(LUẬN văn THẠC sĩ) applying blockchain technology in logistics and supply chain management

The purpose of this paper is to introduce and analyze case studies about how blockchain technology is applied in the logistics and supply chain management sector.. Understanding the pote

FOREIGN TRADE UNIVERSITY

FOREIGN TRADE UNIVERSITY

DECLARATION

I, Ta Khanh Linh, confirm that this Master's Thesis has been written solely

by the undersigned and contains the work of no other person or persons except where explicitly identified to the contrary

I also state that said Master's Thesis has not been submitted elsewhere for the fulfilment of any other qualification

I make this statement in full knowledge of and understanding that, should

it be found to be false, I will not receive a grade and may face disciplinary proceedings

Signature: _

Date: 23 March 2020

ACKNOWLEDGEMENTS

I would like to express my special thanks of gratitude to my supervisor

Dr Vu Thi Hanh as well as our principal, Faculty of Graduate Studies and all professors of Foreign Trade University who gave me the golden opportunity to

do this wonderful project on the topic “Applying blockchain technology in

logistics and supply chain management”, which also helped me in doing a lot

of research and I came to know about so many new things I am really thankful

to them

Secondly, I would also like to thank my parents and friends who helped

me a lot in finalizing this project within the limited time frame

TABLE OF CONTENTS

Page

DECLARATION i

ACKNOWLEDGEMENTS ii

LIST OF ABBREVIATIONS v

LIST OF FIGURES vii

LIST OF TABLES viii

ABSTRACT ix

CHAPTER 1: INTRODUCTION 1

1.1 Statement of the Problem 1

1.2 The Purpose of the Study 2

1.3 Research Questions 2

1.4 Thesis Structure 3

1.5 Methodology 4

1.5.1 Research Design 5

1.5.2 Data Collection 6

CHAPTER 2: LITERATURE REVIEW AND THEORETICAL FRAMEWORK 13

2.1 Background Knowledge 13

2.1.1 History of Logistics and Supply Chain Management 13

2.1.2 What is blockchain technology and How does it works? 16

2.2 Blockchain Applications in Financial Areas 25

2.2.1 Bitcoin - Cryptocurrencies 25

2.2.2 Investment sector 31

2.2.3 Insurance sector 32

2.3 Blockchain in non-financial areas 33

2.3.1 Smart contracts 33

2.3.2 Intellectual Property 37

2.3.3 Politics and E-voting 44

2.3.4 Other sectors 46

2.4 Blockchain in Logistics and Supply Chain Management 48

2.4.1 Potential blockchain applications in the logistics and supply chain industry 48

2.4.2 Transformation phases of blockchain applications in logistics 52

2.5 Conclusion 56

CHAPTER 3: ANALYSIS AND FINDINGS 58

3.1 Case study analysis 58

3.1.1 Walmart and the using of IBM Hyperledger Fabric in Food Supply Chain 58

3.1.2 Maersk’s TradeLens with IBM 63

3.1.3 Everledger’s blockchain secure luxury goods 68

3.1.4 SmartLog - the proof of concept project for IoT blockchain solution in logistics industry 73

3.1.5 Some others adoption of blockchain to logistics and supply chain management projects 76

3.2 Case studies summary 77

3.3 Discussion on the achievements and remaining concerns of the case study projects 80

3.4 Blockchain Features Tradeoffs in Supply Chain Management 83

3.5 Challenges and Possible Solutions 85

3.6 Conclusion on the future of blockchain in logistics and supply chain management 94

CHAPTER 4: DISCUSSIONS AND CONCLUSIONS 96

4.1 Discussions 96

4.2 Limitations and future research 97

4.3 Conclusions 97

REFERENCES 99

LIST OF ABBREVIATIONS

ASIC - Application Specific Integrated Circuits

BIPS - Europe’s primary bitcoin payment processor for

merchants and free online wallet service

DHL, BMW, IBM, APL - name of enterprises

IoT - Internet of Things

LIST OF FIGURES

Page

Figure 2.1: A history of blockchain technology 19

Figure 2.2: Blockchain example 20

Figure 2.3: Illustration of a blockchain transaction 21

Figure 2.4: Benefits of Blockchain 24

Figure 2.5: Buying a house on Ethereum 36

Figure 3.1: Foods Walmart is Tracking with Hyperledger 60

Figure 3.2: IBM Blockchain for Trade logistics 65

Figure 3.3: TradeLens blockchain business network 67

Figure 3.4: Globally connected via API 70

Figure 3.5: Simplified decision tree for identifying blockchain use cases 92

Figure 3.6: The steps for a blockchain implementation 93

LIST OF TABLES

Page

Table 2.1 Potential blockchain applications in the logistics industry 52 Table 2.2 Transformation phases of blockchain applications in logistics 53 Table 3.1: Case studies’ status summary 78

ABSTRACT

This paper is an intensive research paper under the Master Thesis of International Trade Policy and Law program at Foreign Trade University (FTU) The main subjects of this topic are blockchain technology, logistics and supply chain management industry The purpose of this paper is to introduce and analyze case studies about how blockchain technology is applied in the logistics and supply chain management sector

