If blockchain is the answer, what’s the question? A look to the automotive sector

If blockchain is the answer, what’s the question? A look to the automotive sector

Companies have various motives for getting involved in blockchain projects. So, what are the strategies for the automotive sector? What use cases are being evaluated and to which of the automotive industry’s questions can blockchain provide answers?

When viewed through the lens of the Gartner Hype Cycle, blockchain technology is currently entering the Valley of Tears. In the wake of all the hype from the past few years, now comes the work to develop relevant application scenarios for productive deployment of this technology. In contrast to the times of the “Crypto Gold Rush,” companies are now in a blockchain race to make valuable, lasting contributions to this technology. An earlier article of ours already laid out how many of the renowned technology giants are rolling out blockchain as a service (BaaS). The success of those BaaS solutions is ultimately decoupled from the actual value creation among their customers due to the projects built upon it. That means there is relatively little on the line from the perspective of the technology providers.
That is why the following question arises for the example of the automotive sector: What objectives are automakers pursuing in blockchain? After all, they are already experiencing massive transformation.

Approaches for automotive use cases

All of the promising applications in blockchain can be grouped into two of the technology’s basic capabilities: decentralized, unchangeable and verifiable data storage; and the facilitation of direct and transparent transactions for transferring digital data and security-relevant information. Based on existing blockchain applications in other areas, various application scenarios can be derived for the automotive industry:

  • Vehicle registers: It is conceivable to have vehicle registers based on the much-discussed blockchain identity documentation solutions (e.g. a digital land register or digital citizen register).

  • Vehicle log: Tracking real good in logistics is a pioneering application among blockchain projects and represents a natural counterpart for the automotive industry. Vehicle logs are one of the first examples. A special manifestation for this kind of project is digital twins.

  • Logging activities: We also see a fundamental application for blockchain in logging the activity of self-driving and passenger-less vehicles (another kind of vehicle log). In the future, it will only be possible to solve traffic violations or accidents involving such vehicles through logging.

  • Enabler for transactions: With a view to self-driving and electric cars, there are further feasible applications, especially in connection with payments / micro payments. Here, blockchain acts as an enabler for transactions without intermediaries.

We have summarized an overview of the potential applications in the following graphic. A distinction is made here between the two core subjects of “tamper-proof logging” and “transfer of digital assets.”

Examples for the digitalization in existing use cases for blockchain deployment

What the use cases have in common

As happens with many other IT projects, companies appear to be using blockchain initiatives to optimize costs over the short-term initially. In the finance sector, that potential is possible from circumventing payment intermediaries. The effects in the automotive industry are not immediately apparent at first glance. Their objective is a different one right out of the gate. The applications mentioned above all have one thing in common: The necessity for a kind of standard protocol for exchanging privileged data, identities and digital assets. And this could be precisely the opportunity for blockchain that many stakeholders have already recognized. OEMs are interested in shaping the industry standards. Based on that perspective, one can comprehend the Mobility Open Blockchain Initiative (www.dlt.mobi) co-initiated by the Toyota Research Institute, as well as the participation seen from individual automakers in various DLT boards, such as support for the IOTA Foundation coming from Volkswagen.

The current application scenarios and the involvement seen from various manufacturers in initiatives and committees show how implementation of blockchain technology is still in its infancy in the automotive industry. An article by the market research company Forrester provides a better overview. Accordingly, the blockchain initiatives of many companies can be summarized under three categories:

  • Category 1: Research projects to gain insights from the development of a blockchain-based system. Developing a functional blockchain solution is not the primary objective.

  • Category 2: Projects with short-term targets: Establishing a blockchain solution in the current business environment to make existing (sub-)processes more efficient.

  • Category 3: Projects with long-term targets: Reinventing entire business processes or even industries.

Current projects in the automotive sector do not get beyond the early phase in process optimization (Category 2).

We believe in the potential of blockchain

We still see that most blockchain projects out there fall under Category 1 or 2, i.e., projects that evaluate known application cases with a view to blockchain instead of rethinking processes from the ground up. Companies continue to be very busy with finding interesting use cases and application scenarios for this technology. Indeed, that is also where the risk lies for many blockchain projects: solutions are being developed for problems that don’t even exist yet. To be sure, use cases can be quickly found at any company, with existing components being replaced by blockchain methods. Yet that alone is often not enough for truly sustainable value contributions. Therefore, managers always need to ask themselves two questions when planning to deploy this technology: “Is it technically feasible?” and “Should I also implement it?”

One of the automotive sector’s greatest assets is control unit data generated by each vehicle while driving. What are road conditions like? How is traffic flowing? Sharing or trading this data with others could be of growing importance, especially with a view to self-driving cars.

A standardized protocol that can be used to control and grant access to that very data across companies is of primary importance. Blockchain has the potential to become that joint standard. Thus, this technology can add value independent of the type and number of intermediaries involved in the transactions.

We believe in the potential of blockchain technology in the automotive sector, especially with respect to the fields outlined here. The projects currently seen are probably necessary within the context of technology evaluation, but surely do not yet embody the kind of disruption many people expected to see. However, there are many opportunities for the future, especially in conjunction with further trending topics like autonomous driving.

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