You could hardly choose a better Christmas movie over the holidays than Trading Places starring Eddie Murphy and Dan Aykroyd. It’s the story of a down and out con artist who swaps lives with a wealthy commodities trader and makes a success of it with only his wits and ‘gift of the gab’. Trading commodities in an open outcry format is all about trust where each trader’s ‘word is their bond.’ How times have changed.
Trust is paramount to every business transaction and financing. But in today’s hyper-connected world, we increasingly need laws and regulation to establish operating frameworks and arbiters of trust.
Regulators are rarely ahead of the curve, with new types of fraud constantly surfacing. German payments company Wirecard, for example, executed one of the largest corporate frauds in history, inflating profits by combining its banking and non-banking payments accounts. Oliver Bellenhaus, a former executive of Wirecard described it as a “sloppily done fraud” and a “scam right from the start.”
The collapse of cryptocurrency exchange FTX is the latest scandal, with John J Ray III, the insolvency attorney appointed to act as the company’s CEO telling the US House of Representatives that it was one of the worst business failures he had seen. He remarked it was a “paperless bankruptcy,” fuelled by an “unprecedented lack of documentation.”
Given FTX’s crypto business, it seems odd that regulators are not asking why Sam Bankman-Fried did not record all transactions on a blockchain? “Literally, there’s no record-keeping whatsoever,” said Ray, eliciting laughter from the room. The investigation would be very straight forward if we could track every entry on a immutable, time stamped and auditable log i.e. blockchain.
So where else could blockchain technology be used?
Blockchain technology could be transformative for the way we do business and trade – and has trust at its heart. Supply chain visibility is the killer application. Supply chains struggle with visibility throughout the process and exchange of information between each stakeholder. Information flowing down through the chain to the lowest level of suppliers gets changed to what each participant wants the next to do rather than what the ultimate buyer intended. The same happens in reverse as those in the manufacturing process send information which may not reflect the true position. Imagine, if all stakeholders had a single source of truth and could adjust manufacturing quantities or store display units in real time. Surely this is worth investing in?
Some of the early projects, however, have not got to a promising start. Tradelens, a joint venture between Maersk and IBM, for example, had a bold vision for blockchain-powered supply chain ecosystem. But due to lack of cooperation and support, they are now discontinuing the project.
Tradelens’ clients complained of exorbitant costs for a platform which in effect sold “you back the limited data you provided it.” Such a system was never going to deliver supply chain visibility or efficient collaboration.
In addition, if the lowest tier in your supply chain cannot afford to adopt your platform because it’s too expensive or requires a higher level of digital infrastructure, then the platform cannot evolve to cover the full supply chain.
Systems need to be simple and inexpensive
IBM technology is focussed on large corporates therefore unlikely to be designed for small suppliers who make up large parts of every supply chain. This was apparent also when IBM partnered with Walmart to use blockchain to start tracking its produce. According to a recent WSJ article, it started with leafy greens and recently added green bell peppers. But Walmart claimed the onboarding of suppliers was challenging because of the costs and digital capability required.
It doesn’t have to be this way, however. When we recently worked with Sabic, one of the world’s leading chemical giants, to track petrochemical feedstocks on a blockchain, it saved the company money.
”Tracing the journey of feedstock through the complex petrochemical value chain is currently a difficult undertaking and Sabic’s pilot is the first of its kind in the industry to trace the product from feedstock production to converter, going further than previous industry applications of blockchain in end-to-end tracing. The platform offers reduced costs, time and improved data integration for all value chain partners,” the company said in its Q3 results statement.
Our system, MARCO, is delivered on a SaaS model which significantly reduces upfront investment. Further, MARCO is a low-code/no-code platform which makes it easy and cost effective to dynamically adjust for changes in the supply chain ecosystem unlike bulky systems where changes may need a period of re-design.
The failure of Tradelens shouldn’t be taken as a sign that blockchain supply chain systems can’t work.
The failure of Tradelens shouldn’t be taken as a sign that blockchain supply chain systems can’t work. Maybe if Maersk had chosen a more adaptable technology platform that could extend throughout the supply chain, Tradelens could have delivered on its vision?
It is already expensive to exchange business documents in a standard electronic format using existing technology. Fees for using the Electronic Data Interchange (EDI) system can be prohibitive. Blockchain could be an alternative for carrying information across fragmented supply chains. Business users will ultimately seek the ease of WhatsApp for business. But as we seen with frauds like FTX, we need more substantiated, immutable, time stamped data to move between parties without white noise. Only blockchain databases can provide this.
“In god we trust, everybody else brings data to the table,” said Narayana Murthy, co-founder of Indian tech company Infosys, and now father-in-law of the UK’s prime minister. Or in the words of Coleman, the butler in Trading Places (played by Late Denholm Elliott): “Religion is a good thing, I say, taken in moderation.” Greater amounts of data — potentially delivered on a blockchain — can bring in the trust that is so often missing from transactions now.
In this post-New Year period, as you start trying to keep your resolutions, consider logging them on a blockchain to share amongst your family. That will make them resistant to those undisclosed edits in March when you realise you haven’t started on any of your goals!
Nish Kotecha is chair and cofounder of Finboot, a company providing blockchain software to industrial companies.