APPLYING BLOCKCHAIN TECHNOLOGY IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT

It is not very easy to insert a new technology insideestablished supply chain systems becausetobeunderestimatedMougayar,2016,123.Alreadymanyprojectsareunderway toapply blockchain technol

StatementoftheProblem

Blockchainisanemergingtechnologyinthebusinessworld,especiallyinthe logistics and supply chain management area because of its huge benefits.Blockchain may bring many opportunities for the development of the logisticsandsupplychainmanagementduetothepotentialtolowertheoperatingcosts,boost the service quality, and consequently improve the organization and theentiresupplychaincompetitiveness.However,blockchainadoptersmeetmanychallengeson theirway ofbringing thistechnology to theworld.

In theory, the blockchain can become the technological answer to solvemanycurrentproblemsinlogisticsandsupplychainsectors,butitisveryhardto change and adapt It is not very easy to insert a new technology insideestablished supply chain systems because the integration challenges are not tobeunderestimated(Mougayar,2016,123).Alreadymanyprojectsareunderway to apply blockchain technology to global logistics, adding value byboosting supply chain transparency and automating administrative operations.It can be named several standing out projects such as Everledger, SmartLog,andDHL-BMWProofofConcepts(PoC).Theseon- goingprojectsareoperated differently in many ways, but they all have the same purpose to findsolutions for the problems of modern logistics and supply chain managementinthe4.0industrycontext.Addressingtheseprojectsandtheiroperatingstatus will have practical benefits for the future of the logistics and supply chainmanagement sector, and contribute to the understanding of this widespreadapplication.

Attheendofthispaper,itisexpectedtogiveanoverviewoftheapplyingstatus of blockchain technology in the field of logistics and supply chainmanagementandanswerapartofthelingeringquestion:Whatkindofinefficienc iesc a n b e m a n a g e d w i t h b l o c k c h a i n i n t h e f i e l d o f l o g i s t i c s a n d supply chain management and what are the barriers and challenges, and thepredictionofthe technology?

ThePurposeoftheStudy

This study aims to go deeply in the application of blockchain in thelogisticsandsupplychainmanagementbyexaminingvariousliteraturereviewprovided in chapter 2 and the existing use cases introduced in chapter 3 topresent the value propositions of blockchain in supply chain and logistics andseveral challenges of this technology After that, some recommendations foradaptors and predictions for the future of blockchain technology in logisticsand supplychain managementwillberepresented.

ResearchQuestions

The research will be based on the status of logistics and supply chainmanagementindustry,andtheapplicationofblockchaintechnologytothefield.As mentioned, the main goal of the thesis will be to evaluate the possibility ofapplying the blockchain in logistics and supply chain management It willfurtherbebasedonsomecasestudiesofseveralprojectsonapplyingblockchaininthi sindustry.

Tobeabletoanswertheproblemstatement,ithasbeenseennecessarytouseacoupleof researchquestions,inordertogetaroundtheproblemareaandbeing ableto answertheproblemstatement,inthebest possibleway.

The following research questions have been seen necessary in order toanswermyproblemstatementinthe best way:

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

Question 2: What are the challenges of applying blockchain in logistics andsupplychainmanagement?

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

Toanswerresearchquestion1,aliteraturereviewwillbegiventoexplainthepurposeofa pplyingthistechnologytothefieldoflogisticsandsupplychainmanagementandthewayitworks. Afterthat,severalon- goingprojectswillbediscussedindetailsforabetterviewofthecurrentstatusandtheadoptiontrendi nthe world.

Research question 2 will be answered by a summary of the literaturereviewandthe current statusof these mentioned projects aboutapplyingblockchain technology in logistics and supply chain management to give out alist of the challenges when logistics and supply chain management apply thenew blockchaintechnology.

The research question 3 will be answered by some recommendation fromthe experiences of the mentioned cases for future projects in this area and aprediction for blockchain’s future in logistics and supply chain managementindustry.

Thesis Structure

Review and Theoretical Framework, Analysis and Findings, andDiscussion.

Chapter 1 will focus on the purpose of the thesis, and then introduce theproblemstatementandtheresearchquestionsdevelopedfromit.Chapter1willalso give an overview of how the research design is built and the methodologyused The methodology will introduce to the readers the overall approach andfulld e t a i l s o f d a t a c o l l e c t i o n m e t h o d s I n c h a p t e r 2 , a l i t e r a t u r e r e v i e w a n d theoretical framework will be given after analyzing the published sources onthe main subjects of blockchain and its applications that already been used inreal life contexts Based on the thesis objectives, a number of literature will bereviewed for the references of the given topic Not all of the literature reviewwill have the same importance of the papers further development, but in orderto give a good overview and understanding and perspective on the subject, ithas been needed to include anyway The main purpose of the literature reviewis to make a foundation for the case studies about on-going projects thatapplyingblockchaintechnologyinlogisticsandsupplychainmanagement.

Chapter 3 will deeply analyze the list of case studies about on- goingprojects that applying blockchain technology in logistics and supply chainmanagement These projects’ achievements and remained problems will besummed up for a conclusion of the current state of blockchain technology inthelogistics andsupply chainmanagementindustry.

Chapter 4 will be the discussion in which the author discusses the resultsand conclude on the study’s findings, the findings in relation to the statementof the problem, and the research questions that were identified This chapteralso brings up the limitations or weaknesses of the study’s design or findingsandsomerecommendationsforfutureareasofresearchthatshouldbeconduct ed related to my study, actions, policies, or procedures related to thestudy’s findings The final part will identify the critical conclusions about thestudy anditsimplications.

Methodology

ResearchDesign

This section will give an introduction to how the design of the researchwill be, and discuss the methods relevant for this project, so the reader canunderstandhowthethesishasbeendevelopedthroughouttheliteratureandthequalitativeda tagathered.

The paper takes its starting point with the problemsand the generalproblem area in terms of blockchain applications in the logistics and supplychain management industry A literature study and relevant theory regardingthetopicwillthenbeintroduced,andusedon anumberofcasestudy projects.

Thegatheredinformationfromtheliteraturestudyandthecasestudywillthen be the foundation of the strategic adoption of blockchain, which will bedeveloped forcompanies applyingthis newtechnology intheiroperation,and be prepared for the changing of logistics and supply chain management in thesoon future.

Theassignmentsresearchdesigniscombinedwithprimaryandsecondarydata, in terms of a case study and literature study The primary source for theempirical study of the assignment will be the author’s observation of the caseproject On the other hand, the secondary data will be gathered from companyreports and scientific articles to form the scientific and theoretical approach ofthepaper.

According to Andersen 2006, there are three types of research methods;quantitative or qualitative, or a combination of both of them Andersen 2006arguesfor,thatthemaindifferencebetweenquantitativeandqualitativeresearch is the use of numbers Quantitative research is mostly based on factsand study relations between sets of facts Qualitative data on the other hand, isbased 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 aninsight instead of statistical analysis Common ways to do qualitative researchisthroughinterviewsandobservationswhereforquantitativeisthroughsurve ys.

This study is performed by using a qualitative method and by conductingdeeperinvestigationsintoanumberofcasestudiesbytestingpreviousresearch.Th e qualitative research that is performed in this thesis will be based on theinterviewwiththecasecompanyrepresentativesandexperts,andthegoalistogeta more in-depth studybyusingthis method.

DataCollection

Therearetwocategoriesofinformationwhichcanbecollectedduringthestudy, which are divided between primary and secondary data Primary datacanbegatheredthroughinterviewsandobservations,wherethesecondarydataishoweve ra lre ad ye xi st in g datawithinareas, whereresearchisbeingdone

(Andersen 2006 p 47) The secondary data is already existing data can begathered through the internet, literature of scientific journals This thesis willbe based on both primary data and secondary data The next part will give adescription of how and which sources have been used to gather the necessaryinformationof the thesis.

The empirical study of this thesis is based on a number of case studies oftheblockchainadoptioninlogisticsandsupplychainmanagement.Thechosenresearch 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 situationsas by using the open questions, the answers given will be based on current andpast situations in relation to the projects towards logistics and supply chainmanagement (Yin 2003) As there is being analyzed on “case study” it isimportanttodefine whatthisphenomenonmeans.

“A case study is an empirical inquiry that investigates a contemporaryphenomenon in depth and within its real-life context, especially when theboundariesbetweenphenomenonandcontextarenotclearlyevident.[ ]The case study inquiry copes with the technically distinctive situation inwhich there will be many more variables of interest than data points, andas one result relies on multiple sources of evidence, with data needing toconvergeinatriangulatingfashion,andasanotherresultbenefitsfromtheprior developmentoftheoreticalpropositionstoguidedatacollectionandanalysis”(Yin2003p 13).

The goal of the case studies is to understand, how the case-projects haveapplied blockchain in the field of logistics and supply chain management,andwhatapproaches and actions towardshavebeen taken (Yin 2003p.41).

The paper’s findings are characterized by several cases (i), where therewill be performed the research and observation (ii), where the goal is to createan understanding of the case organizations approach, and possible strategytowardstheadoption(iii).Itcanbearguedthatthesourcesofprimarydatawiththe cases might not be in-depth enough in relation to helping with answeringthe problem statement of the thesis The possibility was though there to getmore observations, but I am convinced that more observations would havegiven more valuable information, as the observation was performed after theliterature study was performed, and therefore I had a basic goal of what Iwanted to get answered I therefore argue and assess, that the research andobservation are enough to cover the needed information to help with theansweringoftheproblem statement.

Theprocessofthestructuringofthedatamaterialaboutthecaseorganization will be seen as the “flexible case design” (Yin 2003 p 62), as theflexible case design will allow the observation to be adapted to the path of theresearch This will also allow potential unexpected and important informationtobe included,inthegathereddatafrom theobservation.

It has not been possible to follow the cases in a long-term period, whichmeans that the empiricism from the observation is based on historical data,which forms the basis to achieve data of incidents, and events occurred beforethestartof the casestudies.

The empirical data gathered from the case studies cannot completely beseenusabletobecomparedtoallglobalandMNC’sadoptionofblockchainasthiswouldne edmorecasesonthesametopicandsametypeoforganizationtoconcludeon(Andersen2006p.139-142).Thegoaloftheprimarysourcesistostructure the case studies, find the relation between the literature studies,beable to analyze the data gathered, and follow a conclusion to the researchquestions andproblem statement.

Secondarydataincludebothquantitativeandqualitativedataandareusedprincipally in both descriptive and explanatory research (Saunders 2007) Thesecondary data can be based on journals, letters, TV programs, reports, andarticles,etc.

(Andersen2006).Thesecondarydatausedforthisthesisismostlybased on scientific papers and journals found through the school database, bysearching for specifictopics.

Informationfoundontheinternet,thecasecompanies’homepagesespecially,ha salsobeenusefulforsecondarydata,aboutthegeneralinformation of the projects A list of companies’ annual reports has also beenusedforinformationabouttheprojectstogiveapictureoftheadoptionprocess.Different reports on the topic have also been used as they also give a differentviewcomparedtothescientificview.Thesupervisor’scorrections,comments,and suggestions have also been taken into account throughout the process ofthethesis.

The analysis will connect the existing theories with my research andobservation to conclude on the current state of the blockchain adoptions in thelogistics andsupply chainmanagement industry.

The focus will be on giving recommendations and create an overallstrategicadoptionmanagementframeworkthatcanbeusedbythecaseorganiza tionsandothersimilarcompanies,operatinginthesameenvironment.

The quality of the empirical data throughout the thesis should be securedwithahighvalidityandreliability.Theempiricaldataaremostlydevelopedbythe observation of multiple case studies and gathered from information thatalreadyavailablesuchasscientificpapersandtheannualreportofthe organization.I t i s a l s o i m p o r t a n t t o s t a t e i n w h i c h d e g r e e t h e r e s u l t s o f t h e multiplecasestudycanbegeneralizedforothercompaniesandorganizations.