Logistics and supply chain management process play an important role in the international trade area Nowadays, these two concepts appear in almost every aspect of the trading and production process Companies use logistics management to plan, control, and implement procedures for the effective and efficient storage and transportation of goods, tracking the products from the point of origin to the point of consumption Supply chain management helps organizations to manage the flow of goods and services and includes all processes that transform raw materials into final products

In order to utilize the benefits of logistics and supply chain management

in international trade, businesses started to think of adapting technology for them, including information technology, communication technology, and automatic identification technology Improved technology has increased productivity in the supply chain, minimizing costs and errors Technology is an effective tool to enhance supply chain competitiveness and performance by enhancing the overall effectiveness and efficiency of the logistics system Moreover, various innovations in technology have made the task easier and faster besides being less laborious

Blockchain technology is one of the innovations that are considered to change the way how logistics and supply chain management work One lingering problem of modern logistics and supply chain is a lack of

transparency between buyers and manufacturers There is still a lot of miscommunication between vendors and suppliers, as well as difficulties in tracing each stage of deliveries Luckily, blockchain technology is here to solve this challenge

Understanding the potentials of blockchain in the field of logistics and supply chain management and its future in international trade, the author has

decided to make a research paper about the topic: “Applying blockchain

technology in logistics and supply chain management”

The thesis paper contains 4 chapters that aim to answer the main statement

of the problem: “What kind of inefficiencies can be managed with blockchain

in the field of logistics and supply chain management and what are the barriers and challenges, and the prediction of the technology?”, with four sub-research

questions The paper begins with an introduction that includes some of the background information that is intended to inform the reader Following that section, a number of literature reviews and case studies will be introduced and analyzed to give a conclusion of the blockchain adoption process in the logistics and supply chain management sector Finally a summary will connect all the information in a concise manner

CHAPTER 1: INTRODUCTION

1.1 Statement of the Problem

Blockchain is an emerging technology in the business world, especially in the logistics and supply chain management area because of its huge benefits Blockchain may bring many opportunities for the development of the logistics and supply chain management due to the potential to lower the operating costs, boost the service quality, and consequently improve the organization and the entire supply chain competitiveness However, blockchain adopters meet many challenges on their way of bringing this technology to the world

In theory, the blockchain can become the technological answer to solve many current problems in logistics and supply chain sectors, but it is very hard

to change and adapt It is not very easy to insert a new technology inside established supply chain systems because the integration challenges are not to

be underestimated (Mougayar, 2016, 123) Already many projects are underway to apply blockchain technology to global logistics, adding value by boosting supply chain transparency and automating administrative operations

It can be named several standing out projects such as Everledger, SmartLog, and DHL-BMW Proof of Concepts (PoC) These on-going projects are operated differently in many ways, but they all have the same purpose to find solutions for the problems of modern logistics and supply chain management

in the 4.0 industry context Addressing these projects and their operating status will have practical benefits for the future of the logistics and supply chain management sector, and contribute to the understanding of this widespread application

At the end of this paper, it is expected to give an overview of the applying status of blockchain technology in the field of logistics and supply chain

management and answer a part of the lingering question: What kind of

inefficiencies can be managed with blockchain in the field of logistics and

supply chain management and what are the barriers and challenges, and the prediction of the technology?

1.2 The Purpose of the Study

This study aims to go deeply in the application of blockchain in the logistics and supply chain management by examining various literature review provided in chapter 2 and the existing use cases introduced in chapter 3 to present the value propositions of blockchain in supply chain and logistics and several challenges of this technology After that, some recommendations for adaptors and predictions for the future of blockchain technology in logistics and supply chain management will be represented

To be able to answer the problem statement, it has been seen necessary to use a couple of research questions, in order to get around the problem area and being able to answer the problem statement, in the best possible way

The following research questions have been seen necessary in order to answer my problem statement in the best way:

Question 1: How has blockchain been adopted in logistics and supply chain management?

Question 2: What are the challenges of applying blockchain in logistics and supply chain management?

Question 3: How could enterprises adopt better the technology and overcome the challenges?

To answer research question 1, a literature review will be given to explain the purpose of applying this technology to the field of logistics and supply chain management and the way it works After that, several on-going projects will be discussed in details for a better view of the current status and the adoption trend

in the world

Research question 2 will be answered by a summary of the literature review and the current status of these mentioned projects about applying blockchain technology in logistics and supply chain management to give out a list of the challenges when logistics and supply chain management apply the new blockchain technology

The research question 3 will be answered by some recommendation from the experiences of the mentioned cases for future projects in this area and a prediction for blockchain’s future in logistics and supply chain management industry

The gathered information from the literature study and the case study will then be the base of the application in logistics and supply chain management

1.4 Thesis Structure

The paper will be divided into 4 chapters, including Introduction, Literature Review and Theoretical Framework, Analysis and Findings, and Discussion

