How Automakers Can Use Blockchain

I’m in Stuttgart, Germany, as close to hallowed ground as you can get for the automotive world. The luxury car brands of Mercedes-Benz and Porsche call Stuttgart their home. Bosch, one of the world’s leading supplier to automakers, is also based here.

Before setting up ascribe — a service for claiming copyright on the blockchain, and BigchainDB, a scalable blockchain database, I spent 12 years in the automotive industry. Working for companies like Mercedes-Benz, Volkswagen and Mitsubishi, there were many times where blockchain could have helped.

The disruptive blockchain wave that hit financial services, trade, energy, government and media, has finally come to the automotive sector. Since early 2017, there has been a marked increase in activity from automakers around the globe to explore how blockchain technologies can be used. Automotive companies are scrambling to kick-off projects that demonstrate to their management that they have a handle on the technology.

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How can the automotive industry use blockchains?

There are 5 obvious ways that blockchains can be useful within the automotive industry:

1. Track and verify automotive parts

2. Track and verify vehicle provenance

3. Streamline the supply chain and business processes

4. Accelerate autonomous vehicle development

5. Build a mobility platform for electric vehicles

Before deep-diving into some of the ways that blockchains could be useful for the automotive sector, it’s useful to reiterate the value of blockchains.

Bitcoin demonstrated that a decentralized ledger that stored cryptocurrency could be useful to dis-intermediate payments and remittances. Ethereum demonstrated that an unstoppable computer could be useful to model business logic.

Blockchains for Value and Business Logic — What About for Data?

From our experience in ascribe from 2014, it’s been our conviction that if blockchains are going to be implemented into real-world production systems and processes, there needs to be a decentralized database to capture data. Data coming from supply chains, metadata for large datasets, claims of intellectual property, registry data for identity and government services — all types of data need to be stored in a persistent, immutable datastore. That’s why we built BigchainDB — to wrangle the massive amounts of valuable data into a decentralized blockchain database.

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As I said, there are 5 obvious use cases where auto companies can use blockchain.

Use Case #1 — Parts Provenance and Tracking

In 2005, I went to China to build a bank for a German automaker. During an orientation session, in-house lawyers explained how authentic looking but inferior fake parts would enter the supply chain and end up in dealer service centers. These fake spare parts would fail quickly after being installed in cars, causing reputational damage to the automaker. To fight the fraud, the automaker had multiple layers of anti-fraud technologies and processes, but somehow fake parts were always able to get into the supply chain.

Some of the crazy ideas at the time were to coat the parts with invisible inks, embed radio frequency tags into the parts or use 3D printers to print the parts on-site at the service centers, to completely eliminate the need for outsourced spare parts manufacturing. In 2005, the technologies were too expensive, too big or too immature to be used. With the advances in parts miniaturization and blockchains, these ideas are now actually feasible.

Today, it’s conceivable that an automaker will be able to track the provenance of a part from inception to disposal. By using a blockchain, a unique ID for each and every part is created and recorded, along with immutable timestamps from the moment of creation. Crypto-enabled tags that speak directly to the blockchain can be embedded directly into the part to add another layer of authenticity protection.

This data can be made available to the owner of the vehicle to verify which parts have been replaced, to the manufacturer to efficiently execute recalls, or to the service center to know when a part has reached its usage limit.

An innovative German utility, innogy SE, has embarked on a project to build a platform to do just this. The Digital Twin platform aims to give each product its own story — providing a digital twin for every physical product.

1. A car part supplier will upload their 3D CAD design to a parts marketplace, where the IP is locked and the licensing terms are clearly set.

2. Buyers to the parts marketplace can view reputation scores, reliability ratings, and performance testing for the part and choose the one that they want.

3. Once a license is bought, the user could send the 3D CAD design to a contract manufacturer for 3D printing and install it themself or bring it to a service center.

4. The car part supplier will get their license fee, minus a small cut from the parts marketplace.

5. Once installed, the car part will have its own “digital twin” in a blockchain for future verification needs.

All of these processes will be powered by blockchain — for managing data, intellectual property licensing, marketplace, payments and tracking of physical goods.

I foresee that within 5 years, control over the parts supply chain will be completely decentralized and an open market for parts and IP designs will be available for upload and purchase — all powered by blockchain components.

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Use Case #2 — Vehicle Provenance and Tracking

In 2010, I was in Moscow building another bank for a different automaker. It turns out that when business isn’t going well or a dealer is shady, car dealers all do the same thing. They sell a showroom vehicle off the lot and then fail to report the sale to the bank, who had provided them a loan to get the vehicle. This means that they are using sale proceeds as working capital to bridge payroll and suppliers.

When a bank catches wind of this, it’s a huge red flag that requires immediate action. Who knows how many vehicles have been sold and remained unreported?

There have been multiple incidents where $10 million worth of cars were sold before the scam was discovered. Since the cars were legally sold, the bank had no claim on the vehicles, which had been used as collateral. Meanwhile, the financing to the insolvent dealer has already been spent and needs to be written off.

Is there a way for automakers to track vehicles so that this fraud can be stopped?

