Blockchain Technology Benefiting the Automotive IndustryMay 31, 2022
Think Blockchain is just for Finance and Logistics. Think again!
What began as the foundation of financial transactions within cryptocurrencies, blockchain technology - an impenetrable virtual ledger capable of recording and conducting massive volumes of transactional activity- is now progressing to integrate into a wide horizon of different industries.
As blockchain technology continues to make game-changing strides in finance, entrepreneurs are also excited to see its application in other industries. One promising progression in this direction is undergoing the automotive industry, where blockchain application has shown remarkable potential. To understand the key benefits that blockchain brings to the table in this particular case, it is crucial to first understand how blockchain has adapted and integrated itself into the automotive industry by offering illustrious solutions to industrial problems and introducing efficiency systematically.
Current Issues Prevailing in the Automotive Industry
The automotive industry has been on a continuous rise to follow trends, switch strategies and create and innovate new and more efficient production sources with a particular focus on digitalization and sustainability of systems. However, with accelerated development arise new challenges. The following are some of the major obstacles faced by today's automotive industry:
Monitoring Automobile History
Currently, there is no system to track and locate vehicles in case a systematic error is identified in production after the vehicles have been distributed and purchased. This makes the recalling process inefficient and expensive. It also exposes automotive companies to the possibility of fraud in the second-hand vehicle retail and spare parts market as stolen vehicles, tampered parts and other discrepancies are difficult to evade due to a lack of information regarding ownership history and chain of control.
Advancement of Self-Driving Vehicles
In recent times, if there is one technology that automotive companies have heavily invested time and resources in, it is self-driving vehicles. With electric cars entering the automotive market, self-driving vehicles have risen rapidly, attracting consumers and investors alike. However, these autonomous cars require tremendous amounts of data to be stored, organized, and interpreted to ensure vehicle and passenger safety. Although companies have been experimenting with several systems to manage this data securely and efficiently, such a system is yet to be perfected.
Deception in Insurance
Due to false insurance claims and insurance fraud, automotive companies face major financial losses every year. Legitimate insurance claims are exaggerated and distorted, while others are fabricated entirely; however, there is no systematic procedure to identify and eliminate these fraudulent insurance claims.
Retail of Fraudulent Spare Parts
Counterfeit parts are one of the longest-standing problems in the automotive industry. Despite striking developments, the industry has not been able to curb losses brought about by the retail of fraudulent spare parts, which account for financial losses and pose a threat to consumers, hence depreciating companies' brand credibility. The lack of ability to track spare parts concurrently in the supply chain allows counterfeit producers to enter the market undetected.
With growing transportation and car-sharing services available, it is important to evaluate the degree of safety and reliability they hold. Although adopted rapidly, car-sharing services are far from perfect as they come with major methodical drawbacks.
Enter Blockchain - The Benefits Posed by the Innovation in Automotive Industry
With its impenetrable decentralized technology, transparency and fully developed and efficiently functioning system, blockchain technology has much to offer in the automotive industry. Blockchain technology may be the holy grail of the automotive industry, promoting security, efficiency, and complete autonomous control in the business. Some potential benefits of blockchain technology in the automotive landscape are as follows:
Transparency and Security
As blockchain technology allows each member within the network access to all financial proceedings and contracts within the chain, the risk involved in transactions is significantly minimized. This transparency allows companies to choose suppliers without being vulnerable to losses in fraudulent supplies and counterfeit parts, as every transaction is securely stored without penetration.
Smart contracts established through blockchains are binding and immutable. This feature is of particular importance in such an industry that is highly reliant on raw materials sourced from many suppliers from around the world, resulting in a complex supply chain where inconsistencies are difficult to identify. The degree of transparency and security offered by blockchain technology can be ground-breaking.
Management and Efficiency
Since automotive companies deal with multiple suppliers and intermediaries simultaneously, documentation, traceability, quality control, and contract management are crucial to ensure efficiency. For this, blockchains streamline and organize contracts, financial dealings, order placements, and all relevant details, making management simple and efficient. This ensures that both suppliers and companies make informed decisions regarding their financial activity and that contracts are carried out without error or malice.
