Don’t get hung up in the back-end weeds of blockchain technology – it’s about transferring value between parties
Much has been written in recent months about the potential of blockchain to transform industries, including logistics and trade.
But the point at which we’ll know blockchain has taken hold is when people don’t even mention the world blockchain.
As Gerard Dache, president of the Government Blockchain Association, recently put it, blockchain is a back-end technology, not a forward-facing one. Most won’t even know they’re doing things enabled by a blockchain, just as most people using the internet don’t know it’s enabled by TCP/IP.
Most won’t even know they’re doing
things enabled by a blockchain, just as most people
using the internet don’t know it’s enabled by TCP/IP.
“Blockchain is a protocol,” Dache said at a June 27 forum in Washington, D.C. on blockchain organized by the Federal Maritime Commission June 27. “It enables us to think about how can we transfer value from entity to entity without a trusted third party like a bank.”
That value can be anything. It needn’t be monetary value, though one of the more well-known uses of blockchain technology is the crypto-currency bitcoin. Dache and another panelist, digital asset consultant Henrik de Gyor, focused on three terms that have become entrenched in the vernacular of blockchain circles, but haven’t quite hit the mainstream: hashes, miners, and tokens.
“You can tokenize anything of value,” Dache said. “We use these things called dollars, but there is value in property, in artwork. Blockchain allows you tokenize anything of value. The token could be permission or some kind of use. We haven’t even figured out all the ways we can tokenize value. We’re with blockchain where we were with the internet in 1992.”
In a logistics and trade context, the most publicized examples of early blockchain projects have revolved around creating a digital distributed ledger to create a single electronic place where all documents related to a shipment can be housed.
The benefits of that approach are myriad: avoiding the transfer of paper documents, the ability to quickly trust new trading partners, the ability to trace where a product or raw materials originated. The ledger also acts as an immutable record of all the data collected, including inaccurate information and the edits made to make them accurate.
Now back to the other two terms. Miners are essentially entities that validate the data being added to a blockchain through sophisticated and specialized software. It’s not as easy as it may sound. But the concept of mining is key to the concept of blockchain, since blockchains don’t rely on centralized entities to provide trust, like a bank would in a traditional transaction, for instance.
Much has been written about bitcoin mining, but, in essence, miners create a situation where, as de Gyor put it, “the miners match the transaction within a few minutes. I have all the transactions you did and you have all the ones I did.”
As blockchain technology spreads to supply chains, this becomes critical. Two entities that were linked by a contract tied to payment through a third party (like a bank) will need to know that a blockchain-enabled contract, also called smart contracts, can achieve the same or higher level of trust.
The last term, hashes, is more technical than the others, and revolves around the way data is encrypted in a blockchain. In order to make the amount of data stored on a blockchain digestible and manageable, data is converted into 256 alphanumeric character hashes.
“The hash is a formula that takes any amount of information and translates it to a 256-character string,” Dache said, mentioning everything from an EDI message to that piece of art. “You can hash anything. You can run a piece of information through a cryptographic hash so it’s not visible to anyone who hasn’t been given permission to see what it is.”
This is also an important point to understand about blockchains and security, especially in light of the Petya virus that spread globally over the past week, crippling systems at Maersk, the world’s largest shipping company, among others.
Real-world examples of blockchain in shipping already exist.
Last week, a Belgian company called T-Mining said it is piloting a project with the Port of Antwerp, liner carrier Mediterranean Shipping Co., and an unnamed freight forwarder and road transport company.
“We have developed a very secure solution for this,” said T-Mining Chief Executive Officer Nico Wauters. “Currently, when we want to transfer a valuable object we generally make use of a trusted intermediary to carry out the transfer. For instance, when you want to sell a house, the notary not only carries out all the paperwork but also ensures that the money lands safely in your bank account while the buyer receives full title to the property, without any unpleasant surprises for either party. But this intermediary naturally does not work for free, and furthermore the additional step causes extra delay.”
