00:00:03 Blockchain and Bitcoin’s relevance in supply chains.
00:00:54 Vermorel’s view on cryptocurrency knowledge based on Bitcoin reference.
00:02:57 Bitcoin’s crucial role in blockchain security.
00:04:02 Bitcoin combating counterfeit drugs in African supply chains.
00:07:46 Bitcoin in less corrupt industries, e.g., aerospace.
00:09:18 Trust issues and costs in aerospace records system.
00:10:39 Bitcoin for better, cheaper aerospace IT security.
00:12:00 “Security through obscurity” in supply chain IT systems.
00:14:54 Should supply chain executives prioritize Bitcoin?
00:16:02 Drawbacks of modifying a digital coin post-creation.
00:16:38 Necessity of scalability in digital currency design.
00:17:04 Bitcoin’s evolution, forks, and the original’s absence.
00:17:26 Bitcoin Cash’s scalability and lokad’s investment in it.
00:18:31 Learning about lokad/blockchain.
Joannes Vermorel, the founder of Lokad, is elucidating the roles of blockchain and bitcoin in optimizing supply chains. He is making a distinction between the two, explaining how bitcoin, as a digital currency, secures the blockchain system. Highlighting practical applications, Vermorel is suggesting the use of bitcoin to combat counterfeit drug distribution. He is emphasizing the importance of economic alignment in blockchain technology and proposing that industries such as aerospace can minimize trust-related costs through bitcoin. Nonetheless, Vermorel is stressing that supply chain executives should not place bitcoin as a priority until scalability issues are sorted, advocating for Bitcoin Cash, which offers scalability from the get-go. Lokad is investing in software scalability components dedicated to Bitcoin Cash, but Vermorel is maintaining that achieving scalability requires a team effort.
The interview kicks off with host Kieran Chandler introducing the topic of discussion, which centers around blockchain and bitcoin. The conversation aims to explore the potential role these two technologies might have in optimizing supply chains. The guest is Joannes Vermorel, the founder of Lokad, a company that specializes in supply chain optimization.
Vermorel differentiates blockchain from bitcoin. He asserts that many people who speak about blockchain fail to fully comprehend the technology, with those who do often referring to it as bitcoin. He emphasizes that the two aren’t interchangeable: blockchain is a data structure while bitcoin is a digital currency, but the two are frequently confused due to their interconnectedness in the world of cryptocurrencies.
Vermorel asserts that individuals who focus on blockchain as a standalone technology often overlook its crucial security aspect, powered by bitcoin. He suggests that the value of bitcoin as a digital currency is what safeguards the blockchain system. Without the motivation of potential financial gain, the security offered by blockchain is lessened. Vermorel firmly believes that without the financial aspect, traditional databases could perform the same function as blockchain, often with better accessibility and ease of use.
Shifting the spotlight to practical applications, Vermorel discusses how bitcoin might help tackle real-world problems within supply chains, such as the counterfeit drug crisis in Africa. He proposes that each box of medication produced by a reputable pharmaceutical company could come with a seal containing a private bitcoin key.
The end user would break this seal upon purchase, claiming the bitcoin for themselves using a mobile app, which would also validate the origins of the funds, confirming it came from the anticipated pharmaceutical company. This incentivizes the action with a small financial reward, which motivates customers to only buy boxes with these seals, hence creating a distributed system to curtail the spread of counterfeit drugs. This application works due to the involvement of money, underscoring Vermorel’s point about the pivotal role of bitcoin in making blockchain secure and trustworthy.
Vermorel starts by explaining the basic principle of blockchain technology - economic alignment. Unlike a simple secure database, blockchain technology leverages economic incentives to encourage correct behavior. If network participants behave in a way that counters the network’s overall interests, they risk economic loss. This principle works, not because there are many good people, but because the incentives discourage inappropriate behavior.
Within the context of the supply chain, Chandler asks Vermorel to contemplate industries where corruption isn’t rampant and whether these could profit from blockchain technology. Vermorel picks aerospace as an example, referring to the industry’s remarkable achievements in security and trust. Given the severe implications of negligence in this field - a poorly maintained aircraft can endanger hundreds of lives - the industry manages to uphold high safety and reliability standards. Vermorel views the safety record of the aerospace industry as evidence of its highly competitive and incorruptible nature.
