DIFFERENTIATING BLOCKCHAIN TECHNOLOGY TO OPTIMIZE PROCESSES QUALITY IN

DIFFERENTIATING BLOCKCHAIN TECHNOLOGY TO OPTIMIZE PROCESSES QUALITY IN INDUSTRY 4. 0 Prof. Dr. Tessa T. Taefi First Author: Nico V. Vafiadis University of Reutlingen, Germany IEEE World Forum on Internet o Things, 15. 04 – 18. 04. 2019, Limerick,

INTRODUCTION Why Blockchain Technology? USD Study in Jan 2017 25000 266 decision makers of German Mittelstand 20000 Bitcoin Market Trend 20132018 15000 § 64% “Blockchain has no meaning to me” 10000 § 19% “Heard, but not looked into topic” 5000 0 7/2/13 7/2/14 7/2/15 7/2/16 7/2/17 Preis (USD) Figure 1: Own work based on Kopp /2017) / Nördinger (2017) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 2 Nico Vafiadis &

INTRODUCTION Industry 4. 0 Blockchain in Industry 4. 0 processes § Establish trust § Store transactions reliably § Increase security against intruders ð More effective and agile production processes and supply chains Figure 2: Connected Industry , Source: Mattes (2018) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 3 Nico Vafiadis &

RESEARCH FIELD Which of the current blockchain methods is the most beneficial in order to increase the process quality in industry 4. 0? Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 4 Nico Vafiadis &

STATE OF THE ART Blockchain Technology Basics Initiation of a transaction Transfer to the network and distribution of the data Examination of the transaction through validation through consensus mechanism Encryption of the block and chaining with the blockchain Completion of the transaction Figure 3: Based on Neugebauer (2018) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 5 Nico Vafiadis &

STATE OF THE ART Network Architecture of the Blockchain Technology Central Netzwork Architecture Decentralized Netzwork architecture Distributed Network Architecutre Figure 4: Based on Hofmann (2018) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 6 Nico Vafiadis &

STATE OF THE ART – PUBLIC, PRIVATE & CONSORTIUM BLOCKCHAIN Public Consortium Private Organizational Form Distributed Database Authorization free Extension requires authorization Properties Private Access Public Access Figure 5: Based on Neugebauer (2018) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 7 Nico Vafiadis &

STATE OF THE ART Consensus mechanism Proof of Work Mechanism (Po. W) Proof of Stake Mechanism (Po. S) Proof of Authority, Proof of Activity, Proof of Importance etc. Source: Verhoelen (2017) / De Vries (2018) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 8 Nico Vafiadis &

STATE OF THE ART: BLOCKCHAIN “GENERATIONS“ Blockchain I Crypto Currencies (Bitcoin, Litecoin etc. ) Blockchain II Decentralized Applications in the financial sector (Ethereum etc. ) Blockchain III Dezentralized Applications & Inclusion into the Corporate World (IOTA etc. ) Source: Prinz & Schulte (2017) Investigative questions 1. What are the benefits and drawbacks of the different blockchain generations with regard to process quality in the German industry 4. 0? 2. Which of the current blockchain technologies best addresses the named drawbacks? Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 9 Nico Vafiadis &

METHOD: OVERVIEW Invest. Question Data Collection Data Analysis Result 1. Benefits & Literature review drawbacks improving process quality? SWOT analysis Hypotheses 2. Which Blockchain technology addresses drawbacks? Qualitative content analysis Revised Hypotheses 2 Expert interviews (Founder, Expert) Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 10 Nico Vafiadis &

METHOD: LITERATURE REVIEW PROCESS Identified 130 (Reading Titles) From Reference List: + 20 References 38 Elimination 92 not relevant Phase 2 58 Phase 3 35 Included 8 Research Papers, 12 Books, 6 Magazines/Newspaper Articles Elimination 5 Digitization 18 Industry 4. 0 Elimination 9 Crypto Currency 11 Nico Vafiadis & Tessa T. Taefi

METHODS: QUALITYTIVE CONTENT ANALYSIS 1. 2. 3. 4. 5. 6. 7. 8. Dezentralized Database Proof of Mechanism Smart Contracts Sharing Economy IOTA Ethereum Integration of Blockchain in Industry 4. 0 Prozess Optimization through Blockchain 8. Increasing Efficiency through Blockchain 9. Supply Chain Optimization 10. Blockchain and Logistics 11. Bitcoin – Indutry 4. 0 Relevance 12. Security against manipulation 13. Create Confidence 14. Customer Satisfaction 15. Error-proneness of Machines Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 12 Nico Vafiadis &

