Author: DC

Blockchain as a Solution to Monetize Digital Content and Protect User Privacy

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This post is an updated version of a paper I co-authored (and reproduced with kind permission of my co-authors, Jackie Atlas and Lisa Conn) for the Entrepreneurship without Borders course[1] at The Massachusetts Institute of Technology (MIT) circa December 2016. I am delighted that the companies/concepts we chose to analyze are still thriving today.

INTRODUCTION

Overview

We live in an increasingly connected world, a world in which we have access to more information at our fingertips than our ancestors had in a lifetime. This increase of information has resulted in expectations for personalized, compelling, and “experiential” content. The production and distribution of this personalized content in the digital era requires new, sustainable business models. It also necessitates consumption of user data – of which consumers, governments, and companies are increasingly protective.

Blockchain, which can eliminate the one central hub of data and store all personalized data on individual devices, introduces a new solution for balancing consumer concerns around privacy and corporate needs to monetize content.

This paper explores two main questions around content monetization and user privacy.

  1. If consumers want to have access to great content, and current business models cannot support the individuals and companies that produce it, what can be done to create a sustainable model for this market?
  2. When it comes to balancing personalized content and user privacy, can decentralized blockchain technology allow for consumers to have both?

From there, this paper establishes a framework for evaluating blockchain solutions in terms of sustainability, security, cost, and adoption. We apply this framework to analyze two promising technologies, Brave[2] and Enigma[3].

CURRENT DIGITAL MONETIZATION STRATEGY

Content Digitization

Over the past century, our attention has shifted from the newspaper to the radio to the television to the desktop, and we are currently fixated on a smartphone in the palm of our hand. With each change in medium, new business models have been developed to support the production and distribution of content. But as impressions (eyeballs) have migrated so rapidly from one screen to another, and the access points (webpages) are seemingly endless, companies have yet to capture all of the value that is being created in the digital era.

When content first started moving online, corporations’ reactions were to simply sit back and wait. Look for trends. Hope to grow users and eventually charge a premium similar to the network effect route to success that apps can have in the Silicon Valley of 2016. Even a property as highly trafficked and relevant as ESPN took upwards of three years to welcome advertisers and generate revenue for branded content in hopes of this ‘premiumization’ effect. When there was no billion dollar ‘a-ha’ moment, websites adopted the same model as their television predecessors. But with the exponential increase in content available on the internet, these same impressions (and thus, dollars) became spread astronomically thin.

Power of Data

With every website click or search performed, an individual’s digital footprint becomes more robust and unique. The data that companies like Google and Facebook collect from each of its users contains insights about that person’s interests, habits, friends, etc. This data is extremely powerful for advertisers and other agencies trying to understand consumer behaviors.

The media industry historically captured this value through broadly targeted demographics (i.e. people aged 18-49). Television data is only refined enough to know what percentage of a show’s viewership may be made up these demographic brackets, and networks will take this information and sell it in 30 second commercial increments to advertisers. Data is collected (generally) by the Nielsen[4] company, which incentivizes its 40,000 homes to allow them to do so transparently, i.e. everyone in a Nielsen home is constantly reminded that they are being tracked. Online, data is not being collected from just 40,000 homes (approximately 100,000 individuals), but across billions of people worldwide. And instead of knowing minimal demographic information on its viewers, websites have incredibly precise measures of who is interacting with their content as each computer is tracked with cookies. When a 40 year old male who has recently searched for golf clubs and consistently reads the Financial Times lands on a page, it is incredibly easy for other high-end advertisers to access this data and target them.

On the internet, there is an underlying awareness that one is being cookied as they browse, but there is clear evidence that points to people being generally uncomfortable with this concept. An estimated 150 to 200 million people use ad blockers on their desktop or laptop ad browsers and that number is growing at 41% a year[5]. The fact remains, however, that browsing data is incredibly powerful and is making companies like Google and Facebook billions of dollars. It is also allowing them to pointedly address individuals and more effectively distribute content, branded or otherwise. Addressable media is simultaneously exciting and alarming to consumers; individuals want content that is uniquely curated for their interests, but are increasingly conscious that their every click is being both monitored and monetized.

