How the need for secure supply chains is propelling blockchain

When several large automakers considered how to confront a looming sustainability problem, they turned to blockchain. The issue? Even as electric vehicles (EVs) penetrate the market in growing numbers, with global sales jumping 40 percent year-on-year in 2019 according to the IEA, questions around the ethical sourcing and disposal of their batteries have lingered.

In response, Volvo and BMW are using blockchain technology to track the raw materials used in EV lithium-based batteries from the source. This includes the mining of the key component, cobalt, which has historically been marred by child labor and other human rights abuses. Mercedes is working on a pilot blockchain project to track CO2 emissions in the cobalt supply chain, as part of its efforts to create a carbon-neutral passenger car fleet by 2039.

It is this ability to provide provenance — to track and trace materials, products, and services — that has been singled out by PwC as the biggest driver behind the widespread adoption of blockchain technology. In a 2020 study, PwC’s economists ranked the top five uses of blockchain by their economic potential, predicting that using blockchain to prove provenance could generate US$962 billion for global GDP over the next decade. Notably, this was more than double the potential of any other use case.

In many ways, this focus on provenance is a sign of the times. With operations thrown into disarray during COVID-19, securing and strengthening supply chains has become a priority — and digital technologies such as blockchain will be critical enablers. In a PwC survey of supply chain leaders in 2019, 37 percent of those categorized as “digital champions” (companies furthest along in the digital transformation of their operations) reported piloting blockchain solutions, while 33 percent planned to do so in the next five years.

Blockchain technology can be used to create digital records, such as certificates, public registers, or agreements, which can be stored, shared, and amended online. As products or materials change hands, records can be added, inspections and deliveries can be logged, and payments can be automated. Anything that happens to these records can be automatically documented and encrypted for security: showing amendments made, and who sent or exchanged them. There’s no need for a third party, such as a bank or a regulator, to verify these actions because it’s a shared process, secured by cryptography. Organizations can pinpoint fraud or contaminants with speed and accuracy. The technology can also be used to issue warnings about inconsistencies or trigger an automated dispute.

Using blockchain to prove provenance could generate US$962 billion for global GDP over the next decade.

Every product has a story. One of the major benefits of blockchain technology is that it allows parties to trace the origins and follow the journey of just about anything, enabling far greater confidence and safety in supply chains and helping to prove the provenance of goods, whether they’re fresh produce or raw materials. Our study identified three key areas that illustrate the enormous potential blockchain has in the area of provenance: its ability to combat counterfeits, to prove sustainability credentials, and to promote food or product safety.

Finding fake goods, and fake news. Blockchain makes it possible to track a product at each access or exchange point. If the new information conflicts with previously uploaded data, organizations will know something has gone wrong and be able to detect the source of fraud immediately. The public sector will be one of the largest beneficiaries in this arena, as blockchain can counter the risk to society of fake identities, certifications, tax receipts, or even defense equipment and parts. It also has enormous potential in the pharmaceuticals industry, where up to $200 billion is lost to counterfeit medicines every year. Other sectors that stand to benefit include luxury fashion and handbag retailers, the automotive spare parts industry, as well as the producers of goods such as alcohol, tobacco, or vaping products.

The media industry can also fall victim to counterfeiting and has looked to blockchain to confront the rising challenge of fake news. In PwC’s 24th Annual Global CEO Survey, the spread of misinformation rocketed up the list of threats to organizations’ growth prospects; 28 percent of chief executives are “extremely concerned,” up from 16 percent in the previous year’s survey.