RESULTS: GAP IN LITERATURE PROCESS QUALITY VS. PRODUCT QUALITY Quality Time Costs Disruptio n Source Qualität [%] Zeit [%] Kosten [%] Disruption [%] 1 45 33 22 0 2 12, 5 25 37, 5 25 3 25 25 37, 5 12, 5 4 25 25 5 0 0 6 0 50 50 0 7 0 0 8 0 0 100 0 9 0 0 100 11 0 50 50 0 Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 13 Nico Vafiadis &

RESULTS: SWOT ANALYSIS Strengths: Weaknesses: - No central entities - Low Data Throughput Transaction processing in Real Time - Security Properties difficult to Transparency comprehend Global Availability Immutable Data Memory High Data Security due to Data Distribution - Automated Transactios (Smart Contracts) Chances: Risks: - Higher Transactionspeed - Fraud Prevention through Transparency - High Scalability and Zero-Fee Transactions through IOTA - Source Code mistake (DAO Fall) - Quantum Computer Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 14 Nico Vafiadis &

RESULTS: HYPOTHESES On reasons for process optimization potential: The design of the any blockchain generation, it’s network architecture and underlying consensus mechanism allow the processes within industry 4. 0 to be more efficient by enabling saving potential; ensuring tamper resistance and providing transparency. On blockchain as a global an cross-company architecture: Through the global disposition of the blockchain, corporate boundaries become more transparent and make global trading processes more efficient. On increasing efficiency by smart contracts: Transactions are executed through the blockchain in an automated way (smart contracts) and in real time, which can increase the efficiency of the supply chain. On the scalability potential of zero-fee transactions: Zero-fee-transactions and high scalability, such as f. e. IOTA, have a future in the industry, and may help to improve process quality. On the weakness of high power consumption The high power consumption makes the blockchain technology uninteresting for the industry. Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 15 Nico Vafiadis &

DISCUSSION: INTERVIEWS On reasons for process optimization potential Interviewee I : • I 1 cannot confirm the hypothesis • The consensus mechanism ensures tamperproof processing of the values • Biggest challenge is the transmission of the data from the sensor to the blockchain • Implementation of a kind of professional consensus mechanism that is able to compare input values. Interviewee II : • Cannot provide 100 percent certainty. • Consensus mechanism complicates internal and external manipulations to a maximum. • Tamper evident security can be ensured by a solid IT security concept with a solid data protection rating and a hardened IT infrastructure. • Proof authority consensus mechanism governed by a consortium with a distributed consensus. • Thorugh Private Bitcoin Protocol stacks can 16 Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Nico Vafiadis & transactions be validated faster. Tessa T. Taefi

DISCUSSION: INTERVIEWS On the scalability potential of zero-fee transactions Interviewee II • Tangle principle is not able to provide a complete proof of manipulation • A major weakness is the use of a central server • Zero-free-transactions will permeated, - a system must earn money • The tangle principle does not make sense in the industry, but addresses issues that the blockchain technology currently cannot solve • A problem of the blockchain technology is the large amount of data that participants have to hold in a blockchain. • IOTA and the underlying tangle are a good • A private or consortium Ethereum blockchain may provide the same zero-fee-transactions • Transactions can also run off-chain (Allows transactions to be handled free of charge) • Zero-fee-transactions only provide use cases in the field of public blockchains • A blockchain in Industry 4. 0 should therefore be set up in a private operating environment in order to be able to adapt the blockchain to the specific use case as much as possible. • A combination of Blockchain and Tangle can be introduced to the market for eliminating 17 the inefficiencies of both technologies.

CONCLUSION § Cross-company processes: any blockchain technologies may improve efficiency by improving data immutability (especially generation I with Po. W) § Further efficiency improvements by implementing automated smart contracts of generation II § IOTA is not necessarily the best solution in any case, with regards to process quality improvements § can keep a large amount of data and still ensure a high scalability. § is using a central server which is vulnerable to attacks. Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 18 Nico Vafiadis &

CONCLUSION Contribution to science: § Collecting evidence & discussing impact of blockchain on industry 4. 0 Implication for practitiers: § To improve the efficiency of in-company production processes, factory automation more relevant than implementing a blockchain. Further research § Ensure sensor data to reach ledger in a tamper-free way. – Overall IT security concept Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 19 Nico Vafiadis &

THANK YOU FOR YOUR ATTENTION! Differentiating Blockchain Technology to Optimize Processes Quality in Industry 4. 0 Tessa T. Taefi 20 Nico Vafiadis &

