A Primer: Blockchain’s role in the Supply Chain World

Many enterprises are exploring the possibility of establishing supply chain capabilities today. There are several considerations to consider when doing so. This is because when formulating a blockchain solution to deliver on supply chain needs, it is important to determine what type of blockchain is best suited for a particular supply chain project. Therefore, it is essential to have a clear understanding of the options available for blockchain structural types, in addition to deciding whether to establish a permission or a permissionless-based operational model.

Permissionless vs. Permissioned Blockchain Models

All types of blockchains can be characterized as permissionless, permissioned, or some cases, both. Permissionless blockchains allow any user to pseudo-anonymously join the blockchain network, as they do not restrict the rights of the user (or ‘node’) on the blockchain network.

Permissioned blockchains on the other hand, restrict access to the network to certain nodes, and additionally may also restrict the rights of those nodes on that network. The identities of all users of a permissioned blockchain are known to all other users of that same permissioned blockchain.

Permissionless blockchains by nature are more secure than permissioned blockchains. This is mainly because there are many nodes that are available to validate transactions. This makes it significantly more difficult for users with nefarious intentions to compromise the network. The flip side though is permissionless blockchains usually experience longer transaction processing times due to the extended number of nodes along with a higher volume of transactions.

Permissioned blockchains tend to be more efficient. The primary reason being that access to the network is restricted; as such, there are fewer nodes on the blockchain. Naturally, this results in significantly less processing time per transaction. Again, the fewer nodes there are on a blockchain, the easier it is for bad actors to use it to collude. This trade off means that it is incumbent on private blockchain administrators to verify that the users who are adding and verifying blocks are all highly trusted participants.

Types of Blockchains

There are four basic types of blockchain structures:

  1. Public Blockchains are permissionless in nature as they permit anyone to join since they are completely decentralized. Public blockchains allow all nodes of the blockchain to have equal rights to access the blockchain, create new blocks of data, and validate blocks of data.At this time, public blockchains are primarily used for exchanging and mining cryptocurrency.
  1. Private Blockchains, which may also be referred to as managed blockchains, are permissioned blockchains controlled by a single organization. In a private blockchain, the central authority determines who can be a user. The central authority also does not necessarily grant each node with equal rights to perform functions. Private blockchains are by default partially decentralized because public access to these blockchains is restricted.
  2. Consortium Blockchains are permissioned blockchains governed by a group of organizations in the same model as the private blockchain. Consortium blockchains offer more decentralization than private blockchains, which in turn results in higher levels of security. Executing consortiums can be a challenging process as it requires cross-cooperation among multiple organizations. Consortium models can be further complicated by some members of the supply chain that might lack the necessary digital infrastructure to implement blockchain tools.
  3. Hybrid blockchains are blockchains that are controlled by a single organization that imbues some level of the type of oversight performed by the public blockchain. This oversight is required to perform certain transaction validations. In a nutshell, a hybrid blockchain has two interfaces; a public blockchain that helps to verify the data that is stored in between the ledgers of the private blockchain.

Blockchain Types for Supply Chain Use

The marketplace for supply chain implementation is clearly moving in the direction of the consortium and hybrid models. It is no surprise that any member of a supply chain has important data protection and competitive considerations. Still yet, blockchain for supply chain cooperation requires some extent of permissioned functionality. In this regard, consortium, and hybrid models of blockchain provide the best options for this application. It is for this very reason that Research and Markets recently reported that consortium and hybrid blockchain types are expected to grow at the highest rate in the supply chain market from 2020-2026.

Stay tuned for Part 3 of this blog series where we will provide examples of the four different types of blockchains.

Read Part 1: Research: Blockchain technology market expected to reach $1.4 billion by 2030.

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