VeChain Technology Shuai Chu: How does blockchain technology revolutionize supply chain management?

Abstract: The combination of blockchain and supply chain; how to solve the problem of counterfeit goods in the supply chain through blockchain technology; how blockchain technology can help us reconstruct the supply chain system; explore the broad uses of blockchain technology in the field of supply chain finance.

In the 22nd issue of Titanium Confession, we invited six Titanium experts to share their views on the "Application of Blockchain". This article is based on the sharing of VeChain Technology Co-founder and CTO Shuai Chu titled "How does blockchain technology revolutionize supply chain management?"

Shuai Chu graduated from the Chinese Academy of Sciences and worked for Alibaba. He is an early participant and promoter of the Chinese blockchain community and the designer and developer of the blockchain developer platform Qtum. He is also a Hero Member of the Bitcoin community Bitcointalk, has published 10,000 posts, and wrote the development manual "Build Your Own Blockchain from 0 to 1". Shuai Chu is currently the CTO of Vechain, a blockchain startup.

The following is what Shuaichu shared on Titanium Media, compiled by Titanium Media :

Vechain, as a startup in the blockchain industry, has been exploring the blockchain technology for a long time. We entered the industry in 2013 with Bitcoin. Later in January 2015, we felt that the blockchain technology behind Bitcoin would have great development. At that time, the United States was also exploring more and more applications of blockchain technology. Therefore, we set up a research team to explore the application of blockchain technology and gradually turned the company's direction to the research and development and application of blockchain technology.

Characteristics of blockchain technology

From a developer's perspective, blockchain technology originates from some classic problems in traditional computer science, such as consensus and data consistency in distributed systems.

The Bitcoin network is the first to achieve peer-to-peer value transfer in a distributed system. Blockchain technology is very revolutionary. Why do you say that? Recall that from the development of Internet technology in the 1990s to today, the entire Internet technology has brought revolutionary changes to everyone. Internet technology solves nothing more than the problem of information transmission and dissemination. For example, WeChat and Weibo solve the problem of information sharing, Alibaba achieves information aggregation, and Google and Baidu aggregate and process information. Blockchain technology is the first to achieve a peer-to-peer value transfer on the Internet . It can be said that it is a new protocol built on the existing Internet technology architecture. We call it a value transmission protocol.

We know that the development of Internet technology has given birth to companies such as Google, Facebook, and BAT, which have grown to such a large scale through effective information solutions. A very important feature of blockchain technology is the ability to map real-world assets to digital assets on the blockchain. In the next five or ten years, more and more assets will be marked on the Internet, and their size and value are actually far greater than the existing information Internet.

Since 2009, the Bitcoin network has flourished, from a network with zero value to a network with a market value of 10 billion US dollars today. The development speed is very fast. The computing power to maintain it today is also very scary. According to statistics, there are about 1500 PH/S computing power today. In addition, the security of the Bitcoin network is not maintained by a centralized organization, but by miners in more than 200 countries around the world, and tens of thousands of nodes simultaneously maintain the security of such a decentralized network.

The theoretical effect of the Bitcoin network is not as good as its actual effect. In theory, Bitcoin will have final data consistency within an hour, and it is only probabilistic. However, because it introduces an incentive mechanism, most miners are honest miners, thus maintaining the consistency of its distributed system.

Let's briefly summarize the development of blockchain technology. Blockchain technology first became popular in 2015. At that time, we abstracted the technology behind Bitcoin, which is a set of design concepts to realize the decentralized network of Bitcoin, including some of the cryptographic technologies used behind it, peer-to-peer networking technologies, some theories and methods of consensus mechanisms, some concepts of game theory and some designs of economic incentives. We separated them and formed a technology set, which we call blockchain technology. This technology itself is a revolutionary concept because it realizes for the first time a network-wide public ledger based on the existing Internet. In fact, the essence of the ledger is money. If we make such an analogy, we can find that the central bank is also keeping a ledger, which represents the balance of everyone's wealth.

The records of the open ledger of the entire network are maintained by multiple parties. It is a network with weak trust, or basically a network built by strangers or stranger nodes together. This did not exist on the Internet before. Therefore, from the perspective of its protocol innovation, Bitcoin fills the gap of such a value transfer protocol with the Internet technology, so blockchain technology is a revolutionary technology. However, its implementation is a long and reformative process, that is, how to integrate with existing financial institutions including the software developed by existing Internet companies. This is an issue that industry practitioners need to consider.

According to statistics, blockchain technology has been explored in more than 60 industries around the world since 2015, attracting more than 1 billion US dollars in venture capital. Some people call it the next wave of the Internet, which means that there is an opportunity to reconstruct the Internet based on the existing Internet.

How to solve the problem of counterfeit goods in the supply chain through blockchain technology?

Our company entered this field in 2013, from the initial bitcoin mining chips to mining services, including the design of mining integrated circuits (ASICs), and later we did mining pools, some block browser services, and some services for users in this field. In 2015, we began to try many directions in the application of blockchain: including equity crowdfunding, games or universal points, blockchain Internet of Things, etc., which are often heard of now, and even built blockchain ledgers for charities to map capital flows. Now our focus is on the blockchain commodity supply chain platform - Vechain. This platform was initially positioned to solve the problem of counterfeit goods in the supply chain by giving commodities a unique "ID card" on the blockchain through blockchain technology and NFC chip technology, including the subsequent solution of some problems in supply chain finance through smart contracts based on blockchain technology.