Advertising

Advertising has become splashed across websites in the form of banner ads, pop-ups, video pre-roll, and so on; there is a spot for it on a website and a cost attached to it (static viewing, scrolling over, click-through, etc.). But as quickly as companies attempted to capitalize on ad placement, consumers found ways to avoid them either out of fear of their privacy or simply because they are a nuisance. Migrating away from sites that run slower because of ad noise, installing ad blockers, and “click fraud” has sent clear signals to companies about how their website is perceived. And consumers’ desire for uninterrupted web browsing experiences has proved to be a major hurdle for corporations trying to monetize content on the internet. A handful of players with strong brands have seen minor success using subscription models and paywalls, but for the most part, the “free” choices available have proved television’s demographic-based model to be unsustainable.

In 2015, internet advertising revenues reached $59.6B, however the largest takers of this revenue are the tech companies and platforms that hold the consumer data, not the content producers. So, if advertising is the current mode of monetizing content and allowing the internet to be (more or less) financially viable, what tools and methodologies can be utilized to drive revenues to the sources of content? This is where the blockchain fits in. As targeted advertising enhances consumer awareness that their data is being tracked, the desire for privacy grows, and more people will move to ad blocking technologies, threatening all web platforms. The blockchain provides an opportunity to disaggregate data collection so that personal information is not the property of one specific company, instantly addressing privacy concerns. There are also blockchain enabled technologies which can put this data into the individual’s control, where they can choose how it is utilized and monetized. While companies like Google and Facebook would be resistant to this blockchain application, it becomes more and more feasible as people demand privacy.

BALANCING PERSONALIZATION AND PRIVACY

Overview

Even increasing numbers of consumers are demanding personalized, immersive, and customizable experiences—from the ads they see to the content they consume. We can define these “personalized experiences” as interactions with a piece of content or technology that leaves the consumer feeling like their interests and preferences were being taken into account. But this desire comes into sharp contrast with another trend: decrease in consumer trust and desire for privacy.

Personalized Content

Younger customers, through years of experience in the digital world, have grown accustomed to the way technology can reduce the need for human gatekeepers to ensure accuracy and manage data. Amazon, Netflix, Hulu, Spotify, and Pandora for instance have trained consumers to expect personalized recommendations based on their past purchases—or what they have already listened to and watched. Similarly, consumers are exposed to seemingly endless information and content, resulting in information overload. Personalized experiences help reduce the perception of information overload by increasing the sense of control[6].

Increase in Demand for Privacy

While opportunities for personalization increase, consumers are recognizing the danger and demanding privacy. A recent Microsoft survey found that 75% of people were concerned about online tracking and thought that the “do not track” feature should be turned on by default. A study conducted by Toluna[7] found that 72% of Americans did not want to purchase Google Glass because they were concerned that private data recorded could become public. And, while Snapchat has recently changed its privacy policy, resulting in backlash in the media, it experienced rapid growth through its claim that photographs were not stored and data was not recorded.

Can one technology serve all markets?

Not all consumers are the same. Youth and millennial consumers, many of whom grew up online, are willing to trade privacy for more personalized content and services. In a Pew Study about internet privacy in 2025[8], Niels Ole Finnemann, a professor and director of Netlab, DigHumLab in Denmark, said: “The citizens will divide between those who prefer convenience and those who prefer privacy.” The future of personalized content will require increased privacy protection, or the ability to take data, make it less sensitive, but still of value to the user.

BLOCKCHAIN ENABLED BUSINESS USE CASES

Enter the Blockchain

In the current environment, user data is increasingly centralized. The shift from desktop to mobile shows that people want to be able to access their data from any device. The current solution is a cloud-based server, which is vulnerable to hacks and abuse. Blockchain could eliminate the honeypot of data, storing small parcels of personalized data on individual devices. From there, consumers can choose what they want to share about their identity. We imagine a solution in which the data collected on the internet does not belong to anyone – no longer to Google and Facebook – but rather is decentralized on the blockchain.

