Automotive Industry. Where Is It Heading?
An Overview of Distributed Ledger Technology Projects
Within the Automotive Industry
by Mateusz Raczyński
The automotive industry is already exploring the blockchain space. According to Deloitte’s 2018 global blockchain survey, 73% of respondents think that DLT will disrupt the automotive industry. This statement makes this particular industry the most open to this new technology.
The hope is to bring back more clarity in their much-complicated supply chains, and the industry is seeking decentralized opportunities within finance, insurance, eco-driving, car sharing, theft prevention, and many more.
The automotive industry is one of the most active participants in the blockchain space. Among its members, one can find plenty of early adopters and projects that have been under development for quite some time now.
What specific types of applications are being considered? In this article, we cover several main categories where distributed ledger technology (DLT) and Blockchain use cases apply to the automotive industry.
How Can We Cheaply and Efficiently Transfer Large Amounts of Money?
It’s no secret that car manufacturers are mostly huge corporations that process enormous quantities of funds on a daily basis. How does a car manufacturer transfer 100 million euros? It needs to process necessary documents and spend time negotiating with banks. With one currency, it wouldn’t be that complicated, but to convert currencies, the problem becomes more intricate and complex.
Companies are looking for new ways to process transfers faster. There are cases in which a fast movement of funds may be crucial, and this is why the automotive industry is always researching better solutions.
PORSCHE AND BBVA
Porsche tested the financial capabilities of blockchain with BBVA, a Spanish bank that is using blockchain to simplify some of their operations. In this project, Porsche took a loan of 150 million euros from the bank to strengthen its retail distribution in Europe and Asia. The platform that has been used in this project is BBVA’s own design. While using this platform, the term loan was processed effectively on a DLT, which automated the negotiations to minimize operational risks.
DAIMLER AND LBBW
The two companies researched the possibility of sending a corporate Schuldschein (promissory note) worth 100 million euros with a private version of Ethereum. The project was seen as a pilot before testing the financial aspects of blockchain further. The press release claims it was successful.
Cars are the second most expensive items that individuals buy throughout their lives. Only housing is higher. We use cars to commute, but a lot of people also see them as a way of showing financial status. A cheap, old car could mean someone does not have money, and an expensive BMW or Porsche can be viewed in the opposite manner.
This societal factor is one reason car loans are so popular. As with any other loan, the bank needs to know that the loan recipient is able to pay the monthly rate for a given period of time. They will look into the person’s credit history, income, age group, form of employment, and many other factors to calculate risk. This process takes time, and the buyer needs to provide required documents to the entity offering the loan.
To simplify and speed up the process, researchers are looking for solutions that Blockchain and DLTs can provide to improve the loan process.
DocuSign researched a Digital Transaction Management platform and eSignature solution with Visa’s payment technology to reduce documentation for car leasing. The aim of this project was to allow consumers to walk into the showroom, configure the car, receive financing and insurance, and take home their car without any cumbersome paperwork. The system operates on Bitcoin blockchain. Although we haven’t heard additional information about this project, DocuSign is a member of the Enterprise Ethereum Alliance and has introduced their own blockchain product.
GENERAL MOTORS FINANCIAL
GM Financial is a financial arm of General Motors that offers leasing, financing, and lending products, and has partnered up with the blockchain startup Spring Labs. The startup raised $15 million in a seed round. This partnership aims to solve the problem of synthetic identity fraud (combining multiple pieces of personal data to create another ID). Automotive companies lose millions due to this procedure and don’t have a sufficient tool to fight it. Blockchain might be the answer for GM and others.
Car-to-Car and Car-to-X types of communications are expected to become a major safety risk in the near future. A future goal is to create a peer-to-peer network of all the cars on the road. Car-to-X communication would allow cars to communicate with other devices, such as intelligent houses and traffic lights.