However, the founder acknowledges that the existing trust model in aerospace and many other industries is costly and inefficient. At present, companies depend on both digital and paper records for traceability in an effort to sustain trust. This duplication arises as many businesses hesitate to place their full trust in their IT systems, a skepticism Vermorel concurs with.
Vermorel contends that Bitcoin could provide a solution to this issue. He argues that Bitcoin could deliver the same level of security at a significantly lower cost. He suggests that the technology could effectively subsidize the IT infrastructure in aerospace and other industries. This subsidy isn’t financial but comes in the form of enhanced trust and security.
When queried if the highly regulated aerospace industry could completely trust Bitcoin, Vermorel highlights Bitcoin’s objective of crafting a system so secure that it can protect even the most valuable assets, such as human life. Contrasting this with traditional IT security in supply chain management, which operates primarily on the ‘security
through obscurity’ principle, Vermorel suggests that Bitcoin’s transparency and inherent security mechanisms could offer a much superior model.
Explaining ‘security through obscurity’, Vermorel depicts how the complexity and often outmoded nature of many supply chain systems can render them unattractive targets for hackers. Essentially, the challenge in understanding such systems acts as a deterrent. Although this method does provide a degree of protection, Vermorel suggests that the transparency and robust security of the Bitcoin blockchain would provide a much stronger defense.
Discussing Bitcoin, Vermorel draws a striking contrast. Unlike the obscured, closed systems typically found in the supply chain sector, Bitcoin is open-source and public. Its transparency and public nature invite attacks, and such attacks are common. He presents Bitcoin as the polar opposite of current systems used in supply chains, being accessible and transparent.
However, Vermorel doesn’t think that Bitcoin should be a priority for supply chain executives just yet. He brings up a key issue frequently ignored by blockchain experts - scalability. Considering supply chain transactions, the numbers can easily reach into the billions. For any digital coin, including Bitcoin, scalability must be a core aspect of its design. If alterations are made after the coin’s creation, it could result in financial losses for its holders, which Vermorel explains would understandably face resistance.
He argues that adopting the Facebook approach in this situation isn’t feasible: starting small and scaling as needed isn’t an option. The digital coin must be designed to scale from day one. Interestingly, Vermorel mentions that the original Bitcoin had scalability built into its design. However, it no longer exists due to several forks and variations.
According to Vermorel, what does still exist and can scale is Bitcoin Cash. This variant of Bitcoin is designed to be scalable from its inception, making it a suitable choice for dealing with the vast number of transactions involved in supply chain management. Lokad, recognizing this potential, has invested in developing software scalability components dedicated to Bitcoin Cash. The company’s decision is based on the belief that Bitcoin Cash is likely the only coin where this scalability can exist.
However, Vermorel emphasizes that scalability isn’t a goal that can be achieved by Lokad alone. It necessitates a collaborative effort, and Bitcoin Cash has a community that is unified around the concept of scalability.
Kieran Chandler: Today we’re going to be discussing the rather controversial topic of blockchain and bitcoins. Bitcoins in particular have really attracted the attention of the world’s media. It’s easy to see why, with a mysterious inventor, bad guys making fortunes overnight from get-rich-quick scams, and students becoming overnight millionaires. It certainly has all the makings of a box-office hit. Today we’re going to try and get to the bottom of this subject and understand how it can be applied to the world of supply chains.
So Joannes, if we look at some of the supply chain experts, they’re not really talking about Bitcoin, they’re more talking about blockchain. So just to be clear, what is it that we’re actually talking about today?
Joannes Vermorel: Today, for supply chain purposes, we are going to talk about Bitcoin. It’s very interesting. There is a simple trick to differentiate between the people who know what they’re talking about and those who have no clue whatsoever. Those who have no clue about cryptocurrencies in general would actually use the word blockchain. The people who have decent knowledge about the topic would refer to it as Bitcoin. That’s a way to identify the experts and it’s probably the entry point of this discussion.
Kieran Chandler: That’s quite a strong statement, considering there’s a growing number of blockchain experts out there. I’m sure that they probably don’t all agree with you. So before we get too many angry comments on our video, perhaps you could explain that a bit more and elaborate for us?
Joannes Vermorel: Yes, the blockchain is a data structure. It’s a very useful computer trick. There are plenty of other similar computer tricks that have been known for decades. In itself, it doesn’t provide anything, it’s just a good data structure. So the blockchain emphasizes a technicality. If you want an analogy, it’s like thinking the first iPhone was a hit because of the special glass it was using. Yes, the first iPhone had a very nice type of glass for the screen, but what made the iPhone great was the whole package. It’s the same with Bitcoin. It’s not the blockchain, which is a technicality that makes Bitcoin great, it’s a detail.
