Evaluating The Implications Of The Distributed Ledger Technology (DLT) For The Mechanical Engineering (ME) Industry
Who is Satoshi Nakamoto? We don’t know, but whoever hides behind this alias certainly inspired a modern day digital gold rush and consequentially forced many major corporations to rethink their business model. The primary objective of this thesis is evaluating the implications of the distributed ledger technology (DLT) for the mechanical engineering (ME) industry and developing a roadmap to help the ME industry prepare for the upcoming challenges this technology bears to assess the applicability of the technology for their business model beyond currently implemented and suggested use cases in such branches as financial services, insurance, government, supply chain management, healthcare and Internet of Things (IoT) (Gupta, 2017, pp. 25–30).
To reach those conclusions, a literature review that covers the history and the development of the technology needs to be conducted to provide a basis that bundles the aspects relevant to the thesis’ goal. Complementing the literature review, a selection of DLT and ME industry experts are asked to share their opinion and experiences to assess the technology’s potential and to help putting the described roadmap on a solid foundation.
DLT summarizes blockchain technologies and the more recently emerged non-blockchain based technologies such as directed acyclic graph (DAG) technologies, which represent different technical approaches but share the same purpose of reaching consensus in a distributed, peer-to-peer public permissionless, private permissioned or public permissioned (also called hybrid or consortium) network without a centralized authority by sharing digital information and replicating it for every member of the network, which are called nodes. This ought to make the network fair, immutable and resistant to malicious attacks and network failures. However, technical details can differ greatly across the existing DLT variations.
Although not described as a DLT on its release, the first usable and publicly available DLT appeared in form of the better known blockchain technology, described in the Bitcoin whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System“ by an anonymous author under the alias Satoshi Nakamoto (Nakamoto, 2008). Despite several claims, the true identity of the author is unknown to the public. In this thesis, we will refer to the author of the Bitcoin whitepaper in a singular manner, but it must be noted that the alias could also refer to multiple authors. The first version of Bitcoin was released on 9 January 2009 to subscribers of The Cryptography Mailing List, which sparked a vivid discussion amongst cryptocurrency enthusiasts (Nakamoto, personal communication, 1/9/2009).
The media euphoria caused by the rising Bitcoin cryptocurrency price (Bitcoin.com,.2018) and large corporations picking up on the underlying technology in the recent years spurred the interest in the blockchain technology across various industries. Since its first appearance several DLT concepts have been developed and presented. Most DLTs launched coupled with one of the over 1.500 respective cryptocurrencies or utility tokens available to raise venture capital (CoinMarketCap, 2018a), trying to simply replicate the success of Bitcoin or to introduce genuine business ideas built on the distributed ledger technology.
Due to its origins, the available literary material about DLTs is predominantly about the blockchain technology. However, the established blockchain technology’s restraints became more apparent as the number of applications grew. Those are mainly scalability due to the low number of possible transactions per second (tps), the associated transaction costs (BitInfoCharts, 2018) as well as the inherent energy costs of the concepts that make use of a proof-of-work protocol (Anh et al., 2018), which will be described in the main body. The proof-of-work protocol is used by many cryptocurrencies, most famously Bitcoin. This resulted in the development of alternative consensus protocols and non-blockchain technology variants like DAG-technologies that adopt the same basic idea but implement it in a different way. The thesis introduces the blockchain technology as a subordinate technology to the DLT and describes their relation.
Implemented and planned from the literature review, as well as theoretical use cases derived from the experts’ responses illustrate the implications for numerous industries and their possible applications. Originally strongly represented in the financial technology industry, more and more diverse use cases in machine-to-machine communication, energy sector, healthcare industry, supply chain management, identity management, governmental processes and real estate are showing the technology’s potential. This technology is especially relevant for companies, which either haven’t heard about the technology, heard only vaguely about blockchain technology or didn’t evaluate its importance for their business yet. The combination of DLT’s potential to alter the infrastructure and competitive environment in the ME industry and increasingly sophisticated customers’ demands emphasize why familiarizing with the topic is especially important for small and medium-sized enterprises to secure employment and assure not to be left behind by major corporations who already invested in the technology (Robert Bosch Venture Capital GmbH, 12/19/2017; IBM, 1/16/2018; Daimler AG; Landesbank Baden-Württemberg, 6/28/2017; Schiener, 2017). This is due to the fact, that larger companies can mobilize human and financial resources to adapt and incorporate new technologies more easily than smaller companies, which is also shown by the fact that many large corporations appointed a chief digital officer (CDO). Volkswagen’s CDO Johann Jungwirth already plans to use the DLT solution IOTA as a platform for connecting IoT devices such as machinery or cars. According to IOTA, connecting IoT devices of all sorts is made easy on their platform (Jungwirth, 2018; Eisenkrämer, 2018). In the end of 2016 a study by Deloitte LLP has shown that blockchain technology is on the radar of major corporations: 61% of 308 surveyed senior executives of US companies with over USD 500 million annual revenue claimed to have an understanding of blockchain technology. More than a quarter of those have rated the technology as a top-five company priority for 2017 – a trend that is only gaining momentum (Schatsky and Piscini, 2016).