New cars are equipped with a massive amount of sensors. They are utilized to enhance the safety on board, and a P2P network could achieve more. For example, if one car recognizes that the road it’s moving on is slippery, it could pass the information to the car behind it, to let the driver adjust his driving to the conditions.
This is also desirable to achieve before cars become autonomous. If they work as a collective, they can be more effectively safe. For example, with Car-to-X communication, they can also adjust to traffic lights, park in a free spot, and pick an unoccupied charging station.
Some of the cars are currently ready for these types of communications, and there are projects researching utilizing DLT to pass as much information as possible from sensors while keeping the data secure.
HPE Mission Critical Blockchain is a prototype for the commercialization of auto sensor data based on DLT. It uses smart contracts and a form of cryptocurrency to enable car manufacturers to gather data from the sensors in order to further develop their cars. In this setup, vehicle owners can earn money while driving and have control over who can use their data. For the pilot stage, HPE has implemented a prototype of the solution in Audi Q2, reading the data from a rain sensor.
FORD GLOBAL TECHNOLOGIES
Ford has filed a very interesting patent that would enable a broad vehicle-to-vehicle communication technology. This “Cooperatively Managed Merge and Pass” system uses smart contracts and “CMMP tokens” to allow communication between autonomous cars. In brief, the cars could perform transactions automatically. For example, a “cooperative adaptive cruise control” would work like standard cruise control but for a group of cars - if a person in one of these cars is in a hurry, he can pay more in order to pass others. You can find more details in the patent document.
Volkswagen has teamed up with IOTA to use Tangle for Car-to-X communication, laying a foundation for future smart cities. A proof of concept showcased on Twitter researches IOTA software updates for cars.
ZF, UBS, IBM
ZF and UBS have developed a Car eWallet, a system that allows users to make cashless payments for highway tolls, parking, and electric charging. IBM has joined the project to provide a way to synchronize and store the information from each network participant in a secure record. The project is based on the Hyperledger Fabric 1.0 platform.
An indispensable part of the automotive world is insurance. No matter how safe the car feels, it can always be damaged or do damage to others. That’s why almost anywhere in the world, civil liability insurance is obligatory. It ensures that anyone who causes an accident can cover the cost of claims for the damage.
The insurance industry is based on risk management. If the risk is lower, the rates are lower, and the other way around. However, that value is constantly changing and is dependent on many varying factors and their probabilistic possibility. The insurer needs to cover expenses, pay the claims, and make a reasonable profit while doing so.
It is a complex environment to acquire up-to-date data and calculate it accurately. Of course, the insurance business is not a new one, and the insurance companies have had plenty of time to develop their routines, but they’re still on the lookout for innovation. This is an area in which DLT could be used to provide a trusted, immutable ledger consisting of detailed information.
MIT MEDIA LAB
Toyota began a collaboration with MIT and other partners to create a digital environment where users could store vehicle usage information, among other use cases being researched. This would be used to calculate insurance rates that are more appropriate to certain drivers.
Kask2Go is a blockchain-based platform that changes the way in which insurance rates are calculated. Instead of a flat rate based on risk, it calculates and charges for insurance on the go, according to the driving conditions.
RBA Alliance is an industry-wide consortium that researches blockchain in the insurance industry
THEFT PREVENTION AND CARSHARING
The arms race between car manufacturers, car security providers, and thieves seems to be endless. The manufacturers need to balance theft prevention with convenience. This is why, although the cars are coming with immobilizers, gearboxes, steering wheel locks, and alarms from the factory, they are still vulnerable to theft. As keyless entry features become extremely popular, they are also a major vulnerability. Thieves could easily steal a car from a driveway, and it’s just a matter of time before they have the latest tools.
Is the car theft “business” still lucrative? The risk is high and the tools can cost as much as $50,000, but they still do it.
With thieves making so much profit, they have the resources to research the available security features and develop new ways to bypass them. It’s not “if” they breach the security, it’s a matter of “when”.
