Technology

Jumping on the Blockchain Train

  • Why it matters

    Why it matters

    Blockchain used to be something for technology buffs and esoterics, but that’s quickly changing. Now, virtually every major company in Germany has embraced the nascent innovation.

  • Facts

    Facts

    • Blockchain, a technology that keeps meticulous records of transactions online, is transcending the financial sector and being adopted by companies in many other areas of the economy.
    • Nearly all of the largest companies in Germany are investigating to some extent how they can integrate blockchain into their day-to-day operations.
    • Lufthansa, Germany’s flagship airline, and RWE, one of the country’s largest energy producers, are two examples of major companies embracing the relatively new technology.
  • Audio

    Audio

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Bitcoin mining blockchains bloomberg 105686951
The Bitcoin mining process harvested something much more valuable to businesses than more bitcoins: Blockchain technology. Source: Bloomberg

When Thilo Knoop goes shopping, it’s not unusual for him to spend more than €100 ($112) on a cup holder. It’s not that he’s buying collector’s items or luxury goods, but as an employee of Lufthansa Technik’s research and development department, nearly everything he buys online is for the Germany’s flagship carrier to test for the aerospace industry.

Purchasing state-of-the-art components online also comes with a series of pitfalls. Due to their high costs, these parts can often be counterfeit. To avoid buying a fake, Mr. Knoop and others at Lufthansa Technik are experimenting with blockchain technology, a new way of digitally tracking transactions.

Relatively new on the scene, blockchains are databanks that store records of transactions, including sales, purchases or deliveries. However, unlike conventional databanks, blockchains are not stored on a single server. Instead they’re decentralized and spread across any number of computers. In the case of Mr. Knoop’s purchse, the information would be store with the airline, the seller, the part’s manufacturer and even the logistics company. Everyone in the blockchain has a record.

“Blockchain is in the process of transcending the financial sector and spreading to nearly every other sector.”

Konstantin Graf, Consultant at Altran

The other distinguishing difference in blockchains is that old data is compounded rather than deleted. This ensures against conflicts and fraud, as everyone in the blockchain has access to the same data stream. If a counterfeit product turns up somewhere in the chain, people can look to see where the transaction originally took place, and where it went from there.

To date, blockchains have been mostly associated with the cryptocurrency Bitcoin. The controverisal digital currency is not printed by a government like national currencies, but rather the transactions are tracked by so-called miners. Each transaction is added to a block, which is proofed, checked and then added to an increasingly long and connected list of these transactions. The data is recorded as a hash, each of which are unique but also related to those that came before it in the block. The oversight allows security, as the transactions are coded, and accountability, as people can see each hash’s origin.

But the technology is quickly spreading into other sectors as businesses realize its potential for industries like textile manufacturing, entertainment, logistics and energy. In Germany, virtually every publicly-listed company is investigating how it can use blockchains to make its transactions more efficient and more secure.

Jamie Skella is one of the world’s few full-time blockchain advisors – it is, after all, still a relatively young technology. He explains the benefits of such meticulous record keeping like this: “John gives Sue money. A thousand people look on and confirm that John gave Sue money. As soon as a majority of the onlookers confirm the transaction, it is saved in a data block and cannot be altered. It stays in the blockchain as long as the Internet exists.” If either John or Sue were to contest the transaction, the blockchain would know who is lying.

“Blockchain is in the process of transcending the financial sector and spreading to nearly every other sector,” said Konstantin Graf, an expert for new digital concepts at the consulting firm Altran.

Copyright holders, such as musicians, can use blockchains to check who listened to their songs on streaming services and how often. The technology is easily transferrable to other immaterial goods as well, including films, patents, licenses or digital photos.

Even the German energy sector is eagerly investigating how the relatively nascent technology can improve its processes. More than a third of Germany’s renewable energy production comes from individuals or families who installed solar panels on their roofs or micro combined heat and power units next to their homes. The growing number of individual energy producers means the operators of German energy grids have an increasingly complex number of electrons to track and count.

Innogy, the green energy subsidiary of giant RWE, is planning to equip as many as 1,000 charging stations for electric cars with blochchain technology. This will allow the system to recognize when a customer has paid. That money, preloaded into a blockchain account, will then be directly transferred to the person or company that provided that energy. Theoretically, a limitless number of charging station operators, automobile drivers and energy producers, both commercial and private, can be directly connected via blockchain. No energy marketplace or bank is needed – just an operator.

An algorithm that would invariable guarantee safe and secure transactions could eliminate the need for a middleman.

With blockchain, one of the internet’s earliest promises could finally come to fruition. An algorithm that would invariable guarantee safe and secure transactions could eliminate the need for a middleman.

Blockchain technology can also add a level of security, especially for manufacturers. Rik Kirkland, a partner at the consulting firm McKinsey, says the internet users traditionally treat it as a one-way street. People upload the data and if other people get ahold of that data, it can no longer be take back – much less controlled.

“When it comes to digital things with a monetary value like money, stocks, patents, technical sketches, property deeds or music licenses, it is a terrible idea to put them online, where anyone can use and reproduce them without our knowledge,” Mr. Kirkland said. “This is the problem with the Internet that blockchain can fix.”

The 3D printing industry is a prime example of how quickly a patented design, no matter how complex, can be counterfeited. As the 3D printing industry gradually replaces traditional supply chains, rather than ordering a specific part, a company can simply ask for the schematics and print the part itself.

“Once a 3D printer has the instructions, the intellectual property holder can only pray that only the 300 pieces that were ordered get printed with the proper material, and not 3,000 pieces with some cheaper material that are then sold on the black market,” Mr. Graf said.

In order to detect counterfeit parts, manufacturers are now experimenting with acoustic watermarks. An original part is exposed to sound and its reverberating echo is recorded and saved to a blockchain, where the audio recording remains in perpetuity. If a customer doubts the part’s authenticity, they can crosscheck its echo with data saved in the blockchain.

Back at Lufthansa, the company is planning to see the first blockchain products integrated into its day-to-day operations by the end of the year. The airline hopes this will allow it to save money on expensive parts, which often have a very general expiration date. In the past, it was difficult to know when an airplane component had reached its technical limit, and many airlines would throw them out prematurely. With blockchain, Lufthansa can now record exactly how much a specific part has been used.

The potential savings, Mr. Knoop said, have been enough to trigger “significant interest all the way up to the management board.”

 

This article originally appeared in Wirtschafts Woche. To contact the author: stefan.hajek@wiwo.de.

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