The Perils and Perks of Blockchain

The Perils and Perks of Blockchain

Blockchain. A simple enough word but one loaded with promise for most businesses. None more so than the maritime industry.

Few other businesses are so reliant on paper. Masses of the stuff. From bills of lading and port documents to charter party agreements, the convoluted world of merchant ships transporting goods around the globe requires huge piles of paperwork. Blockchain could change all that, steamlining systems and practices and saving huge sums of money for a very cost-sensitive business sector.

But… There’s always a but. The shipping industry is notoriously slow to change. While many companies pride themselves on the technology used by their fleet, the odds are that things aren’t quite as cutting edge elsewhere. The good news is that big players are now dipping their toes into the water to discover whether this year’s buzzword will actually be of benefit to their business. In most cases, the answer is yes, with a few caveats.

Before we proceed, a little background on blockchain itself, as the word conjurs up bafflement when you discuss it with most people. Here, I turn to OpenSea, who have an excellent description of the process:

“The bitcoin, which was introduced in October 2008 by Satoshi Nakamoto, was the first digital currency/ payment system that brought the revolution to the financial markets. Blockchain tech is based on an open-source peer-to-peer software which is totally decentralized and the management of all transactions or the issuing of new currencies is taking place collectively by the network. For the management of all these transactions, the Bitcoin or any similar software uses a chain of blocks which is cryptographically secured and which is used as a public ledger that records all the bitcoin transactions; this is the “blockchain”. Each of these blocks include a timestamp and a link to the previous block of the chain and the transaction is processed only after several confirmations of the network, so as to ensure that every transaction follows the rules of the network. After the information is stored in the block, it cannot change or be deleted unless the subsequent blocks are also changed and the majority of the network accepts the change/deletion. Therefore, user’s interference in the blockchain looks impossible and the system becomes completely waterproofed.”

The advantages to the shipping industry, as well as any other transport and supply chain business which relies on multiple pieces of paper to track, record and order should be readily apparent. The problem is that there are different blockchain systems and, unless industry agrees to use one of them above the others, we’re entering VHS versus Betamax territory.

A major selling point of blockchain is its security, and a number of maritime and logistics companies are looking seriously at the technology. Indeed, shipping giant, Maersk, who suffered a significant NotPetya/WannaCry incident last year which cost them in excess of $200 million to mitigate, have entered into partnership with IBM to develop their own system.

Called TradeLens, the platform has now left beta-testing and has around 100 companies already signed up to it, including port operators, Customs agencies and forwarding agents. The system is based on a Linux OS platform along with Linux-developed Hyperledger technology. According to maritime media outlet, The Handy Shipping Guide, Maersk and IBM say the system establishes a single view of a transaction en route whilst maintaining security enabling participants to establish the exact status of a consignment.

Further, “The information is as detailed as possible, with sensors checking and relaying geographical, temperature and mass information remotely whilst establishing customs status, document and data specifics etc. The delays inherent in current systems could be seen immediately by all interested parties and Maersk and IBM claim delays reduced on trial shipments amounted to up to 40% time savings, with consequent cost reductions.”

But not everyone is on board (no pun inteneded). Two Bitcoin developers, for example, have been critical of the platform. Rodolfo Novak and Giacomo Zucco have both been somewhat negative of the new maritime blockchain.

On YouTube1, Bitcoin developer and technologist Rodolfo Novak criticized the IBM-Maersk project and IBM generally:

“They’re not really using blockchain. When you actually look at the story, it’s just a database. And if you guys are not familiar with this, you don’t want to use IBM for anything. They can’t even do payroll in Canada. I think the government here spent something like $4 billion dollars on a payroll system that has been broken for, I think, five years now. So, IBM can’t even do a database. Can you imagine if they…try to do something in blockchain?”

Giacomo Zucco, a self-described “Bitcoin Evangelist, Technology Consultant, Libertarian Activist” then reiterated Novak’s claims in more detail2:

“So if you really want to play devil’s advocate and try to extract what could be interesting about this technology…(You could ask) Is there any value in a platform that digitally automat(es) trade contracts? -Yes, there is some value. Is there any value in standardization of languages between different parties in order to interoperate better databases? -Yes, there is value. Is there any value in some kind of digital MAYBE cryptographic authentication of things like digital signatures and documents? -Yes, especially in regulated markets there could be some value in certified, automated documents.”

In addition to critical comment from the Bitcoin community, some in the shipping industry have also expressed concerns. Shipping companies CMA CGM and Hapag Lloyd have reservations, according to The Handy Shipping Guide, who quoted Hapag Lloyd CEO, Rolf Habben Jansen as saying:

”Technically the solution could be a good platform, but it will require a governance that makes it an industry platform and not just a platform for Maersk and IBM. And this is the weakness we’re currently seeing in many of these initiatives, as each individual project claims to offer an industry platform that they themselves control. This is self-contradictory, without a joint solution, we’re going to waste a lot of money, and that would benefit no one.”

Despite this, the TradeLens system has already recorded 150 million shipping activities in its first year of testing. IBM and Maersk say the system is now approaching one million events every day, so there’s no doubt that it’s proving popular.

The development of other, rival approaches by shipping companies has underlined the VHS/Betamax nature of the market, however, with APL and CargoSmart both building their own blockchain platforms. The wider shipping industry remains somewhat skeptical, with questions being asked as to whether the platform really can reduce shipping times by as much as 40 per cent.

Others question the need for container shipping to embrace blockchain in the first place. In an article for the Journal of Commerce, James Stewart, a global account executive with Crane Worldwide Logistics, said:

“Blockchain in shipping has a lot of hype around it at the moment, and just because IBM and Maersk think it’s interesting doesn’t mean the market needs, nor can it afford, whatever solution they come up with,” he wrote. “The paperwork and payment are the last things slowing down cargo flows, but don’t tell that to the venture capital flooding the space.”

While we wait to see what APL and others are working on in terms of blockchain solutions for the container industry, it’s worth remembering that there are still wider questions over the security of blockchain itself, as the crypto-currency sector knows all too well.

In late 2017, someone called DevOps199 stumbled across a critical vulnerability in Ethereum crypto-currency wallets and, as Motherboard3 detailed:

They made themselves the “owner” of this Ethereum code library, called a smart contract, and destroyed it. This shouldn’t have been possible, but DevOps199 nonetheless locked up roughly $150 million USD worth of other people’s digital coins.

Researchers later discovered that there were an additional 34,000 vulnerable smart contracts on the system. Motherboard reported that a: “sample of roughly 3,000 vulnerable contracts that the team verified could be exploited to steal roughly $6 million worth of ether, Ethereum’s in-house cryptocurrency.”

The main selling point for blockchain is its security, so when the people involved in cryto-currency start losing millions of dollars, it’s really time to examine just how good that security is. Not that it will stop the inevitable march of blockchain, according to the reports by Transparency Market Research4, the global blockchain technology market is projected to be worth $20 billion by the end of 2024.

The question for anyone in the maritime or logistics industry is, do you embrace it now and risk loss, or wait for a bit longer – possibly incurring costs ­– to see which platform wins and which ones are the most secure?

1 and 2.