DLT in the Industry — Use Cases for Production

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Industrial use cases for the promising blockchain technology have not been the main focus of attention so far. However, it offers many solutions that can create value and profits around the globe. We have collected and summarized promising cases which will soon be available here as well in greater detail. — Authors: Philipp Schulden, Marcel Kaiser, Philipp Sandner

The Precondition: Autonomous Micropayments

Distributed, autonomously operating systems offer an alternative to conventional, centrally organized platforms. These have the advantage that data and applications are controlled by a large number of independent parties, which makes it easier for the parties to cooperate in a way that adds value for the customer.

To enable a complete electronic negotiation along the manufacturing supply chain and to simultaneously prevent process interruptions potentially caused by e.g. incompatible ERP-systems, IoT micropayments from machine-to-machine are the underlying basis for the to-be presented use cases creating a fully integrated industry marketplace. Through underlying blockchain-based smart contracts, previously costly and incompatible intermediate stages of the business process, caused by incompatible ERP systems, data silos, different company policies, and lack of trust, are merged and harmonized. Smart contracts, thus, enhance inter-company interoperability, as blockchain technology associated its feature of build-in trust, integrates and automates the complete process range from order entry through to final payment (payment vs. delivery) on an inter-company basis.

Within the Machine Economy, smart contracts can automate data in such inter-company ecosystems to create high levels of automation with auditable parameters. The utilization of smart contracts in connection with cash on ledger provides a billing layer, facilitating a worldwide marketplace of services between devices in such IoT-driven ecosystems [Christidis & Devetsikiotis, 2016]. Machines, therefore, have the potential to become independent economic actors referred to as “profit centers”. In this scenario, machines are equipped with their own digital wallets, which make it possible for the machines to send and receive funds. This happens without requiring an additional intermediary for the transaction processing, such as a human-operated accounting department. This process considerably reduces administrative expenditures per transaction by the facilitated machine-to-machine payments and prospectively enables decentral governance of organizations (e.g. see use case “Virtual Factory DAO). Cash on Ledger and the associated micropayments are expected to be an important building block of applications within the Machine Economy (Lage, Oscar. 2019).

Textile Utopia

The production of textile goods is highly dependent on manual labor. Worldwide, approximately 60 to 75 million people are employed in the textile, clothing and footwear industry (Stotz & Kane, 2015). Three-quarters of this number are female.

It is known that most needlework is carried out in countries with relatively unfavorable labor conditions and potentially severe forms of exploitation. Since wealthy Western and Eastern countries buy products at relatively high prices compared to the cost of production, high margins are realized by middlemen. In order to transfer wealth to those who actually create it without inflating prices significantly, we have identified an industrial use case that may be able to partially disintermediate the industry and which has the potential to empower those whose labor is currently being exploited. We created a use case that can create a marketplace for supply chain participants which use the blockchain instead of intermediaries producing regions.

As a result, cascading payments can be prevented and e.g. sewers are empowered by their own independent ability to participate in the markets directly.

Welfare gains in the concerned countries could create sustainable growth in developing and transition regions. The creation of an advantageous textile-producing economy also has the prospect of replacing overproduction in the textile business with a more environment-friendly approach. Increasing labor market participation will then create a price equilibrium that reflects the real value of clothing, rather than a distorted current version between modern slavery and overproduction.

Tokenized Production Tracking

Imagine being responsible for a product whose origin and the required measurement data are accessible at all times and unchanged in all details, even if something goes out of order. Tracking produced goods along the supply chain is not only relevant for so-called cold chain relevant products, i.e. products whose temperature has to be permanently below a certain threshold to guarantee their further use. Each delivered package can nowadays be tracked exactly to prevent theft or fraud. This service is provided to the buyer of the good, even in a private context. There are many other parameters besides location and temperature that can be monitored autonomously and permanently. Smart Oracles have gained the ability to ensure immutability and transmit it on blockchain systems. They constitute the interface between the blockchain and the physical environment. Since theoretically any parameter can be measured with such devices (or such devices can be constructed in this way), autonomous tracking is technologically possible. The blockchain can provide neutral, unaltered access for any participant in such ecosystems.