It turns out that the same technology that can detect fraud could also arm consumers with irrefutable proof of how a car has been driven. With access to data, the asymmetry in information that plagues every used car buyer goes away.

I began advising a startup from the UK that had created a tag, track and trace system that used RFID tags that you could stick to the body of the vehicle. They built a custom reader device with an embedded SIM card that would read the RFID tag and then transmit the GPS coordinates (to the nearest 3 cellular towers) into a centralized database.

It was envisioned that RFID tags would be attached to the vehicle at the factory and all the stakeholders along the supply chain would use their iPhones to scan the RFID tag as it passed various choke points:

All points of a vehicle’s lifecycle would then be captured and stored in a centralized database that the startup controlled and managed. Based on the data captured, a complete geo-location history of the vehicle could be constructed by uploading the data into Google Maps, giving the vehicle a provenance history.

It was a brilliant idea that used state-of-the-art technology to verify the location of a vehicle. There were however several problems that made the solution impractical for creating a full history of a vehicle:

1. Every stakeholder along the chain needed to participate, so that there was no data loss. Getting everyone to agree at the same time was nigh impossible. The benefits for everyone wasn’t clear or calculable.

2. The data was centrally stored, under the control of a 3rd party.

3. Access rights to the data was unclear — who owned the data? The manufacturer, the bank, the dealer, the car owner? It remained unresolved.

Today, we have blockchain.

Instead of forcing every stakeholder to opt-in from inception to make the whole concept work, blockchains allow for even just two counterparties to start sharing data immediately and gain value. As the value of the network is demonstrated, other stakeholders can opt-in to get value and give value to the network. A further incentive to attract stakeholders is the tokenization of the network — where stakeholders get tokens for supplying data — more on that later.

Because the datastore is a blockchain database, no single entity lords over the data. Each participant controls their data and can grant access to others using key encryption or tokenized read permissions. Datasets can even be transferred, for instance, in the case when the car is sold.

One by one, the insurmountable challenges faced in 2010 have melted away because blockchains bring unparallelled control to users and complete transparency within a decentralized network.

It’s curious that the company leading the charge to provide car histories is an energy utility. innogy, first appearing in Use Case #1, is building a platform to provide car histories, in collaboration with Volkswagen Financial Services and BigchainDB.

The Carpass project aims to give consumers more power by providing a digital wallet to track a vehicle’s “life events.” It integrates telematics data that tracks how and where a car has been driven — mainly highway miles or in alpine settings where the engine has been worked hard. Based on the car history, artificial intelligence algorithms are able to confidently predict the resale value of the car at any moment in time.

Being able to track a vehicle from assembly to disposal means that governments can better enforce environmental laws and audit manufacturers to improve car safety. It means that manufacturers can offer value-added data services to customers, while receiving subscription fees for those services. Consumers won’t get ripped off by sleazy used car salesmen. Service centers will be able to replace parts before they wear out, so cars can be safer.

Everyone wins when data can be stored and shared in a decentralized database.

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Use Case #3 — Streamlining of the Supply Chain and Business Processes

Every industry from banking to manufacturing has the problem of a complex IT landscape. Whether the IT system complexity came from mergers of companies or through an organic growth of IT systems to meet the needs of business, every large multinational organization struggles to maintain and run IT systems that span the width of mainframe, C/S and cloud apps, different operating systems, and different programming languages.

This complexity acts as a heavy ballast to innovation and locks down valuable technical resources in sub-optimal roles. In the automotive sector, there are several key ERP and manufacturing systems that generate vehicle data and control the manufacturing process. These systems must communicate with dozens or hundreds of systems downstream, which rely on datafeeds to perform their functions.

For instance, when customer orders a car at the dealership, two requests are sent to back office. The first request is for the manufacturer to start building the car. The second request is to the bank for financing. The financing contract relies on the first request to successfully execute, before being able to proceed. Oftentimes, the first request is fulfilled, but the handover is botched and the financing process is stalled.

To manage these exceptions, auxiliary “middleware” systems are built to reconcile between the manufacturing and bank systems, but the solution never fixes the problem 100%. Meanwhile, the IT team bloats in size and additional complexity is introduced to the system.

Complex IT landscapes mean that business processes are less agile and can take years to change because the IT systems need to be updated. It means that information is lost, or worse contradictory across two different systems. It means that customer service agents have to deal with angry customers and dealers when their car or financing is delayed.

Blockchain offers the opportunity to simplify.

Because blockchains enforce a single source of truth, in real-time, the risk of two systems having conflicting information drastically reduces. Systems and people can act with more confidence, and faster, because they are accessing true and trustworthy data in that moment.

Because there’s a single source of truth, there’s less of a need for auxiliary systems to reconcile errors and inconsistencies, offering the hope of reducing system complexity.

Because system complexity is reduced, businesses can react faster to market demands to release a new product, provide value-added services or optimize operational efficiency in the supply chain.

Blockchains bring simplicity and speed to complex and slow systems, while reducing the costs to run IT. CIOs, CTOs and CFOs should be able to make a strong case for cost efficiencies by implementing blockchain technologies.