The validity in this thesis refers to establishing the domain to which astudy’s findings can be generalized, when doing the case studies (Yin 2003 p.34).Thetermcoverstherelationshipbetweenvalidityandrelevance,wherethevalidity is about the general accordance between the theoretical and empiricalperception plan, with the relevance concerning the fact on, how relevant theempiricalselection is fortheproblemstatement (Andersen 2006p.81).

Thetermsalsohaveadifferentmeaningdependingonwhethertheresearchisqualitati veorquantitative.Inaqualitativestudyvaliditymeansthatthere has to be conformity between the researcher’s observations and theconclusion drawn In quantitative research, validity means congruity betweenthestatisticresultandreality.Conductingqualitativeresearchwillalwayshavethe risk of subjectivity and the empirical results will therefore be affected bymy interpretation of the respondent’s description of the reality (Kvale 2006 p.231).

The research needs to be secured validity This means that the researchshould be trustworthy, valid and that the questions answered in the project arerelevant I should be clear and confident about the findings to answer theresearch questions developed Therefore the quality of the result depends onhow 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 tonotice the possibilities that exist, where the information could be companysensitive.

Forthesecondarydata,therehavebeendoneabigeffortinusingliteraturesthatconcer nthethesis’smainsubjectofblockchainapplicationsto secureahighvalidityofthesecondarydatafromscientificjournalsandreportsfromcompani eswithexperience withinthetopic.

Reliability refers the demonstration of the operations of a study, like thedata collection procedures can be repeated, with the same results (Yin 2003 p.34).Thereliabilityofastudyisaffectedbythewaytheresearchiscarriedout,the researcher’s precision and attention during the processing of the gatheredinformation (Andersen2006).

In this thesis the reliability has been sought by having a number of casestudyprojectsinthefield.Naturallythereliabilitycouldhavebeenevenhigherifitcouldha vebeensupportedbyperformingamultiplecasestudy,byhavingmore companies with same type of operations observed and getting theirexperiences of adopting blockchain in logistics and supply chain managementaddedtotheresearch.Aquantitativeresearchbyaddingasurveywherealarger amount of companies answering could further have been made, but haven’tseenveryuseful,intermsofthethesisneedingsomemoreindepthanswers,interms ofdifferentexperiences comparedtoasurvey.

The generalization of the case study design has often been criticized andmanyauthorshaveseenthecasestudydesignasunscientific.Themethodhas,althoug hitisextended,beenverylittleinvolvedinmethodliterature(Andersen2006p.115).Andersent houghthinksandassessesthecasestudyasverycrucialand important, when doing scientific studies According to Yin (2003), thereare two categories of generalizing results from case study to theory:analyticgeneralizationandstatisticalgeneralization.Analyticalgeneralizationreliesoncase studies (as with experiments) where previously developed theory is usedas a template with which to compare empirical results of the case study Thestatistical generalization ontheotherhand relies onresearchbasedon surveys where a conclusion is made about a population on the basis of empirical datacollected from asample.

Inthisresearchtheresultswillbegeneralizedthroughanalyticgeneralizationbein gthemostcommoncasestudyapproach.Previousresearchand theories will be tested by examining the results from the case study.

I T E R A T U R E R E V I E W A N D

BackgroundKnowledge

International trade involves a wide range of processes and facilities It isnot just as simple as original trade In the old days, when the world’s trade hasnot become as complicated as of now, trade was simply an action of directlytransferring goods or services between people to something else or to money(untilwhenmoneywasinvented).Overtime,internationaltradehappeneddueto the differences among countries and areas about resources, advantages,technology,andotherreasons.Andtradehasbeennolongerneededtoinvolvedirecti nteraction.

The evolution of trade dragged along the procreation of a lot of concepts,two of them are logistics and supply chain management These two conceptshave been applied and used long ago since the beginning of trade before beingdefinedandstudied.Untilnow,notmanypeoplecouldunderstandclearlywhatlogisticsandsup plychainmanagementarebecausetheyarepartsofthetradingprocessandtheyarealsonotsom esinglevisibleactsthatonecouldtellexactly.

Ingeneral, logistics isa chainof actionsfrom takingthe productattheproductionpointtodeliveringittocustomers.

"Logistics is about getting the right product, to the right customer, in theright quantity, in the right condition, at the right place, at the right time,and at theright cost(the7Rs)"- John J.Coyleetal(2016)

Regardingtheabovedefinition,logisticsseemsalmosteverything,including customer services, purchasing, production planning, warehouse, andtransport.Inthepast,theseactivitieswereseparated,therefore,themanagement became cumbersome and inconsistent The birth of the logisticsconcepthelpstogathertheoperationoftheseprocessesunderthemanagementofonlyo nedepartment,reducepartofthetradingcost.Logisticsdealswiththeefficiencyandeffectivenesso fdailyoperationstoutilizeproductionresources.

Ontheotherhand,thesupplychainincludesnotonlythesingleorganization but also its networks of companies from the input phase until thefinal step of delivering the products or services to the market Michael Hugos(2003) defined Supply Chain Management (SCM) by all the activities oflogistics, marketing, product development, and finance, while he supposedlogistics only including procurement, distribution, maintenance, and inventorymanagement,oritiscalled“traditionallogistics”.

Thedifferencebetweennewlogisticsandtraditionallogisticsistheinvolvement of the third (or even fourth) party logistics Traditional logisticslimitsthescopeoflogisticsactivitieswithintheboundariesofthecompanyitself.Ho wever, in the real context, to reduce costs and maximize the usage of tradefacilities such as ports, ships, and warehouses, 3PL or 4PL provides logisticsservices for manufactures and producers to bring their products to the hand ofcustomers.Asaresult,thenewlogisticsconceptwasborn.

Somehow the definition of logistics and supply chain overlap each other,somanypeoplemistakethesetwoarethesame.However,theyarestillt wo separate concepts that need different management methods, and both of themdosupplementthe other.

Nowadays, logistics stands out as a dynamic sector that develops rapidlyon a global scale The volume of international trade has risen due to liftingbarriers to international trade, increasing foreign investors, and technologicaldevelopments.Barrierssuchascustomstaxes,quotas,andcapitalcontrolst hatseparatenationaleconomieshavegonedown.Services,workforce,andcapitalbecomefaster and easier tomovebetweencountries.

In parallel with the increase in international trade volume, the loss of thebordersbetweencountriesandthedevelopmentoftheconceptofglobalization,the logistics sector has recently gained importance Now, logistics has becomeone of the most important, the largest and the most dynamic sectors in theworld Goods and services are designed in any geographical area of the world,produced in a different land and demanded elsewhere Thus, in order to standout and have advantages, quick and timely delivery has become important forserviceandmanufacturingcompanies.

Thelogisticssectorentersintothepicturefromthisperspective.Itplaysa role in product delivery from any point in the world, storage in requiredpoints, package, and customs clearance, and so on Logistics is an importantcompetition power for companies that are in deadly rivalry to survive amongothers,lookforwaystoproducequalityproductscheaper,markettheseproduct s,andgainnew successes fromquality and cost perspective.

Withoutlogistics,itisimpossibletobesuccessfulinmarketing,production, and international trade In advanced industrial societies, logisticscompetence is of great importance and customers expect products they boughtwillbedeliveredaspromised.Inextraordinaryevents,thenecessityoflogisticscompetence is understood better The party that makes the planning in the bestway hasgreatadvantages inthisfield.

The logistics sector is continuously improving all over the world and thecompetitionlevelinthissectorisincreasing.Hence,companiesshoulddevelopthemselvescon tinuouslyoncost,humanresources,qualityofactivities,management process,efficiencies,andtechnology.

In addition, supply chain management is not only a process served togenerateacostreductioninthebudgetoramissiontocreategreateroperationalefficiencieswithi nanorganization.Whiletheseareapartofthewholeecosystem,modernsupplychainm anagementencompassesthestrategicalignment of end-to-end business processes to realize market and economicvalue, as well as giving a firm the competitive advantage over their businessrivals.Supplychainmanagementhasbecomeanintegralpartofabusinessandis essential to any company’s success and customer satisfaction Supply chainmanagement has the power to boost customer service, reduce operating costs,and improve thefinancialstandingofa company.

In order to enhance the competitiveness and performance of logistics andsupply chain management, innovative technologies have been applying andthey have been changing the global business relations The emerging newtechnologies are creating strategic opportunities for the organizations to buildcompetitive advantages in various functional areas of management includinglogistics and supply chain However, the degree of success depends on theselection of the right technology for the application, availability of properorganizational infrastructure, culture, and management policies In logistics,information, communication, and automation technologies have substantiallyincreased speed of identification, data gathering, processing, analysis, andtransmission,with ahigh level of accuracy andreliability.

A lot of new innovative technologies have been adopted in the logisticsands u p p l y c h a i n m a n a g e m e n t s e c t o r s u c h a s a u t o m a t i c i d e n t i f i c a t i o n technology, communication technology, and information technology Each ofthese technologies is used to solve one or many problems that occurred in thelogistics andsupply chainmanagement process.

Logistics and supply chain are those activities that connect all productioninvolved subjects together and make them an end-to-end process. Today’ssupplychainsaretoocomplicatedandbrokeninmanyways.Moreover,shipments are lost, damaged, or delayed too often because of confusion in thechain of custody The main problem in logistics and supply chain often lies inthelackoftransparency,asthereisoftennooverviewofthecurrentorderstatusortransports arecarriedoutwithoutcentralcontrol,andstillalotofmiscommunication between vendors and suppliers, as well as difficulties intracing each stage of deliveries. For years, many research papers have beenconducted to find out the solution to this problem The adoption of technologyand the availability of innovative solutions in the transportation industry haveevolved over the past ten to fifteen years, providing greater access to data andinformation,whichincreasestransparency.

Blockchain is one of those technologies that is expected to be an answerto the question of transparency issue In the easiest words, “blockchain”- thename is exactly what it is made of, a chain of blocks that are connected bycryptography, a technique for information security To fully understand whatisblockchainandhowdoesitwork,thefollowingpartwillintroducethehistoryofblock chain,thedefinition,and theoperationofthistechnology.

The original idea of blockchain technology came from the developmentofcryptography.Inthebeginning,cryptographywasmeanttouseonconf idential messages It started when ancient ancestors wanted to keep theircommunicationonsecret.Thatwaswhentheyinventedencryptionmethodstoconvert the comprehensible messages into incomprehensible forms. Theseencryptedd a t a c o u l d o n l y b e r e a d w i t h a se c r e t k n o w l e d g e sp r e a d w i t h i n a small number of people who created and agreed to use them, which is calledthe decryption key (Rouse, 2020) Over time, this technique was applying todigitaland computing dataas to secureinformation on theinternet.

Blockchain technology is an application of cryptography techniques Itwas assumed to be invented firstly in 2008 by an unknown person, or a groupofpeople,usingthenameSatoshiNakamoto.Atthattime,itwasusedtomakecryptocurre ncybitcoin,“thefirstdigitalcurrencythatsolvedthedouble- spendingproblemwithouttheneedofatrustedauthorityorcentralserver”,theEconomist said.

BlockchainApplicationsinFinancialAreas

Originally being developed for applications of a cryptocurrency, Bitcoin,the most important application of blockchains technology takes place in thebankingandfinanceindustry.Duetotheabilityofvaluerecording,allkindsofassets can be stored and transacted securely and privately within a blockchainsuch as money, equities, bonds, titles, deeds, contracts, etc This technologyomitstheappearanceofanythird partyentitieslikegovernmentsorbanks.

The Bitcoin or digital currency was first introduced by an anonymousperson or group under the alias Satoshi Nakamotoin 2008 together withblockchain technology The Bitcoin appears in many forms with differentnamesandherearesomeexamplesofactiveBitcoins:Bitbond,BitnPlay,BTCJam, CodiusandDeBuNe,accordingtoTasatanattakoolandTechapanupreeda(2018).Thekeyinn ovationinBitcoin,comparedtootherformsofcryptographiccash(Chaum1983)orvirt ualcurrencies(EuropeanCentralBank2012),isitsdecentralizedcoretechnologies.Earlyado pterspraiseddecentralization and by all indications chose Bitcoin because they wanted tousea decentralizedsystem(Raskin2013).

