In the first instalment of a two-part exclusive, our CEO delves into the world of bitcoin and blockchain. Mark Harrop gives a brief history of the ‘global phenomenon’ here, and in part two will look at what this could mean for the RFA sector.
In this two-part article, I wanted to do a little digging into the hype versus reality around Blockchain and what it might mean to the RFA (Retail, Footwear & Apparel) sector. I certainly don’t profess to be an expert about blockchain – in fact far from it – but I want to look at it through the eyes of an Apparel technology supply-chain enthusiast to see if I can spot any opportunities, and open a dialogue with likeminded individuals – individuals who are open to supporting the WhichPLM community in investigating real use cases that will deliver benefits for our industry.
In this instalment (part 1), I wanted to cover the history and foundations of the blockchain, in it’s simplest form, to bring anyone not familiar with this up to speed.
The noise from around the world is pointing to the blockchain becoming the next revolution of technology that will have an enormous effect upon the world’s businesses – including those in fashion, government, and the public. On a related note, WhichPLM has recently written numerous articles, post and reports on digital disruption in our industry, including on the IoT (Internet of Things) being termed the coming of the 4th industrial revolution, after steam, electricity and computing.
What seems clear is that the world is going through yet another wave of digital disruption, actually starting eight years ago with the invention of the Bitcoin digital currency, followed by blockchain and more recently “smart contracts”.
A (Very) Brief History of Bitcoin and Blockchain
The first innovation was in fact the invention of the first crypto currency, Bitcoin, back in 2008 (which I’m sure you will have already heard of in the media). Now almost 10 years old, bitcoin was created by Satoshi Nakamoto, who published the invention to a cryptography mailing list in a research paper called “Bitcoin: A “Peer-to-Peer Electronic Cash System”. His goal was to invent something; many people failed to create before digital cash. If you take away all the noise in the media about crypto currencies and reduce it to a basic definition, it’s just limited entries in a database no one can change without fulfilling specific conditions.
The second innovation related to bitcoin was blockchain, which was essentially the realisation that the underlying technology that operated bitcoin could be separated from the currency element and used for all kinds of other inter-organisational cooperation, benefitting from the cryptography (the art of writing or solving codes and puzzles)advancements invented to support bitcoin.
Technology whiz kids, geeks, eccentrics and other process enthusiasts like myself are excited to learn on what may come from the latest advancements in this area, but at the same time many will be nervous and agitated; like with anything new, there’s little evidence – at least at this stage in the fashion sector -pointing to real-life demonstrable use cases, benefits, ROI (return on investments) and impact that the blockchain might have on the mainstream fashion industry. That being said, there have indeed been some exciting announcements linked to a fashion product’s authentication using blockchain as the underlining technology platform, between a product’s visibility and the ability to market on a one-to-one basis directly to the consumer wearing the product. So, the good news is that we appear to have already started down the road of blockchain – for the time being in the luxury sector only.
On a related topic, let’s keep in mind that the IoT (Internet of Things) was coined way back in 2001 by Kevin Ashton [exclusive interview with Ashton in our 6th Edition Report] and it’s only in recent years that we are able to provide concrete uses cases and evidence of the many benefits we’ve seen, and will continue to see over the coming years. This has taken the best part of two decades, so we can’t place too many expectations on the blockchain too quickly.
There is also talk from other industry sectors of the blockchain being used as part of the security behind IoT sensors and data transmitting devices. One such example is that of the manufacturing supply chain: in any manufacturing supply chain, including that of fashion, the tier 3 suppliers send trims, components, and packaging; tier 2 mills send material rolls to the tier 1 manufacturer, who cuts and sews all the parts, completes pressing and finishing before the final fashioned product is complete. In this product lifecycle, every supplier, mill or manufacturer needs to be able to keep track of each number of parts within the BOM (Bill of Materials) that will be (and have been) used in putting together the final number of contracted products. Blockchain fabric (not to be confused with actual fabric materials by the way) is a new development that may be able to support the supply chain use case by providing a protocol for components like proof of delivery, payment upon delivery of goods, third party audit, validation access, view access, etc.
A Global Phenomenon
Today you can find lots of news about blockchain. A quick search on Google will result in hundreds of reports, insights and articles. Most, however, will refer to crypto currencies; there were more than 900 crypto currencies available over the Internet as at July 2017 and growing. Bitcoin is currently the largest blockchain crypto currency network, followed by Ethereum, Ripple and Litecoin.
These crypto currencies have become a global phenomenon to those informed – some of whom have made vast returns of their crypto currency investments and some of whom have made losses! I must admit that I’ve also dabbled in the investments and will be keeping my fingers crossed over the years ahead.
