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Blockchain in the Factory of the Future

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  • Blockchain in the Factory of the Future

    Like the rest of the world, the factory is rapidly becomingmore interconnected. In the factory of the future, data sharing occurs across a complex network of machines, parts, products and value chain participants, including machinery providers and logistics companies. As a result, today, more than ever, manufacturers face the challenge of securely sharing data within and outside the factory walls.

    Traditional databases are not always well-suited to the task. But in seeking a solution for specific applications, manufacturers can explore an emerging technology: blockchain.

    A blockchain is a digital ledger that provides a single, tamperproof version of truth. The technology offers unique advantages in situations where trust is lacking between parties that need to securely capture, store, and share critical data—for instance, data related to intellectual property (IP). Manufacturers can also apply blockchain to develop innovative business models and expand the boundaries of production beyond the traditional factory.

    For many factory applications, however, blockchain is not the best option. Recently developed central ledger databases that offer some of the features of blockchain are easier to implement and can process more transactions. And, other types of databases are appropriate when parties need to store and process large volumes of data in real time.

    To pinpoint situations where blockchain is the right technology to use to support operations, a manufacturer must conduct a structured assessment, starting with identifying the company’s current business problems and future needs. Next, it can explore how to use the technology to relieve the factory’s pain points and address its needs. Equipped with a strong understanding of the opportunities and challenges it faces, the manufacturer can then select the best options from among the available technology solutions.

    Is Blockchain Ready for the Factory?

    To ensure trust among value chain participants, manufacturers have traditionally relied on strong supplier relationships, independent quality audits, Six Sigma practices and extensive documentation. Unfortunately, these practices typically entail high costs, known as a trust tax. By ensuring trust more efficiently—in addition to conferring other benefits—blockchain reduces the need for these expensive approaches.

    Here, in basic terms, is how blockchain works: When a participant in the network submits an update to a blockchain ledger, the database uses an automated process to ask other participants to approve the update. Approved updates are time-stamped, cryptographically signed, and added to the block. The new block becomes part of the blockchain, an immutable record of all transactions and agreements of interest to the participants.

    The originators of blockchain developed it to provide a technological foundation for digital currency. Early generations of blockchain did not support industrial applications effectively, owing to limitations in network scalability, interoperability and processing speed. The versions now under development, however, use new consensus protocols that improve the efficiency of the verification process by increasing the number of transactions per second and reducing computing costs.

    The improvements under development will enhance interaction between blockchain technology and the Internet of Things (IoT)—a prerequisite for enabling blockchains to connect networked devices in the factory of the future. The interaction demands a common technical standard for communication and data transmission. Such a standard will promote levels of interoperability, transparency, and security that are superior to those of existing systems and platforms. But because no common standard exists yet, many blockchain applications have not proceeded beyond the proof-of-concept phase.

    Efforts are underway to unleash blockchain’s potential in manufacturing. For example, the Trusted IoT Alliance, a collaboration among leading technology companies (including Bosch and Cisco Systems) and numerous startups, is developing an open-source standard for integrating blockchain and the IoT. The standard focuses on a smart-contract interface that allows data to move seamlessly within and between blockchain-enabled systems.

    Although the Trusted IoT Alliance’s earliest proof-of-concept applications focus on the supply chain, the developers envision creating other applications that will support immutable documentation and trusted hardware identification. Once established, a standard could be integrated into new factory hardware and software to expand blockchain applications.

    The recent launch of blockchain as a service (BaaS) is also helping to smooth the path toward implementation of blockchain in the factory. Traditional blockchains are self-managed, meaning that a company must customize the database’s capabilities (for example, how it manages cryptographic keys) and organize the hosting of the nodes either locally or in the cloud. BaaS offers the same features as a self-managed blockchain (such as security for critical data) and adds tools that facilitate management and deployment at scale. For many manufacturers, especially those with resource-constrained technology teams, using BaaS will be easier than implementing a self-managed blockchain.

    Although blockchain is becoming simpler to deploy in the factory, it is not a panacea for challenges in industrial operations. A case in point is real-time data. For applications that require nearly immediate data exchange, such as the on-line steering of production equipment, the latency time entailed in using blockchain is excessive. In a similar vein, blockchain technology is not suitable for running advanced analytics—a capability of increasing importance in factory operations.

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