(2015)proposedcertainadvantagesofdecentralization.Itavoidsconcentrationsofpo werthatcouldletasinglepersonororganizationtakecontrol.Itoftenpromotestheavailabilitya ndresiliencyofa computer system, avoiding a central point of failure It offers at least theappearance of greater privacy for users (and perhaps greater genuine privacy)because in theory an eavesdropping adversary cannot observe transactionsacrossthesystembytargeting any single pointoranysingleserver.

In light of widespread criticism of the fees charged by credit and debitcard networks (Anderson 2012), Bitcoin could offer an alternative that mightpressurecardnetworkstolowertheirpricestomerchants.Someearlyevidenceseems to confirm that Bitcoin may have this effect Overstock.com, an onlineretailer, began to receive payments by

Overstockreportedafavorableresponse,includingsignificantrevenuegains,largeav erage order sizes, and desirable customer demographics (Sidel 2014). Othermerchants subsequently added Bitcoin support, including Expedia (travel),Newegg (electronics),

Foodler (restaurant delivery and takeout), Gyft

(giftcardsfordozensofmerchants),andTigerDirect(electronics).Paymentprocessor s help online merchants adjust their websites to accept Bitcoin Earlyuser reviews are mixed: users seem largely satisfied, though technical glitchessometimesoccur.MerchantsappearparticularlypleasedbecauseBitcoinpaymentpr ocessingis strikinglylow-costforthem.

Some computer scientists and entrepreneurs report excitement at Bitcoinnotforitsroleinfacilitatingpayments,butforitsabilitytocreateadecentralized record of almost anything Marc Andreessen (2014), best knownas coauthor of Mosaic (the first widely-used web browser), presented therationale:

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

Todate,therehasbeenonlylimiteduseoftheBitcoinplatformtoprovideservices other than payment Entrants building on the Bitcoin platform includealternativedomainnamesystems,virtualpropertyrightsmanagement(Rosenfeld2012),securecommitmentschemes(ClarkandEssex2012), fairnessinmulti-partycomputationensurement(Andrychowicz,Dziembowski, Malinowski, and Mazurek 2014), and decentralized predictionmarkets. However, none of these startups has attracted large-scale use to date,and each faces significant competition from firms and processes using moretraditionalsystemdesign.

Rainer Bửhme et al (2015) also pointed out the risks in Bitcoin. Theyshowed that Bitcoin’s design presents distinctive risks that differ from otherpaymentmethodsandstoresofvalue,includingmarketrisk,theshallowmarketproblem, counterparty risk, transaction risk, operational risk, privacy- relatedrisk,andlegalandregulatoryrisks.Anyuserholdingbitcoinsfacesmarketriskvia fluctuation in the exchange rate between bitcoin and other currencies.

TherelativelylowweeklytradevolumessuggestthatBitcoinusersalsoexperiencea shallow market problem For example, a person seeking to trade a largeamount of bitcoin typically cannot do so quickly without affecting the marketprice.

GivencentralizationintheBitcoinecosystem,counterpartyriskhasbecome substantial. Exchanges often act as de facto banks, as users convert acurrency to bitcoin but then leave the bitcoin in the exchange However, 45percent of the Bitcoin currency exchanges studied by Moore and Christin(2013) ultimately ceased operation High-volume exchanges were more likelytoclosebecauseofasecuritybreach,whileoperatorsoflow- volumeexchangesweremorelikelytoabscondwithoutexplanation.Oftheexchangesthatclosed, 46percentdidnotreimbursetheircustomersaftershuttingdown.Ifusersavoidholding their bitcoins in an exchange and instead use a digital wallet service,otherrisksarise,asthesefirmshavebecomealucrativetargetforcybercriminals.Examples include 4,100 bitcoins (valued at $1.2 million atthen-applicable rates) taken from Bitcoin wallet inputs.io in November2013,leadingtothatcompany’sdefault(McMillan2013)aswellas1,295bitcoi ns

($1 million) takenfrom Bitcoin paymentprocessor BIPS the nextmonthfollowingdenial-of-serviceattacks(Southurst 2013).

The irreversibility of Bitcoin payments creates heightened transactionrisk.Ifbitcoinsaresentduetoerrororfraud,theBitcoinsystemoffersnobuilt-in mechanism to undo the error Of course, a buyer and seller can voluntarilyagreetocorrecterrors,buttheBitcoinprotocolhasnomechanismtoretakethefunds by force In a world of competing payment methods, irreversibility putsBitcoin at a disadvantage: all else equal, consumers should favor a paymentsystemthatallows reversalofunwantedormistakencharges.

Transactionriskalsoariseswhenreceivingpayments.Asdiscussedabove,Bitcoi ntransactionsdonotclear(andhencearenotfinal)untiltheyhavebeenaddedtotheauthoritative blockchain.Transactionbatchesareonlyaddedevery ten minutes on average This creates at least two potential avenues forabuse First, there is a low but persistent risk that the authoritative blockchainwill later be cast aside by a majority of participants to cancel any transactionsrecorded in that version of the blockchain Second, malevolent participantscould double-spend bitcoins, particularly through rapid transactions before theblockchainisupdated.Theprotocolhastakenstepstomitigatethispossibility,but researchers have demonstrated viable attacks if Bitcoin is used for fasterpaymentsthanintendedbydesign(Karame,Androulaki,andČapkun2012).

AseparatetransactionriskarisesfromproposalstoblacklisttaintedBitcoins, specifically those that have been obtained through theft Some set ofarbiters would publicly announce the ill-gotten bitcoins (much like a list ofserialnumbersonstolenpapercurrency),andtheproposalscallonthecommunity 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 havealreadyoccurred— transferringlossestothosewhohadunknowinglyaccepted bitcointhatlaterturnedouttobeill-gotten.Blacklistsaddsignificantcomplexity and create a risk of abuse by those who manage the blacklists.Finally, the widespread use of blacklists could undermine the fungibility ofbitcoins With the blockchain available for public inspection, each bitcoin canbe traced to its unique transaction history, and in principle market participantscouldplacevaryingvaluesonbitcoinsaccordingtotheirapparentriskoffutureblacklisting.

OperationalriskencompassesanyactionthatunderminesBitcoin’stechnicalinfr astructureandsecurityassumptions.Forexample,despiteauser’sefforts tokeepaprivatekeysecure,vulnerabilitiesaretobeexpected— includingoperatorerror,securityflaws,andmalwarethatscoursharddrivesinsearchofwalletcred entialsandprivatekeys.Atleastasworrisome,theBitcoinplatformfacesoperationalrisksthro ughpotentialvulnerabilitiesintheprotocoldesignorbreakthroughsincryptanalysis.Communit yattentionhasfocusedonthe so-called “51 percent attack,” in which if some group can reliably controlmore than half the computational power, they can seize control of the system(Barber,Boyen,Shi,andUzen2012).Ifsuchattacksarose,theBitcoincommunity might devise defenses, but the conflict and transition would bechaoticandwould probably undermine trustinBitcoin Denial-of-serviceattacks form a particularly prominent operational risk, particularly large forthosewho use Bitcoin through variousintermediaries.

Denial-of-serviceattacksentailswampingatargetfirmwithmessagesandrequests in such volume that it becomes unusable or very slow Such attackshavediversemotivations.Forexample,anattackonaminingpoolcanpreventapool’sp articipantsfromsolvingthecurrentpuzzleandthusgiveanadvantageto all other miners (Johnson, Laszka, Grossklags, Vasek, and Moore 2014).News of an attack can undermine trust in an exchange or even in Bitcoinitself— allowinganattackertobuybitcoinatlowerprices.Finally,attackers can demand ransom from service providers (such as exchanges), threateningattacksthatwouldunderminetheservice’soperationandcustomers’confi dence.

Bitcoinraisescertainprivacyrisks,mostnotablytheriskthattransactionscan be linked back to the people who made them Bitcoin transactions are nottruly anonymous: instead, they are pseudonymous, in that each transactionspecifies account information (the user’s public key) albeit without personalnames,andtheblockchainpublishestransactionsbythatuseridentifier.More over,transactionsmadeusingBitcoinoftenrevealrealnames—forexample, as funds are converted to or from currencies in traditional banks, orwhen purchases from retailers reveal a customer name and mailing address. Inprinciple,aBitcoinuser’sidentitycouldbeobtainedfromonesuchsourceandthen associated with the user’s other transactions—flouting the widespreadexpectationof privacy.

Finally, Bitcoin systems face numerous legal and regulatory risks acrosscountries.Forexample,alaw-abidingusercouldlosefundsinanexchangethatis frozen or seized due to criminal activity—even if only a portion of theexchange’s customers were in fact engaged in such activity Furthermore, theuncertaintaxtreatmentofBitcoingains andlosses hinderstaxplanning.

Blockchainin non-financialareas

There was an application “Smart Contracts” that was invented in the year1994 by Nick Szabo It was a great idea to automatically execute contractsbetweenparticipatingparties.However,itdidnotfindusageuntilthenotionofcryptocurren ciesorprogrammablepaymentscameintoexistence.Nowthetwoprograms,BlockchainandSma rtContractscanworktogethertotriggerpayments when a preprogrammed condition of a contractual agreement istriggered.SmartContractsarereallythekillerapplicationofthecryptocurrencyworld.

AccordingtoCrosby,Nachiappan,Pattanayak,Verma,andKalyanaraman

(2016), Smart Contracts are contracts which are automaticallyenforced by computer protocols Using blockchain technology has made itmuch easier to register, verify, and execute them Moreover, open sourcecompaniesl i k e E t h e r e u m a n d C o d i u s a r e a l r e a d y e n a b l i n g S m a r t C o n t r a c t s using blockchain technology and many companies which operate on bitcoinand blockchain technologies are beginning to support Smart Contracts Manycases where assets are transferred only after meeting certain conditions, whichrequire lawyers to create a contract and banks to provide Escrow services, canbe replaced by Smart Contracts According to Banton of Investopedia

(2020),Escrowisalegalconceptdescribingafinancialinstrumentwherebyanassetorescrow money is held by a third party on behalf of two other parties that are inthe process of completing a transaction Being in escrow is a contractualarrangement in which a third party (the stakeholder or escrow agent) receivesand disburses money or property for the primary transacting parties, mostgenerally,usedwithplentifultermsthatconducttherightfulactionsthatfollow.The disbursement is dependent on conditions agreed to by the transactingparties.

Inparticular,Ethereumhascreatedlotsofexcitementforitsprogrammable platform capabilities The company allows anyone to createtheir own cryptocurrency and use that to execute and pay for Smart Contracts,while it also possesses its own cryptocurrency (ether) which is used to pay forthe services Ethereum is already powering a wide range of early applicationsinareassuchasGovernance,autonomousbanks,keylessaccess,crowdfunding,financ ialderivativestradingandsettlement,allbyusing SmartContracts.

Vujicic, D., Jagodic, D., & Randic, S (2018) supposed that an Ethereumblockchain is similar to the Bitcoin blockchain The main difference is thatEthereum blocks contain not only the block number, difficulty, nonce, etc. butalso the transaction list and the most recent state For every transaction in thetransaction list, the new state is created by applying the previous state Theblock header in the Ethereum blockchain consists of the Keccak 256-bit hashof the parent block’s header, the address of the mining fee recipient, hashes oftherootsofstate,transaction,andreceiptstries,thedifficulty,thecurrentgas limitoftheblock,anumberrepresentingtotalgasusedintheblocktransactions,timesta mp,nonce,andseveralextrahashesforverificationpurposes,accordingtoWood,G. (2018).

