Blockchain Cheerleaders

Not everything that comes out of business schools is erudite, and a recent stream of silliness about blockchains has inspired me to write this short piece. There has been a proliferation of books and articles that argue that blockchain-enabled supply chains eliminate the manufacturer’s incentive to misreport and will make supply chains fully transparent, improving security for retailers and safety for consumers. Dig deeper, and this is nothing more than baseless cheerleading for another expenditure without serious analysis of the underlying problem.

There have been several popular press articles concerning the application of blockchain solutions to supply chains, notably a Fortune piece in 2017 that relates a story from Walmart where a consultant from the University of Arkansas argued for management to start a program to implement blockchain throughout their immense procurement chain. This project has not led to Walmart adopting blockchains in its supply chain, but we do know a good deal more about why blockchain technologies are inappropriate for a supply chain. Indeed, recent industry experience argues against blockchain technologies’ appropriateness to supply-chain applications (despite both including “chain” in their names), and until there are empirical studies of successful applications to the supply-chain (there are currently none), I am skeptical that this would ever happen.

There are compelling arguments against the use of blockchain in supply chains, and I will illustrate this with a case from China. In response to a series of food safety failures, the Chinese government has intensified its monitoring of the food supply and is particularly concerned about quality issues in the supply chain. Pork, the most significant meat product in China, provides a pertinent example. In 2023, China produced approximately 57.9 million metric tons of pork, and China’s numerous Walmart stores sell a lot of pork.

Consider a blockchain used to track the provenance of pork and to stop potentially dangerous food from getting to consumers. This would happen because producers with diseased pigs have asymmetric information (i.e. about the scrofulous porkers) and want to keep that secret from Walmart and other distributors. In Walmart’s supply chain, there are a number of companies that do everything from breeding the piglets, to feeding them, slaughtering them, cutting them up, shipping them, packing them, and delivering them. Eventually, pork cutlets end up at Walmart’s stores for people to buy, or elsewhere on a plate in a restaurant.

In a blockchain world, we would naturally assume that all the participants in the pork supply chain will have an address on a blockchain, with let’s say, PorkChain tokens, issued presumably by the farmer, that represent pigs. The movement of the PorkCoin is recorded immutably on PorkChain. When a farmer sells a pig to a wholesaler, the seller says, “Hey, what’s your PorkChain address? Let me send you some PorkCoins” and makes a corresponding PorkCoin transaction on PorkChain to represent the movement of the pig. But then, one day, the buyer is a slaughterhouse that chops the pigs up into small bits and sends those different bits to different parties. But of course a PorkCoin, just like BitCoin, is divisible. The slaughterhouse, therefore, splits up a PorkCoin and sends fractions to different buyers. But which fraction is which part of the pig? Do we need a TrotterCoin and a LeftRearFlankCoin? All of these parts have substantially different demands and prices, and some are just waste.

Furthermore, what happens if one party doesn’t have an account on PorkChain? What if a party loses their private key, and all of the SnoutCoins end up trapped in the account while the real underlying snouts are being distributed? What if a rogue farmer swaps out a healthy pig for a diseased pig (this happens more often than we would like to believe) but then still sends the PorkCoin to the buyer, asserting “Look at the PorkCoins’ provenance on PorkChain; the pig you are buying is definitely high quality; you can download the PorkChain and see for yourself?”

Even worse; what happens when the pig becomes part of a sausage? How will that work? We will definitely need a BreadcrumbCoin, HerbCoin, NastyBitsOfPorkCoin and a market-maker to exchange those for a SausageCoin. And how does the restaurant or shopper in Walmart casually browsing the raw cutlets validate that the sausage in front of them is the real thing, and safe to eat? Do they take a photo of the sausage and check it against PorkChain?

All of the details on farm origins, factory data, expiration dates, storage temperatures, and shipping can be faked. Blockchains don’t tell the truth, they just record what someone tells them. This works fairly well for fungible digital assets with efficient markets. It is a recipe for disaster with perishable, unique items in a food supply chain.

Blockchain cheerleaders aren’t anything new. There exists a whole community of consultants, management ‘gurus’, and out-of-work authors looking for the next fad to exploit. Blockchain is one of those recent fads. If you don’t look closely, it has specious appeal. Look closely and it is just more faddish nonsense.