Kieran Chandler: Leaving iPhones aside, what you’re basically saying is that blockchains aren’t really secure without bitcoins. Is there no other way of securing these blockchains at all?
Joannes Vermorel: Unfortunately no. The security, which is really the whole point of Bitcoin, emerges from the money angle. It’s because bitcoin is money that it actually provides any security. Something that people who are discussing about blockchain are missing is that if you remove the money angle, everything that was interesting in the first place is lost. Most of the things that you could do with a blockchain are actually better done with a traditional SQL database that can be secured and shared in ways that are vastly easier and more accessible than a blockchain.
Kieran Chandler: Okay, so if we agree that supply chains are going to have to continue using bitcoins for now, what’s not exactly clear is what supply chains can actually do with it. Could you give a real-world example of where this could work?
Joannes Vermorel: Yes, let’s take a very real-world problem of counterfeit drugs in Africa. It’s very hard to have any reliable statistics on how many people in Africa are buying counterfeit drugs, but it’s a very real problem. The fake drugs they’re buying are for severe diseases like AIDS. Again, it’s very hard to have statistics that you can trust, but my own personal.
Kieran Chandler: We’re discussing a grave issue here, predicting millions of lives may be lost in the next one or two decades in Africa due to counterfeit drugs. One potential solution involves bitcoin. What’s the thinking behind this solution?
Joannes Vermorel: The solution involves a simple trick. Every box of drugs produced by a reputable pharmaceutical company is sealed with a private bitcoin key. This ensures that each drug box travels securely from production to the end user, often located in a less secure country. When someone purchases a box of medicine, they break the seal and claim the bitcoins for themselves. There is a financial incentive for them to do this.
Kieran Chandler: So essentially, the buyer uses a mobile app to break the seal, scan the box, and claim the money. Could you expand on how this app ensures the money originates from the right pharmaceutical company?
Joannes Vermorel: The app checks the origin of the funds when the user claims the money. The beauty of this system is that it encourages all users to check the boxes themselves, verifying the source. This is a distributed way to combat counterfeit drugs. It’s crucial to note that this mechanism fundamentally creates trust through aligned economic incentives, a key feature of Bitcoin. It’s about economic alignment, not just a secure database.
Kieran Chandler: That’s an intriguing approach, using financial incentives to promote secure behavior. Let’s switch gears a bit and discuss the supply chain industry. In areas where there’s less corruption and counterfeiting isn’t as prevalent, can Bitcoin offer benefits?
Joannes Vermorel: Certainly, let’s take the aerospace industry as an example. This industry has achieved incredible levels of security and trust. It has proven to be very good at maintaining aircraft, a complex process that is crucial as lives are at stake. An indicator of the industry’s competitiveness and integrity is the rarity of airplane crashes.
Kieran Chandler: So, with this high level of trust already established in such industries, where does Bitcoin come into play?
Joannes Vermorel: In industries like aerospace, where there’s near-perfect trust, Bitcoin can still provide benefits. Let me explain further.
Kieran Chandler: Aerospace parts… what most companies that I know of are doing is that they are basically trusting military two ways. Firstly, they have their digital records that go through the IT systems. However, they still maintain paper records alongside these systems. Now the question is, why can’t they eliminate the paper? I mean, most industries have managed to eliminate paper. The answer is quite simple - they can’t bring themselves to completely trust their own IT systems. I believe that right now, this is the right option; they should not be trusting their IT systems, they have not earned this trust yet. The end result is that it’s extremely costly. Because aerospace is very fragmented, the cost of maintaining all of that traceability is very high. And Bitcoin can actually deliver a security at the same level, or even better, at a much lower cost.
Joannes Vermorel: So what you’re suggesting is that Bitcoin might be subsidizing the IT infrastructure behind the aerospace industry. It’s definitely not what people investing in Bitcoin, expecting to get rich quick, would anticipate. But the thing we’re really discussing here is trust. The aerospace industry is incredibly regulated and, as you mentioned, there are human lives at stake.
Kieran Chandler: So, do you think the aerospace industry can fully trust Bitcoin?
