Last year, IBM executives flew to Walmart’s headquarters in Arkansas to propose a solution: the blockchain.

The good and bad of blockchain: Walmart from fisherman to the customer in real time

UNITED STATES
Tuesday, February 13, 2018, 08:00 (GMT + 9)

Everything associated with Bitcoin became a little more interesting when the cryptocurrency’s value skyrocketed, doubling in less than a month to more than $17,500 by mid-December 2017. But even though many investors remain skeptical about Bitcoin, blockchain—the open-source code behind it—has drawn interest from a diverse set of household names, including Citigroup, UPS, and Walmart.

Walmart may view blockchain—which was popularized in 2009 by Bitcoin’s anonymous founder—as a way to follow a crate of frozen tilapia from Shanghai to South Dakota. For Maersk, the Danish shipping conglomerate, blockchain could help it confirm that a vital customs form for a cargo ship in Dubai, United Arab Emirates, has been signed. A blogger in Mexico City could rely on the technology to accept low-fee micropayments from appreciative readers in Milan.

The combination of high security and low fees (for now) that a currency-trading platform needs. For other business applications, the blockchain offers advances on the old ways of doing things. 

Take the Walmart example. For reasons ranging from reputation to protection against liability, the retailer wants to ensure that the tilapia it sells meets certain quality standards. Among other considerations, once-frozen fish should stay frozen until a customer defrosts it himself. Currently, ensuring this requires Walmart to keep tabs on a line of middlemen making strings of promises confirmed by anything from legally binding contracts to handshakes, which is arduous and expensive.

Using the blockchain, however, Walmart could sign contracts directly and in real time with everyone from a fisherman to a wholesale-seafood-market manager, a packager, a US customs agent, and a long-haul trucker. Fees would be minimal, and the paperwork eliminated entirely. The digital contracts would also be tamperproof. As Cong and He highlight, such smart contracting solves the trust issue and encourages other parties to enter and compete in the market. Thanks to the robust system of oversight and enforcement, Walmart can trust that contracts will be executed, even by new companies it hasn’t done business with before. If a company it does business with fails to meet the terms of its contract, the company is penalized, or the contracted fee isn’t transferred. 

However, the researchers identify a potential trade-off to these advantages: the possibility of cartel risk. Blockchains won’t necessarily lead to cartels, but Cong and He point out that cartels could arise in certain conditions...

By ROSE JACOBS / review.chicagobooth.edu | Read full article here

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