Volkswagen AG is testing blockchain systems. This crypto technology offers enormous potential for maintenance, logistics, self-driving vehicles, and specialized solutions such as tamper-proof odometers.
What requires the energy from around five nuclear power plants but has only a virtual existence? The cryptocurrency Bitcoin. It is the most popular area of application for blockchain technology. Blockchain models cover a number of different approaches, all of which have one thing in common: they are very secure. Most of them have thus far been used for digital currency, such as Bitcoin, IOTA, and Ethereum. But this new technology is finding an ever greater number of applications. Benjamin Sinram and Nicolai Bartkowiak from Volkswagen Group IT are working full steam ahead to bring blockchain technology to the road.
Blockchain potential in the Volkswagen Group
“We want our customers to become familiar with blockchain systems,” says Sinram. He and Bartkowiak not only study concrete applications themselves, but also have built up a network of nearly 300 employees in the Volkswagen Group, across all the brands, who exchange ideas on this topic and meet multiple times a year. “Our contacts among the different brands enable us to work very efficiently. The atmosphere is open, and we’re happy to include interested individuals from any department,” says Sinram.
There is a lot of potential for blockchain applications in the Volkswagen Group, from maintenance, logistics and digital applications to specialized solutions such as tamper-proof odometer readings. “Blockchain technology also offers a lot of opportunities when it comes to self-driving vehicles. It can protect cars from hackers better than other technologies, and help with automatic payments at fueling stations or car washes,” explains Bartkowiak.
How blockchains work
Nomen est omen: The term “blockchain” refers to a series of data blocks that are linked – or “chained” – to each other. Sinram uses the game “I packed my bag” as a way of illustrating some parallel principles. For one thing, numerous people can participate in the game – just as in the blockchain with its decentralized distribution. Moreover, all of the participants make sure that no one fudges, i.e. that the bag or the data block really does contain what belongs in it. If the bag already has a swimsuit, an inflatable crocodile and a towel, and the next player who wants to add sunglasses says, “I packed my bag and in it I put a swimsuit, a crocodile, and ... sunglasses!” then everyone indignantly objects, saying: “You forgot the towel!” The data blocks in a Bitcoin blockchain don’t contain swimsuits, but it is immediately evident if something is missing or has been manipulated. This works on two levels.
For one thing, each block contains information about all the preceding blocks in an encrypted and compressed form known as a “hash,” which is a series of 32 digits. The hash is essentially a distinctive digital fingerprint. And each one of these fingerprints is created on the basis of the previous fingerprint. This generates a chain of linked data blocks. If one of the blocks is changed, it no longer fits in with the rest of the chain. Moreover, there is not just one chain on a central server, but somewhere between 20,000 and 40,000 copies of this chain distributed across mainframe and private computers around the world. Each one of these nodes is automatically connected with all the others. If one of the nodes is changed, it no longer fits the system – which thereby protects itself.
Bitcoin blockchains have never been hacked
“It’s very difficult to smuggle a bogus or manipulated block into the chain,” explains Bartkowiak. “Since Bitcoin was launched in 2009, its blockchain has never been hacked.” But blockchains are interesting not only because of their security but also their efficiency. “You don’t need any third parties with blockchains, like you do for financial transactions at classical banks,” he continues. Instead, the sophisticated system performs these transactions on its own. Each block of data in a blockchain contains 1,000 to 2,000 transactions of the following type: Person A transfers amount X to person B at time Y. Basically it is one long register of accounts that everyone can view and that can no longer be changed. This ensures that people can’t simply copy a few bitcoins and transfer them to their own account.
What is a distributed ledger?
Blockchains are often called “ledgers.” This bookkeeping term describes a central register that shows all the movements of funds at a company. “Distributed ledger” technology is based on the principle of distributing numerous copies of this register online. If one copy is tampered with, it is rejected, because everyone else has the same register and can easily spot local manipulations. Ever greater use is also being made of “smart contracts” that can perform processes automatically, such as ordering specific car parts when needed and thus keeping warehouse levels up to date.
Volkswagen AG and blockchains
Volkswagen AG is currently testing three concrete potential applications for distributed ledger technology – beyond the example of cryptocurrencies like Bitcoin. One is a mileage clocking system that Bartkowiak and Sinram are developing. It makes it hard to manipulate odometers, because every odometer reading can be saved permanently using a sophisticated system. Thus the used car market becomes more transparent and secure for Volkswagen cars, which helps Volkswagen vehicles better retain their value. “Customers can save their odometer readings in a distributed ledger system at regular intervals. The data cannot be changed retroactively without somebody noticing that they’ve been manipulated,” explains Sinram.
One thing needs to be made clear here. “We place a premium on protecting data, and especially personal data,” says Bartkowiak. So no customer data are saved on public or Volkswagen networks for these blockchain applications, but rather only “fingerprints” of privately secured data. The data remain where the customer saved them – on a smartphone, or a computer, or in the cloud – and are only accessible to that particular customer. If desired the customer can decide to have a unique encrypted series of digits generated from these data with which the blockchain can then work. In this way, the customer’s data remain protected.
In a second area of application, Porsche is developing a blockchain model that is better than conventional systems at protecting cars from hackers. It enables Porsche owners to give other individuals – such as parcel delivery personnel – a virtual key to open or even use their car. “We’re doing pioneering work here,” says Oliver Döring, Porsche’s financial strategist. “We’re also testing how well a non-public distributed ledger system is suited for this.” Porsche is working on this project with the Berlin-based start-up XAIN.
Public versus private blockchains
There are public and private blockchains. Whereas every user can be part of the network for public blockchains, such as those for cryptocurrencies, only selected users receive access to private blockchains.
As a third example, Volkswagen Financial Services is currently running a pilot study in Great Britain to test a blockchain model that streamlines business contact between providers and customers of electric charging stations. “Different providers have different terms and methods of payment, which can often make it complicated for customers to charge their electric vehicles. We want to make this easier and improve the customer experience with a new technology,” says Tobias Lipfert from Volkswagen Financial Services AG.
These three projects are just the beginning. “Blockchain technology has enormous potential, also for new fields of business,” says Sinram. “We’re building our own blockchain solution,” adds Bartkowiak, “regardless of whether they’re based on IOTA, Ethereum, or other crypto technologies.” The most important thing: “We want to create added value for our customers. More security, more transparency, and partnership approaches to projects.”