REFERENCES • De Vries, A. (2018, ) https: //www. cell. com/joule/fulltext/S 2542 -4351(18)30177 -6, accessed 06. 07. 2018 • Mattes, B. (2018) based on : https: //www. handelsblatt. com/unternehmen/industrie/bernhard-mattes-vdachef-fordert-in-dieselaffaere-aufarbeitung-der-fehler-der-vergangenheit-/22669536. html? ticket=ST-2413073 -DHbln. Rc 7 q 2 z. HB 50 g. YYU 7 -ap 2 , accessed 05. 07. 2018 • Neugebauer, R (2018). Digitalisierung – Schlüsseltechnologien für Wirtschaft & Gesellschaft. , p. 313 Springer. • Nördinger, S. (2017) based on: https: //www. produktion. de/specials/revolution-blockchain/darum-passenblockchain-und-industrie-4 -0 -zusammen-278. html , accessed 05. 07. 2018 • Pohlmann, N. (2018) Speech at Hannover Fair Industrie 4. 0 on 25. 04. 2018 • Prinz, W. & Schulte A. (eds. ) (2017) Blockchain - Technologien, Forschungsfragen und Anwendungen. https: //www. aisec. fraunhofer. de/content/dam/aisec/Dokumente/Publikationen/Studien_Tech. Reports/deutsc h/Fh. G-Positionspapier-Blockchain. pdf, accessed 06. 07. 2018 • Verhoelen, J. (2017) https: //blog. codecentric. de/2017/10/konsens-mechanismen-blockchain/, accessed am 06. 07. 2018 • Zillmann, M. (2016). Lünendonk-Whitepaper. (L. Gmb. H, Hrsg. ) Von Keine Industrie 4. 0 ohne Digitalisierung der Supply Chain, http: //luenendonk-shop. de/out/pictures/0/lue_whitepaper_lhis_sc_f 300816_fl. pdf

REFERENCES (FIGURES) • Figure 1: Based on https: //coinmarketcap. com/currencies/bitcoin/, accessed 06. 07. 2018. • Figure 2: Based on https: //www. logistik-heute. de/Logistik-News-Logistik-Nachrichten/Markt. News/15154/Was-Industrie-4 -0 -und-Logistik-4 -0 -fuer-die-Mitarbeiter-bedeuten-Arbeit-4 -0 - , accessed 05. 07. 2018. • Figure 3: Based on Neugebauer, R (2018). Digitalisierung – Schlüsseltechnologien für Wirtschaft & Gesellschaft. , p. 313 Springer. • Figure 4: Based on Hofmann, E. (2018). Supply Chain Finance and Blockchain Technology, p. 36. Springer Briefs in Finance. ISBN 978 -3 -319 -62370 -2 • Figure 5: Based on Neugebauer, R (2018). Digitalisierung – Schlüsseltechnologien für Wirtschaft & Gesellschaft. , p. 317. Springer. • Figure 6: Based on https: //www. kreditkarte. net/wissenswertes/smart-contracts/

ADDITIONAL REFERENCES (LITERATURE REVIEW) • Bheemaiah, K. (2017). The Blockchain Alternative, pp. 58– 65. Paris: Springer. • Heuermann, R. (2018). Wirkungen und Erfolge der Digitalisierung. In M. T. Roland Heuermann, & C. Bressem (Hrsg. ), Digitalisierung in Bund, Ländern und Gemeinden, pp. 222– 224. Bonn: Springer. • Hofmann, E. (2018). Supply Chain Finance and Blockchain Technology. In U. M. Erik Hofmann, Concept— Where Are the Opportunities of Blockchain-Driven Supply Chain Finance? pp. 67– 71. Cham, Switzerland: Springer. • Hofmann, S. (2018, ) https: //www. mm-logistik. vogel. de/blockchain-technologie-einfach-erklaert-definitionanwendungen-a-676163/, accessed 06. 07. 2018 • Karakatsis, A. (2018). 7 Gründe, wieso sich Blockchain mittelfristig auch bei Ihrem Unternehmen durchsetzen wird! Digitale Welt , 69 – 70. • Kenning, P. et al. (2018). Was steht im Fokus der Verbraucherforschung angesichts der Entgrenzungen des Konsums? In Kenning, P. & Lamla J. Entgrenzungen des Konsums, p. 135. Düsseldorf: Springer. • Kopp, K. (2017) based on von: https: //www. produktion. de/specials/revolution-blockchain/bosch-blockchainhat-hohe-strategische-bedeutung-121. html, accessed 05. 07. 2018 • Morabito, V. (2017). Business Innovation through Blockchain, pp. 88– 91 Springer.