The blockchain solution is designed to permit safer and faster transfer of valuable objects, fully digitally and without a middleman.
“With our blockchain platform the right truck driver is given clearance to collect a particular container, without any possibility of the process being intercepted,” Wauters said. “Furthermore our blockchain platform uses a distributed network, so that the transaction can go ahead only if there is consensus among all participating parties, thus excluding any attempts at fraud or undesired manipulations.”
The T-Mining example is but one of a number of shipping- or trade-realted blockchain pilots underway or completed. The most famous is one Maersk Line and IBM, which set out to show how a blockchain-backed bill of lading could eliminate stacks of paperwork related to a single shipment.
In April, the digital freight forwarder Kontainers signed a memorandum of understanding with Blockfreight, a startup focusing on building blockchain solutions for the global freight industry. The deal will aid Kontainers’ focus on providing online editable and shareable bill of ladings “that helps our clients get paid faster.”
SAP in May launched its blockchain-as-a-service offering, part of its wider cognitive learning platform Leonardo. There ought to be logistics applications of this, given SAP’s entrenched position in transportation management, supply chain management, and enterprise resource planning software. From a shipping perspective, a host of liner carriers use SAP for their backbone systems. It wouldn’t be a stretch to think SAP will try to nudge carriers toward broader use of blockchain technology.
Dache, for one, sees the shipping industry as a natural fit for blockchain.
“This is global,” he said at the FMC forum. “You have companies and people and business entities all over the world. They will all have to work together to engineer these systems to work. And I’d encourage every government agency to get involved. If these industries create systems where government isn’t involved and doesn’t have transparency into that, it’ll be like everyone is at the party and we’re home alone without a date.”
If these industries create systems where
government isn’t involved and doesn’t have transparency
into that, it’ll be like everyone is at the party and
we’re home alone without a date.
Indeed, one of the realities about blockchain that’s seldom highlighted by evangelists of the technology is that its distributed nature is designed to avoid regulation. Or at least traditional regulation. That means bitcoin can be used by unsavory parties wanting to transact and avoid the detection.
It means bitcoin demands are a common way for ransomware-creating hackers to get paid by their marks. Look no further than the cyber attack on Maersk and other companies last week, an attack that was evidently designed to look like a bitcoin ransom demand, but may in fact have been a virus intended to wipe systems clean instead.
The very fact that blockchains are “trustless” means there is no single party that controls the transaction. It’s important to understand the good and bad of that.
The very fact that blockchains are
“trustless” means there is no single party that controls
the transaction. It’s important to understand the good
and bad of that.
It’s been said that blockchain is to transactions what the internet was to information. The internet, in a sense, has removed the gatekeeper from information moving between two parties. The good part of that is the world is much more informed than ever before. The downside is there is no single party (or group of parties) anointed by all to vet the information being passed around, hence the rise of fake news.
Imagine that fake news scenario in a transaction. That’s the downside of blockchain.
“This is a ginormous paradigm shift,” Dache said. “In security, the primary thing is centralization. If we keep things a secret, we can keep it secure. The whole concept of governance changes to ‘some other people make all the rules.’”
But proponents believe standards will emerge to make blockchains easier to use, public trust of blockchains will grow, and the technological infrastructure underlying blockchains will develop to enable almost real-time transactions.
This last point is key, as de Gyor said the vetting of transactions by miners can take minutes currently. When those transactions take seconds, like a Visa transaction does, that will be a big milestone.
“All the major banks are interested in this,” he said. “Some of that is because this would remove the back office costs that now are tracking (know your customer) mandates and laundering activity. Banks are using blockchain right now and hiding it from customers, so it happens in the backend and you’re not going to notice. It brings that efficiency to them and it’s seamless.”
According to de Gyor, there has been more than $1 billion already invested in blockchain, with much more to come.
“The term blockchain will eventually relegate to the tech geeks,” said Dache, “but the things it allows us to do is let our imagination run wild.”