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 […]
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 12th 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.
A developer’s perspective
Aaron McDonald (pictured), co-founder of Auckland-based blockchain company Centrality (which now has more than 200 developers within its portfolio) describes blockchain from a business owner’s point of view as a “modern-day cooperative”, where governance is controlled by software rather than a board of directors. “Everyone in this cooperative community is involved in making the business successful and benefits from its success.
“The real power of blockchain is the ability to share any kind of data between parties and agree on how that data is updated,” he says, adding that it effectively takes the data monopoly away from big companies and gives smaller businesses the opportunity to compete better using the power of their combined data. “They don’t even have to know or trust each other; just agree on a set of rules that everyone must abide by.”
McDonald explains how the TrackBack partnership (see main story) is a good example of giving a group of small businesses (The HUI Māori Collective) the ability to provide the same online experience to a consumer that a mega-company like Amazon would provide – delivering the same level of trust without investing huge sums of money.
He says there is a way to provide a customer experience without having to give up their most valuable future asset – their customer database.
“At Centrality we’re creating the tools that make it easy for a small business to engage in this new world without having to think about the blockchain technology underneath. We just say ‘here’s a cool new app that treats you better, provides more privacy, and is easy to understand’.”
His advice is not to get hung up on the technology, just consider the business outcomes: a better relationship with customers, better service experience, and control of your economic destiny.
“That’s the kind of outcomes we’re endeavouring to deliver. Our goal is to get the technology to a point where businesses don’t have to think about how it works.”
McDonald says while 2018 was about working on the blockchain infrastructure layer for Centrality and other developers, 2019 will be about refining the user experience, and New Zealand should start to see some strong adoption statistics originating from core areas of application development.
“On the financial side there’s been a lot of infrastructure groundwork put in place to encourage bigger participation from the finance industry – and that will also bear fruit in 2019,” he says.
Get ready for New Zealand’s own digital currency too, he says. “It’s absurd that we don’t have digital money for our digital economy.”
While blockchain is still at the ‘early-adopter’ phase, McDonald thinks businesses should try to understand how the system works. “Watch Banking on Bitcoin on Netflix, or a documentary called The Trust Machine to learn how the technology operates and how the future will look. Then look at the opportunities within your business to transform the way you interact with customers. Can you automate some of your financial processes and contracts? Would automating your terms of trade improve your cashflow, for example?
“How would programmable money impact the way you interact with customers, suppliers, employees and partners? How does that change the way you might plan for your systems and processes to work in the future?”
Having everyone working off the same digital spreadsheet will be good for cashflow, suggests McDonald, because everyone can see where any potential hold-ups are in the payment chain.
“That’s the kind of transparency and efficiency blockchain technology provides.
“Blockchain delivers a lot of power back to businesses and individuals in their decision-making,” he says. “We can no longer live in asymmetric information economy, where big players have access to information that the smaller players don’t – and consequently smaller players aren’t making the right decisions.
“If the world’s financial systems were more open we wouldn’t have some of the financial crises we’ve had in the past.”
A blockchain future
Associate Professor Alex Sims from the University of Auckland is an advocate for blockchain adoption in New Zealand. She co-authored the September 2018 report Regulation of Crytocurrencies in New Zealand for the Law Foundation which recommends a regulatory framework for blockchain in this country and government support for a blockchain and fintech hub – along with a central bank-issued digital currency, exchanges and the ability for businesses to trade in GST-free cryptocurrency.
Sims was a popular speaker at Blockworks, largely for her ability to put the blockchain story into perspective in layman’s terms, break down some myths, and explain blockchain’s practical applications. She cited examples of various technologies that, when launched, were greeted with derision and scepticism – but went on to become pivotal in the advancement of mankind. The Internet before the World Wide Web is just one obvious example.
Another example was Qualcomm that invented digital wireless technology in the early 1990s. “The experts, were convinced analog was better than digital, and that Qualcomm’s system would never work because it ‘violated the laws of physics’.”
(See https://www.semiwiki.com/forum/content/7353-detailed-history-qualcomm.html)
“Qualcomm’s invention is the reason we are able to use our smartphones today and Qualcomm’s annual revenue is US$20 billion,” says Sims.
“As Kevin Kelly says in his book The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future, the bigger the promise of a new technology, the more people will attack it.”
Sims’ advice for business owners who want to dip their toe into blockchain is to allow customers to use the new digital identity management tools that use blockchain.
“There are New Zealand businesses offering, or about to offer, such services, such as Single Source and Sphere Identity.”
Digital ID is where blockchain platforms will excel, particularly when it comes to putting a stop to fraud – and it means businesses will not need to store so much personal information about their customers.
“Verifying people and storing personal information are tangible pain-points for businesses. Blockchain-enabled digital ID could almost eliminate the use of stolen identities.”
Sims reminds businesses that blockchain is not theoretical; just like IoT, Big Data and AI, it’s here and it simply can’t be ignored. “Governments and businesses that embrace it early will have a massive advantage.”
And she cautions that a lot of what is written on blockchain is already out of date because the technology is moving so fast.
Her advice to business owners is to school up quickly. There are excellent – and free – online courses available. Learn how the technology will bring value to your particular industry and how you can get on board.
“It may not be perfect to begin with,” says Sims, “but you need to ask is it better than what we have now? Because the day will come when your customers or suppliers will want to be on board with blockchain”.
She uses the analogy of the automobile replacing the horse and cart. “If you want to steadfastly stick to the old system, that’s being incredibly short-sighted.”
Further reading:
To get up to speed faster on blockchain, here are some useful links:
http://www.ingenio-magazine.com/blockchain-for-beginners/
[1] A best-selling author, speaker, educator, and one of the world’s foremost bitcoin and open blockchain experts.