While the terms “cryptocurrency” (or digital currency) and blockchain (or distributed ledger technology) are being banned from the likes of Google and major social media venues Facebook and Twitter, the U.S. Congress has a surprisingly different take. In Chapter 9 of the 2018 Joint Economic Report, released just last week, blockchain is widely praised. Among other things, the report estimates the costs of cyberattacks, and the economic benefits from protecting private property and contract integrity.
How can it be possible that the government—the source of the lawmaking regulatory bodies—would actually praise a technology that is being (for all intents and purposes) censored from major internet platforms? What are the motivations and pressures these platforms are facing in today’s climate? What does this all mean for the supply chain and the movement of commercial freight?
In an effort to get some answers we reached out cryptocurrency and blockchain experts. We spoke with NodeSource founder and CEO, Joe McCann, and Global Blockchain Technologies president and COO, Shidar Gouran.
McCann says, “Unfortunately, the term of the blocking by Google, Facebook and now Twitter will likely persist for some time until either clear regulation by the SEC is drafted and enacted, which is meant to protect the consumer, or there is a material impact to the top lines of said companies, which is highly unlikely."
Gouran says, “On one hand they’re banning [Google, Facebook, Twitter], but at the exact same time they’re also putting huge resources into researching these topics for their own various products. It’s a two-way street really. You have regulators who want to control everything, and you need reform in that space, but you also need freedom for startups to pioneer. What France is doing is great. Keep on top of it but don’t put up huge barriers.
"It’s more about the bigger picture that the regulators are afraid of losing control."
“To block the word blockchain is inane,” says McCann. “Blockchain is a decentralized database, for lack of a better phrase, that often has economic incentives baked into its support and maintenance, issued in the form of a cryptoasset, but it is not required. In fact, there are a number of companies focusing on private and enterprise use cases of blockchain technology which would be collateral damage from the banning efforts being put in place today.
“The relationship is not required, but useful, as the support and maintenance of any blockchain requires some sort of incentive for users to run a node on the blockchain to verify new blocks. If this is not tied to some sort of asset, then another incentive structure needs to be created and implemented.”
How necessary is the relationship between a digital currency like bitcoin and blockchain? Are digital currencies a necessary element of building blockchain as a proof of concept?
“Many folks conflate blockchain and bitcoin, but the asset could not be more different than the blockchain itself. It's all about incentives. If altruism was a good enough incentive, people would not need the attraction to an asset that has value to support a blockchain,” says McCann.
“They’re completely interdependent at this point,” says Gouran. “It’s a problem of computer science, and has been for many years. How do two systems that have different needs and designs, but are also interdependent co-exist? It’s like putting two queen bees in two different trees side by side. Both hives die because there’s confusion between the central authority. While there is no bank that has solved the issue yet, I will say that all the central banks are experimenting with digital currencies to see how they work.”
Some have argued that blockchains (or DLTs) actually don’t solve supply chain visibility. They argue this is an IoT (Internet of Things) problem that needs an IoT solution based on a cloud blockchain, or other database; a network of connected sensors on top of the blockchain.
Gouran disagrees. “No, that’s not correct,” he says. “Blockchain is about grabbing an asset (and social network) without a central authority. For supply chains it makes a tremendous amount of sense. If I’m a bank and I know where everyone is going and having the instant settlement and where things are going without everyone having to talk, that’s a big deal.
“Marrying trade and finance is a thing blockchains will do really well. Every piece is automatically settled,” Gouran adds. “It’s the main point of it, you can get the whole view without any effort because all the different ledgers are synced together.”
Another issue companies seem to be facing as they actively seek to make digital investments is trying to do too much too soon, and instead of fast-tracking to the next level of digital maturity, they’re actually taking an avoidable detour. How can companies know?
“There’s a big problem—blockchains aren’t the solution for everything,” says Gouran. “A lot get a boost out of hype. For the trade industry, though, it’s not hype. Trade finance and supply chain can be completely revolutionized by this technology right now.”
“Now, what about if I don’t want a lot of transparency? What if I do want an authority? That’s different. I don’t need blockchain. But in trade finance that’s not the reality. You don’t want one party in charge. It’s impossible to coordinate unless everyone has access to the same information.”
“For 90% of business it may be nonsense, but the 10% where it makes sense will change the world,” he adds.
Is blockchain the silver bullet projected to solve all the current issues in the supply chain? For the most part, yes. However, blockchains will need to be used smartly with many existing solutions and frameworks to yield the best results. The value of the network goes up as more and more participants join the system. Getting all parties comfortable with the change will be key.
Blockchains are best suited where the supply chain is owned or participated in by multiple parties none of which want to relinquish complete control of record keeping to anyone else. This provides the groundwork of creating and maintaining a shared database. Add to it the emergence of smart contracts and blockchain becomes an attractive comprehensive solution. This can avoid delays, paperwork, contractual conflicts and expensive litigations. And if this entire process needs regulatory oversight from one or multiple parties, then they become the near perfect solution, providing visibility of transactions to regulators without the need of any additional filing.
So bring on the regulation, just don't stifle the innovation. Thank you, Congress, for such a rare but smart report.
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