On the other hand, cars are moving goods, and as such, they depreciate quickly, especially new vehicles. During the first 3 years of ownership, a car loses about 50% of its initial value. A car is used, in most cases, for just a couple of hours per day. It helps people get to work, drive home, go shopping, and not much more. So people are paying a lot of money for something that not only depreciates quickly but also stands unused for most of the time.
Car sharing emerged because of these conditions. It’s a solution to many shortcomings of car ownership. It saves space in the city, as one car can be used by multiple drivers. The car can work for you while you’re not driving it. Fewer cars can be produced, so the environmental footprint is lower. Additionally, although there are car rental companies that allow drivers to use their fleet that is spread across the city with just an app, there are also services that allow owners to rent out their cars in a similar fashion to Airbnb. You can reserve a car in advance for a given number of days.
Combine car sharing with auto theft, and you might see why owners are not that keen on renting out their cars, especially if these are rare, exotic, or classic cars. It increases the depreciation rate, and threatens owners with the loss of their cars or getting them back damaged.
Distributed ledgers may solve that for us, too!
Porsche has been working with XAIN, a Berlin-based startup developing an access-control protocol for machine networks, on embedding DLT into cars. They have successfully implemented the technology in a test Porsche Panamera and plan on developing a platform that would allow immutable car access and car sharing, with the owner knowing who had accessed the car. More access-related use cases are currently researched.
A used car’s value is strictly connected to its history. Mileage, age, and documentation of repairs are what buyers are considering when choosing the right deal, with mileage and age being the most important factors determining the price. But can they tell that none of these have been manipulated?
For example, in Germany alone, Daimler’s research claims that 33% of the second-hand market could have odometers that have been tampered. The servicing history can also be forged and the only true characteristic could be the age. The problem is big, and governments have an ongoing war with dishonest sellers. In many countries, you can go to jail for manipulating a car’s history. As with theft, the process is still so lucrative that the sellers are willing to take the risk in order to get profit. Why? Because it’s still hard to trace down the manipulation.
If anything is hard to trace because of its complexity, this is where DLT can fix the problems.
Porsche has invested 150 million euros in startups, Gapless being one of them. Gapless is a distributed ledger containing all information about a vehicle - photos, documents, mileage, and more. As of September 2018, the project was in a foundation state but the iOS and Android apps are already available in app stores.
Daimler has developed a blockchain-based platform called smartVIN to store all the financial and transactional data of the vehicle’s lifecycle. It would store data such as delivery, registration, maintenance, odometer readings, and so forth.
RENAULT GROUP, MICROSOFT, VISEO
Renault has announced a prototype of a digital car maintenance book held on a blockchain. It was built in cooperation with Microsoft and VISEO and aims to create an immutable, trusted record of car usage data to lower the risks involved with buying a second-hand car.
BMW AND DOVU
DOVU is a blockchain project that uses tokens to influence behavior or gain access to data. In cooperation with BMW, the pilot project was an app that rewarded users for uploading pictures of their odometers, which were then verified by a smart contract. This mileage history would be then be used by Alphabet, a company owned by BMW, to track mileage in car fleets.
BigChainDB is a blockchain-based database. In 2017, they created a prototype of a blockchain-backed “car passport” to store all the dynamic data such as mileage and a detailed history of repairs. Now you can find a tutorial on their website on how to create a similar database.
VinChain aims to gather data from insurance companies, dealerships, manufacturers, public institutions, telematic systems, and more to create a comprehensive database about cars. It also uses this data to provide products such as an app, tokens, vehicle reports, and more.
We have mentioned Volkswagen’s and IOTA’s cooperation earlier regarding connecting cars, but what they are working on as well–and what seems to be the furthest in development–is “Digital CarPass”, which gathers dynamic car information in distributed ledger.
Although cars are produced by well-known manufacturers, they require hundreds of suppliers to build the product efficiently while maintaining good build quality. Complex, developed supply chains are hard to control.