In the manufacturing industry, tracking parts along the entire supply chain can be beneficial, but at the same time, it may also lead to a waste of resources — which is highly dependent on sector-specific issues. Indeed, many sectors do not need certain quality criteria, for example in the case of transportation. Others see themselves overwhelmed with such information and without significant benefits. For example, there are so many components in a car, it would pose a major extra effort to actually track these along the supply chain. It would likely be too much effort to handle the data. Thus, it highly depends on the product, whether this use case is applicable or not.

“Uberization” of the Service Sector — DAO

This is a common use case, which is presented in several versions: Within an intelligent factory, a marketplace is created where offers for production orders can be automatically submitted, processed and realized. However, we have discussed this use case with representatives of the German industry and refined it within the framework of the iBlockchain initiative. First, in an article, it will be summarized what the concept implies, which requirements have to be fulfilled and which results can be realized. Our approach would state a virtual factory wherein the interoperability of several agents would not only lead to more (cost) efficient production processes, but also to a reduction of the working capital employed in the production process, as well as an enhancement of the underlying Cash Conversion Cycle. Further aspects, which this use-case triggers are the reduction of personnel costs for the owner of the factory, breaking up production monopolies, increase of plant efficiency as well as tracking and monitoring of the supply chain.

Conclusion and Outlook

In a series of following articles we describe the opportunities and prospects of our developed and refined use case. iBlockchain is a research initiative which deals with industrial applications of DLT solutions. It is funded by the Bundesministerium für Bildung und Forschung. The members of the iBlockchain consortium will tell the use case story and its implementation. In addition, policy recommendations are derived and micro-studies on related topics such as security, zero-knowledge proof, and smart oracles are published.

Here, we announced three use case articles for industrial or manufacturing production processes. Those are not part of the implementation process of the iBlockchain project but deserve their own discussion. They share the approach of IoT realization utilizing blockchain and common practice.

Their aim to improve the way we work, consume, hire and steer our machines with blockchain technology. Furthermore, they require infrastructure to be built and regulation to be affirmed. These building blocks are still missing in the affected areas. Efficiency, welfare and free-market mechanisms are invited by the technology. Whether it is the best solution for each of these cases is a question that will answer itself but one conclusion can be taken away from these cases: industrial potential is still to be harnessed by market participants. Concepts like pay per use (Blockchain and the Manufacturing Industry) can drastically foster the development of a solution that works for entire supply chains.

Sources

Remarks

This research and development project was funded by the German Federal Ministry of Education and Research (BMBF) within the funding number 16KIS0906 and implemented by the VDI/VDE Innovation + Technik GmbH. The authors are responsible for the content of this publication.

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Authors

Prof. Dr. Philipp Sandner has founded the Frankfurt School Blockchain Center (FSBC). In 2018 and in 2019, he was ranked as one of the “top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. Further, he belonged to the “Top 40 under 40” — a ranking by the German business magazine Capital. Since 2017, he is member of the FinTech Council of the Federal Ministry of Finance in Germany. The expertise of Prof. Sandner includes blockchain technology in general, crypto assets such as Bitcoin and Ethereum, the digital programmable Euro, tokenization of assets and rights and digital identity. You can contact him via mail (email@philipp-sandner.de) via LinkedIn or follow him on Twitter (@philippsandner).

Marcel Kaiser is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His expertise is primarily decentralized finance (DeFi) and industrial blockchain applications. He analyzes the impact of blockchain technology on the economy in his master thesis. He speaks at public events about topics like Libra, quantum cryptography and blockchain in general. Feel free to contact him via mail (marcel.kaiser@fs-blockchain.de), LinkedIn or Xing.

Philipp Schulden is chief operations officer of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management. In the blockchain environment, he has supervised numerous international projects and research initiatives. He also possesses expertise in the field of application possibilities of blockchain technology in the area of the Industry 4.0. He completed his studies in Management (M.Sc.) in Germany, Russia, Peru and South Korea. You can contact him via mail (philipp.schulden@fs-blockchain.de and LinkedIn (https://de.linkedin.com/in/philipp-marcello-schulden).

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