In order to best evaluate blockchain-centered solutions for content monetization and user privacy, we must establish a framework for analysis.

  • Sustainable Business Model: Does this technology support the individuals and companies that need to produce content?
  • Privacy: Does this technology protect user data, as much as consumers want their data protected?
  • Cost: What financial and switching costs are associated for content producers and consumers? Do the benefits outweigh the costs?
  • Adoption: How feasible is adoption of this technology?

Let us discuss Brave and Enigma, two blockchain-centered solutions that balance consumers’ concerns around privacy, and corporations’ need to monetize content.

Brave

Brave Software, Inc. (‘Brave’) blazed onto the browser scene earlier this year with two offerings: to make browsing the Internet faster and safer by automatically blocking ads and trackers, and redefining the relationship between content viewers and publishers using micropayment (Bitcoin) technology. Their overall business model is simple – download their browser and choose to see ads that respect your privacy, or pay sites directly to view no ads – but their mode of implementation is by no means agreed or even fully developed yet.

Brave initially offered its users the ability to choose to see ads that respect privacy (using anonymous protocols, like Anonize, and not tracking pixels, to confirm impressions) with a negligible effect on loading performance. Following its successful $4.5MM seed raise, on September 1st this year Brave went a step further and introduced its Bitcoin based micropayment technology, Brave Payment, which it released (like all its code) on an open source[9] basis. The technology allows Brave users to experience no ads and instead pay sites tiny amounts of money directly by simply turning this functionality on in their preferences page.

Sustainable Business Model: When users elect to see ads, Brave splits the ad revenues 55% to the publishers, 15% to each of Brave, its users and ad partners. On the face of it, this does provide sufficient motivation for content providers to accept the new technology (assuming that any loss of ad revenue is more than covered by a greater audience reach), but that didn’t prevent Brave from being threatened with legal action[10] from some of the biggest news contents providers, citing its model of ad replacement as being “indistinguishable from a plan to steal our content to publish on your own website.” This is more related to the no ads model, for which proof of sustainability is harder to provide.

Privacy: Brave’s initial setup provides highly increased privacy for consumers whose data will be accessible by third parties, but in an anonymized format. In addition, Brave claims to block all forms of ‘malvertising’, redirecting browsing to https protocol, and blocking tracking pixels and tracking cookies.

Cost: There are several costs to the user: first, the behavior of downloading the Brave browser after being familiar with a different browser. Consumers have passwords, credit cards, and addresses saved on their existing browsers. Consumers have faith in the speed and accuracy of the search results currently offered on familiar browsers such as Google Chrome. And in order to use the features that make Brave compelling, users would have to adopt bitcoin as a payment option. These costs are not insignificant, but could be overcome if the product provided enough value. We are unconvinced that privacy concerns are great enough – and that current solutions like ad blockers are insufficient – to lead to wide adoption. In the digital age, advertisers have grown accustomed to being able to target individual personas and interests; Facebook, for instance, promises the ability to target almost down to the individual, providing benefits such as ability to beta test new products, get instantaneous user feedback on the kinds of consumers that want the product, and sell to directly to the people who want the product most. As a result, entire advertising agencies and marketing methodologies have been built with knowledge of advertising on Facebook, Google, etc. Switching to Brave would require retraining entire teams, which is inevitable with any new technology, but the benefit would have to outweigh the inconvenience.

Adoption: Brave chose to partner with existing providers BitGo (wallet functionality), Coinbase (Bitcoin purchase) and Private Internet Access (to make IP addresses) in order to deliver a viable product today. While these partnerships make the product technically feasible, they do not help Brave actually gain adoption with consumers and then, advertisers. Brave has a tough road ahead: Google Chrome has 54% of market share of browsers[11]. Chrome, Safari, and Firefox have relationships with devices that ensure those browsers are pre-installed. Brave would have to build the same relationships, and/or spend millions of dollars persuading consumers of privacy risks and the benefits of switching to a blockchain enabled browser.