Chapter 1 will focus on the purpose of the thesis, and then introduce the problem statement and the research questions developed from it Chapter 1 will also give an overview of how the research design is built and the methodology used The methodology will introduce to the readers the overall approach and full details of data collection methods In chapter 2, a literature review and

theoretical framework will be given after analyzing the published sources on the main subjects of blockchain and its applications that already been used in real life contexts Based on the thesis objectives, a number of literature will be reviewed for the references of the given topic Not all of the literature review will have the same importance of the papers further development, but in order

to give a good overview and understanding and perspective on the subject, it has been needed to include anyway The main purpose of the literature review

is to make a foundation for the case studies about on-going projects that applying blockchain technology in logistics and supply chain management

Chapter 3 will deeply analyze the list of case studies about on-going projects that applying blockchain technology in logistics and supply chain management These projects’ achievements and remained problems will be summed up for a conclusion of the current state of blockchain technology in the logistics and supply chain management industry

Chapter 4 will be the discussion in which the author discusses the results and conclude on the study’s findings, the findings in relation to the statement

of the problem, and the research questions that were identified This chapter also brings up the limitations or weaknesses of the study’s design or findings and some recommendations for future areas of research that should be conducted related to my study, actions, policies, or procedures related to the study’s findings The final part will identify the critical conclusions about the study and its implications

1.5 Methodology

The methodological approach will influence the shape of the study, the data collection, and data analysis This will also affect the focus and role that the literature study of the assignment will have in the later research

There are two common alternative ways of relating theory to reality, which are the deductive and inductive approach The inductive approach can

be described as an explorative way where the goal is to generate theory This research approach seeks to understand, interpret and totalize, and goes from empiric study to theory (Saunders 2007 p 117) The deductive approach on the other hand, focuses on testing existing theories by developing propositions from current theories, and making them testable in the real world (Saunders

2007 p 118) Although these are two different research approaches, it is also possible to combine them, which often is seen as an even better and advantageous way, to draw conclusions on a research process (Saunders 2007)

Both deductive and inductive approach will be used in order to draw the final conclusions I therefore see it as an advantage to using both of the methods, as the thesis first will be testing the theory, but then from the results building a new theory The analysis of the case study will therefore be based

on the deductive approach where “testing theory” will be done, and the inductive approach will be used when the risk management strategy is created also called the “theory building”

1.5.1 Research Design

This section will give an introduction to how the design of the research will be, and discuss the methods relevant for this project, so the reader can understand how the thesis has been developed throughout the literature and the qualitative data gathered

The paper takes its starting point with the problems and the general problem area in terms of blockchain applications in the logistics and supply chain management industry A literature study and relevant theory regarding the topic will then be introduced, and used on a number of case study projects

The gathered information from the literature study and the case study will then be the foundation of the strategic adoption of blockchain, which will be developed for companies applying this new technology in their operation, and

be prepared for the changing of logistics and supply chain management in the soon future

The assignments research design is combined with primary and secondary data, in terms of a case study and literature study The primary source for the empirical study of the assignment will be the author’s observation of the case project On the other hand, the secondary data will be gathered from company reports and scientific articles to form the scientific and theoretical approach of the paper

According to Andersen 2006, there are three types of research methods; quantitative or qualitative, or a combination of both of them Andersen 2006 argues for, that the main difference between quantitative and qualitative research is the use of numbers Quantitative research is mostly based on facts and study relations between sets of facts Qualitative data on the other hand, is based on all other information than numbers, such as movies, photos, objects, etc (Andersen 2006 p 150) The goal with the qualitative data is to get an insight instead of statistical analysis Common ways to do qualitative research

is through interviews and observations where for quantitative is through surveys

This study is performed by using a qualitative method and by conducting deeper investigations into a number of case studies by testing previous research The qualitative research that is performed in this thesis will be based on the interview with the case company representatives and experts, and the goal is to get a more in-depth study by using this method

1.5.2 Data Collection

There are two categories of information which can be collected during the study, which are divided between primary and secondary data Primary data can be gathered through interviews and observations, where the secondary data

(Andersen 2006 p 47) The secondary data is already existing data can be gathered through the internet, literature of scientific journals This thesis will

be based on both primary data and secondary data The next part will give a description of how and which sources have been used to gather the necessary information of the thesis

Primary data

The empirical study of this thesis is based on a number of case studies of the blockchain adoption in logistics and supply chain management The chosen research strategy is described as the strategy type of “the multiple case study”

by Yin (2003), in which a list of open questions (who, what, how, and why) will be designed for each case There is not any direct control over situations

as by using the open questions, the answers given will be based on current and past situations in relation to the projects towards logistics and supply chain management (Yin 2003) As there is being analyzed on “case study” it is important to define what this phenomenon means

Yin 2003 defines this in the following two citations:

“A case study is an empirical inquiry that investigates a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident [ ] The case study inquiry copes with the technically distinctive situation in which there will be many more variables of interest than data points, and

as one result relies on multiple sources of evidence, with data needing to converge in a triangulating fashion, and as another result benefits from the prior development of theoretical propositions to guide data collection and analysis” (Yin 2003 p 13)

