Humans take many things for granted, and supply chain management is most certainly one of them. The ability to live in societies protected from the harsh conditions of the wild rests on a foundation of supply chains, transferring resources across various networks, so everyone gets what they need.
The phrase ‘supply chain’ isn’t out to spark joy in every individual out there, but managing one is quite an art. A robust supply chain management infrastructure can help better handle inventories, improve customer value, and develop creative solutions to gain a competitive edge.
While supply chain doesn’t get much attention from the general public, blockchain is a hot topic almost year-round. The distributed ledger technology Bitcoin brought to the world has produced echoes in the farthest reaches of the world, threatening to revolutionize industries in nearly every sector.
What is VeChain (VET)?
As disconnected as the two seem, blockchain brings considerable benefits to supply chain management. VeChain, a decentralized network designed to help streamline supply chain processes, is changing how supply information flows and bringing efficiency gains to areas previously thought to be fully optimized.
When it comes to supply chains, even the slightest boost in productivity can result in massive profits or at least lower costs. From tracking a product’s supply route and its transportation medium to storage temperature records and authenticity checks, VeChain provides a lot more information than the traditional supply chain management system.
According to its whitepaper, VeChain is a blockchain that breaks the asymmetric information problem by creating a trustless, distributed environment that promotes and empowers data ownership. The network also allows for efficient collaboration, swift transactions, and transparent information flow histories.
The project was founded by Sunny Lu, the ex-CIO of Louis Vuitton in China, and was created as a subsidiary of Bitse – one of China’s largest blockchain-based enterprises. VeChain also allows for improved market transparency by giving authorized stakeholders access to information linked to a product and the associated business operations.
Despite having started just six years ago, VeChain has already garnered a significant user-base, with a large number of partnerships with influential companies. Having started as a project on the Ethereum blockchain, VeChain raised 200,000 ETH (around $60 million) through an ICO in 2017.
VeChain currently employs hundreds of teams in offices around the globe, including ex-senior executives from large firms like Deloitte, PwC, and Louis Vuitton. Though the associated VET token is only worth a few cents, the VeChain platform is incredibly valuable. As more projects continue to integrate with the VeChain platform, the network and its token could become far more valuable than they already are.
VeChain was created to disrupt the supply chain industry. As CIO of Louis Vuitton, Sunny bridged the company’s technology and business sections, and VeChain was designed to better understand the pain points between the two.
In 2018, the project shifted to their own VeChain Thor blockchain, exchanging VEN tokens for VET in a 1:100 ratio. Last year, the VET token grew by nearly 400%, with VeChain announcing some impressive partnerships with prominent firms in the supply chain industry.
The broader VeChain ecosystem uses two primary tokens – the VeChain Token (VET) and VeChain Thor Energy (VTHO), the VeChain Thor blockchain’s native token. VeChain Thor is a decentralized public network focused on enterprise adoption and uses VET tokens to transfer value and VTHO to fuel transactions. Its dual-token system allows the network to scale up to 10,000 transactions per second while keeping transaction fees in check.
VeChain has a distributed business ecosystem built on VeChain Thor, which uses a modified Proof-of-Authority (PoA) consensus mechanism. Its platform provides a trust-free distributed enterprise system that facilitates the open streaming of data, rapid business transfers, and easier collaboration.
Using physical infrastructures such as sensors, RFID tags, and smart chips, VeChain can convey critical information to the blockchain. The network can also log and monitor a wide array of parameters about a product for stakeholders to track.
This is incredibly valuable in a variety of use-cases and is especially relevant in the current scenario. For example, VeChain can track whether medicines are transported in the correct temperature and moisture conditions at every stage of its transport and inform the relevant quality control teams to investigate abnormalities.
Unlike Bitcoin, which needs all network nodes to vote on a transaction’s validity, VeChain employs ‘masternodes’ to achieve consensus. This not only speeds up processes but also saves valuable resources better utilized elsewhere.
To stop users with criminal intent from taking over the masternode system, full identity disclosure is mandatory, and anonymous nodes are not allowed. According to VeChain, this system isn’t just less power-hungry but also doesn’t need a minimum number of validators on the network to achieve consensus.
The project has revealed plans to include support for DApps in the future and introduce ICOs on VeChain and IoT (Internet of Things) platforms. The logistics industry has been grappling with the asymmetric information problem for a long time. Despite the massive amounts of data collected by current systems, the optimal transfer of this information is yet to be seen.
VeChain offers a solution that caters precisely to the supply chain management industry’s needs, improving transparency and reducing transmission delays. Humanity will always rely on supply chains, and VeChain’s impact on this industry could have rippling effects not just in the blockchain space but industries across the board.