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Use Case #4 — Data Sharing

Toyota sees the future and it’s autonomous vehicles. To make autonomous vehicles safe, the Rand Corp and McKinsey estimated that 1 trillion road miles would need to be driven, to capture all the edge conditions to make self-driving cars safe.

Toyota Research Institute (TRI) has set the goal to achieve the 1 trillion miles by opening up the data silos across all the self-driving research. The sooner safe self-driving cars can be put on the road, the sooner can we decrease the number of road deaths.

Until now, every automaker has hoarded their data, to the detriment of the commons. But data is extremely valuable. Whomever has the richest, largest dataset, will be ones who can deploy safer self-driving vehicles. Everyone is in a race — Waymo, Uber, Apple, Tesla and the traditional automakers and auto suppliers. Everyone has data and no one is sharing.

But what if there was a mechanism where everyone could share their datasets, securely and get compensated? What if those who wanted to buy data, could buy it in a transparent and open marketplace? This mechanism would also level the playing field to allow all manufacturers to bring safe self-driving vehicles out faster.

A tokenized data exchange is the solution. It can be a fundamental component to unlocking data in all forms, not only for self-driving vehicles.

TRI, working with BigchainDB, has built a data exchange prototype that allows data providers to upload datasets and data consumers to search, buy and rate data. AVDEX, the autonomous vehicle data exchange, seeks to unlock datasets using a marketplace.

The data is securely locked and stored in a blockchain database. The data provider can stipulate the conditions of purchase using a blockchain based rights management protocol, COALA IP. The data consumer exchanges dollars or euro for “Datacoin” tokens to buy datasets. The data provider receives the Datacoin tokens, which can be exchanged back to fiat currency. The data provider can be anywhere and geographic location is inconsequential for payments because the data exchange uses the Interledger Protocol to transmit funds across blockchain ledgers, friction-free.

Meanwhile, the entire data exchange platform is owned by the network — by the entities that possess the Datacoin tokens. As the data exchange platform grows and becomes more successful, the token holders partake in the network via the value of their tokens.

Because it’s so easy to be a data provider and there’s an economic incentive model to contribute, organizations that may have been collecting valuable data, but not in the scope of the self-driving ecosystem, can be brought into the fold. Courier companies, governments, taxi fleets, trucking companies — all these groups have huge fleets of vehicles that experience innumerous road conditions daily.

Every year, 1.3 million people die in road accidents around the globe. 20–50 million more are injured. A decentralized data exchange built on blockchain allows us to achieve the trillion mile challenge in years, rather than decades. And it can’t come soon enough.

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Use Case #5 — Electric Car Charging

The world needs to drastically reduce carbon emissions in support of the Paris Agreement. Driven by the success and ambition of Tesla, automakers are rapidly moving to electric vehicles. India just announced that as of 2030 only electric vehicles will be sold and other jurisdictions will follow shortly.

As electric vehicles are deployed, a new infrastructure for M2M (machine-to-machine) needs to be built. The new infrastructure needs to include a dispersed set of stakeholders from energy providers (solar and wind farms, traditional energy plants), charging station operators (companies, individuals), the automakers and auto suppliers and finally the electric car owners.

It’s a greenfield and the worst mistake would be for each stakeholder to build their IT systems and software to manage the flows of electricity, payments and data. No single entity can manage the complexity to bring all the stakeholders together. No entity should own the platform, giving them monopoly power.

Blockchain allows for open platforms of innovation.

innogy, once again, is leading the charge with its Share&Charge initiative. By creating an open Blockchain Mobility Platform geared towards the M2M economy, innogy enables all the stakeholders to opt-in while accelerating the adoption of electric vehicles.

For every stakeholder, there’s value to be a part of the platform. Participants are incentivized to join because new products and services can be offered on top of the M2M services — whether it’s add-ons for maintenance, insurance, parking, logistics, data sharing or P2P car sharing.

Automakers are aiming to release electric cars to compete with Tesla. A Blockchain Mobility Platform helps to build an ecosystem of new products and services around the electric cars, and transition us off of gas-burning vehicles faster.

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Summary

The auto industry is the main driver for stability, export earnings and national pride in many countries. Blockchain technologies can support automakers to drastically streamline processes, increase transparency and provide a host of value-added services to customers and stakeholders.

I’m also a big fan of innogy for having the vision to lay the groundwork and jump aggressively into many nascent fields where others fear to tread. Hopefully it’s a wake-up call to the automakers to step up and invest resources to get ahead of this “blockchain” thing.

If the internet reduced the cost of communication and information transmission by 1,000x, blockchains will reduce the cost of transaction by 1,000x. This affects data, value, and business logic on top of our physical world. Blockchains are truly a general purpose technology that are going to rock our world.

Let’s start driving it forward.

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Contact

For more information on how BigchainDB can help you implement your blockchain strategy, drop us a line at - engage@bigchaindb.com

If you have other use cases for the automotive sector, please email me or write a comment. I’ll happily add it to this post.