The goal of the case studies is to understand, how the case-projects have applied blockchain in the field of logistics and supply chain management, and what approaches and actions towards have been taken (Yin 2003 p 41)

The paper’s findings are characterized by several cases (i), where there will be performed the research and observation (ii), where the goal is to create

an understanding of the case organizations approach, and possible strategy towards the adoption (iii) It can be argued that the sources of primary data with the cases might not be in-depth enough in relation to helping with answering the problem statement of the thesis The possibility was though there to get more observations, but I am convinced that more observations would have given more valuable information, as the observation was performed after the literature study was performed, and therefore I had a basic goal of what I wanted to get answered I therefore argue and assess, that the research and observation are enough to cover the needed information to help with the answering of the problem statement

The process of the structuring of the data material about the case organization will be seen as the “flexible case design” (Yin 2003 p 62), as the flexible case design will allow the observation to be adapted to the path of the research This will also allow potential unexpected and important information

to be included, in the gathered data from the observation

It has not been possible to follow the cases in a long-term period, which means that the empiricism from the observation is based on historical data, which forms the basis to achieve data of incidents, and events occurred before the start of the case studies

The empirical data gathered from the case studies cannot completely be seen usable to be compared to all global and MNC’s adoption of blockchain as this would need more cases on the same topic and same type of organization to conclude on (Andersen 2006 p 139-142) The goal of the primary sources is to structure the case studies, find the relation between the literature studies, be able to analyze the data gathered, and follow a conclusion to the research questions and problem statement

Secondary data

Secondary data include both quantitative and qualitative data and are used principally in both descriptive and explanatory research (Saunders 2007) The secondary data can be based on journals, letters, TV programs, reports, and articles, etc (Andersen 2006) The secondary data used for this thesis is mostly based on scientific papers and journals found through the school database, by searching for specific topics

Information found on the internet, the case companies’ homepages especially, has also been useful for secondary data, about the general information of the projects A list of companies’ annual reports has also been used for information about the projects to give a picture of the adoption process Different reports on the topic have also been used as they also give a different view compared to the scientific view The supervisor’s corrections, comments, and suggestions have also been taken into account throughout the process of the thesis

The analysis will connect the existing theories with my research and observation to conclude on the current state of the blockchain adoptions in the logistics and supply chain management industry

The focus will be on giving recommendations and create an overall strategic adoption management framework that can be used by the case organizations and other similar companies, operating in the same environment

Verification and generalization of empirical data

The quality of the empirical data throughout the thesis should be secured with a high validity and reliability The empirical data are mostly developed by the observation of multiple case studies and gathered from information that already available such as scientific papers and the annual report of the

organization It is also important to state in which degree the results of the multiple case study can be generalized for other companies and organizations

Validity

The validity in this thesis refers to establishing the domain to which a study’s findings can be generalized, when doing the case studies (Yin 2003 p 34) The term covers the relationship between validity and relevance, where the validity is about the general accordance between the theoretical and empirical perception plan, with the relevance concerning the fact on, how relevant the empirical selection is for the problem statement (Andersen 2006 p 81)

The terms also have a different meaning depending on whether the research is qualitative or quantitative In a qualitative study validity means that there has to be conformity between the researcher’s observations and the conclusion drawn In quantitative research, validity means congruity between the statistic result and reality Conducting qualitative research will always have the risk of subjectivity and the empirical results will therefore be affected by

my interpretation of the respondent’s description of the reality (Kvale 2006 p 231)

The research needs to be secured validity This means that the research should be trustworthy, valid and that the questions answered in the project are relevant I should be clear and confident about the findings to answer the research questions developed Therefore the quality of the result depends on how similar it is to the phenomenon that I want to investigate (Kvale 2006 p 231) When performing an observation like in this research it is important to notice the possibilities that exist, where the information could be company sensitive

For the secondary data, there have been done a big effort in using literatures that concern the thesis’s main subject of blockchain applications to

secure a high validity of the secondary data from scientific journals and reports from companies with experience within the topic

Reliability

Reliability refers the demonstration of the operations of a study, like the data collection procedures can be repeated, with the same results (Yin 2003 p 34) The reliability of a study is affected by the way the research is carried out, the researcher’s precision and attention during the processing of the gathered information (Andersen 2006)

In this thesis the reliability has been sought by having a number of case study projects in the field Naturally the reliability could have been even higher

if it could have been supported by performing a multiple case study, by having more companies with same type of operations observed and getting their experiences of adopting blockchain in logistics and supply chain management added to the research A quantitative research by adding a survey where a larger amount of companies answering could further have been made, but haven’t seen very useful, in terms of the thesis needing some more in depth answers, in terms of different experiences compared to a survey

Generalization of case study results

The generalization of the case study design has often been criticized and many authors have seen the case study design as unscientific The method has, although it is extended, been very little involved in method literature (Andersen

2006 p.115) Andersen though thinks and assesses the case study as very crucial and important, when doing scientific studies According to Yin (2003), there are two categories of generalizing results from case study to theory: analytic generalization and statistical generalization Analytical generalization relies on case studies (as with experiments) where previously developed theory is used

as a template with which to compare empirical results of the case study The statistical generalization on the other hand relies on research based on surveys

where a conclusion is made about a population on the basis of empirical data collected from a sample