First, there are environment-related aspects of this process. Audi, BMW, GM, and any other car makers are responsible for the end product. We’re moving fast towards electrified transportation, but battery production can be extremely harmful to the environment from which the raw materials are collected. Therefore, car manufacturers look for new ways of controlling supply chains and ensuring the sustainability of all processes.
On the other hand, there are aspects related to product quality and guarantee. Sometimes, it’s not obvious whether a fault should be covered by the guarantee or if it’s an outcome of exploitation. With all the supply chain and manufacturing process linked with blockchain, the faults could be traced back down the production line. Hence, it would be easier to tell who is at fault.
We took a closer look at the supply chain case in automotive in a previous article, which you can read to get an overview.
MERCEDES-BENZ CARS AND ICERTIS
Mercedes-Benz Cars has joined Icertis, a cloud enterprise contract management solutions provider, to create a prototype of a distributed supply chain ledger. The project aims to connect all the suppliers and create a database of all contracts, to ensure all the suppliers follow all the requirements regarding sustainability of production.
BMW AND CIRCULOR
BMW works with Circulor to trace the production process on blockchain. Their main focus is the extraction of cobalt. With blockchain, they can trace whether the resource comes from known “clean” jurisdictions or from unregulated mines in places like the Democractic Republic of Congo.
FORD MOTOR COMPANY, VOLKSWAGEN, IBM
Ford began working with IBM to solve similar issues as BMW. Later on, Volkswagen joined IBM to work on this matter, using IBM’s own DLT solution based on Hyperledger Fabric.
In many cases, we are the first generation to understand the risk of climate change and the last generation to be able to do something about it. That’s why we are moving to clean energy, transportation, smart homes, and more. If we don’t move in a sustainable direction, the planet might develop much more extreme living conditions.
This shift towards a more sustainable economy won’t happen overnight, and while we’re still driving cars with combustion engines, we need to lower their emissions. Using downsized, efficient engines is one way to lower emissions, but another way is to drive them in an efficient way.
Eco-driving encourages drivers to adjust their driving style. Daimler was one of the manufacturers to research incentivizing this matter.
Daimler’s blockchain-based digital currency MobiCoin was an attempt to incentivize eco-driving. Drivers who use their cars in a more efficient manner and therefore use less gas and emit fewer exhaust fumes were supposed to get a specific amount of coins as a reward. Unfortunately, the project seems to be discontinued, and the official article has been taken down from their website.
While we can divide automotive blockchain projects into some general categories, some companies didn’t disclose what they are researching apart from the fact that they’re taking a closer look at blockchain. Many of them have publicly announced their interest in DLT by joining the Mobility Open Blockchain Initiative.
MOBILITY OPEN BLOCKCHAIN INITIATIVE
The Mobility Open Blockchain Initiative (MOBI) is a body that connects almost all big car manufacturers and suppliers in the research of using blockchain to create “safer, greener, cheaper, and more accessible” mobility.
Is DLT Really the Backbone of the Future?
Looking at the number of projects that are researching blockchain, we could be just a couple of years behind a mass adoption of DLT, with the automotive industry spearheading the process. Considering the time the industry has been in the space, it might happen sooner than we think.
The beginnings will likely be small and rather conservative, but as you can see, the projects that are taking place right now are not revolutionary, apart from using this novel technology. They aim to improve what we know today.
DLT is capable of much more, and we might not see all the possibilities yet. Even the Internet is not in its most mature state, but we’re already far from using it only to retrieve or send information. We went from using dial-up connection to being connected all the time, everywhere. The same will happen with the DLT.
As with every other technology, there are various concepts on how and in what direction blockchain should be developed. What technology should be used for which use case? Will there be one to rule them all, or will we use several of them for different purposes? What shortcomings and benefits are we missing today? How can it transform the whole world?
We don’t know yet, and that’s what’s beautiful about DLT. What we know is that we’ll put in all the work that is necessary to make Aleph play a vital role in the future development of this technology.