Concluding Assessment of Brave

As a technical product, Brave has a lot to offer. However, its adoption and feasibility is dependent on consumers becoming increasingly concerned about privacy in the future, and advertisers having no choice but to move.

Enigma

One team at MIT’s Media Lab is busily working on a new technology called Enigma, a peer-to-peer network powered by the blockchain that allows different parties to store and run computations on data while keeping it completely private. According to the founders’ White Paper, “Enigma is a decentralized computation platform with guaranteed privacy. [Their] goal is to enable developers to build ‘privacy by design’, end-to-end decentralized applications, without a trusted third party”.

Our team interviewed Thomas Hardjono[12], Technical Director at the MIT Internet Trust Consortium. We discussed using Enigma to create a personal data store provider where a user’s total browsing history could be saved in nodes on a peer-to-peer network. This treasure trove of potential behavior could be provided to advertisers via an interactive API for them to run statistical queries and provide targeted ads, thus enabling users to monetize their data without it being stored or processed on the publisher’s servers.

Sustainable Business Model: This proposition is more attractive to content providers than Brave’s model, since the full customization of ads can be provided to web users with data about users’ interactions with ads being stored and available for follow-up queries. Enigma’s inventors say the technology is still several years from being available in a commercial format, so it’s difficult to evaluate the economics of the business model. This business model relies on consumers being willing to monetize their browser history – and would allow them to choose what content is shared.

Privacy: Using secure multi-party computations, queries can be run in a wholly distributed way, with data split between nodes on the blockchain and computations being run without sharing information with other nodes. Advertisers will never have access to data in its entirety, and are not able to run point queries (such as asking for users’ identities) but instead can run statistical queries about, e.g. users’ travel habits. Due to the introduction of a large number of nodes, the system is also highly resistant to losses stemming from hacking. For consumers, this solution provides flexibility—it allows individuals to share personal data to whatever degree they are comfortable.

Cost: If Enigma is utilized to allow consumers to monetize their browser history, it would represent a paradigm shift in the relationship between consumers, content providers and advertisers in the digital age. Since Enigma is not fleshed out in its implementation just yet, it is difficult to fully assess the behavioral or financial costs with any specificity.

Adoption: This technology is not yet proven. Even Hardjono described this use case as “using a sledgehammer to crack a nut.” Until the requirement for the blockchain to be a central solution for this issue is widely accepted, it may remain a pipe dream for the foreseeable future.

Concluding Assessment of Enigma

While the reality of Enigma is far off, the concept could provide consumers with the most control over their own data while allowing content producers to monetize their content with targeted advertising and information.

CONCLUSION

It is uncertain what the future holds regarding consumer’s interactions with online content as behaviors continue to evolve. The rate at which ad blockers are being adopted suggests that individuals are uncomfortable with the ads themselves, and that privacy has become a big enough concern to drive changes in a consumer’s interaction with the internet. As data is currently being aggregated by companies and other centralized owners, the blockchain is a feasible answer to solving the privacy concern portion of this question.

In this nascent stage of the blockchain, it can be argued that switching costs are too high and that digital currency is not widely enough accepted to drive drastic changes in any new platform’s acceptance. Additionally, we assume that people prefer personalized experiences over anything else and are willing to give up their data for better user experiences. Content producers would be eager to find ways to personalize (and monetize) their offerings, but this is not a strong argument to change behaviors of the end user. But in a world where people are genuinely concerned about their privacy, as we are undoubtedly moving towards, Brave’s blockchain solution is a winning one. When individuals have the opportunity to own their own data, protect it, and given the option to distribute it via the blockchain, Enigma’s platform is also highly compelling.

We can hypothesize that it will only take a few well publicized privacy hacks to drive enough awareness so that consumers are demanding changes in current offerings. The crux of decentralized privacy and personalized data offers digital platforms an opportunity to rethink how they are monetizing their content. It is impossible to tell whether that will happen through blockchain-enabled browsers, the individual’s choice to opt in/out or even be paid to view ads, or something far different that has yet to be developed, but the looming upside is undeniable.