If an order were incomplete, damaged or misplaced, the blockchain would not only allow the company to halt payment and investigate the process. Due to its well-organized system would display an exact layout of the original pieces pointing out any modifications, manufacturing defects, or other breaches to the contractual agreement.
Blockchain’s stellar management and security will allow cost reduction from departments like audit, reporting and reviewing while also eliminating intermediary involvement from financial transactions, resulting in reduced production costs. Its high efficiency will further increase manufacturing capacity by allowing resources to be used at their maximum potential. Through digitalization and vehicle trackability offered by blockchain, regulatory guidelines will be met perfectly.
Through digitalization using blockchain technology, consumers will be able to buy products with complete transparency in vehicle history, manufacture, and source. The process of verification, transfer of ownership and retail would be easier, eliminating tedious paperwork and the possibility of fraud. Through an efficient supply chain, the quality of products will be higher while production costs will be reduced.
Blockchains provide a platform for storing, organizing and interpreting data without limitation. This is of particular importance in today's locomotive arena, as electrification of vehicles giving rise to self-driving technology requires extensive data to be stored and used effectively for the correct functioning of the vehicle, ensuring passenger safety. This data can be stored on blockchains to ensure that classified information concerning car owners is not leaked. The vehicle can perform at optimum efficiency using data from sensors stored and derived from blockchains.
The Process of Integration - Blockchain & Automotive Industry
Blockchain technology has the potential to transform every aspect of the automotive industry. From finance and manufacturing to distribution and regulation, its application is deep and wide. The following include some of its particular use cases concerning automobiles.
Virtual Documentation of Vehicles
In the current system, when one purchases a used vehicle, there is no infallible way to ensure the legitimacy of advertised specs, and the risk of falsified records remains. Through blockchain-based virtual passports, buyers will have a reliable source of information regarding the vehicle.
Secure Digital Insurance
Negotiations and settlements on insurance claims can be made digitally through a blockchain-based system. Insurance companies can offer premiums insight into the past driving history, vehicle condition and past claims eliminating paper working and manual processes. This would, in turn, eradicate the possibility of insurance fraud.
Car Sharing Services
A decentralized car-sharing system can be introduced through blockchain where passengers can contact drivers directly, avoiding intermediaries. Through smart contracts, drivers can be paid when riders are dropped to their desired destinations, making the transaction safe and dependable.
Car sharing companies can maintain rental history on blockchains to ensure that the party responsible is held accountable in case of an accident. Automated lease renewal and fee calculation based on usage can also take place through blockchain technology.
Solution to Counterfeiting
By restricting all participants to a common supply chain, the problem of counterfeiting can be tackled. All automotive supply chains can be plugged into a common blockchain, helping manufacturers identify limitations in their supply chains. Using "Internet of Things" and Blockchain, fraudulent parts can be traced and identified, and their manufacturer can be penalized.
Major Challenges to Blockchain
Blockchain technology has the potential to provide immeasurable benefits to the automotive industry. However, being an innovative technology entering the unfamiliar world of automobiles, there are a few aspects that automotive companies should pay special attention to:
Since blockchains provide all members in a system with access to data under complete transparency, it is important to protect a company's confidential information by adjusting the transaction visibility settings to protect company privacy and keep it leaked.
It is crucial to ensure that smart contracts are coded with consistency and utmost clarity as blockchain sets a high standard for code quality since major financial transactions are dependent on it. Once a smart contract is set in place, making amends is both complex and costly.
When moving your business operations to a blockchain-based system, it is important to ensure that all your vendors and subcontractors join the platform. With all vendors on the blockchain, a company can function entirely through it without external involvement.
With the adaption of blockchain technology, it can be inferred that both the automotive industry and blockchain technology will adapt to accommodate each other's specific requirements. It can be inferred that blockchain technology has wide and realistic applications in the automotive industry, paving the way for new developments and innovation.
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