The topic is especially relevant for the ME industry, since it is among the leading industries in terms of adopting digitalization and is massively investing in Industry 4.0 solutions (Commerzbank AG, 2017, 2, 5-6; Wocher, 2016). As such, it is important to be prepared for technological advances in a timely fashion. In Germany this is even more relevant since the ME industry is the highest employing industry branch with over one million employees and is often described as the backbone of the German economy (Statistisches Bundesamt, 1/15/2018; Handelsblatt, 1/10/2018). Politicians in Germany already recognized the importance of DLTs as Federal Minister for Economic Affairs and Energy Brigitte Zypries stated in early 2017 in the proposal for a new Innovation Agenda. She stressed the importance of promising digital technologies such as “Autonomy for Industry 4.0”, “Smart Service”, “Smart Home”, “Augmented Reality”, “Service Robotics” or “Blockchain” (Bundesministerium für Wirtschaft und Energie, 4/18/2017).
Furthermore, startups can now take the initiative and come up with disruptive business models without substantial financial capital requirements, which at the same time poses a threat to established companies who haven’t yet realized an agile mindset that might require reevaluating their core business model. Whereas the key competencies for DLT startups are: Understanding the technology and its business applications, complemented by the ability to write a convincing and comprehensible whitepaper, as well as to code in one or more commonly used programming languages. The result of this low entry barrier is an increase of initial coin offerings (ICOs), which are basically the cryptocurrency or tokenized version of initial public offerings (IPOs). The number of ICOs rose from 30 in 2016 to 889 in 2017, which is almost a 30-fold increase, whereas the raised venture capital increased from USD 94,009,144 in 2016 to USD 6,062,538,291 in 2017 (icodata.io, 2018a,, 2018b).
The conglomerate merger RAMPF Group, founded in 1980 by Rudolf Rampf, support this thesis financially and with their professional expertise as a ME supplier. As such, it is constantly influenced by increasingly sophisticated customer demands for digital and data-driven solutions. The company’s revenue is steadily growing each year, which is also reflected by the rising number of employees and physical expansion across the globe. Therefore, scalable new technology solutions for core business and supporting processes gain importance. To be prepared for changing customers’ requirements and disrupting technologies in the next decade, the RAMPF Group is interested in technological advances that could give them an edge over their competitors.
Research design
The thesis will be based on a combination of a literature review on DLTs, including mainly blockchain and also non-blockchain based technologies, as well as a qualitative content analysis that will follow a series of structured expert interviews and questionnaires. The literature review includes single and multi-volume books, periodicals, studies conducted by consulting groups and government initiatives, also known as reports or grey literature, press releases, news agency reports as well as discourses and blogs by experts. As the subject only emerged in the recent years, the directions for empirical research are yet to be determined (Ghosh and Wee Kwan Tan, 2018, p. 18). DLT is evolving daily and regarding its potential, the available material is hardly scratching the surface. Therefore, the literature review serves as an overview of the history and development of the technology up to this point and attempts to cover the most relevant aspects regarding the overall goal of this thesis.
A selection of implemented and planned use cases relevant for the ME industry will follow the literature review. The respondents will be experts from different fields that are relevant for the future implementation of the technology, namely: Research, education, industry, governmental institutes for knowledge transfer and consulting.
The raw interview data and the questionnaire responses will be coded to allow generalizations across disciplines. This gives an impression of what representatives of relevant disciplines know about this recently emerged technology and how they assess its potential, compared to investments and projects that are already in motion. Novel ideas about DLT applications and implementation aspects to factor in mentioned by the interviewees that aren’t considered in existing literature could help identify research gaps for future studies.
Context Description
Research technique Structured expert interviews and questionnaires are used to collect data to gather insights on the posed questions.
Research time horizon The study is cross-sectional, since the received answers are directly given and not observed over time.
Research method The chosen method is a qualitative approach only. Making this a mono-method. A quantitative method on such a novel topic could not provide the answers that this research question was aimed at for several reasons. Firstly, a format that allowed for a dialogue between the interviewee and the interviewer is of paramount importance when the interviewee isn’t familiar with the topic, which then needs to be thoroughly explained as the young technology and its applicability are still in a rudimentary state and includes concepts that can be new to even the most versed IT experts. Secondly, the questions in the questionnaire are broadly formulated, so that the experts could fully unfold their thoughts and share their opinions and experiences. Finally, there are very few DLT experts to even reach out to, and even less experts which have experience in both ME and DLT. Trying to find a significant number of respondents for such an approach would be infeasible. To get insights from the very few DLT experts available, they are directly asked to fill out the questionnaire as they are very familiar with the described concepts. This is done to drastically increase the chance to reach multiple of the currently highly sought after experts, and to reach a more diverse group of respondents.
Research strategy The research strategy is a grounded theory, as the thesis attempts to determine the relevance of DLT solutions for the ME industry and isn’t built on the claim that it is relevant. Using expert interview transcripts, this is a social science approach of gathering and evaluating qualitative data with the goal of finding an answer to the initial question.
Research approach Grounded theory is an inductive reasoning approach, since it attempts to find generalizations from the conducted observations and not the other way around, breaking down a set generalized statement into smaller parts to reach logical conclusions, which would be a deductive approach.
Research philosophy Interpretivism or antipositivism, is the opposite form of positivism. It describes a social science research philosophy that is not based on gathering quantitative data through observation and the subsequent attempt to reach a logical conclusion but makes use of qualitative data that is influenced by the circumstances it was gathered under. All interviewees have made their own experiences, made their own subjective observations and come from different backgrounds, what inevitably influences their responses. Furthermore, the questionnaire was directed in a certain way and it is impossible to claim, that the selection of questions, the way they were phrased and the communication between the interviewer and the interviewees haven’t influenced the outcome.