One of the biggest problems of Bitcoin’s network is the eligibility forASIC mining Ethereum uses Ethash as the proof-of-work algorithm which ismemoryheavyandthuslesssuitableforASICmining.Buterin(2013)showedthat Ethash represents the modification of the Dagger-Hashimoto algorithm.EverynodeintheEthereumnetworkrunsunderEVMandexecutesitsinstructio ns.ThesmartcontractsaretranslatedintoEVMcodeandthenexecuted by the nodes One of the most popular programming languages forwriting smartcontractsisSolidity.

Although there are concerns about Ethereum scalability, Filiba (2017)recorded that the Ethereum network successfully managed over one millionuniquetransactionsin24hours,averagingataround11transactionspersecond.“Sere nity” prototype of Ethereum platform based on the Casper consensusalgorithm,intendedforlaterimplementation,issupposedtoenablethetransitio n to the proof-of-stake mining paradigm, where the reward is given totheminersnotbasedontheircomputations,butontheircoinholdings(themorecoins the userpossesses,the bigger reward gains).

The potential usages of Ethereum are described by Buterin in 2013 astokensystems,financialderivatives,identityandreputationsystems,filestorage,in surance,cloudcomputing,predictionmarkets,etc.Themostimportant use case ofEthereum is decentralized apps (Dapps) Some of themareGolem(supercomputing),Augur(predictionmarkets),Civic(identityverific ation and protection), OmiseGO (exchanges on a public blockchain),Storj(renting the hard drive space), and many more who succeeded in raisingenough money through ICOs (Initial Coin Offerings) to be represented on thecryptocurrency market.

The biggest problem of Smart Contracts lies in security issues. About34,200 current Ethereum smart contracts worth $4.4 million in the ether arevulnerableto hackingduetopoorcodingthatcontainsbugs.

ThatisthealarmingconclusionfiveresearchersfromtheU.K.andSingapore posited in their report entitled “Finding The Greedy, Prodigal, andSuicidal ContractsatScale."

In their paper, the authors identified three major categories of smartcontractsthatareeasytargetsforbeinghacked:greedy-lockfundsindefinitelycontracts, prodigal - funds leaking to arbitrary users, and suicidal - easy to killcontracts.

Smartcontractsandtheircodesexistinadecentralizedblockchainnetwork. While smart contracts have been hailed for their ease of use andrelatively lower costs, they are vulnerable to cyberhackers The authors of“FindingT h e G r e e d y , P r o d i g a l , a n d S u i c i d a l C o n t r a c t s a t S c a l e " a n a l y z e d

970,898smartcontractsanddiscoveredthat34,200ofthemareeasytargetsforhacking.That meansabout 1in20smart contracts areat risk.

‘Intellectual property’ (IP) refers to the protection of the application ofideas and information of commercial value (Cornish et al 2013, p 6) Cornishet al (2013, p 7) identify three central types of IP: ‘patents for inventions, thecopyrightforliteraryandartisticworksandassociatedproducts,andtrademarksandna mesforthegoodwillattachingtomarketingsymbols’.Thispartfocusesinparticularoncopyri ght:‘arightgivenagainstthecopyingofdefinedtypesofcultural, informational and entertainment productions’ produced by authors,playwrights, composers, artists and film directors (Cornish et al.

8).Copyrightisconferredautomaticallytoliteraryandartisticworksbutonlywhenwritten downorrecorded:critically,‘itistheparticularexpressionmakingupaworkwhichisprotected,ra therthantheideabehindit’(Cornishetal.2013,9).

Whiledigitaltechnologyisfarfromthefirstchallengetocopyright,itmayprove the most significant, since ‘digitization has made unauthorized accessand distribution of copyrighted work easy and ordinary’ (Klein et al 2015, p.3).Indeed,somescholarshavesuggestedthatIP,ascurrentlyunderstood,maynotsurvivet hecurrentera(Cornishetal.2013,p.11).AsCornishetal.(2013)assert, IP is essentially negative: although there may be positive entitlements,IPrightsareprimarilyanattempttopreventparticularactivities,suchaspiracy.In practical terms, however, lawsuits and threats have achieved limited results(Kleinetal.2015,p.31),sincepeer-to-peerfile- sharingsites,forinstance,haveproved difficult to shut down Digital technology has stretched copyright ‘tobreaking point’, resulting in ‘a gulf between copyright law and everydaypractices’ (Klein et al 2015, p 1) There are problems with royalty payments,whichareslow,inefficient,andopaque,anditisdifficulttoassess whether labels, publishers or collection societies are processing payments efficiently(O’Dairet al.2016).

Somehavesuggestedthatasolutioncouldlieindistributedledgertechnologies(D LTs),suchasblockchaintechnology.A‘distributedledger’canbe understood as a type of distributed database; its aim is to overcome thepresence of malicious users or nodes (Hileman and Rauchs

Ablockchainisaparticulartypeofdistributedledger:onethatis‘composedofachain of cryptographically linked “blocks” contained in batched transactions’(Hileman andRauchs2017,p.11).

Proponentsidentifythreeadvantagesofblockchaintechnologyforcreatingadist ributedIPdatabase(O’DairandBeaven2017).Firstly,theyclaimthat it guarantees authenticity: metadata can be inextricably bound to therelevant data file, be it a song or a film Secondly, proponents state thatblockchain technology allows for provenance: usage and ownership can berecorded Thirdly, champions of the blockchain state that it can facilitate thefaster and more efficient payment of royalties, in some cases by removingtrusted intermediaries and facilitating a direct-to-fan model These advantagesmay seem compelling, and they are propounded by a number of start-ups,funded either by traditional venture capitalists or by means of token sales, alsoknownasinitialcoinofferingsorICOs.AtokensalecanbeakintoaKickstarter-style crowdfunding campaign, which allows the general public toparticipate in an early-stage project; the important difference, however, is thatmost tokens are tradeable (Chen 2017).Token sales offer the possibility ofraising significant sums of money at speed:millions of dollars can be raised inseconds, even by companies yet to produce a product (Sahdev 2017) At thesametime,itisimportanttorecognizethattokensalesvarywildly,withonlyaminority of tokens offering fractional ownership in the value of the underlyingorganization (Conley2017,p.1).

In their paper “A Critical Examination of the Application of BlockchainTechnology to Intellectual Property Management”, Ito, K., & O’Dair, M.(2018) had proposed potential problems of using blockchain technology for IPmanagement from an operational perspective They are Authenticity Problem,ProvenanceProblem,RoyaltyStabilityProblem,andTentativeSolutions.

Inalmostallblockchain-basedintellectualpropertymanagementsystems,we first have to convert some IP information into a hash and record it in adistributedledger.Thisisarelativelysimpletaskbutitisvaluableinprovidingassurance that a protected work existed at a certain point in time (Proof ofExistence)because blockchainsare robust— even‘immutable’.Byaddinginformationonrightsholders,itwouldbepossibletogoastep beyondproofofexistence—to what we might call proof of ownership A number of relatedserviceshavealreadybeenproposed,suchasadigitalcertificatethatmakesuseof blockchain

‘timestamping’ (e.g Binded) and a common protocol for

IPmetadata(e.g.CoalaIP,SPOOLonAscribe).However,afundamentalproblemin this first step is that, for information that is not native to the blockchain wecannotguaranteeitsauthenticityatthemomentofregistration:thisissometimes referred to as the ‘garbage in, garbage out’ problem If copyrightownership information is entered incorrectly, either deliberately (by a badactor) or mistakenly (due to human error), it is unclear how conflicts would beresolved without a trusted third party (TTP) Although it can store informationinarobustandimmutablemanner,blockchaintechnologyalonecannotconfir mtheauthenticityoftheregisteredinformation.

Unlessanduntilwecanaddressthisauthenticityproblem,practicaloperations will be restricted to a public but permissioned network that cancontainonlyinformationauthorizedbyaTTP.Thiscorrespondstotheexampleof the academic journal where the process of reviewing submitted papers isrecordedonablockchain,ratherthanacentralizedpre-printserver(e.g.

Ledger) In this case, even though the data can be preserved in a secureenvironment, only the authorized editors are responsible for its input If asolution requires governance by a TTP, it is not based on the innovationachievedbyBitcoin,anditalsocontradictsourgoaloffacilitatingIPmanag ement by disintermediation If, for the sake of argument, we assume theauthenticityproblemissomehowsolved,thenextchallengeconcernsrecordingtransfersof ownership.

There is an expectation that blockchain can facilitate the transfer of IPwithout requiring a TTP, and that it can overcome the problem of

Blockchainin Logisticsand Supply ChainManagement

2.4.1 Potential blockchain applications in the logistics and supply chainindustry

As introduced, blockchain is considered to offer a large potential forimproving processes and enhancing business models in logistics and SCM.However,accordingtoarecentstudyontrendsinlogisticsandSCM,Blockchain is only known to some logistics experts and even fewer pursueimplementation plans(Kerstenet al.2017).

Thefollowingsectionpresentstheidentifiedpotentialblockchainapplication in logistics based on the diffusion of innovation theory and theassociatedattributesofinnovationframeworkbyRogers(1962),whichcomprisesr elativeadvantage,compatibility,complexity,trialability,andobservability (see Table 2.1).

Blockchain applications in logistics are expected to provide a relativeadvantagebasedonimmutability,transparency,anddecentralizationasinher ent features of the technology For instance, Kim and Laskowski (2018)andCrosbyetal.(2016)highlighttheaccesstocrucialdatasincetheinformation is stored across several computers, providing a secure, duplicated,and synchronized ledger, i.e., for digital bills of lading“which cannot besecretlyaltered[ ]becausetheoriginalisalwaysvisible”(Morley2017).

For example, digital bills of lading would facilitate to speed up currentprocesses and to reduce cost, as they allow for the elimination or reduction ofpaperwork associated with today’s business practices (Hackius and Petersen,2017).

Moreover,theabilitytotracetheoriginsofgoodsortogainmoreknowledge about them in the current logistics system is rather limited (Yang,2017) The blockchain provides a secure platform for actors to share andexchangeinformationconcerningtheirgoodsandproducts.Theabilitytoshareinformationan dtoprovetoconsumersthattheirproductsoriginatefromsafe andsustainableproducerscouldincreasecustomerloyaltyand,hence,profitability.

Similarly, the awareness of environmental impact stemming from freighthas increased and logistics providers have introduced sustainable options.However, the various layers of subcontractors involved in typical transportprocesses make it difficult to verify environmentally friendly standards Byhaving such information on the blockchain, customers would be able to tracethegoodsbacktothefirstnodeinthechainoftransport,providinginsightintothe chosen transport route and the carrier choice More importantly, smartcontractscanprovidearelativeadvantageasanadoptionmighteliminateoratleast substantially reduce transaction costs through the recording and auditingfunctions of the blockchain, as well as the possibility to execute paymentsautomatically (Herold,2017-2018).

In terms of compatibility, three blockchain-based innovations seem topromisethemostbenefitswhenadopted:verifyinggoods,reducingpaperwork,and end-to-end tracking Global supply chains contain valuable goods andverifying documentation in the form of letters of credit or bills of lading thataremovingacrosstimeandspace,areinvolvingmultipleactorsand,thus,facetheriskoff orgery,theft,andalteration(Lehmacher,2017).Deployingblockchain solutions can, for example, significantly reduce the possibility tomanipulateanitemasinformation in theblockchaincannot bechanged.

Moreover,anadoptionofthetechnologywouldimprovethemanagementofcurrentlyc umbersomeadministrativepaperwork,asconsignmentvalidationand control currently are time- consuming and include the prospect of humanerror affecting the process Furthermore, current practices enable the ability totracktheshipmentofapackagethroughthecompany’sinternaltrackingsystemontheirho mepage.However,atpresent,theinformationisoftenlimitedto timestampsofwhenthepackageentersthelogisticsserviceprovider’shandlingsystem,accor dingtoShermin(2017).Registeringapackageontheblockchainwouldallowforfollowing themovementsthroughoutthesupplychainandgainmoreaccurate information regardingthe time ofdelivery.