Blockchain is still very much a ‘techy’, descriptive a word/term that is still not understood by the clear majority of people. Yes, they have heard the name bitcoin (unless they’ve been in the desert for the last few years with no access to news) but beyond this they don’t know what’s been advancing over the last decade. Having said this, the likes of banks, governments and many of the largest institutes and companies in the world including fashion related businesses, are certainly aware of the importance of the blockchain and have already started down the road of using it for a wide variety of use cases. These will help to transform governments, institutions and industries forever. Interestingly the market crypto currency cap at the point of writing this article [21-22nd August 2017] is hovering between $78 –$80 billion dollars, and is already used by many millions of people as investments, and payments of all kinds of things, including a growing remittance market – right down to a cup of coffee at Starbucks!
The Smart Contract
Another interesting innovation is called the “smart contract,” embodied in a second-generation blockchain system called Ethereum, which uses computer programs directly into blockchain that allow financial instruments – like loan agreements or bonds certificates – to be represented, rather than only the cash-like tokens of the bitcoin. This is certainly one of the fastest growing areas for blockchain and one that excites me in regards to the future opportunities for the fashion supply chain. Just consider the mountain of paperwork (contracts, purchase order, good received notes, supplier manuals, code of conduct, audit certifications, supply chain logistics proof of delivery documentation, import & export declarations) which, in the future, could be supported by “smart contracts” – if of course solutions can be found and are cost effective to all parties involved.
A ‘smart contract,’ put simply, can refer to any contract that can execute or enforce itself. Smart contracts are written as programming code which can be run on a computer rather than in legal language on a soft or hardcopy document. This code can define strict rules and consequences of not meeting the agreed upon terms in the same way that a traditional legal document would, stating the obligations and responsibilities of all parties involved, benefits and penalties, which may be due to either party in various circumstances. But, unlike a traditional soft or hardcopy contract, it can also take information as input and can automate the process of information through the rules and workflow lifecycle set out in the contract, taking any actions required.
There are continuous advancements in blockchain, taking place every day, like proof of stake, which relates to new methods of solving the crypto puzzles rather than relying on miners; mining requires a computer and a special programme, miners use these programmes and a great deal of CPU power and resource to compete with other miners in solving complicated mathematical problems. They are constantly mining (every few minutes competing against others to win rewards) and will try to solve the puzzle in the block that has the latest transaction data in it, using cryptographic hash functions. The winner will receive a crypto payment as their reward, which enables secure blocks within the chain to be created and shared, forming the secure data chain.
But why do they want to switch from one (mining) to the other (proof of stake, proof of work)? In a distributed consensus based on the proof of work, miners need a lot of energy to power these hungry computers encrypting the puzzles. The more the blockchain grows the more energy is consumed, hence why they are looking at smarter ways to keep energy usage down to a minimum.
And these energy costs are paid with fiat currencies, leading to a constant downward pressure on the digital currency value. In a recent research, experts argued that bitcoin transactions might consume as much electricity as the country of Denmark by 2020.
Developers are worried about this problem, and the Ethereum community wants to exploit the POS (proof of stake) method for a more greener and cheaper distributed form of consensus. It’s quite ‘techy’ for the ‘non-techs’ amongst us and relates to many good reasons including: avoiding monopolies, avoiding hacks, improving security, and greener processing (which, by the way, is outside of the scope of this short foundation article on the blockchain and potential use-cases for the RFA sector).
Bitcoin represents just under a decade (having been created in 2008) of work by an elite group of computer scientists, cryptographers, and mathematicians. As the full potential of these breakthroughs hits society, things are sure to get a little weird and exciting at the same time. Self-driving cars and drone deliveries will use blockchain whilst at charging stations. International currency transfers will go from taking days to an hour, and then to a few minutes, with greater reliability than the current system can manage and more importantly at a fraction of the cost by removing the middle men. (A lot of what’s happening is being designed to take the middle man out of the game!)
These changes, and others, represent a pervasive lowering of transaction costs. When transaction costs drop past invisible thresholds, there will be sudden, dramatic, realignment of existing business models. Blockchain is reasonably expected to trigger as many of these cascades as e-commerce has done since the advent of the Internet in the late 1990s.
Today, you‘ll find it almost impossible to find any of the major banks, accounting firms, prominent software companies or governments not involved in blockchain in some way or another, and it’s only a matter of time before we all start to see and feel the effects of blockchain, if not already done so.
Beyond the noise and the thousands of press releases, the overwhelming majority of people – even the C-Level executives of major retailers, brands, consultants – have very limited knowledge about blockchain and what it might mean for the RFA sector.
In part 2 of this article, I will look at how blockchain might operate in the RFA supply chain, working together with several contributors to share their thoughts on potential use-cases. Stay tuned.