Paid Knowledge Centre: The Blockchain Economy

In the sixth in a series of seven articles sponsored by Chevron, reporter Jacob Stoller looks at how blockchain works, and how it could be useful in the automotive aftermarket.

By Jacob Stoller

When the price of Bitcoin tanked last year, erasing $60 billion in value in a 24-hour period, many began to doubt the future of crypto currency and by extension, the blockchain technology that supports it.

Blockchain, however, is about a lot more than crypto currency.

Essentially, the technology takes direct aim at one of the biggest weaknesses of internet commerce –information that we assume is legitimate can be altered or compromised, often invisibly, from a single access point.

Of course, this doesn’t mean that we can’t trust online transactions. What it does mean is that there’s considerable work involved in establishing and maintaining such trust, and this costs money.

Often the facilitating is done by a middleman. We rely on credit card companies to ensure that we get paid. And to that end, they have invested billions in verification capabilities that allow them to spot suspicious activity with stunning accuracy. They take the risk for us, but charge a hefty fee.

Payments through crypto currency, on the other hand, can transpire directly between seller and buyer, just like the exchange of cash, with no intervening party. Bitcoin is the most popular crypto currency, but it is just one of many.

Linda Goetze, president of the Blockchain Chamber of Commerce in Atlanta, believes that adopting crypto currency isn’t as big a leap as many imagine. “There’s a mindset that this is hard and uncertain,” Goetze says, “and I think it would be advantageous for business owners to start working their way past that.”

There was similar resistance to using credit cards when they first came out, Goetze points out. “We’re already using digital money,” says Goetze, “and that’s going to have an evolution into crypto currency.”

The advantages of blockchain payments go far beyond avoiding fees.

For example, through an emerging business model called smart contracts, payments can be automated according to the terms of an agreement. Blockchain allows parties to embed funds in the contract – effectively in escrow – which can then be automatically released when specific conditions are met.

A customer could, for example, put the funds into a contract to cover parts, or the cost of a third-party contractor such as a body shop so that the shop owner wouldn’t have to bear the cost of fronting the money for such expenses.

Blockchain in the supply chain

Since blockchain can be used to maintain the authenticity of any piece of information, many applications are anticipated. One of the most promising areas is the automotive supply chain.

“Blockchainis good for immutable ledgers,” says Steve Kuh, CEO of California-based Bonafi Inc. “In general, for supply chain authentication, it is very good for keeping track of who has got what, who made what, when, where, and things like that.”

Bonafi specializes in helping business prevent the proliferation of counterfeit goods. In the auto parts sector, if a manufacturer were to implement the Bonafi product, tags would be attached to each shipped part, each associated with an immutable code. The shop receiving the part could confirm the part’s authenticity using a smart phone app.

This may be good news for independent shops. Although the vast majority use aftermarket parts from reputable manufacturers, myths prevail, causing some consumers to fear that “you don’t know what you’re getting” if you go to an independent shop. Blockchain can help allay these fears.

Chami Akmeemana, CEO of Montreal-based Blockscale Solutions Inc., envisions blockchain capabilities expanding to support “a digital passport or car history that tracks things like maintenance performed against a vehicle over its lifetime, allowing for a trustworthy and transparent record of maintenance activities performed and parts replaced over the lifetime of a given vehicle.”

Efforts along these lines are being explored by the Mobility Open Blockchain Initiative (MOBI), a consortium of major automotive players such as BMW, Ford, Bosch, GM, and ZF.

Under the hood

The characteristic that makes blockchain virtually unbreakable is that it is de-centralized. There is no central file that can be altered. Instead, the database, called a distributed ledger, exists in a peer-to-peer network across a number of computers. Entries in the ledger are encrypted so that they can’t be erased or altered – changes or adjustments have to be entered by adding a sequential block to the chain. It’s not possible to add changes without consensus from the majority of participants, which makes blockchains virtually impossible to compromise.

It therefore requires cooperation amongst multiple parties to implement a blockchain. In the case of crypto currencies, the ledger is spread over thousands or even millions of computers. In a supply chain scenario, this might be reduced to a handful, but bringing participants together will always be a first step of implementing a blockchain.

Looking ahead

As usual with leading edge trends, it will take the resources of large players such as the automotive OEMs to bring the technology into practical day-to-day use. However, developments are occurring rapidly. Construction firms are already looking into building blockchain platforms for managing smart contracts, and the technology will mature rapidly and soon become affordable.

This could work to the advantage of independent shops that collaborate with each other. Today’s collaborations involve occasional resource sharing, or friendly advice over the phone.

Tomorrow, shops linked through blockchain could co-invest in additional capacity, form a consortium to support a national fleet operator, or build alliances to apply technology such as Artificial Intelligence in their shops.

The internet is all about bringing parties together, and blockchain, if the pundits are correct, will accelerate that.

Jacob Stoller is a freelance writer living in Toronto. He specializes in technology and lean management.