The aspect that emerged most in the literature represents complexityrelatedtotheunderstandingofblockchaintechnology.Atthisstage,thetech nologyis stillconsideredrelatively immaturecausingthecreationofdifferentdefinitionswhichareleadingtomisrepresen tationsandmisunderstandings(Kshetri,2018).Sofar,itseemsthatblockchainiscomplexb ecause “everyone has their own definition of it and it is a very abstractconcept”(DiGregorio,2017),characterizingthelackofacommonunderstandin g deriving from blockchain’s complexity This lack of commonunderstanding may encourage organizations to develop their own blockchainsystemwithoutbeingdesignedforinteroperability.Inlogisticsthiscould,asanexamp le,leadtotheconstructionofplatformsfortrackingtransportsspecificallydesignedto matchtheneedsofonly alimited numberofactors.

Findingsfromcurrentliteratureshowthatcompaniesprefertotestblockchainsol utionsandthatvariousproofsofconceptarecurrentlydevelopedin order to showcase the technology’s value propositions Concerning theobservability within blockchain innovation, the immaturity of the technologyand the lack of scale make it difficult to assess empirical results, pointing tomore research and practical implementation before presenting conclusions.However,basedonseveralproofsofconcept,ITvendorsarealreadypresentin gestimatedcostssavingsderivingfromreducedlabouranddocumentationcosts(Huckle et al and

White) According to Di Gregorio and Nustad, the costsavingsste mm in g fr o m po te nt ia l b l o c k c h a i n so l u t i o n sa r e r ela ti ve ly e a sy t o hypothesizeandquantifybycomparingthemtoreferencecostsassociatedwithcurrent business processes, in particular cost savings from automation andefficiency gains.

- Customers gain the ability to evaluate the product or supplier before makinga decision

Compatibility - Provides customers with the information they want concerning productoriginsandthefreightroute

- EffectiveusageofQR-codes,RFID,NFC-tags,WiFi,oriBeacons

- A network working on a platform in purpose of exchanging intangible andtangibleresources

- Multipleactiveplatformstojustaccessbothprivateandpublic Trialability - The extent of participation and information sharing is determined andregulated bytheuser

According to Iansiti and Lakhani, the use of blockchain applications willhappen in different transformation stages and will require different levels ofcollaborationa n d c o n s e n s u s , a s w e l l a s l e g i s l a t i v e a n d r e g u l a t o r y e f f o r t s

Moreover, organizational processes, capabilities, and infrastructure have to beestablishedinordertofacilitatetheimplementationoftheseblockchainapplications.

Thisleadstothequestionofwhichblockchainapplicationofferstherightopportunity to start with The framework from Iansiti and Lakhani can help tocategorize usage scenarios according to their novelty and coordination efforts,therebyhelpingmanagerstoidentifysuitablebusinessopportunitiesandcorrespondi ng startingpoints(seeTable2.2).

Single-use - Enablesmonitoring,trackingandtracingin-housetransports

- Gradualincreaseofblockchainstart-ups,andactiveplatforms Localization - Easepaperworkprocessing

- The extent of participation and information sharing is determined andregulated bytheuser

- Provides actors with the choice of buying sustainable products andtransport

Substitution - Provides customers with the information they want concerning productoriginsandthefreightroute

- Open access to information concerning the activities within the supplychain

- EffectiveusageofQR-codes,RFID,NFC-tags,WiFi,oriBeacons

- A network working on a platform in purpose of exchanging intangible andtangibleresources

For most logistics companies, the best way to start on blockchain is topursuesingle-usecases,whichminimizeriskbecausesuchapplicationscanbebased on existing systems and, therefore, involve little coordination with thirdparties Achieving proof of concept or building prototypes for single- use caseswill help organizations to develop the skills they need for more advancedapplications.Anotherlow- riskapproachistousetheblockchaininternallyasadatabaseforapplicationsmanagingphysic alanddigitalassets,recordinginternal transactions, and verifying identities, where stakeholders learn all thenuances of using blockchain technology in a confined environment

(Heutger,2018).Thismayalsobeausefulapproachforcompaniesstrugglingtoreconcilemultipl e internal databases and could provide an opportunity for stakeholderstotesttheapplicationonasmallscalewhileconductingmoredetailedassessme nts when rolling out on a larger scale At this stage it is imperative toinclude all relevant stakeholders in the pilot phase in order to ensure that thisleads to a joint shift in perspective: from achieving success with an internalsolutiontoonboardingmultiplepartiesandtestingthesolutionacrossanetwor k,leadingto thenext stepoflocalization.

Localized applications are a natural next step, where logistics companiescan tackle specific problems in the area of transactions across boundaries.

Agoodexampleoflocalisationisthedomainofinternationalcontainertransportsand the associated paperwork For example, a shipment from East Africa toEurope requires stamps and approvals from around 30 people and involvesinteraction on more than 200 occasions, where bills of lading might also besubject to fraud (Popper and Lohr) The cost associated with this long trail ofpaperwork and the processing is estimated to make up between 15 and

50percentofthecostsofphysicaltransport.Blockchainmaypresentasolutionto these process inefficiencies and has the potential to digitize paper records In aproject initiated by IBM and Maersk, a blockchain solution was developed forconnectingtheglobalnetworkofshippers,carriers,ports,andcustomsauthorities First results of the established platform—where every relevantdocument or approval is stored on the blockchain, with every partner havingfullvisibilityofthecontainerstatus-indicatesuccess(Allison,2017).

Developingsubstituteapplicationsrequirescarefulplanning,sinceexisting solutions may be difficult to replace One path to follow could be tofocusonreplacementsthatdonotrequireenduserstosignificantlychangetheirbehavior,butp resentalternativesto expensiveorunattractivesolutions.

To gain traction, substitutes have to deliver functionality as good as, orbetter than, the traditional solutions, making it easier for the ecosystem toabsorbandadoptthem.Anexampleofsubstitutioncanbefoundinthediamondindustry, where blockchain can replace paper certificates which can get lost ortampered with, thus proving whether a diamond’s certificate is genuine, fake,or if the diamond was stolen A real-world example to track a diamond withinthe supply chain is presented by the start-up Everledger, which blockchainapplication records 40 data points that uniquely identify a diamond and makesthisinformationpubliclyaccessible,sothatpotentialclientscanmakesureitisnot a‘blooddiamond’(Underwood,2016).

Transformative applications are powerful when tied to a new businessmodel in which the logic of value creation and capture departs from existingapproaches However, these applications are “many years away”, but have thepotential tounlock future growth for companies.

Conclusion

After taking a look at the definition of blockchain technology and itsapplication in many areas, it can be concluded that blockchain technology is abreakthrough innovation of the 4.0 industry, which could change the waypeopledobusinessinthe future.

Many recent studies have focused on the adoption of blockchain in manyareas’operationsandhowblockchaincanbeasolutionforreal-worldproblemssuch as transparency, miscommunication, and mismanagement Due to thelimitationofthispaper,onlyafewpiecesofliteraturehavebeenreviewedand introduced to the readers It can be seen that blockchain adoption in any sectorhas pros and cons However, blockchain benefits outweigh the challenges ofimplementingthetechnologybecausetheyoffertransparency,traceability,costreduction, and so many other advantages Especially in logistics and supplychain management, many research showed that there are huge potentials forblockchainandthis technologyistransforminginordertobeusedwidely.

Theexistedliteraturethattheauthorreviewedhasshownthehugepotential of applying blockchain technology in any sector but in each case,blockchain adopters meet different challenges that they must overcome tocommercialize this innovation Besides, there are many aspects of this topicthathasnotbeentakenintoconsiderationinreviewedliteratureyet.Regardingthelogisti csandsupplychainmanagementindustry,therehavebeenanumberof firms tried to bring blockchain into their operation, but they are still inexperimental period and further research on the current state of blockchainadoption in practice is needed as a lesson for future adopters and a preparationforbusinessesespeciallyinthelogisticsandsupplychainmanagementindustryw hen blockchain could become a key tool to transform the business andinvestmentworlds.

The purpose of this paper is to use the findings as a contribution into thetopic of applying blockchain in logistics and supply chain management byanalyzingtherealcasesofblockchainadoptionandgivingsomerecommendationsf orfutureadoptersinthisfieldonthebasisofaboveliteraturereviewandtheoreticalfram eworks.

Casestudyanalysis

Blockchain technology as a potential solution has been applied to all ofthe large ecosystems that have issues with real-time data access, partners’privacy, traceability, and auditability One of the most notable developmentscomesfromIBManditsFoodTrustinitiativedevelopedontheIBMBloc kchain platformpoweredbyHyperledger Fabric.

WalmartInc.,isanAmericanmultinationalretailcorporationthatoperates a chain of hypermarkets, discount department stores, and grocerystoresandthelargestU.S.groceryretailerin2019(accordingtoWalmart2019annua lreport).OneofWalmart’smainworkistooperatethefoodsupplychainacross the world and its mission is to develop the best food supply chain.According to IBM’s Blockchain for food safety report, due to the food supplychain’s mistakes, 600 million people fall ill after contaminated food, in whichapproximately 420 thousand people die each year. Also in this report, IBMshowedthatthetotalannualcostcausedbyfood- relatedconcernsisfrom$55.5billionto$93.2 billion,increase20%inthelast fouryears.

Whenanoutbreakofafood-bornediseasehappens,itcantakedays,ifnotweeks, to find its source.

Better traceability could help save lives by allowingcompaniestoactfasterandprotectthelivelihoodsoffarmersbyonlydiscarding produce from the affected farms Walmart thought that blockchaintechnologymightbeagoodfitforthedecentralizedfoodsupplyecosystem.Totest this hypothesis, the company created a food traceability system based onHyperledgerFabric.Walmart,togetherwithitstechnologypartnerIBM,r an twoproofofconceptprojectstotestthesystem.Oneprojectwasabouttracingmangos sold in Walmart’s US stores and the other aimed to trace pork sold inits China stores.

The Hyperledger Fabric blockchain-based food traceability system builtforthetwoproductsworked.ForporkinChina,italloweduploadingcertificates of authenticity to the blockchain, bringing more trust to a systemwhere that used to be a serious issue And for mangoes in the US, the timeneeded to tracetheirprovenancewent from7days to2.2 seconds.

FrankYiannas,formerVicePresidentofFoodSafetyatWalmart,indicated that better traceability could help save lives by allowing companiesto act faster and protect the livelihoods of farmers by only discarding producefrom the affected farms For this reason, Walmart has always been interestedin enhancing transparency and traceability in the food system Mr Yiannasexplains that the company has tried many systems and approaches to solvingthisproblemovertheyearsandnonehadbroughtthemthekindofresultstheywere after until they knew about blockchain technology Walmart Technologyconsidered several blockchain technologies but ultimately decided to go forHyperledgerFabric.

HyperledgerFabricisablockchainframeworkimplementationandoneofthe Hyperledger projects hosted by The Linux Foundation Intended as afoundationfordevelopingapplicationsorsolutionswithamodulararchitecture, Hyperledger Fabric allows components, such as consensus andmembershipservices,tobeplug-and- play.HyperledgerFabricleveragescontainer technology to host smart contracts called “chaincode” that comprisetheapplicationlogicof thesystem.

In October 2016, Walmart, together with its technology partner IBM,announcedthetwoprojects:onewasabouttracingtheoriginofmangossoldinWalmart’s USstoresand theotheraimedtotraceporksoldinits Chinastores.

Together with IBM, they got to work building a blockchain-based foodtraceabilitysystem.

The Walmart Technology team looked at their own processes as well asthose of their suppliers to design the application Archana Sristy, Director ofEngineeringatWalmart,explainsthattheWalmarttechnologyteamco-ledthecore design and setup of the application (with IBM), as well as built theintegration with the enterprise systems They worked with GS1 (the standardsauthority in barcodes and labeling) to define the data attributes for upload tothe blockchain IBM wrote the chaincode and suppliers used new labels anduploadedtheirdatathroughaweb-based interface.

