Can NFTs be an effective tool for supply chain visibility?
To date, the rush for non-fungible tokens has largely centered on “ownership” of images, artwork, and similar types of digital files. So what does this latest manifestation of the virtual universe have to do with the day-to-day reality of supply chain management?
An NFT is essentially a string of code that gives the buyer the right to supposed sole ownership of the digital asset it represents. (“So-called”, because owning the NFT that is related to a work of art or writing, for example, does not necessarily mean that the buyer owns the copyright in the work. And, for images available online, the purchased artwork often continues to be available to everyone, even if they don’t “own” it.)
One would therefore think that the fuzzy nature of NFTs and their dubious relationship to the real world would disqualify them from being used in the movement of physical materials and products around the world. But Shlomi Amouyal thinks that is not the case.
The CTO of Verte, an e-commerce platform vendor for omnichannel retailers, believes NFTs have an important role to play in ensuring transparency of product status throughout the supply chain . This is especially the case, he says, for manufacturers operating on a “just-in-time” model to get parts and components, from multiple suppliers, to the assembly line. By being able to track the status of each part, they can anticipate and possibly prevent disruptions to the production flow.
NFTs become viable instruments of supply chain visibility when combined with blockchain, Amouyal says. Each NFT is a unique set of digital data that is stored on a decentralized, distributed ledger. Blockchain advocates claim that the data in question is immutable because it resides on so many nodes that it is protected from modification by unauthorized parties.
The manager of an end-to-end supply chain can associate a unique NFT with each manufacturing order, with the data accompanying the physical goods along their journey, Amouyal explains. It may include details such as a specific product’s identity, origin, current location and condition, with the information constantly updated as the status and ownership of that item changes. As a result, “you know exactly what individual product you have, from the time it’s made all the way to the customer.”
As with blockchain itself, many of the earliest applications of NFTs to the supply chain involved high-priced luxury goods, which are particularly susceptible to counterfeiting and theft. They could also prove invaluable to producers of expensive materials for high-tech applications such as microprocessors and networking components.
Amouyal further sees the potential of NFTs in managing the complex returns process, with the ability to track an item from the consumer to a warehouse and then determine if that item should be recycled, repaired, re-shelved, sold to discounters or destroyed. .
Blockchain has been touted for years as a way to track and trace goods throughout the supply chain. But NFTs add the ability – in theory at least – to tag individual products with unique identifiers. “You could have hundreds of NFTs on the blockchain, each with a different signature,” Amouyal explains.
Applied to fast-moving supply chains, NFTs have some of the same potential drawbacks as blockchain itself, including the time and cost required to publish data; the need for “miners” to create the necessary blocks, in exchange for tokens or a variety of cryptocurrency, and the massive amounts of energy required to carry out this activity.
Indeed, Amouyal acknowledges, the mining process is based on “proof of work,” whereby aspiring miners are required to solve brutally difficult mathematical equations, collectively using more energy than that consumed by entire countries. (The subsequent validation of NFTs, by contrast, is based on “proof-of-stake,” a much less energy-intensive process, he notes.)
None of these concerns will prevent NFTs from playing an important role in global supply chain management, Amouyal believes, although they are far from being fully adopted by most companies. “I think they still have some way to go to be formalized and adopted by the industry,” he says.