Joannes Vermorel: That’s interesting. Most blockchain experts claim that the whole point of Bitcoin is to create a system that is so secure you could risk your own life on it. I think Bitcoin goes beyond that. It aims to achieve a level of security so high you’d be willing to trust the lives of your children with it, which is about as insane as it can get in terms of IT security. Now, how does actual security, especially in supply chain, really work? It’s not like that at all. Most of the security in the supply chain, the IT security, is achieved through obscurity, which is a completely different security model.
Kieran Chandler: Security through obscurity… I’m sure there are some IT security experts among our viewers, but I’m not one, and I’m sure a few others aren’t either. So, what does this term actually mean? Is there a specific angle for supply chains here?
Joannes Vermorel: Yes, there is. In IT, when it comes to software, you have two ways to make something secure. One way is security by obscurity, and the other is complete openness, like Bitcoin. Security by obscurity occurs because these supply chain systems are very complex. Some are very ancient, and some are poorly implemented.
Imagine you’re a hacker. You want to break into the system, but the system is like a huge pile of nonsense. It’s like three decades of COBOL, a super old programming language. You want to infiltrate the system, but the system is so poorly designed that it’s a nightmare. Attackers are human too, and when they see a system that is a complete mess, they get bored. They think, ‘I’m not going to hack this system. It’s too much nonsense. I would rather hack Facebook. It’s more fun.’ That’s what you call security by obscurity.
It’s not very secure, but people won’t even attempt it because it’s such a drag. Most attackers don’t have the mental fortitude to attack these systems. Unfortunately, most IT systems powering supply chains have been in place for decades, have been extensively modified by countless engineers, and are extremely obscure. They’re even obscure for the companies that run those systems. You can imagine the level of obscurity for those not familiar with the system.
Kieran Chandler: So, it seems there are quite a few genuine reasons to go for Bitcoin, but what about these supply chain executives? They’re very busy people. They have to prioritize their actions. Where should they place Bitcoin? There are so many interesting things going on in the market at the moment, like artificial intelligence that we discussed last week. Should Bitcoin be a priority for those executives at the moment?
Joannes Vermorel: My mindset would be not quite yet. There is one elephant in the room that I would say most blockchain experts tend to miss, and this elephant is called scalability. Scalability is the ability to process many transactions. When we think of supply chain, we are talking of billions of transactions because that’s what it takes when you are a very large supply chain that is doing very real things in the real world.
Kieran Chandler: Why is it so much of a problem specifically with all these digital coins?
Joannes Vermorel: With a digital coin, Bitcoin or otherwise, you have a very specific problem - you need to get scalability right from day one. Why? Because if you substantially modify your digital coin after it was created, what happens in practice is that you end up destroying people’s money while doing the modification. Imagine you have a coin and say, “We need to scale now. Sorry, we’re just going to destroy your money for the greater good.” People aren’t going to be happy with that; they’re going to be against it. So modifying a digital coin after its creation is not an option. This is not Facebook; you cannot start small and say I will scale as needed when it’s needed. It has to be scalable by design from day one.
Kieran Chandler: Are there any digital currencies that have this scalability built in?
Joannes Vermorel: To my knowledge, there is only one digital currency that had this angle built in: the original Bitcoin. Interestingly, the original Bitcoin doesn’t exist anymore because there have been numerous forks. For people thinking, “I would like to buy Bitcoin,” I’m sorry, but Bitcoin does not exist anymore. The one thing that still exists and can still scale is Bitcoin Cash. The only things that will scale is Bitcoin Cash. That’s why Lokad, as a supply chain company, decided to invest in the software scalability component dedicated to Bitcoin Cash. It’s probably the only coin where this component can exist. Also, there is a worldwide community unified around this idea that it needs to scale because scalability cannot happen just because of Lokad. We need to collaborate with tons of other companies, and Bitcoin Cash is one community that has this angle of scaling, which is required for supply chain.
Kieran Chandler: Great. Well, I’m afraid that’s all we’ve got time for today, but thanks again for taking the time to talk to us. We hope that our audience at home has enjoyed today’s discussion. I know there will be a lot of opinions on today’s subject, so if you’d like to know more about Lokad or about blockchain or bitcoins and why they’re important for the supply chain industry, then make sure you leave a comment on today’s video or drop us an email at Lokad.com. That’ll be all for today, but we’ll be back very soon with another episode. In the meantime, make sure you subscribe to our videos. See you again very soon. Goodbye.