In this research the results will be generalized through analytic generalization being the most common case study approach Previous research and theories will be tested by examining the results from the case study The results will then be the main point of the development of the strategic adoption management framework that will answer the problem statement of the thesis

Since the case studies are based on on-going projects with a focus on logistics and supply chain, the results found might only be generalized for similar types of companies and projects There might be factors that are not caught, which would be more relevant for companies in other industries

Still, my belief is that the case study in this thesis, would allow generalization since the case projects are multinational companies (MNC) and

in different sub-areas, which stand as examples for, and have major influences

on other companies

CHAPTER 2: LITERATURE REVIEW AND THEORETICAL

in order to complete the analyzing and finding part There are a large number

of studies on blockchain applications However, since the focus of this research

is on logistics and supply chain management, these will not be reviewed in detail and will only be introduced briefly and referred to as examples for the technology adoption

2.1 Background Knowledge

2.1.1 History of Logistics and Supply Chain Management

International trade involves a wide range of processes and facilities It is not just as simple as original trade In the old days, when the world’s trade has not become as complicated as of now, trade was simply an action of directly transferring goods or services between people to something else or to money (until when money was invented) Over time, international trade happened due

to the differences among countries and areas about resources, advantages, technology, and other reasons And trade has been no longer needed to involve direct interaction

The evolution of trade dragged along the procreation of a lot of concepts, two of them are logistics and supply chain management These two concepts have been applied and used long ago since the beginning of trade before being defined and studied Until now, not many people could understand clearly what logistics and supply chain management are because they are parts of the trading process and they are also not some single visible acts that one could tell exactly

In general, logistics is a chain of actions from taking the product at the production point to delivering it to customers

"Logistics is about getting the right product, to the right customer, in the right quantity, in the right condition, at the right place, at the right time, and at the right cost (the 7 Rs)" - John J Coyle et al (2016)

Regarding the above definition, logistics seems almost everything, including customer services, purchasing, production planning, warehouse, and transport In the past, these activities were separated, therefore, the management became cumbersome and inconsistent The birth of the logistics concept helps to gather the operation of these processes under the management

of only one department, reduce part of the trading cost Logistics deals with the efficiency and effectiveness of daily operations to utilize production resources

On the other hand, the supply chain includes not only the single organization but also its networks of companies from the input phase until the final step of delivering the products or services to the market Michael Hugos (2003) defined Supply Chain Management (SCM) by all the activities of logistics, marketing, product development, and finance, while he supposed logistics only including procurement, distribution, maintenance, and inventory management, or it is called “traditional logistics”

The difference between new logistics and traditional logistics is the involvement of the third (or even fourth) party logistics Traditional logistics limits the scope of logistics activities within the boundaries of the company itself However, in the real context, to reduce costs and maximize the usage of trade facilities such as ports, ships, and warehouses, 3PL or 4PL provides logistics services for manufactures and producers to bring their products to the hand of customers As a result, the new logistics concept was born

Somehow the definition of logistics and supply chain overlap each other,

separate concepts that need different management methods, and both of them

do supplement the other

Nowadays, logistics stands out as a dynamic sector that develops rapidly

on a global scale The volume of international trade has risen due to lifting barriers to international trade, increasing foreign investors, and technological developments Barriers such as customs taxes, quotas, and capital controls that separate national economies have gone down Services, workforce, and capital become faster and easier to move between countries

In parallel with the increase in international trade volume, the loss of the borders between countries and the development of the concept of globalization, the logistics sector has recently gained importance Now, logistics has become one of the most important, the largest and the most dynamic sectors in the world Goods and services are designed in any geographical area of the world, produced in a different land and demanded elsewhere Thus, in order to stand out and have advantages, quick and timely delivery has become important for service and manufacturing companies

The logistics sector enters into the picture from this perspective It plays

a role in product delivery from any point in the world, storage in required points, package, and customs clearance, and so on Logistics is an important competition power for companies that are in deadly rivalry to survive among others, look for ways to produce quality products cheaper, market these products, and gain new successes from quality and cost perspective

Without logistics, it is impossible to be successful in marketing, production, and international trade In advanced industrial societies, logistics competence is of great importance and customers expect products they bought will be delivered as promised In extraordinary events, the necessity of logistics competence is understood better The party that makes the planning in the best way has great advantages in this field

The logistics sector is continuously improving all over the world and the competition level in this sector is increasing Hence, companies should develop themselves continuously on cost, human resources, quality of activities, management process, efficiencies, and technology

In addition, supply chain management is not only a process served to generate a cost reduction in the budget or a mission to create greater operational efficiencies within an organization While these are a part of the whole ecosystem, modern supply chain management encompasses the strategic alignment of end-to-end business processes to realize market and economic value, as well as giving a firm the competitive advantage over their business rivals Supply chain management has become an integral part of a business and

is essential to any company’s success and customer satisfaction Supply chain management has the power to boost customer service, reduce operating costs, and improve the financial standing of a company

