Blockchain may be the newest buzzword, but that doesn’t mean it is all hype. The technology has the potential to put supply chains in the oil and gas industry on their heads, but of course, that’s all in theory. One of the frequent questions we hear at RigServ is why should a company in this industry consider blockchain and what is it. What is a distributed ledger?
What is Blockchain?
Blockchain is a distributed ledger. It can work as a currency and often does but it doesn’t have centralized banking or require conversions to do business with people around the world – and it secure by its nature. The Economist explains blockchain as “a distributed ledger that maintains a continuously-growing list of every transaction across every network distributed over tens of thousands of computers. This makes it almost impossible to hack, changing the way banking is done.”
Blockchain also introduces security to other types of transactions too, like credit card payments, but blockchain is much more than a currency. It also adds security, transparency, and efficiency to transactions.
Block Geeks explains blockchain’s ledger through Word documents. Normally, if you write a paper, the one copy exists. If a person wanted to comment on or edit your document, he or she would get a copy from you, edit it, then send it back as a new file. With blockchain technology, you can both work from within the same file so there is no risk of having multiple versions of the file and everything stays in sync. Also, because there is no going back and forth, it is much more efficient.
How Can It Be Used in Supply Chains?
One of the biggest arenas for blockchain as a distributed ledger to shine is in supply chains. Think about it like this. “Most of the things we buy aren’t made by a single entity, but by a chain of suppliers who sell their components (e.g., graphite for pencils) to a company that assembles and markets the final product,” explains Phil Gomes on Edelman Digital. “If any one of those components fail, however, the brand takes the brunt of the backlash — it holds the majority of the responsibility for its supply chain.”
However, what if the supply chain itself was transparent the way blockchain transactions are? The technology makes it possible to provide digital records that can be audited to show exactly where a given is at in each step of the supply chain.
Oil and Gas Industry-Specific Applications
Imagine how this could work for the oil and gas industry. Each stakeholder would see exactly where the product is at in each step of the refining process. What’s more, blockchain enables “smart contracts.” These are essentially computer programs that are self-automated. When A and B happen, C is released. For instance, there is a company called Slock that lets people rent bicycles remotely. As long as the owner (A) agrees to terms with the borrower (B), the bike lock is unlocked (Action C). Or, to use an industry-specific example, when your distributor agrees to your terms, a shipment is automatically delivered. The transaction is secure (Action C is unlocked only when A agrees with B), efficient (the transaction happens instantly), and transparent.
Hurdles to Adopting Blockchain
One of the biggest hurdles is transparency. Some people may not want their transactions to be visible to everyone. Blockchain removes some anonymity and this brings to question issues relating to confidentiality and data privacy. In reality, blockchain is transparent but only to the extent that it enables security, but perception is everything. There is also an issue with familiarity. Adopting blockchain is somewhat scary because it is so different from traditional currency-based transactions and largely misunderstood. Availability is an issue as well. Not everyone uses the technology so adopting blockchain will likely be something that you cannot use for every transaction, at least at first.
That said, blockchain adoption is still moving forward. “Majors like BP and Shell are making headlines with plans to utilize blockchain tech to completely transform how energy is bought and sold,” writes Oil Price. “Smaller players with big ambitions like Canada’s Petroteq are preparing to revolutionize the day to day operations of potentially every oil operation on the planet.”
Why? Because it works. Blockchain has benefits that far outweigh any hurdles or potential downfalls. It has lots of practical applications that businesses throughout the oil and gas supply chain can use to make their companies as efficient as possible.