responsibility for human safety in its products. Ultimately, blockchain architectures could positively contribute to driver and passenger safety through ensuring optimal parts are installed in vehicles but more work in refining the technology needs to be done.
Visionary auto OEMs can observe sectors like financial services that are early to the blockchain party and learn from them. For example, cyber criminals have been targeting companies using blockchain and digital currencies, so further work is needed there. Meanwhile, developers have had some challenges in implementing this radical technology to meet the norms of the banking world.
Blockchain architecture consists of three key components: a network of computers, a network protocol and a consensus mechanism. Some obstacles experienced by financial services proponents include the need to agree on a common network protocol and standards for implementation across an enterprise. It might be early days for this promising technology, but its huge potential almost guarantees obstructions will be overcome in time.
Blockchain Could Enhance IoT (Internet of Things)
While blockchain and cybersecurity, analytics for IoT represent major paradigm shifts that can both help the auto space take a giant leap forward, only fields like cybersecurity or analytics have made much headway to date. This is likely because fields such as these have had much more time to germinate and develop than seven-year-old blockchain, popping up as a concept among tech thinkers for many decades and finally emerging as a promising entity with a name in the beginning of the century.
The concept of linking sensors, RFID and the Internet is surely world beating, but IoT in all its glory could be improved via blockchain architectures. The lack of confirmed identity in IoT opens the door for mischief because there’s no trust, communication or authority between sensors. It’s a hub and spoke relationship with the gateway as the hub or control point, which is defined by the vendors making those devices. Thus Independent Software Vendors (ISVs) and others creating IoT solutions are limited in such a closed ecosystem.
The equalizer could be blockchain. This architecture opens up an IoT system very transparently, adding trust and validation in a distributed manner. Those wanting to add software to the system still need permission but can trust the available data and build new services on the system in the cloud. What they get is an empowering situation of checks and balances that help further innovation.
Our 21st century world needs a new paradigm for how people and organizations execute transactions—which will only increase as digital devices and networks seep into every corner of our lives. Some excited observers have said that blockchain could be at the heart of a fourth industrial revolution, impacting the management of issues like trust, security and privacy for years to come. It behooves auto executives to begin investigating how this important technology can improve their products and processes.
This article was originally posted on Mahbubul's blog.