In order to enhance the competitiveness and performance of logistics and supply chain management, innovative technologies have been applying and they have been changing the global business relations The emerging new technologies are creating strategic opportunities for the organizations to build competitive advantages in various functional areas of management including logistics and supply chain However, the degree of success depends on the selection of the right technology for the application, availability of proper organizational infrastructure, culture, and management policies In logistics, information, communication, and automation technologies have substantially increased speed of identification, data gathering, processing, analysis, and transmission, with a high level of accuracy and reliability

2.1.2 What is blockchain technology and How does it works?

A lot of new innovative technologies have been adopted in the logistics and supply chain management sector such as automatic identification

technology, communication technology, and information technology Each of these technologies is used to solve one or many problems that occurred in the logistics and supply chain management process

Logistics and supply chain are those activities that connect all production involved subjects together and make them an end-to-end process Today’s supply chains are too complicated and broken in many ways Moreover, shipments are lost, damaged, or delayed too often because of confusion in the chain of custody The main problem in logistics and supply chain often lies in the lack of transparency, as there is often no overview of the current order status

or transports are carried out without central control, and still a lot of miscommunication between vendors and suppliers, as well as difficulties in tracing each stage of deliveries For years, many research papers have been conducted to find out the solution to this problem The adoption of technology and the availability of innovative solutions in the transportation industry have evolved over the past ten to fifteen years, providing greater access to data and information, which increases transparency

Blockchain is one of those technologies that is expected to be an answer

to the question of transparency issue In the easiest words, “blockchain”- the name is exactly what it is made of, a chain of blocks that are connected by cryptography, a technique for information security To fully understand what

is blockchain and how does it work, the following part will introduce the history

of blockchain, the definition, and the operation of this technology

The original idea of blockchain technology came from the development

of cryptography In the beginning, cryptography was meant to use on confidential messages It started when ancient ancestors wanted to keep their communication on secret That was when they invented encryption methods to convert the comprehensible messages into incomprehensible forms These encrypted data could only be read with a secret knowledge spread within a

small number of people who created and agreed to use them, which is called the decryption key (Rouse, 2020) Over time, this technique was applying to digital and computing data as to secure information on the internet

Blockchain technology is an application of cryptography techniques It was assumed to be invented firstly in 2008 by an unknown person, or a group

of people, using the name Satoshi Nakamoto At that time, it was used to make cryptocurrency bitcoin, “the first digital currency that solved the double-spending problem without the need of a trusted authority or central server”, the Economist said

In fact, the invention of bitcoin is not the first time blockchain appeared

in the world In 1991, Stuart Haber and W Scott Stornetta described a system where document timestamps could not be tampered with They designed a work

on cryptographically secured chain of blocks However, until 2008, Satoshi Nakamoto conceptualized and improved the work and introduce the bitcoin and the public ledger for all transactions on the network The concept of blockchain and bitcoin was published in a paper named “Bitcoin: A Peer-To-Peer Electronic Cash System” by Satoshi Nakamoto It introduced a concept of finance system where the electronic cash on the online payments to be sent directly from one party to another without the participation of financial institutions

According to Nakamoto, a blockchain is a distributed ledger that is completely open to anyone Block is the piece of digital information that could store up to 1 megabyte (MB) data They have an interesting property, once some data has been recorded inside the blockchain, it becomes very difficult to change Each block contains data, the hash of the block and the hash of the previous block These data stored in the block could be the transaction details (date, time, amount), transaction parties (each party is recorded under a unique identity, called digital signature or user name), and the special information to distinguish it from other blocks A block also has a hash A hash is just like a fingerprint to identify a block and all of its contents Once a block is created,

its hash will be calculated When some data inside the blocks have been changed, the hash changed either The third element of a block is the hash of the previous block, which connects blocks and makes a blockchain

Figure 2.2: Blockchain example

Source: internet

The first block which does not contain the hash of the previous block is called the genesis block For example, when someone tampers one block of the chain, this causes the hash of that block to change as well As a result, this action makes all the following blocks invalid because they are no longer store

a valid hash of the previous block

The second element of blockchain is the proof-of-work mechanism that slows down the creation of new blocks This mechanism makes it very hard to tamper with the blocks, because if you tamper with a block, you will need to recalculate the proof-of-work for all the following blocks Finally, the third elements that create blockchain’s security is the peer-to-peer network All the nodes in this network create consensus They agree about what blocks are valid and which are not Blocks that are tempered with will be rejected by other nodes

in the network To successfully tamper with a blockchain, someone needs to tamper with all the blocks on the chain, redo the proof-of-work for each block, and take control of more than fifty percent of the peer-to-peer network Only then will that tampered block become accepted by everyone else

