Amazon’s Blockchain-based Product Authenticator Patent And How It Can Impact Global Supply Chain Management

If you thought Amazon would never get into the blockchain, they already have. They patented a new system for supply chain management that uses a blockchain-based product authenticator. Even before that, Amazon’s AWS already provided a blockchain platform for developers, so this is not merely a PR stunt to show they are in the know. They actually “know” what they are talking about. While the actual details of the patent do not seem to be available (as of this writing), many news sources have reported that it had been approved.

What Amazon is developing has significance in modern business. They are building a system that compiles data from distributors, manufacturers and shippers using an “open framework”. This gathers real time information from what would otherwise be silos of data. It interconnects those involved in the supply chain with a trusted platform using a distributed ledger for accountability and transparency. That is a way for tracking the authenticity of products as they are packaged and shipped to retail.

One of the things this system can do is prevent counterfeiting and product theft. There is a huge black market from stolen luxury goods and another problem is that there are fake products being sold around the world that is cutting into the brand’s profit margins. This also affects consumers who are not purchasing genuine products, but fake rip-offs that have no value. Many just buy the fake items because of status. The harm it causes though is not apparent, but does affect the brands whose name is being counterfeited in these fake products. A real genuine luxury handbag like that from Gucci come with authenticity certificates or labels, while counterfeit products do not. Products can be tracked using its GTIN (Global Trade Item Number) which is a code that verifies a genuine product from its source.

A blockchain provides a way to track the products in the supply chain and earn trust among suppliers and distributors with more transparency. That is a way to make sure that no hidden party is involved in the process, since it is being recorded on a distributed ledger which others involved in the process can view. If there are any anomalies, it can be detected and corrected. For example, if the products suddenly change distributors, it can be red flag to the supplier. The blockchain records that and can notify the supplier if and when it happens. With legal agreements enforced, this can then be disputed by the supplier.

Now that Amazon’s plans are clear, will it affect the current ecosystem of projects that are doing the same thing? Amazon is known to kill off startup businesses who cannot compete with the retail and tech giant. Amazon has its own platform and infrastructure to remain dominant. This could open the market to more competition with Amazon, as other companies propose their own solutions. IBM and Deloitte are just some of the companies that have already been involved in exploring blockchain-based solutions for supply chains. Even Amazon retail rival Alibaba has championed the use of blockchain systems. Numerous other tech companies, like Facebook (Libra digital payments) and Microsoft (New patent for cryptocurrency) have started their blockchain projects for other types of applications.

According to Deloitte:

“Using blockchain in the supply chain can help participants record price, date, location, quality, certification, and other relevant information to more effectively manage the supply chain.”

IBM has stated:

“Supply chain data is not always visible, available or trusted. IBM Blockchain helps supply chain partners share trusted data through permissioned blockchain solutions.”

Alibaba has numerous blockchain patents. According to an article from Smartereum:

“The Chinese giant will rather pioneer efforts in the blockchain space than lose out on early gains of blockchain adoption. So far, it has adopted blockchain to fight food fraud, secure medical data and track cross-border shipments.”

Amazon’s entry into the market shows that big business is taking blockchain seriously as a solution to real world problems rather than merely a novel technology. Patents are still just on paper, and not actual products. Once they get their product to market and it proves effective, Amazon’s patent could gain industry adoption as a standard for supply chain management.

The Basic Use Of Tokens In Cryptoeconomics

A token is basically a means of exchanging value or service using a form of currency. In the traditional sense, we use tokens for a variety of reasons. It is used as a way to validate a service or transaction, representing money. Back in the days, tokens were used on tolls, subways and in arcades. You purchase the tokens first using real money in your native currency. For example, to ride the subway you would first pay $1.50 to the attendant at a booth. The attendant then gives you a token which you then use to insert into a slot at the turnstile. If the token is accepted it opens a gate that allows entry to the subway train deck. Likewise at the arcade you pay first for tokens before you can use the video game machines.

Tokens provide a means to control the use of a device, like the video game machines in the arcade or account for usage, like passengers using the subway. It has its purposes as a means to exchange value for the use of something (e.g. transportation, entertainment, etc.). The use of tokens can also help regulate or secure the use of services, for management purposes. In an arcade, the operator wants only their customers to use their machines. They want to to be able to track the machines as assets and only have customers use it. A rival arcade’s tokens will not be allowed by their establishment. By issuing tokens, they are able to accomplish that.

In cryptoeconomics, tokens are also used. It has the same purpose, but it is in a digital format. Tokens from a cryptoeconomic context store a value that can be exchanged for something. It is also expended as a fee to perform computations to secure and process transactions. Tokens are also called coins, but there is a difference in their purpose when using these terms. A coin refers more to the cryptocurrency itself. You can call the coin as Bitcoin, while its token is BTC. When expending the coin you can refer to it as a token of the cryptocurrency’s blockchain network. It is a unit of value for that particular blockchain. On Ethereum, there are different token types that can be exchanged for value. The ERC20 token, used for funding projects, can be exchanged for Ether and converted into other cryptocurrency using smart contracts.