Walmart is combining AI, IoT and blockchain to radically improve thequalityofthefoodsupplychainfromendtoend.Walmartdevelopedprogramsusing

Hyperledger and designed to accurately record: farm origin data, batchnumber, factory and processing data, expiration dates, storage temperatures,and shipping details IoT technology, such as sensors and RFID tags, enablereal-time data to be written on blockchain as food products pass along thesupplychain.BothtechnologiesservetohelpWalmartenforcesystemssuchas the Hazard Analysis and Critical Control Point and comply with food safetyregulations and regulators such as the Food Safety Modernization Act and theFood Safetyand

Inspection Service Walmart also uses artificial intelligence to predictpatterns in retail by analyzing policies and variables that influence the supplychain In addition to speeding up how food is traced, Walmart can also speedupdeliveriesbypredictingroadtraffic.

The result of this project is that Walmart can now trace the origin of over25productsfrom5differentsuppliersusingasystempoweredbyHyperledgerFabric.The companyplanstorolloutthesystemtomoreproductsandcategoriessoon.Walmartwasrea chingouttootherfoodcompaniesandretailers.Wal-

Blockchain technology has become a secure and transparent solution fortracking the provenance of food Each organization owns its data on thenetworkandhascontroloverwhocanaccessdifferentdataelements,accessibleonlyasdata ownersgrantpermissiontosharerelevantrecords.Solutionsoftware adapters can provide automated data import from existing data stores(eg.SAP)toleverageexistingbusinessrecordsincludinginventorylists,orderrecordsan dsupplierinformation.Fornetworkadministratorsalreadymanagingcomplex information environments, a connector API is designed to automatetheintegrationoflegacysystemdataandnetworkdata.Onceon-boarded,userscan interact with the network in several ways: employ user-friendly interfacesfor desktop or mobile use, use the certifications module to upload regulationand inspection documents for sharing with food supply chain partner, and usethe customized interface to view and manage data that has been shared bybusinesspartners.DataconnectorAPIsallowenterpriseITteamstoefficiently upload supply chain data from existing data stores (such as SAP) for seamlessintegration of data from enterprise systems to network Smaller organizationscan onboard data through an easy-to-use web experience Users automaticallyupload transaction data to the solution network, based on the organization’sdataspecifications.

Despite many promising perspectives of the blockchain for food, severalconcerns and doubts still remain, making it hard to implement the technologyinthe foodsupplychain.

The first challenge for entrepreneurs entering the space starts with thequestion of how to overcome the complexity of the food ecosystem For atypicalagriculturalproductionsite,implementingblockchaintechnologyrequiresa customizedsystemandstreamlinedpracticesfordataentry.Agriculturalproductshave variousforms,storagemethods,handlingprocesses,and avarietyofdatarecordingmethods.

Weoftenseechallengesinadaptingtothefoodsystemcausedbymultipleplatforms and non- synchronized terminologies The food ecosystem involvesmanyplayers(i.e.,distributors,buyers,wholesalers)andmanylayersofstructur essuchasterminalmarkets,distributionnetworks,andtradingplatforms.Implementi ngblockchaininscalerequiresagreateffortofcustomization at the granular level - from farm operations to working aroundtheexisting ERPsystemand modifyingthedatacollection process.

Advocates against blockchain for food also raise concerns about datatransparency.Ononehand,thedisclosureofdatawouldprovideaccountabilityfort r a d i n g t r a n s a c t i o n s a n d f a r m i n g p r a c t i c e s , w h i c h s u p p o r t s c l a i m s l i k e organic,freshness,andsuperiorquality.Ontheotherhand,detailedinformation might get scrutinized and cause a backlash against businesses ifthings go wrong It's difficult to request voluntary disclosure of information,primarilywhenthecriticaldatamightaffectbusinesses.Inthecaseofagric ultural production, if a pesticide is used during production for combatingplant disease, consumers might diminish the value of a product or reject itentirely.Farmersmightbereluctanttoparticipateinblockchainimplementationifthei rrivalsarecreatingacompetitiveedgebyhidingspecificproductsor processinginformation.

Another concern is the capacity issue of blockchain being able to handlelargequantitiesofdata,particularlytradingdata.Theblockchainapplicationintrades, where more significant economic impacts might happen, has been paidthe leastamount of attention sofar.First, we are seeing the interests ofdeploying blockchain mainly from large organizations because they have theinfrastructure- bothtechnicalsystemsanddataalreadyinplace-tosupporttheautomation of processing data at a farm level In addition, asone of theconstraints of the blockchain, the structure and scales have to be carefullyplannedoutaseachtransactionaddedtotheblockchainwouldincreasethesizeofthed atabase.Eitherasmallerledger(noteverynodecancarryafullcopyoftheblockchain)oramore centralizedcontrolshouldbebuiltinthenetwork.Asaresult,largepilotsaredemandedbyco rporationstotestthelimitsofblockchainbefore iteven establishes.

TheinformationtechnologyandservicesgiantIBMhascollaboratedwiththe logistics company Maersk since 2018 to create a blockchain shippingplatformcalledTradeLens.

The platform is designed to promote “a more efficient, predictable andsecureexchangeofinformationinordertofostergreatercollaborationandtrustacrossthe globalsupplychain.”

TradeLens uses IBM blockchain technology as a basis for digital supplychannels, enabling multi-business partners to collaborate by establishing aunique shared view of a transaction This actually allows shipping companies,freight forwarders, ports, terminal operators, inland transport and customs tointeractmoreeffectivelythroughreal-timeaccesstoshippingdataandshippingdocuments.

Today, 90% of goods in global trade are transported by the shippingindustry,butthesupplychainisslowedbythecomplexityandsheervolumeofpoint-to- pointcommunicationacrossalooselycoupledweboflandtransportation providers, freight forwarders, customs brokers, governments,ports andoceancarriers(Lieber,2017).

Casestudiessummary

After analyzing the case studies, a summary of their current status of theblockchain adoptionprocessisshowninTable 3.1.

Projects Areas Problemsolved Currentstatus and Achievements Remaining

- A secure and transparent solution for tracking theprovenance offood.

- 4 core challenges of the agriculture supply chain: foodfraud, illegal production, foodborne illness, and foodrecall/loss.

- Tracing the origin of over 25 products from 5different suppliers using a system powered byHyperledgerFabric.

- Collaborating with IBM and others to set upIBMFoodTrust,involvingprominent playersin thefoodindustry,likeNestleandUnilever.

TradeLens Logisticsincl udingShippin g,Customs, andTransport

- Digitalizing logistics documents, expediting decision- makingandloweringtheadministrativefrictionsintrade.

- Creating a logistics network involving major logisticsproviders and government authority across the world toreducepaper worksandtime-consumingprocedures.

- Controling more than 50% of the cargo sentannually.

- 94 organizations are actively involved or haveagreed to participate on the TradeLens platformbuilt on open standards including more than 20portandterminaloperatorsacrossthe globe.This numberis stillgrowing.

Luxury goodssupply chain andtransactions,espec ially diamonds.

- Connecting supply chain and transaction participantssuchasbanks,insuranceproviders,certificatepro viders,andonline marketplaces.

- Over 1.2 million diamonds are digitally storedonthe Everledgerblockchain.

2018 and $20 million in 2019 to develop theprojectfurther.

- An open-source world-wide solution for every party thatis involvedinthe supply chain.

- Achievingtotal visibilityandtransparencyacrossthe supplychainandcreateaplatformthatwill connectcontinent-wideparticipantsofthelogisticindustry.

- Attracting huge attentions from the majorplayersintheIoT/blockchainfieldlikeIB M.

- In the early state ofadoption andimplementation

-Tomakesupplychainsmoretransparentandsimplifiestracking - Providing short term projects to customers fortheirlogisticssolutions.

- Attracting some big organizations to apply theproject.

- In the early state ofadoption andimplementation

- Security and Databaseissues Yojee Logistics,especia llytrackingproduc ts

- To track order status in real time, generate bills, replacedispatchers and automatically distributes orders betweendrivers.

- Having around 30,000 vehicles and customersfrom Singapore, Australia, Cambodia andIndonesia.

- In the early state ofadoption andimplementation

- To provide better visibility for parts shipped fromMalaysia.

- To provide real-time shipment tracking from placing anordertodelivery of parts.

- In the early state ofadoption andimplementation

Discussiono n t h e a c h i e v e m e n t s a n d r e m a i n i n g c o n c e r n s o f t h e c a s e

Theshippingindustryisprogressingatasteadyrateowingtothepraiseworthy achievements in the field of technology, which has definitelygonealongwayinmakingthingseasierformankindandthemaritimearenaisno exception The blockchain technology is being regarded as one of suchgroundbreakingaccomplishmentsthathavebeenabletoprovideaninnovativeand improved solution for enhancing the efficiency of the global supply chain.With the onset of a blockchain-based platform, the need for stressful, time- consumingpaperworkcanbediminishedaseverytransactionthatconcernsthemajoraspectso ftheshippingsector(suchasshipowners,charters,buyers/sellers of shipment, port authorities, banks, agents etc.) are alignedtogetheronacommon,hassle- freeinterfacethatconnectstheentireworld.

Thepropermanagementoftheglobalsupplychaincanindeedbeatrickything,asthepro cessofconnectingthecreationandactivedistributionofcargoacrossamyriadofgeographi callocations,invoices,andpaymentscancertainlyposeasadailychallengefortheshippingorgan izations.Thisisthereasonwhywe desperately need the digital-based, blockchain platform for simplifying thecomplexprocedureandaccentuatingtheleveloftransparencywithinthelogisticssegment. Theuseofcryptocurrencycanunitethefinancialtransactions occurring on a blockchain platform and can be used to seal anyagreements or contracts, as well Plus, the blockchain technology can ensure asafe and secure interface with its in-built chain of command, for recording themultiplecopies ofanyinteraction across thesupplychain.

Although blockchain has the potential to deliver substantial savings byimproving operational efficiency and by significantly reducing transactioncosts, considerable challenges must be overcome before the technology canachievemainstreamadoptioninthelogisticsindustry.AccordingtoHeu tger andKueckelhaus(2018),gainingindustryadoptionisofutmostimportanceandwill determine the success of blockchain technology in this field In particular,in the logistics industry, which is characterized by a supply chain environmentwithmultiplestakeholders,beingabletoaccuratelyandsafelyexchangeinformatio n is a key advantage The technology itself, as well as using actors,benefit the most when their community contains many relevant members Infact, a powerful network effect is only triggered when stakeholder adoptionreaches a critical mass, turning blockchain into an accepted industry practice.However, it will be difficult at first to obtain stakeholder commitment becauseof differing levels of digital readiness and the initial requirement to recognizethemutualbenefits ofblockchain-based collaboration.

In addition, the development of standards and governance models forblockchain in the logistics industry as well as the associated cost to migratefromlegacysystemstonewtechnologicalenvironmentsareadditionalchallen ges The logistics domain will not be characterised by just a singleblockchain- basedsystem,butbymultipleprivateblockchainsduetothecompetitivenature ofbusiness.

This underpins the requirement for standards and mutual agreements,particularlyaddressingtheinteroperabilitybetweenblockchains.Weidentifieds everalpotentialblockchainapplicationsthatcouldincreaseefficiencyorevenhave a transformative impact on the logistics and transportation sector Onepotential application for a single-use case is the effective tracking of theperformanceofindividualvehicleswithinthecompany’sfleet.Blockchaincanhelp to authenticate information on the past performance of a vehicle and itsmaintenance history, thereby not only being responsible for warranty, butfinding its way into the mainstream of truck parts supply chain transactions.For localization, an example is origin tracking for food items Currently, if aretailerf a c e s a f o o d b o r n e d i s e a s e o u t b r e a k , r e t a i l e r s h a v e a d i f f i c u l t t i m e figuringoutwherethebadingredientscamefromandtowhichstorestheyweredelivered, thus, it may take even weeks to track down the source of thecontamination.

