In blockchain we trust

Businesses of all sizes and sectors will benefit from blockchain technology. While some people may still struggle to understand how it works, blockchain is enabling a steady revolution in trade and transactions.

On Friday October 12^th 2018 Auckland’s ASB Waterfront Theatre was the venue for Blockworks.

Billed as ‘New Zealand’s premier blockchain event’ the conference attracted more than 350 attendees – the majority being business owners keen to learn how this emerging technology will impact on their business.

Judging by reaction to the various talks and panel discussions that day, organiser Justin Flitter may have to find a larger venue for the next Blockworks. Attendees came away educated and excited by an emerging technology that changes how businesses conduct transactions – a technology with the power to influence the world’s system of commerce.

If, like me prior to Blockworks, you know next-to-nothing about blockchain, apart from the fact that it got a bad rap thanks to its association with cryptocurrency’s price volatility, then it’s important that you don’t write it off as ‘just another new technology’. There are real benefits and real advantages to be gained by deploying it.

Who better to explain the technology and its advantages than Mark Pascall, co-founder of blockchain business consultancy BlockchainLabs.NZ and president and executive director of BlockchainNZ (now under the umbrella of NZTech).

For Pascall the lights came on four years ago at another conference; Bitcoin South in Queenstown. “It was like no other technology conference I’d ever been to and I had the pleasure of meeting and getting to know some amazing people including international thought leaders like Andreas Antonopoulos[1],” he recalls. “By the third day the penny dropped and I realised the potential impact that this technology would have on the world.”

Blockchain – essentially a decentralised database or ‘distributed ledger’ – is not as new as you would think. Pascall says there have been successive waves of blockchain innovation over the past decade and bitcoin was just the first experiment in creating that decentralised database.

“The core concept is relatively easy to grasp,” he says. “Think of it like a very long spreadsheet that records every transaction, so if you have a copy of that spreadsheet then you know exactly who owns how many bitcoins in the world today. The big difference between the bitcoin spreadsheet (known as a blockchain) and your bank’s spreadsheet that keeps track of your balance is that the bitcoin spreadsheet is copied onto lots of untrusted computers around the world. There’re no restrictions on who can join in and all the copies are continually ‘syncing up’.”

Blockchain has unique properties that no other database has, namely no central control and immutability – “we can trust that no entity can corrupt the data”, he says.

There has since been waves of innovation built on the bitcoin decentralisation experiment. The newer Ethereum blockchain created a decentralised database and a global decentralised code execution engine, explains Pascall. That’s the ability to create coding agreements (contracts) guaranteed to run as programmed – with no corporation or government able to stop it.

These are known has ‘Smart Contracts’.

Using smart contracts, DApps (decentralised applications) can be built as well as DAOs (Decentralised Autonomous Organisations).

“We now have a way to re-architect our entire global commerce system to one that doesn’t have increasingly huge and monopolistic, centralised mega-corporations at the centre.

“If two people can agree and create a set of rules [and] agree to put those rules – a smart contract – on this immutable system that we both trust – the blockchain – then we have a transaction between two untrusted partiers without an intermediary.

“The same concept could apply, in theory, to a will, a loan, mortgage, Trade Me purchase or Uber trip. The list is endless and implications are huge.”

A good example of how smart contracts can be used in an export scenario comes from a September 2018 report Regulation of Crytocurrencies in New Zealand, written by Alex Sims, Kanchana Kariyawasam and David Mayes. It talks of the creation of a smart contract (self-executing computer programme) between a lamb exporter and an overseas importer. The smart contract is coded so payment is made automatically when the shipment arrives and certain conditions are met. Those conditions include an IoT (Internet of Things) device which records and transmits the temperature in real time. If the container’s interior temperature has been compromised during the shipment, the payment is automatically refunded to the importer.

Insurance can also be linked. If the temperature in the container spikes, an insurance payout is immediate – the insurance company would see the exact time and place the spike took place. Smart contracts ensure that everybody affected gets the correct pay-out, and money never goes to the wrong people.

The technology also allows for real-time cryptocurrency payments for all parties involved in the transaction. Regulators would benefit too – MRI can track in real-time the exports and imports in and out of the country, and Customs gains more accurate information.

Pascall sees huge potential for blockchain – especially now that most people can see beyond the initial hype and excitement, beyond cryptocurrency and its criminal underworld association, and provided the world’s regulators and governments get on board which many are now doing.

Trust and transparency

If you had to sum up the essence of blockchain in two words – it would be ‘trust’ and ‘transparency’. They’re the same two words cherished by consumers in China looking to seek assurance that the products they’re paying a premium price for are indeed authentic and trusted (in other words, getting what they paid for).

It wasn’t surprising then to see the world’s first “Trust Verified” end-to-end channel for premium food products to reach lucrative markets such as China, explained at Blockworks.

The AsureQuality Food Trust Framework has been developed by AsureQuality (the SOE providing food safety and biosecurity services to the food and primary production sectors), New Zealand Post and NZTE for the HUI Māori Collective – a group of 13 Māori producers marketing a broad range of trusted products, such as manuka honey and wine, direct to Chinese consumers through e-commerce.