When choosing the direction of entrepreneurship, why did we enter the industry from the perspective of supply chain? We considered that although most of the uses of blockchain technology in foreign countries and in China are in the financial field, and we have tried a lot ourselves, China is a country with very strict supervision and policies in the financial field, and the cost of trial and error is very high, so we chose a supply chain angle that has no legal and regulatory risks and can have actual landing scenarios. Of course, this is also related to the business resources of our company's founder. Another co-founder of our company, Mr. Lu Yang, was originally the CIO of LV Greater China. At that time, he mentioned to us that some luxury brands in China were very troubled by the problem of counterfeit goods.

At that time, we entered this industry from the perspective of the supply chain and did some exploration with some luxury companies. The first point was to help them solve the problem of counterfeit goods, which might be extended to the issue of item ownership, including the management of specific goods. Secondly, we will derive a transparent supply chain management process.

The first product launched by VeChain is an anti-counterfeiting solution. We will have an NFC chip, and the ID of this chip will be registered on the blockchain. For users, the next time they go to buy a luxury bag, for example, they can scan this chip through the VeChain mobile app and read the process information of this bag in the entire supply chain. By giving each product a unique ID on the blockchain, we can completely solve the problem of counterfeit goods.

There are many factors that lead to counterfeiting in China, but there is actually a very fundamental reason, that is, there is no identity difference between goods . That is to say, all goods, such as all packages, although there is a difference in SKU (the current product management granularity can only be up to SKU), but each package does not have a unique identity. Through blockchain technology, we achieve network consistency, and this consistency is also reflected in uniqueness. That is to say, for example, on Bitcoin or any blockchain network, its public key and private key must be unique, and the private key corresponding to each address must be unique. Through such a uniqueness, we assign it to the chip ID.

Once the chip ID is assigned, we will connect the chip ID with some information about the package, and then put some information about the package in the supply chain on the blockchain network, such as the production process, logistics process, and sales process of the package in the store. When consumers buy a package, they can read the process of the package in the supply chain through the mobile phone APP. In fact, we help brands or factories to control the location of items in the entire supply chain. Blockchain can solve the fragmentation and discreteness of information in the supply chain. For example, the factory does not know how much goods your supplier or distributor has in hand. The distributor may not be able to check the store's current inventory in real time. After the sale, it is also difficult for the store to establish contact with customers, including in the production process. It is also difficult to declare that there is no fraud, because there is no way to prove your innocence and make all consumers and distributors believe you.

Through blockchain technology, we have created a "transparent supply chain". This supply chain is not a supply chain created by VeChain or a specific company. It is more of an alliance chain. It is a supply chain platform maintained together with manufacturers, brand owners, distributors, channel operators, and even logistics companies and terminal stores. On such a platform, it is divided into multiple stages, but no matter which stage it is, it will have a unified cloud service interface, which can be said to be equivalent to accessing the same database. It can be read and written by multiple people, but in the end the data consistency can be maintained, instead of the traditional database which is difficult to maintain or difficult to share a database and ultimately ensure its consistency.

In addition to the luxury goods sector, VeChain is also considering entering the medical field, including the issue of fake vaccines that has caused headaches for everyone. We will consider this later. In fact, anything that needs to be traced or needs to be verified for authenticity is a potential direction for us to consider. For our company, the current focus is on promoting an application in the luxury goods sector.

How does blockchain technology reconstruct the supply chain system?

The main reason why blockchain technology plays a role in the supply chain is that the blockchain network has a decentralized or weakly centralized trust network that can prove its innocence. Its data cannot be tampered with, is traceable, easy to maintain, transparent and public, and everyone can check it anytime and anywhere. In addition, everyone knows about such a network, and no one will be able to do evil on it . Because from a technical point of view, we guarantee that you cannot tamper with the data or write false data on it, because the false data is publicized on the entire network, and everyone knows that you are writing false data. Why can't the traditional database, including the traditional supply chain management process, do this? I think the main problem is the problem of credibility. For example, there are actually many platforms like 315 anti-counterfeiting in China. There are many anti-counterfeiting platforms built by a certain party or a certain manufacturer. In fact, the main problem is that the trust guarantee of one party is that unless you are a strong control channel, everyone may believe the brand. Otherwise, in fact, no one is willing to believe it, because you can't prove your innocence and say that my data is not fake.

Let’s take the simplest example, such as Yangcheng Lake hairy crabs. They are a local specialty and there is no strong brand owner behind them to protect the brand. Of course, some local governments may protect it, but how can we ensure that no one fakes the crab marks and numbers? This is a very big problem. You have no way to trace how many crabs were raised and how many were shipped.