[1] Also known as Implications of Blockchain Technology for Economic and Financial Development

[2] https://brave.com/

[3] https://web.media.mit.edu/~guyzys/data/enigma_full.pdf

[4] https://www.nielsen.com/us/en/about-us/panels/ratings-and-families/

[5] https://www.theguardian.com/technology/2016/jan/03/web-advertisers-blocking-digital-monitoring-ethan-zuckerman

[6] “Consumer Control and Customization in Online Environments,” Laura Francis Bright. University of Texas. https://repositories.lib.utexas.edu/handle/2152/18054  

[7] “7 out of 10 Americans will avoid Google Glass over privacy concerns,” Mike Flacy. Digital Trends. http://www.digitaltrends.com/mobile/7-10-americans-will-shun-google-glass-privacy-concerns/#ixzz4NHTQXAgz

[8] “Privacy in 2025: Experts’ Predictions,” Pew Research Center. http://www.pewinternet.org/2014/12/18/privacy-in-2025-experts-predictions/  

[9] https://github.com/brave

[10] “Publishers Seek to Stop Brave Browser Ad-Blocking Tool.” Wall Street Journal. http://www.wsj.com/articles/publishers-seek-to-stop-brave-browser-ad-blocking-tool-1460065209

[11] https://www.netmarketshare.com/browser-market- share.aspx

[12] https://hardjono.mit.edu/

Return to Wall Street

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This article is an updated version of a thought piece I wrote for the Entrepreneurship without Borders course[1] at The Massachusetts Institute of Technology (MIT) circa November 2016. The topic of the global unbanked[2] continues to fascinate me, alongside the largely untapped potential of blockchain technology to rethink and reboot the global financial system.

During my MBA studies at MIT, I read several papers focused on NASDAQ’s use of blockchain technology to revolutionise settlements and trading[3],[4] via their Linq product, that encouraged government leaders and companies to explore the technology to help solve their challenges.  While I applaud their efforts to increase awareness and engagement with blockchain technology, these solutions are weak use cases for the blockchain and a far cry from the impact envisioned by its early pioneers.

The use of the blockchain by large institutions and governments to reduce operating costs via private networks, for example, shows that banks do not grasp the full potential of blockchain technology today, or are finding it hard to implement on a mass consumer level, or possibly both.  As one recent Financial Times article[5] notes, “tighter regulation, new competition from technology companies and the low central bank interest rates […] have forced the banking sector to look seriously at reducing costs wherever they can.”  Paul McMeekin of CFO Magazine is even more direct: “Public blockchain technologies do not offer the scale and speed needed to achieve mass adoption for high-volume use cases.  However, a private, permissioned-based network built on blockchain technology can provide tremendous value to the payments industry.”

Given MIT’s thoughts and concerns about inequalities in the developing world and the global unbanked, I would like to refocus attention on these far-reaching issues and consider how the blockchain represents a more compelling use case for providing access to banking services for billions of the world’s inhabitants.

The World Bank reports[6] that two billion people do not have access to financial services.  Public ledgers that require 5-10 seconds to complete a transaction (too long for most mature consumers in the developed world) present no real-time issues for a population that has no viable alternative, and there’s a huge potential to capture this market.  While mobile money accounts have driven financial inclusion in recent years, especially in sub-Saharan Africa – where 12% of adults (64 million people) now have such accounts, 45% of them exclusively so – the World Bank notes that “there are big opportunities to expand financial inclusion, particularly among women and the poor.”

The unbanked is not a problem confined to the world’s adult population either.  UNICEF reports[7] that approximately one in three children born in the world is not documented, with the lowest birth registration records in countries such as Somalia (3% of births documented), Liberia (4%), Ethiopia (7%), and Zambia (14%).  Several Asian countries also make the list including Pakistan (27%), a country with an economy ranked as the 25th largest in the world[8].  In 2015 there were also nearly 100 million people who were forcibly displaced, stateless or refugees, according to the United Nations[9], and that number has likely not decreased since then.