As Dene Green, GM international strategy and partnerships at New Zealand Post, pointed out the framework is all about providing consumers with that confidence, and it’s important that the government backs such an initiative.

A soft launch of the HUI coalition took place last December on Tmall Global, and there are high expectations of a positive long-term result.

Now a TrackBack partnership, with blockchain development work by Centrality (see sidebox), is providing the technology and expertise for a proof of application trial for enabling the framework.

Green says proof of provenance is the biggest opportunity to grow value from New Zealand’s productive sector by providing the supply chain security and helping ensure authenticity. And blockchain is the enabler.

David McDonald, director at Trackback, explains it succinctly when he says “it’s about taking that ‘Sunday market’ feeling of creating a trusted connection between buyer and seller and exporting this to the world, at a massive scale.”

As Justin Flitter, founder of Blockworks points out: blockchain technology gives even the smallest producer an opportunity for a direct channel to customers in international markets, while streamlining the way business operates. “It’s a huge opportunity for New Zealand to trade at the highest level despite our remoteness and small population.”

The AsureQuality Food Trust Framework is intended for other added-value food products to form a transparent e-commerce ‘white channel’ into China.

The ‘white channel’ is regarded as a safer alternative to the ‘grey channel’, or ‘daigou’ channel (where consumers in China access premium products directly through personal shoppers, circumventing the usual ‘checks and balances’ from an export control point-of-view and risking a loss of brand control).

China’s authorities are introducing new regulations around cross-border e-commerce to make formal ‘authenticated’ channels more attractive for shoppers, as well as protect both consumers and brand owners, even if they are trading through the grey channel.

And as Dene Green points out, authentication is not just about the physical delivery of products, it’s about brand messaging as well. If a daigou wants to work within the physical white channel they must also convey the correct brand messaging from the exporter.

“That’s where we see blockchain having an important role within the Food Trust Framework,” Green says. “Blockchain’s not the silver bullet but it is an important part of the jigsaw that creates a regulated food trust framework.”

From AsureQuality’s perspective the goal is to support Kiwi brand owners in taking their products to the world and in telling their compelling stories with credibility; to create a robust pipeline to market – one with a sound chain of custody, and good controls that ensure product integrity is maintained and the product arrives on the consumer’s doorstep in exactly the same condition it left the supplier. It’s all about transparency and traceability.

Green sees the whole Food Trust Framework as an ‘NZ Inc’ effort, with NZTE having an active role to play in how the messaging of the framework can get to New Zealand’s SMEs and to the market. “We want to make it accessible to quality Kiwi exporters, and over the next five years across all value-added food products.”

Pharmaceuticals and healthcare products are also on the radar, Green adds. “Blockchain works best where there is little trust.”

AsureQuality head of marketing, Aaron Lambert cites other potential advantages of the blockchain-enabled framework too, including mitigating risk of product being held up at the China border, better logistics pricing, and a shorter timeline between purchase and receipt of goods in China.  

Out of the blocks

There’s no doubt that blockchain is well out of the starting blocks. This time last year IDC estimated that worldwide spending on blockchain solutions will reach $9.7 billion by 2021. Bitcoin Magazine reports that two-thirds of global financial institutions are involved in blockchain initiatives. Blockchain-based initiatives span almost every sector – from cross-border payments to education, healthcare to identity verification, insurance to legal, shipping and logistics to social good, and a whole lot more.

Here in New Zealand ANZ and IBM have been working on blockchain solution for the insurance industry. ASB and tech start-up VerifyUnion have hatched a blockchain-based ‘Single Trade Window’ – which has been trialled to transact a consignment of meat (and money) across borders.

Mark Pascall says it’s difficult to predict how quickly blockchain adoption will spread – primarily because systems being built must traverse trust boundaries. But he notes some key trends driving the market, such as:

• The momentum around the legal/regulatory clarity and technical infrastructure to support security tokens (blockchain-based digital tokens that comply to securities laws and can be linked to real world assets). “This could very quickly create whole new financial markets that give companies an alternative to IPOs and traditional stock markets.”
• The emergence of new blockchains such as EOS, Dfinity and Tezos that support high transaction throughput and have more sophisticated built-in governance systems.
• Fully ‘on-chain’ DAOs that have no connection to the real world (i.e. anonymous developers, no bank accounts or legal contracts, and no way for any government to shut them down). “This is the ultimate regulatory arbitrage and could ultimately give rise to some highly successful and unstoppable global entities.”

With these trends and the investment still pouring into this space – and despite cryptocurrency’s ‘bear market’ – in the next decade Pascall sees a world where much of the power has gone from centralised entities such as Google, Amazon and Facebook and many of us are token holders and contributors (workers) in new global DAOs.

“We believe that if lawmakers, entrepreneurs and technology developers can work together New Zealand has an opportunity to leverage it’s high international trust reputation and become a key player in this new decentralised world.”

Story by Glenn Baker, editor of NZBusiness.