Blockchain: Practical Applications for the Pharmaceutical Supply Chain (Part V)

Blockchain: Practical Applications for the Pharmaceutical Supply Chain (Part V)

This blog-post is the fifth part of an ongoing series and a shortened version of our in-depth report Blockchain 2020: A Practical Guide to Blockchain Solutions for the Pharmaceutical Supply Chain. The first part introduced the current problems supply chains are facing, the second part was an introduction to blockchain, the third part covered the different network types and the last part explored the practical applications for the pharmaceutical supply chain. Today we will have a look at the regulatory and technological challenges, blockchain needs to overcome before it can reach mass adoption.


TECHNICAL CHALLENGES

Blockchain, like all emerging technologies, has many obstacles to overcome before it can fulfill its promises. The technology has developed tremendously over the last decade, but current networks face several challenges around scalability, interoperability, and sustain­ability.

Scalability

Public networks are struggling with scalability because they need to account for the pos­sibility of malicious participants. Therefore, they demand higher processing power for the proof-of-work to maintain security and database integrity. Private networks do not struggle with this problem as they are usually faster, and all participating computers are known to the network and assumed to be safe.

Interoperability

The security of current blockchain systems is also one of its downsides as the inherent protocol mechanisms limited the networks in their capability to communicate with the outside world and other networks. In order to reach mainstream adoption, they would need to function better or equal to current systems.[1]

Sustainability

Over 70% of the current market capitalisation is held by public networks, secured by the proof-of-work consensus mechanism. This requires a vast amount of computing resources to maintain security. Most of the processing power comes from huge server-farms fueled by cheap coal energy from China—which is, in the context of the current climate debate, highly controversial.[2]

REGULATORY CHALLENGES

As a recently released report from the European Blockchain Observatory discovered: The fundamental characteristics of blockchain, namely: decentralization, automatiza­tion, transparency, anonymity and data immutability are also the source of conflict with existing regulatory frameworks.[3]

Liability and Territoriality

In decentralised peer-to-peer networks, it can be hard to assign legal responsibility and to assess who owns the data and who is responsible for it. Public and permissionless networks can be joined by anyone who runs the network protocol on their computer, and the network can span several jurisdictions, making it hard to determine which laws apply.

Data Protection

One of the biggest conflicts with blockchain is the immutability of its data and, in the case of public networks, the transparency of the records, which leads to conflicts with existing Data Privacy Regulations. The debate circles around the following points:

  • obligations for the data controller;
  • anonymisation of private data on the blockchain; and lastly,
  • The Right to be Forgotten [4]

Smart Contracts

There are several issues around the legality of smart contracts; different jurisdictions have different formal requirements laid out and, as for now, the validity of digital signatures is not clearly regulated. The biggest questions revolve around the immutability of smart contracts and the person that will be held responsible in case of a malfunction.[5]

Blockchain is commonly seen as a revolutionary technology with immense disruptive potential, but it is important to stay realistic and to be aware of heightened expec­tations. The technology is still in development and faces several critical challenges, and while blockchain does a great job of securing data on-chain, it can do nothing against the introduction of wrong data. For this reason, blockchain will likely reach its full potential in combination with other technologies, such as IoT sensors or AI. While blockchain will be the underlying framework that guarantees secure transmission and storage of data, IoT sensors will be the eyes and ears of the system that help with the secure and efficient collection of data. Artificial Intelligence and machine learning can help to monitor data flows and identify patterns, but implementing the vision of a fully automated supply chain will likely take time.

This was the last part of our series about blockchain – whoever wants to further explore this topic is invited to download the full report.


Sources

[1] Accenture open source enterprise blockchain interoperability solution with Hyperledger, Ledger Insights, December 2019. Accessed 04.02.2020, https://www.ledgerinsights.com/accenture-open-sources-enter­prise-blockchain-interoperabili¬ty-solution-with-hyperledger/
[2] Cf. Kaihua Qin and Arthur Gervais, An overview of blockchain scalability, interoperability and sustain­ability, Luzern/ London: EU Blockchain Forum. Accessed 04.02.2020, https://www.eublockchainforum.eu/sites/default/files/research-paper/an_overview_of_ blockchain_scalability_interoperability_and_sustain­ability.pdf
[3] Tom Lyons, Ludivoc Courcelas and Ken Timsit, Legal and Regulatory Framework of Blockchains, EU Blockchain Forum, 27 November 2019. Accessed 04.02.2020, https://www.eublockchainforum.eu/reports
[4] Tom Lyons, Ludivoc Courcelas and Ken Timsit, Legal and Regulatory Framework of Blockchains, EU Blockchain Forum, 27 November 2019. Accessed 04.02.2020, https://www.eublockchainforum.eu/reports
[5] Tom Lyons, Ludivoc Courcelas and Ken Timsit, Legal and Regulatory Framework of Blockchains, EU Blockchain Forum, 27 November 2019. Accessed 04.02.2020, https://www.eublockchainforum.eu/reports

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