The blockchain is an undeniably ingenious invention, allowing digital information to be distributed but not copied. Blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, the technology has diversified into an array of industries and verticals.
The information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database is not stored in any single location, which means that the records it keeps are actually public and easily verifiable. No centralised version of this information exists for a hacker to corrupt.
Blockchain Durability and Robustness
Blockchain technology is like the internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the blockchain cannot:
- Be controlled by any single entity.
- Has no single point of failure.
Transparent and incorruptible
The blockchain network lives in a state of consensus, one that automatically checks in with itself every ten minutes. A kind of self-auditing ecosystem of a digital value, the network reconciles every transaction that happens in ten-minute intervals. Each group of these transactions is referred to as a “block”. Two important properties result from this:
- Transparency data is embedded within the network as a whole, by definition it is public.
- It cannot be corrupted altering any unit of information on the blockchain would mean using a huge amount of computing power to override the entire network.
The Concept of Decentralisation
By design, the blockchain is a decentralised technology. Anything that happens on it is a function of the network as a whole. Some important implications stem from this. By creating a new way to verify transactions aspects of traditional commerce could become unnecessary. The blockchain potentially cuts out the middleman for these types of transactions.
Blockchain & Enhanced Security
By storing data across its network, the blockchain eliminates the risks that come with data being held centrally.
Its network lacks centralised points of vulnerability that computer hackers can exploit. Today’s internet has security problems that are familiar to everyone. We all rely on the “username/password” system to protect our identity and assets online. Blockchain security methods use encryption technology.
Store your data on the blockchain and it is incorruptible. This is true, although protecting your digital assets will also require safeguarding of your private key by printing it out.
Internet of Things (IoT)
What is the IoT? The network-controlled management of certain types of electronic devices — for instance, the monitoring of air temperature in a storage facility. Smart contracts make the automation of remote systems management possible. A combination of software, sensors, and the network facilitates an exchange of data between objects and mechanisms. The result increases system efficiency and improves cost monitoring.
Blockchain in the Shipping Industry
Despite the recent technological revolution, shipping still remains a traditional industry and the processes the parties follow, in many cases, are almost archaic.
Currently, most of the shipping transactions involve a big number of papers, such as sales contracts, charter party agreements, bills of lading, port documents, letters of credit and others related with the vessel and the cargo.
All these documents may need to pass through a long chain of parties since their importance remains high both for various payments to be effected as well as the carriage and delivery of the cargo to take place. For example, into the bills of lading and the long way they follow: Starting from the shippers at load port, they pass through several banks until they reach the receiver.
This procedure can be so lengthy and time-consuming that it is very common the vessels to arrive at the discharge port before the bills of lading.
Blockchain technology, based on an open-source peer-to-peer software, is totally decentralized and the management of all transactions or the issuing of new currencies takes place collectively by the network.
For the management of all these transactions, the software uses a chain of blocks which is cryptographically secured and which is used as a public ledger that records all the 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.
Main Challenges and Limitations
Notwithstanding the advantages of such a technology for the shipping industry, there are a few issues which should be addressed before a full blockchain system is established in the dry bulk and tanker shipping.
— Special contractual terms: The contractual terms of the ship chartering and the sale & purchase of commodities are unique and very specific. These terms should be adapted by the blockchain network which should be able to recognize, for example, what the lien is and how it works, the laytime and demurrage and their exceptions, the Notice of Readiness and when the vessel is actually considered arrived at port etc.
— Higher flexibility: It is very usual in shipping, the parties to come across situations where they can only solve through a commercial approach. This will not be easy to take place when the transactions are taking place through a sealed system which does not allow any interference from the parties. Furthermore, it is very usual the parties involved in a transaction to have their own contractual terms which are usually subject to the negotiation of the parties. Will it be possible in a universal system? So, the blockchain technology must be configured to include special terms and conditions at inception, otherwise the parties’ liability exposure will be even higher than the liability saved by the system’s use.
— Global adoption: The blockchain is not adapted or it is not yet allowed by all jurisdictions around the world. However, since various governments and agencies are involved around the globe, in order for such technology to be used in trading and shipping services, all these parties should be brought into a common platform and a universal adoption should be achieved.
The Way Ahead
The shipping paper trail begins when a cargo owner books space on a ship to move goods. Documents need to be filled in and approved before cargo can enter or leave a port. A single shipment can require hundreds pages that need to be physically delivered to dozens of different agencies, banks, customs bureaus and other entities.
Blockchain could turn the whole processes into a paperless paradise by which all the related parties in each transaction (i.e. sellers/buyers of cargo, shipowner, charterer, banks, agents, customs, port authorities etc.) with the use of public and private keys could come in contact with each other, perform physical transactions, exchange and store information in encrypted format and perform their contractual obligations, give and accept instructions and securely exchange payments.
(References: Economic Times, OpenSea.PRO, BlockGeeks)
Sea News Feature, July 2