A trial project by IBM and Walmart enhanced the retailer’s existinginformationsystembasedonbarcodesandautoIDtechnologywithatranspare nt,superordinateledgertotrackthemovementsoffooditems.Similarto the efforts made by IBM and

Maersk, the results demonstrate success, withWalmartbeingabletotrackdomesticmovements(e.g.,porkfromsmallChinese farms to

Chinese stores) and international movements (e.g., productsfromLatinAmericatostoresintheUnitedStates)onthebasisofdataavailableto network members including information such as the farm origin, batchnumbers, factory and processing data, expiration dates, and shipping details.Moreover, blockchain could help to track freight effectively by providingauthenticatedsecuredata,ascurrentsystemsrecordingthedata,reliantonEDIsand APIs,maybesubjecttomanipulation.Wealsoidentifiedseveralapplicationswhichca nactassubstitutesforexistingsystemsandprocesses.

Blockchain may also help to make load boards more reliable as shipperscould post timestamped loads that are recorded and verified, which not onlyhelpstomaintaindataintegrity,butmayalsoeliminatetheneedforamiddlemanint heformofabroker.Themostpowerfultransformation,however, may happen through the joint application of the IoT, AI, and smartcontractsinthelogisticsdomain.Significantimpactwilllikelystemfromlarge-scale deployment of smart contracts, which could transform existing logisticssystemsandeliminatetheneedforpaper- basedadministrativeprocedures,andmight serve as a means for cutting costs and virtually removing the possibilityforhumanerror.

In particular, such smart contracts can facilitate to improve the efficiencyofsettlementsbetweenpartiesthroughoutthesupplychain.AstudybyNelson et al calculated that transport companies wait an average of 42 days for apayment, while the use of blockchain and smart contracts reduces borrowingcosts by 75 per cent, increase liquidity by 25 per cent, thereby increasing theprofit margininthesupplychainby2 to4per cent.

Apart from these benefits, it is also worth highlighting a potential risk ofblockchainapplicationsinthecontextofthelogisticsindustry.Theassumptionbehindallpote ntialapplicationsisamoreorlessperfecttechnologicaladaption, but logistics managers have often witnessed technological failuresfirsthand.

However,theidentificationofthesepotentialapplicationsandthesubsequent categorization of usage scenarios according to their novelty andcoordinationeffortcanhelpmanagerstoidentifysuitablebusinessopportunities and correspondingstartingpoints.

BlockchainFeaturesTradeoffsinSupply ChainManagement

When it comes to a preliminary analysis on the production level publicblockchains that can potentially form the basis for real world deployment forsupply chain facilitation, the core analysis is focused on the tradeoff betweenthe consensus mechanism, bandwidth (Transactions Per Second, TPS), andvalidationspeed(TransactionConfirmationTime,TCT).Whilesuchcharacteristi cs have not been validated in all blockchains and for a globalcommercial oriented deployment, there are many research studies that havetackledthisissueevenwithintheliteratureapproach.

Asoftoday,manydistributedconsensusprotocolshavebeenproposedontopoftheblockc haindatastructure.Proof-Of-

Work(PoW)consensusprotocolisbasedonthesolutionofanextremelydifficultcryptograp hicpuzzleinorderfor the nodes to compete and eventually to come to an agreement as far as thenew block is concerned This type of consensus method is regarded as havinghightrust,butcomeswiththeenergyconsumptionoverheadasitrequiresvery highcomputationalpowerfromthenodesandnowadaysitalsorequiresexpensivededicat edhardwarebasedonApplicationSpecificIntegratedCircuits (ASIC) The Proof Of Stake (PoS) consensus protocol suggests thatthe new block’s publication should be based on how much stake each peer hasstored in the network Such consensus methods are definitely less expensivethan the PoW, however, it comes with other weaknesses such as the

“NothingatStake”problem.OtheralternativeconsensusmechanismssuchasthePract ical Byzantine Fault Tolerance (PBFT), functions efficiently on top ofpermissionedblockchainslikeHyperledgerFabric.PBFTworksontheassumptiont hatlessthanone-thirdofthepeersarefaulty(f),whichmeansthatthe network should consist of at least n?+1 peers to tolerate f faulty peers.Eventually, the network requires 2f+1 peers to agree on the block of thetransactions Such approaches are commonly referred to federated consensusmechanisms.Theycanberegardedasvotingmethodswherepeersvotethroughra ndom and transparent processes to confirm a new block Permissionlessblockchainsdonotrequirepre- establishedidentitiesoranyidentitymanagement from a third party and are thus fully decentralized as anyone canjointhepeer-to- peernetworkandrunafullnode,whilepermissionedblockchains enables a third- party to identity management in order for a user tobepartoftheblockchainnetwork.Alternative,cross-organizationalandconsortium based blockchains (permissioned) could be deployed to overcomeperformance limitations For instance, Quorum, as an enterprise flavor ofEthereum, has reported dozens to hundreds of transactions per second (TPS)depending on the configuration of the transactions, while Hyperledger Fabrichas likewise reported figures as high as 3500 TPS, which most likely includetransactions occurring and concluding across the entire network. Blockchainprotocolsarecommonlyengineeredasatradeoffamongconsensuscost,speed,ba ndwidth, and security (including trust) This three-way tradeoff, however, isnoti n h e r e n t i n d e c e n t r a l i z e d c r y p t o c u r r e n c i e s Whilet h e r e a r e so m e e f f o r t s such as the GHOST protocol that demonstrate that fairness and mining powerutilization can be improved by changing the chain selection rule, in particular,bybeinginclusivetoforksoutsidethemainchainaswell,ittendstobethatnotmanyde greesoffreedomareavailableinpublicdecentralizedledgertechnologies.

Challengesand PossibleSolutions

Whilemodernblockchainspresentgreatpotentialforbuildingtheinternetsystems of the future, they face several technical challenges nowadays Thus,the choice between the most suitable platforms for the supply chain use caseshould be decided after wise and thorough consideration and research.

Beforegoingintodetails,pleasenotethattheproposedsolutionsinthispartaremainlytakenasrefe rencesfromothersectoradoption,especiallyBitcoinandcryptocurrency area The author believed that these existed methods will bepossible solutions for blockchain adoption in the logistics and supply chainmanagement industry.

Tobeginwith,animportantissueisthattheconsensusmechanismwillbereached in order for the supply chain peer-to-peer network to decide what thenext block will be in the chain While we can argue that the simplicity anddirectnessoftheproofofworkmechanismhasbeenfundamentalinthesuccessoftheBitcoi nprotocolandinitsgreatresonance,todaywearealreadydealingwith a huge issue concerning the high- energy intensity of the mechanism.Besides, there are also other kinds of problems One of these issues is selfishmining,whereasub- groupofminersagreetominethenextblockprivatelyandeventuallyresultintheirowncustomch ainthatendsupattackingthenetwork.Thisfactiscontradictorytothefundamentalandintri nsicfeatureofblockchains as being enablers of trust in open, trustless networks.Such a lackoftrusthoweverwouldbehinderingthefurtheradoptionofblockchainsinthe logisticsindustryhavingdisastrousimpactconsequencesinthemarketandtheconsumertrusto nthebrands.

Hence, another important issue is that the decision on the consensusmechanism could lead to several additional concerns For instance, a proof ofwork consensus algorithm tends to be very energy-intensive and therefore,costly to support the supply chain use cases This would result in a significantoverheadinsupplychaincosts.Ontheotherhand,consensusmechanismssuchas proof of stake show that they have their own issuesthat need furtherinvestigated In such consensus mechanisms, all peer nodes who make a jointdecisioninatwofoldconsensuswillcompulsorilydemonstratetheircredibilityinthe system.

Other consensus algorithms use server-client architecture, such as Ripplesub networks, in order to separate transaction logic from consensus logic Inparticular, there are the so-called

"servers" that are involved in the consensusprocess, and "clients" who actually manage transactions It is clear that, for aplethoraofsupplychainusecases,itisnecessarytoconsidervariousparameters in choosing which consensus mechanism will be suitable to beimplemented in a blockchain They certainly have to be inexpensive, yettransparent,simple,andfairenoughtoavoidselfishbehaviorandguaranteeanincreased level of trust upon which the business relationships of the supplychainstakeholder relyon.

On the one hand, it is easily understood that a large-scale supply chainapplication will probably need to use an open and public blockchain platformand not a permissioned or private one On the other hand, a supply chain thatdoes not have a specific value for both the consumer and the producer couldpermittheconsolidationofpermissionedorprivateblockchains.Undoubtedly,this would entail an additional management cost for all actors in the supplychain,a n d t h u s , f o r t h e f i n a l c o n s u m e r w h o s h o u l d b e a p a r t i c i p a n t o f a particularblockchaintopurchaseaparticulargoodandforthosewhowouldbeinvolvedasinter mediaryrelatives.Inaddition,apermissionedorprivateblockchain brings its associated management costs especially when we havemorecomplexblockchainarchitecturessuchaswhenseparatingtheconsensusmechanis m from transaction management It is also crucial to understand howvarioussmartcontractswillbeimplementedinsuchcomplexmultilevelarchitectures ofcorrespondingimplementations.Obviously,inthesupplychain, the overall cost should be allocated equally to all participants as ithappensintradeagreements.Forexample,theproofofstakeconsensusmechanism would be unfair for those with a lower share in the value chain,even though their added value is particularly important for the final product.Therefore,althoughtodaywehaveaplethoraofalternativeconsensusmechan isms, it appears that there is still a great deal of research to find thosealgorithmsthatareflexibleenoughtosupport awiderangeofapplicationsandusecasesforthedifferentusecasesofsupply chain.

To help fix the selfish mining problem, Heilman (Billah, 2015) presenteda novel approach for honest miners to choose which branch to follow. Withrandombeaconsandtimestamps,honestminerswouldselectmorefreshblocks.How ever,(Billah,2015)isvulnerabletoforgeabletimestamps.ZeroBlock (Solat and

Potop-Butucaru, 2016) builds on the simple scheme:Eachblockmustbegeneratedandacceptedbythenetworkwithinamaximumtime interval Within ZeroBlock, selfish miners cannot achieve more than itsexpected reward.

Asfarasitconcernsscalabilityandperformance,acorrespondingphysicallimitf orthesefeaturesisthebandwidthinthecommunicationsnetworks, the size of blocks (blockchain bandwidth) and the overall time ittakesfora transaction to bere gar de d as validated (tra nsac ti on confirm ation time) For example, Bitcoin’s blockchain, the largest and oldest blockchain inuse, has already reached its limits in the production environment, even thoughBitcoinitselfhasnotyettakenasignificantshareine-commerce.Thisofcoursemay be purely because it was originally designed with other conditions andother assumptions that could exist. However, we understand that productionlevel public blockchains have their own dynamics and the market adoptionpotentialcancauseanimpactwhichcannotbeeasilyforeseenandhandledinadyn amicon-the- flyway.Itseemsthatmodernblockchainimplementationstakeintoconsiderationssuchlimits attheirdesignphaseastobeabletofollowlargescaleglobaldeployments,howeveruptonowth ereisnorealworldexperimentation with the real limitations of blockchains As for the scalabilityissue, and since space within a block can only be limited, it becomes apparentthat a physical limit for a blockchain is the number of transactions each blockcan contain Since blocks are displayed and produced in a specified interval,obviously, this constitutes a natural limit Another technique for achievinghigher levels of scaling is to create hierarchies of “consensus instances,”commonlyreferredtoas“sidechains”.Whilethiscanaffectthedecentraliz ation nature of blockchains, it has the benefit that sidechains mayalso run non- proof-of-work consensus protocols, such as BFT Sidechains,however, comealong withtheir own technical challenges Among othersminingcoordinationismentioned,whichotherwiseintroducesfurthercomplex ityandvulnerabilities,theneedforinter-chaintransactionswithfurther technical and administrative burden caused, and delays on the totalconfirmationtime.Inthemulti-stakeholderworldoflogisticsandsupplychainsindustries we envisage that technical approaches with sidechains and inter- blockchaintransactionsareworthbeingfurtherinvestigatedandexplored.

