Michigan manufacturers explore potential of blockchain tech beyond Bitcoin

By RILEY MURDOCK
Capital News Service

LANSING — Cryptocurrency markets might remain volatile, but the technology behind the likes of Bitcoin – “blockchain” – is being looked at as a game-changer for potential uses in many fields.

Blockchain, or “distributed ledger” technology, records transactions and other data in a permanent, unchangeable “chain” that is instantly updated for everyone using the chain. That makes transactions easier to track and more secure from malicious attempts to change them.

A popular analogy, according to Governing.com, is to “think Google Docs, except that all changes are encrypted in a way that they can’t be changed or deleted.”

Chuck Hadden, president of the Michigan Manufacturers Association, said he’s been talking to member food manufacturers about companies like WalMart using blockchain to ensure food safety in their supply chain.

In August, Wal-Mart joined companies such as Dole and Kroger in a partnership with IBM to improve traceability and maintain secure digital records using blockchains, according to Fortune.com.

“If they get a bad basket of lettuce, let’s say, they’ve gotta track it all the way back to where it came from, and that takes a couple of days,” Hadden said. “If you blockchain it, it takes you like an hour. They can pull off specifically this carton of lettuce that came from this row, or they can start testing all the ones that were in that row.”

Digital security is another way blockchain can improve supply chains.

Steven Melnyk, a supply chain management professor at Michigan State University and global innovation chair in supply chain management at University of Newcastle, Australia, said blockchain can be part of the solution to a major cybersecurity problem.

According to Melnyk, cybersecurity aims to address three threats: theft of intellectual property; corruption of information technology, such as changing numbers in a company’s supply chain; and sabotaging equipment.

Blockchain, he said, is perfect for protecting the integrity of data, therefore combatting the second threat.

“If someone tries to change a schedule, there’s gonna be other copies of it,” Melnyk said.

He used a simple example: Blockchain prevents someone from changing a $500 check to a $10,000 check.

Melnyk described an American company  targeted by Chinese hackers. After penetrating the company’s computers and collecting information for two months, the hackers randomly changed order quantities and due dates in the company’s production schedule, causing it to botch several orders.

This is the kind of attack blockchain can prevent, Melnyk said.

“If you invest in blockchain, you’re investing in part of the solution,” Melnyk said.

However, blockchain cannot protect companies from intellectual property theft or the sabotage of equipment, Melnyk said.

According to Melnyk, cybersecurity is a two-part solution. One part is technology. The other is knowing how to use it, and by extension, convincing businesses that cybersecurity is necessary.

“I can have the best technology in the world, but if the person I’m trying to get to use it doesn’t understand why it should be used, guess what’s gonna happen? It’s gonna be ignored,” Melnyk said.

“The problems facing us are really far more complex than getting another solution. I think the worst thing we can do in cybersecurity is to convince people there’s a magic bullet,” he said.

That’s why Melnyk has introduced cybersecurity and blockchain into his classes at MSU.

“By the time we have a generation of managers, they’re going out there and they’re aware of the issues instead of us trying to teach them once they’re in the field,” Melnyk said.

Working to maintain blockchains is also a profitable venture.

For example, Ensource Capital LLC is a Wyoming, Michigan, company focused on Ethereum, Bitcoin’s main cryptocurrency competitor. By using a large number of computer servers, Ensource Capital verifies transactions and records for a blockchain. The verification work is then rewarded with cryptocurrency, in a process known as “mining.”

“The Ethereum network pays us to build their infrastructure — that’s how the mining works,” David Warner, its chief operating officer, said.

“We’re essentially providing their network infrastructure, so as a reward for doing that, you get the Ethereum tokens, which then get deposited to the investors’ accounts through our ‘smart contracts.'”

Ensource’s ‘smart contracts’ represent another side of its business.

The company’s main focus is expanding its Ethereum mining, for which it recently reached a $4 million private equity deal to build the largest mining facility in Michigan, Warner said.

The company also contracts out blockchain-based development projects, using the Ethereum network for applications such as automatically paying dividends to its investors.

“We’re utilizing the technology we’re building the infrastructure from,” Warner said. “If you’re a 10 percent owner, every week it will distribute (Ethereum) to your wallet automatically on a public ledger. If anything’s ever changed, everybody would know it was changed, so it creates a huge level of transparency with investors.”

Warner said blockchain has many potential applications in manufacturing, particularly to  trace supply chains.

He mentioned a test conducted by Wal-Mart in which a blockchain structure reduced its food recall process from 48 employees and two weeks to one employee in seconds.

“One guy, one second, clicked a button and knew where everything came from and where it went,” Warner said. “Traceability, on the manufacturing side, is massive.”

This could be just the beginning for blockchain technology. Warner said he recently discussed it  with U.S. Rep. Bill Huizenga, R-Zeeland, and other Michigan politicians.

“They’re all very well in the know and they’re very excited,” Warner said.