Blockchain technology is based on an open-source peer-to-peer software which is decentralized and manages all transactions collectively through a network. For the management of these process, the software uses a chain of blocks which is cryptographically secured and used as a public ledger that records all the transactions, this is the ‘blockchain’.
In simpler terms, a blockchain is a distributed database that maintains a list of records called blocks. The information in a block cannot be altered retrospectively, as each block contains a timestamp and a link to a previous block. The nature of a blockchain makes it function like a public, digital and distributed ledger.
The technology is relatively recent having first been put into practice by Satoshi Nakamoto in 2009, as a core component for the digital currency known as ‘bitcoins’. Since its debut, blockchain technology has had a noteworthy impact on several industries. Financial technology was the first to start adopting blockchains, but it started to move into the logistics sector as well.
In a blockchain, each transaction is processed only after multiple confirmations of the network, so as to ensure that every transaction follows the rules of the network. Once the information is stored in the block, it cannot change or be deleted unless the subsequent blocks are also changed. Therefore, user’s interference (foulplay) in the blockchain is almost impossible, thereby making the system robust.
In the shipping industry, most of the transactions involve a bulk of papers, such as sales contracts, charter party agreements, bills of lading, port documents, letters of credit and others related with the vessel and cargo. All these documents may need to pass through a long chain of parties since their importance remains high, both for payments as well as the carriage and delivery of the cargo.
Blockchain could convert a series of processes into paperless transactions and create a cross-industry platform that can be shared among owners, operators, shippers, logistics providers, regulators and end users, to mutual benefit.
With the use of public and private keys in a blockchain, the stakeholders can contact each other, perform physical transactions, exchange and store information in encrypted format, execute contractual obligations, give and accept instructions and securely exchange payments.
Europe’s largest shipping port, the Port of Rotterdam, has taken part in a Blockchain consortium which is focusing on logistics. The project has the support of more than fifteen public and private sector companies based in the Netherlands.
Consortium members will spend the next two years designing and developing applications for blockchain technology in the logistics sector. While there have been similar efforts in the past, this particular blockchain project is unique because of its scale in the logistics chain.
Earlier this year, Mercuria, a shipping and trading conglomerate, announced that they are working with their two financial institutions, ING and Societe Generale, so as to adopt a blockchain technology for trading and shipping business.
Beyond the applications potential, the most important conversation about blockchain in shipping is whether it should be private (company or consortium specific) or public (working to open standards). If the aim is to create an informational logistics backbone across the supply chain it makes no sense at all that industry-wide initiatives should be private.
The only way the industry can get full value from blockchain is if it is a public system that anyone can tap into and leverage. The risk with private tie-ups between IT vendors, cargo and shipping interests is that we will end up with multiple proprietary blockchain flavours which customers may have no option but to use.
Sea News aims to bring readers the latest developments on the technology and its implementation. Read more about blockchain technology here.
Sea News, October 11
References: 2wglobal, Opensea