There are many efforts proposed to address the scalability problem of theblockchain,which couldbecategorisedinto twotypes:

• Storage optimisation of blockchain: To solve the bulky blockchainproblem,anovelcryptocurrencyschemewasproposedin(Bruce,2014).Inth enewscheme,oldtransactionrecordsareremovedbythenetworkandadatabasenamed account tree is used to hold the balance of all non-empty addresses Inthis way, nodes do not needto store all transactions to check whether atransaction is valid or not Besides lightweight client could also help fix thisproblem A novel schem named

VerSum (van den Hooff et al., 2014) wasproposedtoprovideanotherwayallowinglightweightclientstoexist.VerSumallows lightweight clients to outsource expensive computations over largeinputs It ensures that the computation result is correct by comparing resultsfrommultipleservers.

NGistodecoupleconventionalblockintotwoparts:keyblockforleaderelectionandmicro blockto store transactions Miners are competing to become a leader The leaderwould be responsible for microblock generation until a new leader appears.Bitcoin- NGalsoextendedtheheaviest(longest)chainstrategywhereonlykeyblocks count and microblocks carry no weight In this way, blockchain isredesigned and the tradeoff between block size and network security has beenaddressed.

Privacy and security issues on blockchains are important features for thelogisticsindustryastheyconcerntheinformationoftheproducts,theconsumers and the interactions between them The blockchains rely on digitalsignatures(basedoncryptography)todefinetheidentitiesoftheparticipantsinthenetwor k.Inthesupplychainusecases,blockchainsaresupposedtobeusedalsoasadistributedwayofstori ngdata,buttheirreversibilityandtransparencyofblockchainsmean theyareprobably unsuitable for privacysensitivedata

(data that can reveal physical identities and disclose for instance consumerhabits, privacy, and proof of location, etc.) Data stored in blockchains cannotbe changed, and so it is very important that we design blockchains to protectusers’privacy.Oneapproachcouldbetohaveblockchainsusedonlytoprovidea timestamp for information of the supply chain workflow The main problemwiththisapproachisthatifthedecryptionkeyforencrypteddataisevermadepublic,th eencryptedcontent isreadablebyanyonewiththatkey.

• Mixing(Mửser,2013):Inblockchain,usersaddressesarepseudonymous. But it is still possible to link addresses to user real identity asmanyusersmaketransactionswiththesameaddressfrequently.Mixingserviceis a kind of service which provides anonymity by transferring funds frommultipleinputaddressestomultipleoutputaddresses.Mixcoin(Bonneauetal.,2014)pr ovidesasimplemethodtoavoiddishonestbehaviours.Theintermediaryencryptsuse rs’requirementsincludingfundsamountandtransferdate with its private key Then if the intermediary did not transfer the money,anybodycouldverifythattheintermediarycheated.However,theftisdetectedbut still not prevented Coinjoin (Maxwell, 2013) depends on a central mixingserver to shuffle output addresses to prevent theft And inspired by

Coinjoin,CoinShuffle(Ruffingetal.,2014)usesdecryptionmixnetsforaddressshuffli ng.

• Anonymous:InZerocoin(Miersetal.,2013),azero-knowledgeproofisused Miners do not have to validate a transaction with digital signature but tovalidatecoinsbelongtoalistofvalidcoins.Payment’soriginisunlinkedfromtransactio nstopreventtransactiongraphanalyses.Butitstillrevealspayments’destination and amounts.Zerocash (Sasson et al., 2014) was proposed toaddressthisproblem.InZerocash,zero- knowledgeSuccinctNon-interactive

S N A R K s ) i s l e v e r a g e d T r a n s a c t i o n a m o u n t s and the values of coinsheldbyusersarehidden.

Once a company understands and recognizes the potential of blockchaintechnologytodriveefficiencyandvalue,thenextstepistoestablisharoadmapfora pplication.Thisshouldstartfromawillingnesstocollaborate,andinvolvebuilding blockchain knowledge and capabilities with a focus on driving valuefor all stakeholders There are three main success factors for every blockchaininitiative:

Whenacompanyagreestoworkwithblockchaintechnology,itissigningupforanintensel ycollaborativeendeavor.Thisisbecauseahugepartinvolvesfacilitatingtrustedcollaborationb etweenmultiplepartiesincludingbothpublicandprivateentitiesofallkinds– governmentagencies,industrialorganizations,regulators,partners,andeven competitors.

Forexample,inthehighlycompetitivefinancialservicesindustry,collaboration platforms have been created for competitors to work togetherresearching the application of blockchain technology Although competitorcollaborationmightseemcounterintuitive,economiesofscaleimpactthevalueof blockchain When more parties agree to use a single blockchain solution,morevalueiscreatedforeachparticipatingorganization.That’swhyrightnowseveralblo ckchain consortiaareemergingin thelogisticsindustry.

Conclusiononthefutureofblockchaininlogisticsandsupplychainmana gement

Blockchain technology holds its greatest value in industrywide adoption.Thinkaboutpharmaceuticalsandproductsrequiringtrackingandmanagementof product cycles to ensure viability, safety, and security These are the areasmostlikelytoseereal- worldbenefits,andmajorsoftwaredevelopersaretakingnotice.Infact,Microsofthaspartneredwit hArdents,reportsAnaAlexandreofCoinTelegraph,tocreateanewblockchaintechnology- basedsystem,includingartificial intelligence (AI), to offer end-to-end traceability and visibility intosupply chains.

The system, known as Ardents NovaTrack, wasoriginallycreatedforthepharmaceuticalindustry,aimedatreducingillicitpharma ceutical availability and reducing the number of counterfeit drugs onthemarket.

More than 2 percent of today’s drugs are counterfeit, and although thismaynotseemlikeamajorproblem,thewrongmedicationcouldcostsomeone’slife. Itisnotalaughingmatter,andtheonusofensuringmedicationintegritydependsonstringentsup plychainmanagement,visibility,andtransparency This will allow supply chain leaders to document the chain ofcustody for medications from manufacturing to end-users, which also holdspotential in curbing the opioid epidemic Applying this example across othersupplychains,likegrocersandsportinggoodsresellers,couldincreasesalesbymaking sellers more responsible Better documentation is tantamount to moresales,betterbrandvalue,andfewercomplianceviolations,butwiththelimitations of today’s blockchain technology, what can shippers do to plan forsuccess?

It’seasytoassumethechallengesofusingblockchaininsupplychainandlogistics management will be difficult to overcome, but it is possible Supplychain executives should take these steps to prepare for a blockchain-basedfuture:

Conduct a Business Review.A thorough business review helps supplychain leaders identify their core competencies and weaknesses, as well asprepare for adoption of new technology and software Since blockchain is onthe horizon, knowing where today’s operations stand is the first step in thejourney.

Automate Technologies.Blockchain is data and network intensive, soautomationwillplayakeyroleinallowingforseamlessintegrationofblockchaintec hnologies.

IntegrateSystems.Integratedsupplychainplatformsgobacktoovercoming the future challenge of consistency in blockchain data Systemsand platforms that aren’t compatible will lead to instability and inaccuracy inthe“chain.”

Use Data Analytics.Data analytics is a no-brainer, and supply chainexecutives should start using data analytics to aggregate and clean data toderivevalue.Theinformationanalyzedwillbeanintegralsteppingstoneinthepathtowardbl ockchain-basedprocesses.

StayEducated.Blockchainisinastateofevolution,andsoftwaredevelopers, likeMicrosoft, are on the ball Meanwhile, earlyadopters ofblockchain, including Walmart, will have the ability to radicalize the playingfield, generating significant competitive advantages Staying educated on theuseandavailabilitywillhelpminimizethecompetitiveimpactofearlyadopters.

Thechallengesofusingblockchaininsupplychainandlogisticsprocesseswill become apparent to small and midsized shippers as the technology grows.By understanding these challenges, shippers can take steps to move existingoperations in a pre-emptive strike to leverage the power of blockchain in thefuture.

Discussions

The study revealed valuable insights about blockchain adoption in thelogisticsandSCMcontext.Despiterealizingtheimpactblockchainmighthaveon their industry, companies seem hesitant to dedicate resources to look intopossibleblockchainapplications.

The case studies of the blockchain adoption in real contexts introducedabove have given an overview of current hot spots of blockchain applicationsin logistics and supply chain management industry Yet, they are just a roughcategorization of the diverse efforts taking place at the moment. Often, theannouncementsavailablecontainonlysparsedetailsandonlygiveanoverviewof the project We can see, however, that the applications aim at augmentingand automating the material and financial flow Increases in efficiency andoptimization of business processes are not a side benefit, but make this changepossible, because typically upgrading the IT infrastructure alone is not anoption.

As the application landscape permanently evolves, sub-clusters mightsoon emerge One sub-cluster of Supply Chain Finance would probably focuson the initial coin offerings popping up in the last months In the area oftracking, many applications can automate the steps to be taken in case of adeviation.Whilstit seemsobviousthattracingcouldlargelymergewithtracking- typeapplications,westillexpectspecializedusecasesforcertificationtracking,e.g.fororganicorf airtradefoodlabels.Overall,thefurtheradoptionof the Internet of Things, especially the widespread use of cheap sensors, willbe a major driver for blockchain applications in logistics and supply chainmanagement field.

In terms of IT in logistics and supply chain management, this will implyawholeworld ofnewinterfaces aswell as datahandlingtobetakencareof.

Limitationsandfutureresearch

Thestudiesholdsomelimitationsthathavetobeobservedforinterpretingtheirfindings.F irst,theobservationscannotberepresentativeoftheunderlyingpopulation of diverse logistics and supply chain management companies It islikely that the topic mostly focuses professionals that already have a basicknowledge about blockchain Second, the research on applications does onlycover cases where suitable information was publically available From manydiscussions within the industry, I know that a huge number of logistics andsupply chain management companies are working on blockchain solutionswithout sharing this information with the public Also, I only included casesthat were announced until current time Since blockchain is a hot and evolvingtopic at the moment, the number of applications is likely to grow, and also thehot spots might shift Thus, future research should take this into account andexaminewhichapplicationsprogressedfromamereannouncementtoasolution available on point of view and, among other issues, explore whichblockchain implementations the market It further appears valuable to moreclosely examine the applications from a technological are used, who runs thenodes,andwhichconsensusmechanismsareused.Also,Iexpectthatgovernance issues will become critical for blockchain solutions to breach thelogistics andsupplychain managementmainstream.

Conclusions

This paper took a closer look at blockchain applications in logistics andsupplychainmanagement.Doingso,Iintendedtocutthroughthecurrenthypeandshedlig htonthestateofplay.First,Ipresentedfindingsfromanobservationofcasestudyproject sregardingtheexpectationstowardsblockchain in the logistics and supply chain management industry Takentogether, the respondents realize the impact blockchain might have on theindustry.However,especiallytheratherconservativelogisticscompaniesseem hesitant to dedicate resources to look into possible blockchain applications.Second, I investigated the hot spots of current blockchain applications inlogistics and supply chain management It is identified in three major clusters:trackingofproductsduringtheirjourneythroughthesupplychain,tracingbackthe product origin, and supply chain finance However, also the applicationsoutsideofthesemainclustersexemplifythesizeofblockchain’sseaofopportunities for logistics and supply chain management My findings showsmall-scale experiments with blockchain applications are vital to understandthe barriers and benefits of blockchain and, thus, to be able to navigate the seaof opportunities Even though the change comes slower than many expectedstillacoupleofmonthsago,logisticsandsupplychainmanagementcompaniesshouldenga geinexperimentstofindoutifandhowblockchaincouldbeofusefor their own business This research might provide a starting point to exploretheopportunitiesblockchainoffersforlogisticsandsupplychainmanagement.

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