A ‘VET’ted Community
The VeChain platform helps companies consistently maintain product quality standards across the supply chain. Instead of using either a wholly centralized or decentralized model, VeChain opts for a semi-centralized framework. Its governance structure is decentralized but runs through centralized channels, removing the decentralized system’s inefficiencies and adopting the advantages of a centralized one.
While this may seem controversial to many in the blockchain community, VeChain focuses more on enterprise adoption. Its Board of Steering committee makes the public blockchain technically more private than others, and while its Proof-of-Authority system guarantees probabilistic security, it’s not entirely foolproof. However, it still holds sizable benefits and doesn’t sacrifice too much decentralization.
Besides the masternodes responsible for the network’s consensus, the chain also has ‘economic masternodes.’ These masternodes do not create blocks or authorize transactions but instead are used to allocate votes to nodes based on their VET holdings as a check on power. In most cases, 10,000 VET is worth one vote. While they are no longer possible to create, X-Economic Nodes were used in the project’s early development stages to receive the VTHO generated from a pool of purpose-locked 5 billion VET.
There are also ‘authority nodes’ which participate directly in consensus and require a minimum stake of 25 million VET. These nodes’ owners must prove their ability to contribute substantially to the VeChain ecosystem and pass strict KYC measures. These nodes are awarded 30% of the daily VTHO usage.
While a system that uses two tokens may seem abnormal, it brings numerous benefits to the platform. Having two tokens lets VeChain account for how many tokens would be needed to conduct transactions and create more predictable economic models for developers of distributed applications. The Ethereum network uses ETH in the form of ‘gas’ to pay for computation, but this can lead to much higher volatility during times of network congestion.
VeChain also has the added benefit of having an established client base through its leadership and parent organization. Over the last few years, VeChain has partnered with countless companies, brands, and figures. UK-based rapper Zuby recently announced a blockchain-themed streetwear collection, including 300 items registered on the VeChain network and verified via QR code. Since data stored on the blockchain is immutable, buyers are guaranteed provably legitimate products.
It’s not just the fashion industry either. In September last year, Dave Morris and Jamie Thomson, two fantasy authors, announced a new trilogy titled “The Vulcan Verses,” based on the Vulcan Forged NFT collectible game. A few months earlier, VeChain launched a blockchain-powered environmental sustainability solution for firms aiming to digitize their sustainable systems.
According to VeChain, their system can verify a completely green supply chain, including recycling and other processing information. The project later revealed its partnership with Grant Thornton Cyprus, an accounting and consulting firm, to extend blockchain-based solutions to sectors like food, renewable energy, and e-commerce.
VeChain also provides blockchain solutions to PricewaterhouseCoopers (PwC) and its clients to improve product verification and tracking. They have also united with Jiangsu Electronics to create custom-made RFID tags that function with its blockchain platform. Additionally, French carmaker Renault assists in manufacturing operations alongside a national-level partnership with China’s New Area economic-development zone.
Late last year, the TUV Saarland Certification, a certification body accredited by the Federal Republic of Germany, issued VeChain the world’s first 5-Star Rated Blockchain Service Certificate. The award praised VeChain’s blockchain technology’s maturity, and while there isn’t too much competition in the merging of blockchain and supply chain, VeChain has big plans for the future.
Decentralizing the Supply Chain
In December 2019, the VeChain Foundation, a Singapore-based non-profit organization that oversees VeChain’s development, was hacked, with attackers stealing over 1.1 billion VET tokens worth around $6.5 million at the time. VeChain has since fixed the bug that led to the hack, but it does show that no network is infallible — even semi-centralized ones.
VeChain’s CFO, Jay (Jie) Zhang, took full responsibility for the hack and has since stepped down from his position. As mentioned above, VeChain doesn’t face any stiff direct competition in this space, but just how valuable the platform could be from a supply chain perspective is yet to be determined. Tech giants like IBM and SAP are also entering the blockchain logistics space, and it isn’t certain whether VeChain will be able to compete in the long-run.
However, VeChain brings value to the supply chain in multiple ways, with products like the VeChain NFC chip allowing consumers to scan and confirm any product’s authenticity. Counterfeit luxury goods are a problem that estimates suggest could be worth $1.2 trillion annually.
With regards to creating partnerships, VeChain is one of the most successful projects in the blockchain space, creating pilot projects in over 35 companies. It has a secure governance structure and a distinctive economic model that focuses more on enterprise adoption than consumer-facing issues. As more projects begin to adopt the platform, this open-source project could become the foundation of a new supply chain management era.