ILMA Compoundings May 2018 - 14

INDUSTRY RUNDOWN

Is Blockchain Necessary
in Manufacturing?
Everywhere you turn you read that blockchain - the system bitcoin runs on - is going to revolutionize just about
every industry in existence. Search for "blockchain
manufacturing news" online and you will get more than
a quarter-million results. Is it all hype, or will this system
genuinely revolutionize manufacturing?

Blockchain can be thought of as a distributed database
made up of blocks of transactions that are verified by everyone
involved. Each transaction is assigned a unique "unhackable"
key. Subsequent related transactions include the content and
key of the previous transaction, creating a "chain."
Should someone try to change his or her copy of the
database by deleting or modifying a transaction, a consensus algorithm runs and replaces the counterfeit copy with
an accurate version. Proponents of blockchain call this an
immutable database and claim it eliminates the need for a
middleman to create trust.
This is a reasonable expectation when talking about trading in digital currency like bitcoin, but does manufacturing
need a blockchain?
Companies such as IBM are banking on it. In the book
Blockchain for Dummies, IBM Limited Edition, the author
writes that blockchain will enable manufacturers to share
production logs with original equipment manufacturers
(OEMs) and regulators to reduce product recalls. They also

MAY 2018

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recommend that, as opposed to an open system such as the
one bitcoin uses, businesses would function in a private
network, providing users enhanced privacy, improved
auditability and increased operational efficiency. It's that
last advantage that caught the attention of many companies
looking to cash in on blockchain's popularity.
SyncFab, a Silicon Valley tech company, is working with
the U.S. Department of Energy's Clean Energy Smart
Manufacturing Innovation Initiative and the cities of San
Leandro, San Francisco and Oakland (California) to give
small manufacturers with limited budgets the ability to bid
on potentially lucrative contracts. Purchasers would not
only have access to a larger pool of manufacturers, but the
platform would also reduce procurement costs while adding
encryption to protect intellectual property.
It is hard to argue with that logic, but is this a solution
looking for a problem? Jimmy Song, a bitcoin programmer
and venture partner at Blockchain Capital, doesn't think
manufacturing needs a blockchain.
"The thing a blockchain gives you is the ability to not rely
on a central authority. If there's a manufacturer of a part
involved, there's already a central authority there that you
need to rely on. I don't see how a blockchain adds anything,"
he said.
Song added that despite the concept of a distributed
database, it's not foolproof. "Within manufacturing, you
have no idea if, say, some part was made that it didn't have
some flaws in it. Maybe some third party can check that it
met some standards when it was manufactured, but even
then, you're relying on the third party. You don't really gain
anything from a blockchain."
In Song's opinion, many businesses are using "blockchain" as
a cover for general information technology upgrades that need
to happen anyway. "This is a terrible waste as blockchains are
simply not that well-suited to most use cases," he said.
Blockchain enabled the democratization of currency
in the form of bitcoin in the same way the printing press
democratized information - by removing the middleman.
The question becomes whether or not manufacturing needs
to be democratized.

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ILMA Compoundings May 2018

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