Blockchain – Future or Fad for Shipping?

15/12/2017 | North

Blockchain has made its way into the headlines recently but what is it and what could it mean for the shipping industry?

Blockchain experts Deanna MacDonald, Karim Jabbar and Simon Ousager wrote for Futurenautics (www.futurenautics.com) who have kindly allowed us to reproduce an abridged and edited version of their article here.

Blockchain has recently been hyped as a possible solution that may allow efficient, transparent, traceable and secure transactions to take place and enable frictionless trade. Several companies have advertised the fact that they are exploring blockchain and the opportunities and challenges it may bring for the industry.

From Bitcoin to Blockchain

Blockchain infrastructure is still in its infancy. In 2009, in the immediate aftermath of the financial crisis, an anonymous source under the pseudonym Satoshi Nakamoto shared a protocol with the world that allowed for peer-to-peer exchange of digital cash—now known as Bitcoin—without the need for trusted third parties. Over the years this protocol and its small underground user base developed into an infrastructure in its own right, now with a current market cap of almost USD20 billion.

The term ‘block chain’ was originally coined by Nakamoto when describing the process of Bitcoin mining. To paraphrase Nakamoto, “a block chain is a collection of transactions that cryptographically merge with the solution to a mathematical problem that is so complicated that it takes about 10 minutes resource-consuming calculations to solve”. From there, the term ‘block chain’ became ‘blockchain’ and has since been used as an umbrella term for the development of alternative applications of Bitcoin in other settings.

In the financial sector Blockchain is being investigated as a solution for trading settlements and other specific banking uses. But unlike with bitcoin, validated identity is a requirement in accordance with AML/KYC rules (Anti-Money Laundering / Know Your Customer).
Start-ups and other enterprises have set out to create their own version of a blockchain customised to other uses. As part of this development, the ‘scriptability’ feature of Bitcoin became of interest. In a nutshell this means that each transaction can be annotated with any kind of digital data. This opens up the possibility of using the Blockchain to store records of any kind in a distributed fashion.

As a natural next step towards the purposeful use of these data records, lines of self-executable code based on a “if, then” logic are embedded into the database. These are the basis of the so-called ‘Smart Contracts’, around which a lot of the current blockchain solutions are centred.

Some of these emerging blockchains require users to be given permission to access blocks (known as permissioned) whilst others do not require permission (known as permissionless). Some of them are structured as platforms on which applications can be built and others are operational software for specific uses.

Blockchain in Shipping

Some of the solutions currently being used or developed for shipping are shown in the table below.

Company Focus Whats the Problem? Whats the Solution?
Blockfreight Complete shipping blockchain Fragmented IT systems with limited interoperability A complete blockchain for shipping, with built in cryptocurrency token
Wave BL Bill of Lading A negotiable BL serves as receipt, contract of carriage and title of goods. Currently mainly analogue Blockchain application allowing for sharing of BL data and anonymous trading of BL
Maersk; IBM Documentation pipeline  Over 30 different documents are needed to process an export consignment across multiple supply chain steps Shared blockchain based repository (i) making the needed documents only visible to the parties required to see them and (ii) tracking and time-stamping changes in the chain of custody of a shipment
Port of Rotterdam; ABN AMRO; Royal Flora Holland; TU Delft; and more Trade finance  Cumbersome letter of credit process involving banks in both source and destination countries Self-executing smart contracts triggering payment on proof of delivery
SKUchain Trade finance Cash flow issues related to the current trade finance process Smart contracts. So-called ‘brackets’; blockchain-based release of funds that are conditionally key-signed and triggered by signals
Everledger Provenance and traceability  Origin of products is unknown for end user Blockchain application for tracing diamonds
Provenance Provenance and traceability Because of obscure supply chain, many companies are unable to display the origin of their products to customers Open blockchain-based traceability platform
 SOLAS VGM/MTI Verified gross mass of containers and data sharing VGM data must be forwarded ahead of time to the carrier. Currently using EDIFACT Application for recording container data upstream (load points and weighbridges) on a distributed ledger. Interoperable with EDIFACT and API

 

It is difficult right now to say what the full potential of blockchain is for the shipping industry. There are many more steps required by the industry as a whole before this can be assessed. In order to get there, it will require that the various players in the industry start asking some critical questions such as those linked here. They also must begin working towards strengthening their knowledge of blockchain and its potential industry uses before they commit to spending large sums on uncertain projects driven by tech hype.

Not all companies will need blockchains, and not everything a company does will need to be put on a blockchain. Only the transactions that involve an exchange with other entities, that have high social, economic and environmental costs, or that are liable to become corrupted or tampered with, are those that stand to benefit most from being put on a blockchain.

Click here to download Futurenautic’s 8 Critical Questions PDF

We thank Futurenautics for their kind permission to reproduce an abridged and edited version of their original article which first appeared in their Q2 2017 magazine. Their full article can be downloaded here.

North’s Quick Facts on Blockchain

  • Blockchain is a secure and decentralised shared database.
  • The database is a digital ledger of transactions that is housed on a shared platform.
  • Each transaction – whether it is a payment or a contract agreement - is entered into a ‘block’ and every new block is linked to the last block to form a chronological ‘chain’.
  • There is no central point controlling the blockchain and it is stored across a network.
  • Sharing promotes security. Each entry that forms a block must be validated by others on the network and cryptography keeps exchanges secure
  • As each block is linked to the previous block, any attempts to alter or delete a transaction will be notified to the others on the network and rejected. It becomes tamper-proof.  
  • A shared system does not necessarily mean that anyone can access a blockchain. Depending on how the system is to be used, the network can be classified as ‘permissioned’ (participants to the network must be granted permission to enter by an administrator) or ‘permissionless’ (can be accessed by anyone with internet connection and users may well be anonymous)
  • Smart contracts are digital contracts that use code and logic to automate the “if this happens - then do that” function of traditional paper-based contracts. It is therefore ‘self-executing’.  

To show the very basic process, consider a simple business transaction:

Blockchain Image