Ameer Rosic (2017) from Blockgeeks had listed a number of blockchain applications in real life For example, blockchain can be applied in the car industry There is a situation called odometer fraud, in which the odometer of

a car could be tampered with and made it seemed newer and less worn out, resulting in customers paying more than what the car is actually worth The government tries to counter this by collecting the milage of cars when they get

a safety inspection but it is not enough So instead we could replace regular odometers with smart ones that are connected to the internet and frequently write the car milage to a blockchain This would create a secure and digital certificate for each car If blockchain was applied, no one can tamper with data

and everyone can look up a vehicle’s history In fact, this method is already being developed by Bosch’s IoT lab and they are currently testing it on a fleet

of 100 cars in Germany and Switzerland

Blockchains are great at keeping track of things over time Besides odometers, things like who can confirm and verify signatures on legal documents The online website stampd.io, for instance, allows you to add documents to the Bitcoin or Ethereum blockchain

Another application of blockchain is digital voting Nowadays, voting happens either on paper or special computers that are running proprietary software Voting on paper costs a lot of money and electronic voting has security issues In recent years, many countries move away from digital voting and adopting paper method again because they fear that electronic votes can be tampered with and influenced by hackers But instead of paper, we could use blockchains to cast and store votes Such a system would be very transparent

as everyone could verify the voting count for themselves and it would make tampering with is very difficult The Swiss company Agora is already working

on such a system and it’s going to be a completely open source However, there are many challenges First, you have to be able to identify voters without compromising their privacy Secondly, if you allow people to vote with their own computes or phones, you have to take into account that those might be infected with malware designed to tamper with the voting process A system like this also has to be able to withstand denial-of-service attacks because that could render the whole thing unusable

Blockchain can also be applied in the food industry They could use blockchain technology to track their food products from the moment they are harvested or made, to when they end up in the hands of customers Every year almost haft a million people die because of food-borne diseases and that is partial because it takes too long to isolate the food that is causing harm

Blockchains could help us to create a digital certificate for each piece of food, proving where it came from and where it has been If contamination is detected,

we can trace it back to its root and instantly notify other people who brought the same batch of bad food Walmart and IBM are currently working on such a system It allowed them to trace the origin of a box of mangoes in just two seconds, compared to days or weeks with a traditional system A system like this could be applied to other industries as well We could use it to track regular products and battle counterfeit goods by allowing anyone to verify whether or not the product comes from the manufacturer you think it does

Another idea would be to track packages and shipments by using a blockchain That is something that IBM and container shipping giant Maersk are working on: a decentralized ledger to help with making global trade of goods more efficient We will discuss this case further in Chapter 3

Blockchains are also constantly evolving One of the more recent developments is the creation of smart contracts These contracts are simple programs that are stored on the blockchain to automatically exchange coins based on certain conditions Smart contracts can be applied in many different activities, such as crowdfunding, banks, insurance, and postal Banks, insurance, and postal companies could use it to issue loans, offer automatic payments, process certain claims, and pay on delivery Medical records could

be stored on a blockchain and only doctors are allowed to access them when

we approve it with a digital signature In the same fashion, you could store your personal identity on there and choose what data you want to reveal Ordering alcohol in a bar, for instance, only requires you to prove that you’re over legal drinking age and with smart contracts, you can deliver that proof without revealing anything else

As all those above examples of blockchain applications, this technology has the potential to become a leading layer for the logistics and supply chain

industry Besides transparency, blockchain and smart contracts have so many other benefits that are shown in Figure 4

Figure 2.4: Benefits of Blockchain

Source: ITpreneurs

With so many benefits, blockchain seems to be the future of logistics and supply chain management in the 4.0 industry context However, there are still risks of adopting this technology in the field of logistics and supply chain management Logistics and supply chain is not only huge but also complex On the other hand, blockchain is still in the nascent stages of development, with relatively few designers familiar with the technology This can make implementation complex and costly

In order to understand more about the current status of the blockchain adoption in the logistics and supply chain management sector, a number of case study projects will be introduced and analyzed in Chapter 4 of this paper

The above part has introduced to readers the basic knowledge of blockchain, how it works, and some examples of its application in real life In the next sections, we will come closer to review the adoption of blockchain in

many areas through published resources and how far blockchain has come in the logistics and supply chain management sector

2.2 Blockchain Applications in Financial Areas

2.2.1 Bitcoin - Cryptocurrencies

Originally being developed for applications of a cryptocurrency, Bitcoin, the most important application of blockchains technology takes place in the banking and finance industry Due to the ability of value recording, all kinds of assets can be stored and transacted securely and privately within a blockchain such as money, equities, bonds, titles, deeds, contracts, etc This technology omits the appearance of any third party entities like governments or banks

The Bitcoin or digital currency was first introduced by an anonymous person or group under the alias Satoshi Nakamoto in 2008 together with blockchain technology The Bitcoin appears in many forms with different names and here are some examples of active Bitcoins: Bitbond, BitnPlay, BTC Jam, Codius and DeBuNe, according to Tasatanattakool and Techapanupreeda (2018) The key innovation in Bitcoin, compared to other forms of cryptographic cash (Chaum 1983) or virtual currencies (European Central Bank 2012), is its decentralized core technologies Early adopters praised decentralization and by all indications chose Bitcoin because they wanted to use a decentralized system (Raskin 2013)