If global banks could envisage and implement a blockchain-enabled technology to address the lack of identities – thus making access to basic bank products both cost-effective and enforceable – the seeds would be sown for an explosion in global economic activity and the rebalancing of income inequality in the developing world.  Needless to say, this would also drive the need for increasingly more sophisticated financial services in coming years, a carrot for a global banking system that is genuinely starved of expansion opportunities in the developed world.

Blockchain platform BanQu[10], for example, has helped displaced people in some of the world’s poorest countries create economic identities.  Its mission clearly articulates the company’s desire to put the small consumer back on the map, using a collation of e.g. key physical characteristics and biometrics, personal / commercial recommendations, and other public profile information, uploaded to a secure ledger that serves as the ‘shared truth’ identity of that person.  Taken one step further, an identifiable person can then use their identity to apply for bank accounts, loans and other credit facilities, and banks can rely on the security of a blockchain ledger to verify credit scores and satisfy ‘Know Your Customer’ regulations and the like.

Ideas like these are required in order for the world’s unbanked and subprime population to be included and fairly treated in the global economy, and such inclusion can only come from a fundamental shake-up of the banking sector beyond its current imagination. There are positives signs, however. The World Bank Report also notes that “the number of people worldwide having an account grew by 700 million between 2011 and 2014 […] Three years ago, 2.5 billion adults were unbanked. Today, 2 billion adults remain without an account”.

In conclusion, there is a far more impactful use of blockchain technology to drive economic equality in the developing world, with a higher willingness to accept what developed world consumers regard as technical imperfection and a proven track record in mass-scale adoption of current blockchain-enabled applications.  This situation is unlikely to be implemented in the developed world for some time.  According to the World Economic Forum’s recent white paper[11]: “The most impactful DLT applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying implementation.”

I look forward to the opportunity to be a part of that change!

[1] Also known as Implications of Blockchain Technology for Economic and Financial Development

[2] Roughly 2.5 billion adults in the world do not have access to banks, which means somewhere in the order of 5 billion people belong to households that are cut off from the financial system, The Age of Cryptocurrency, Paul Vigna and Michael J. Casey, First Edition (January 2016)

[3] https://ir.nasdaq.com/news-releases/news-release-details/nasdaq-linq-enables-first-ever-private-securities-issuance

[4] https://digital.hbs.edu/platform-rctom/submission/the-disruptor-disrupted-nasdaq-wrestles-with-blockchain/

[5] https://www.ft.com/content/0288caea-7382-11e6-bf48-b372cdb1043a

[6] http://www.worldbank.org/en/programs/globalfindex/overview

[7] https://www.unicefusa.org/press/releases/unicef-1-3-children-under-five-do-not-officially-exist/8339

[8] http://www.tradingeconomics.com/pakistan/gdp-growth

[9] http://www.unhcr.org/en-us/figures-at-a-glance.html

[10] “Our customers can build their future with this 360-degree economic profile that is device, language, and currency agnostic”, BanQu homepage http://www.banquapp.com, October 18th, 2016

[11] World Economic Forum, The Future of Financial Infrastructure, August 2016, http://www3.weforum.org/docs/WEF_The_future_of_financial_infrastructure.pdf

Supply Chain Management and Finance

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This article is an updated version of a thought piece I wrote for the Entrepreneurship without Borders course[1] at The Massachusetts Institute of Technology (MIT) circa October 2016. Eximchain, the disruptive blockchain tech company I mention in the article, became a fatality of the COVID-19 pandemic (however its founders continue to do foundational work in DeFi), but the rest of the article has aged pretty well.

During my MBA studies at MIT several pressing questions were raised about the feasibility of a fully decentralized supply chain, and how blockchain technology might change the game for stakeholders.  In this article I focus on a particular part of the supply chain: trade finance for the transportation of finished goods between manufacturers (exporters) and retailers (importers), and how this process can be opened up using the blockchain.