Therefore, through VID (Vechain-ID), we first need to give each product or item a unique ID, which is achieved through NFC chip technology at the front end. After that, the product can be identified and marked in the supply chain. The current solution for the luxury goods field has the highest degree of anti-counterfeiting, which means that counterfeiting is basically impossible. For some products, such as agricultural products or some low value-added products, we may provide QR Code, which is a two-dimensional code, or this barcode method to mark a product. After the product is marked, its process in the entire supply chain can be traced.

We can also use the important feature of blockchain, the technology of smart contracts, to manage ownership. For example, to protect a certain brand, when I issue this kind of ID, it may require multiple people to sign, such as the factory director, operator, or even the factory manager for the final issuance. This will involve a product management issue. Ownership management can also be extended to all offline transactions, even including transactions of second-hand goods in the luxury goods field. If the goods have been recorded before, the transfer of your ownership is actually reflected on the blockchain. Such a transfer and transaction is actually a deeper integration of the characteristics of blockchain technology, because blockchain technology is a point-to-point value transfer network with low thresholds that everyone can participate in and build. With such a feature, you can easily transfer your ownership.

The broad application of blockchain technology in supply chain finance

Supply chain finance involves the issue of capital flow. In fact, blockchain technology itself is designed for such point-to-point value transfer. Smart contracts can be easily written on the blockchain to write contracts related to supply chain finance, such as cash on delivery contracts. As long as there are some real logistics data as trigger conditions, the payment will be automatically paid to the shipper. Through these contracts, we can set the conditions in advance, which will help everyone build many financial service scenarios in the blockchain, and the threshold for participation will become very low.

However, when it comes to financial issues, it involves the participation of banks. At this stage, banks are only preliminary explorers of blockchain technology, including some early explorers in China such as WeBank, which may be exploring how to provide some changes and services to the banking industry through blockchain technology. However, the blockchain financial field mentioned earlier will involve whether funds can be circulated on the blockchain. This actually involves financial and regulatory issues, including whether banks are willing to open these interfaces and authorize the blockchain network to move these funds. This is more of a regulatory issue than a technical issue. However, from a technical perspective, blockchain technology can indeed help us to reconstruct the entire supply chain system, including the development of many such financial services on the supply chain. This potential is very huge, so as a startup, we may want to enter this industry from the first perspective.

At present, the development of the entire blockchain technology in China is still in its infancy. We are relatively early in the field of supply chain and are currently working on some practical cases. Vechain is currently divided into four modules: VAC (Vechain Anti-Counterfeiting) anti-counterfeiting module, VAM (Vechain Asset Management) asset management module, VSC (Vechain Supply Chain) supply chain management module and VCE (Vechain Client Experience) consumer experience module. Therefore, some of the cases we are currently promoting include some logistics companies, freight forwarders and some supply platforms in addition to the luxury goods field, to help them better and transparently control the flow of goods. We hope that through our efforts, the commodity-centered model of connecting everything will have a relatively large development in the future. Even including some financial services in the supply chain, financial services may still be in the early stages, but this is a very good direction for exploration, and early means more opportunities. The current status of the development of blockchain technology in China is that domestic technology research and development in this area is still relatively weak, because most of these basic protocols, including some development, are mostly from abroad.

In fact, we have also realized in the process of developing blockchain technology that China does need to make more efforts in the underlying technology. Because now in the entire blockchain technology field, whether it is some applications in the supply chain or in other industries, it will eventually be implemented in a technology, and there are different paths for the implementation of technology. We just hope that China can have its own technological innovation and development. In addition to VeChain's business, our company is also developing some underlying technologies, including some technical modules, including an integrated development environment for blockchain, an operating system, and some blockchain development environments for different industries in China. Because the supply chain is a field with a low regulatory threshold, we will first work on the supply chain field to promote the development of such a technology, including its implementation.

In fact, if we extend the discussion of the entire blockchain technology, its concept and its impact, there are actually many stories to tell, but the most important point is that it is actually a new form of economic organization, and also a new form of technology that can take the sharing economy to a higher level. Such a technology will actually bring a huge change and impact to many industries. There are many in the financial field, including payment, clearing and settlement, KYC, identity recognition, and the digitization of physical assets. Smart contracts can rewrite many business rules, although smart contracts are still in an early stage and not mature enough. In fact, in addition to finance and these changes in business rules, it also includes the field of the Internet of Things. It may have the opportunity to bring us into the era of machine economy, that is, by giving each machine or each device a unique ID so that it can also participate in this economic activity. It also has a great impact on social networking, social networks, and even games, as well as the medical industry, including government public services, because the most important thing about government public services is credibility and transparency, and blockchain technology just has such technical characteristics. For example, property registration, notarization services, identity registration and management, data management, asset management and transactions, blockchain technology actually has many application scenarios in these public services, even elections and auctions can be implemented on the blockchain network. Domestic financial institutions have also conducted a lot of research on blockchain, including Ping An joining an organization like R3, Ant Financial and WeBank have some exploration of blockchain, and Baidu has also invested in some blockchain companies in Silicon Valley, but the entire industry is still in its infancy, so the future development of this industry needs to rely on everyone to explore together. (This article was first published on Titanium Media, based on the sharing of VeChain Technology co-founder and CTO Shuai Chu on Titanium Confession)