Rainer Böhme et al (2015) proposed certain advantages of decentralization It avoids concentrations of power that could let a single person

or organization take control It often promotes the availability and resiliency of

a computer system, avoiding a central point of failure It offers at least the appearance of greater privacy for users (and perhaps greater genuine privacy) because in theory an eavesdropping adversary cannot observe transactions across the system by targeting any single point or any single server

In light of widespread criticism of the fees charged by credit and debit card networks (Anderson 2012), Bitcoin could offer an alternative that might pressure card networks to lower their prices to merchants Some early evidence seems to confirm that Bitcoin may have this effect Overstock.com, an online retailer, began to receive payments by Bitcoin in January 2014 Overstock reported a favorable response, including significant revenue gains, large average order sizes, and desirable customer demographics (Sidel 2014) Other merchants subsequently added Bitcoin support, including Expedia (travel), Newegg (electronics), Foodler (restaurant delivery and takeout), Gyft (gift cards for dozens of merchants), and TigerDirect (electronics) Payment processors help online merchants adjust their websites to accept Bitcoin Early user reviews are mixed: users seem largely satisfied, though technical glitches sometimes occur Merchants appear particularly pleased because Bitcoin payment processing is strikingly low-cost for them

Some computer scientists and entrepreneurs report excitement at Bitcoin not for its role in facilitating payments, but for its ability to create a decentralized record of almost anything Marc Andreessen (2014), best known

as coauthor of Mosaic (the first widely-used web browser), presented the rationale:

Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer

To date, there has been only limited use of the Bitcoin platform to provide services other than payment Entrants building on the Bitcoin platform include alternative domain name systems, virtual property rights management (Rosenfeld 2012), secure commitment schemes (Clark and Essex 2012),

fairness in multi-party computation ensurement (Andrychowicz, Dziembowski, Malinowski, and Mazurek 2014), and decentralized prediction markets However, none of these startups has attracted large-scale use to date, and each faces significant competition from firms and processes using more traditional system design

Rainer Böhme et al (2015) also pointed out the risks in Bitcoin They showed that Bitcoin’s design presents distinctive risks that differ from other payment methods and stores of value, including market risk, the shallow market problem, counterparty risk, transaction risk, operational risk, privacy-related risk, and legal and regulatory risks Any user holding bitcoins faces market risk via fluctuation in the exchange rate between bitcoin and other currencies The relatively low weekly trade volumes suggest that Bitcoin users also experience

a shallow market problem For example, a person seeking to trade a large amount of bitcoin typically cannot do so quickly without affecting the market price

Given centralization in the Bitcoin ecosystem, counterparty risk has become substantial Exchanges often act as de facto banks, as users convert a currency to bitcoin but then leave the bitcoin in the exchange However, 45 percent of the Bitcoin currency exchanges studied by Moore and Christin (2013) ultimately ceased operation High-volume exchanges were more likely

to close because of a security breach, while operators of low-volume exchanges were more likely to abscond without explanation Of the exchanges that closed,

46 percent did not reimburse their customers after shutting down If users avoid holding their bitcoins in an exchange and instead use a digital wallet service, other risks arise, as these firms have become a lucrative target for cybercriminals Examples include 4,100 bitcoins (valued at $1.2 million at then-applicable rates) taken from Bitcoin wallet inputs.io in November 2013, leading to that company’s default (McMillan 2013) as well as 1,295 bitcoins

($1 million) taken from Bitcoin payment processor BIPS the next month following denial-of-service attacks (Southurst 2013)

The irreversibility of Bitcoin payments creates heightened transaction risk If bitcoins are sent due to error or fraud, the Bitcoin system offers no built-

in mechanism to undo the error Of course, a buyer and seller can voluntarily agree to correct errors, but the Bitcoin protocol has no mechanism to retake the funds by force In a world of competing payment methods, irreversibility puts Bitcoin at a disadvantage: all else equal, consumers should favor a payment system that allows reversal of unwanted or mistaken charges

Transaction risk also arises when receiving payments As discussed above, Bitcoin transactions do not clear (and hence are not final) until they have been added to the authoritative blockchain Transaction batches are only added every ten minutes on average This creates at least two potential avenues for abuse First, there is a low but persistent risk that the authoritative blockchain will later be cast aside by a majority of participants to cancel any transactions recorded in that version of the blockchain Second, malevolent participants could double-spend bitcoins, particularly through rapid transactions before the blockchain is updated The protocol has taken steps to mitigate this possibility, but researchers have demonstrated viable attacks if Bitcoin is used for faster payments than intended by design (Karame, Androulaki, and Čapkun 2012)

A separate transaction risk arises from proposals to blacklist tainted Bitcoins, specifically those that have been obtained through theft Some set of arbiters would publicly announce the ill-gotten bitcoins (much like a list of serial numbers on stolen paper currency), and the proposals call on the community to refuse incoming payments appearing on the blacklist However, blacklists are controversial within the Bitcoin community (Bradbury 2013) After all, blacklists create the prospect of rejecting transactions that have already occurred—transferring losses to those who had unknowingly accepted