Tokens in cryptocurrency are also used to verify a user’s ownership of a coin. All tokens are associated with a public address that refers to the holder of the coin or token. This cannot be disputed on the blockchain since it is validated and tamper resistant. This provides a way to verify if a person is being honest when conducting a transaction. There is always a trail of provenance that records the history of a token when used in a transaction. Bad actors attempting to forge fake tokens will not be able to because tokens can only be issued through the blockchain by way of consensus (e.g. proof-of-work, etc.).

A token is like a certificate of authenticity or proof of ownership regarding a coin. During a trustless transaction on the public blockchain, if a user Alice and another user Bob conduct a transaction, their public address is recorded along with the transfer of value of the token they hold. It transfers ownership from one user to the other. Supposed Bob wants to sell his unused television to Alice directly, they enter into a P2P (peer-to-peer) transaction. Bob asks for 5 Ether which Alice then pays using a smart contract on the Ethereum blockchain. The smart contract executes with consent from both parties and the token exchange takes place allowing 5 Ether to transfer from Alice to Bob. The good thing about smart contracts is that before any transfer of value can take place, a condition can be created that the physical item must first be delivered to Alice before Bob receives a payment.

Tokenized economies based on smart contracts allow more transactions to be conducted directly without middlemen or third party platforms. The blockchain is the layer of trust that facilitates the transaction, and never blocks or censures anyone. Like in traditional economies, tokens are used for tracking and accountability purposes. This also transfers value in exchange for goods and services.

The DAG Network Model Architecture In Distributed Ledgers

Not all cryptocurrency or digital currency are based on Bitcoin. In fact, some of them don’t even use a blockchain. They are graph-based networks (e.g. DAG, Hashgraph) which arrive at consensus much differently. The notion of a blockchain has become the most synonymous with cryptocurrency, but that is not applicable to all. IoTA, Hedera, Nano and Byteball are examples of graph-based networks. The most common type used is a DAG (Directed Acyclic Graph), which is more scalable network solution than blockchain based distributed systems. A DAG is not a blockchain but both use decentralized cryptographic databases in a sense that a Ferrari is not a lamborghini but are both cars.

A blockchain connects blocks by hashes which can be traced back to a primordial block or “Genesis Block” which is the root of all hashes. It uses a tree topology of nodes called a Merkle Tree, which has leaf nodes that contain the cryptographic hash from child nodes. When these hashes are concatenated, they can be traced back to the Genesis Block in the network. Blockchains use a consensus mechanism to validate the blocks, with PoW (Proof-of-Work) being one example that is used on the Bitcoin network. Consensus is what secures the network by way of validating a block and adding it to the blockchain where it becomes immutable so it is no longer subject to change. This prevents tampering and data manipulation. The consensus requires nodes called miners who must compete with one another by solving a cryptographic puzzle using a probabilistic zero-sum game approach. The miner who solves the puzzle first becomes the block validator and is rewarded with Bitcoin (BTC) for their contribution.

A DAG is a finite graph which is directed forward in one direction with a topological ordering. It consists of vertices that lead to other vertices, which are paths called edges. The vertices are like points in a network. The system uses an “Efficient Teacher Grading” method instead of miners doing PoW. A DAG uses peers to help validate transactions in the network. When a new transaction is made, a new vertice representing the transaction is created and must be validated by other peers on the network. It doesn’t require solving a puzzle, but relies on confirmations as the consensus using a gossip protocol mechanism. When other peers on the network can confirm the transaction as correct, it will be validated.

A DAG network is much faster than PoW since it doesn’t rely on compute intensive puzzles. This allows it to run on lighter devices in contrast to PoW systems that rely on power hungry ASIC devices that perform large numbers of calculations to solve the puzzle. This is rather inefficient, so it requires more energy to produce coins or tokens. A DAG is much faster and scalable since it doesn’t require the same overhead as a blockchain network when it comes to consensus. Costs are lower too because there is no need to purchase expensive equipment that use plenty of electricity. A DAG can utilize mobile devices like smartphones to help confirm transactions on their network. This also makes DAG more suitable for micro-transactions which require instant validation of transactions. DAG offer less barriers to entry because practically anyone can become a peer using their low-energy consuming smartphones while PoW requires more investment in hardware that require a consistent supply of electricity to operate.

Scalability has been the main reason for DAG over blockchains. A blockchain like Bitcoin has scaling issues because of the consensus mechanism it implements and the protocols used on the network. It was not developed for high throughput transactions like the VISA or Mastercard network. VISA claims it can process 1,700 TPS (Transactions Per Second) or 150 million transactions in single business day. Bitcoin’s blockchain can only process between 3 to 7 TPS only. Security has been a consistent strength of the Bitcoin blockchain, as it has never been successfully attacked (e.g. 51% attack) as of this posting since it started in January 3, 2009. DAG have not been in production for that long and have mostly been used on experimental and concept networks. A DAG is mainly used for DLT (Distributed Ledger Technology) implementations while blockchains are used on trustless permissionless public networks.