Containerisation of finished goods and commodities has its roots in the 1920s, however it was not until 1961 that a global container standard was agreed[2] and not until the 1980s that containerisation started to proliferate through the shipping industry.  It heralded a new era for global trade, where manufactured goods (like television sets and Harley Davidsons) could be securely shipped in a specific-sized container across continents, significantly reducing the expense of international trade.  In the past decade, however, the ability to ship finished goods has increasingly favoured larger companies with established multinational presences and trade relationships.

One of the key challenges has been securing financing during the actual transportation of finished goods, commonly referred to as a Letter of Credit[3].  Given the time it takes to be transported from the manufacturer in a foreign country to their ultimate destination, the goods need to be insured for significant events such as losses (damage or physical loss of the items during transportation) and to ensure payment between the counterparties, especially if they do not have an established trading relationship.  A small- to medium-sized manufacturer (SME) of products (owning one factory, for example) in China or India may be able to raise financing from local banks for working capital, but is unable to secure trade credit for the international movement of its goods.

Some of the pain points for trade finance banks are: the time consumed by assessing credit risk for each counterparty; difficulties establishing counterparties’ identities; and the fact that it is a largely manual process, all of which result in higher fees or no terms being offered to SMEs.  Companies like Nike and Walmart, on the other hand, have developed highly sophisticated supply chains with lenient financing terms provided by international banks.  SME manufacturers ‘locked out’ of direct global trade are more likely to supply goods to these global giants instead of directly to consumers, unless they are prepared to carry the risk of losses/badwill while their goods are in transit.

Finding a way to provide trade finance to SMEs would open up global trade to many more participants, bring better efficiency of trade (allocation of resources), and ensure the best prices for suppliers and consumers.  If the blockchain could also be harnessed to track goods from creation to receipt – as proposed by Jessica Leber[4] and Rebecca Migirov[5] – then issues such as slave or child labour, environmental destruction and violence or political turmoil could also be effectively addressed.

In my experience visiting newly constructed containerships and ports across Europe, the U.S., Asia and the Middle East during my former banking career, containerships already implement sophisticated tracking software to monitor each container and its cargo to ensure faster loading/unloading times and to comply with international law, for e.g. the handling of refrigerated or volatile goods.  New ports are also largely automated with tracking at each stage of unloading, stacking and warehousing before transhipment or transfer to land-based transportation.  The main barriers exist at customs checking (especially in the U.S.), and related document checks by transhipment agents and the final importers (the ultimate receiver of goods).  All these hurdles delay the point at which trade finance can be relinquished and the exporters are no longer at risk (paying a fee to their banks).  Banks that provide trade finance are generally not prepared to devote the required amount of time to insure this movement of trade where small shipments are concerned.

Blockchain has the potential to significantly impact each of these current barriers.  If we are able to verify not only the origins of a given product, but also ensure everything from the identities of manufacturers to the materials used in production, using smart contracts for example, then importers and exporters will be able to agree transactions in a timely manner and customs departments can effectively identify shipments that require investigation or can be approved instantly upon arrival.  This efficiency can then be used at each subsequent stage of the supply chain.

Perhaps more relevantly, on the financing side, banks – or even a new collection of investors looking for an alternative to bank-based investments – will have access to a secure and accurate record of exporters’ and importers’ activities, which can be used to implement smart contracts[6] to start and terminate their exposure automatically.  This also allows banks to assign creditworthiness to their customers to easily measure credit risk, thus significantly reducing transaction costs, while also giving tangible records against which to conduct anti-money laundering (AML) and Know-Your-Customer (KYC) checks.  This ease on doing business has the potential to open up the trade finance market to the majority of global trade partners, 90% of whom currently conduct their trade on an open account basis.

MIT spinoff Eximchain[7] is currently investigating the feasibility of such an approach for trade finance, and is hoping to implement a creditworthiness score using observed data from its trade settlement service, allowing investors to originate loans for future trade financing.  Of course, there is a long road to tread, and this paper is only looking at a small – but critical – part of the supply chain, ignoring the potential reluctance of lorry driver unions, governments, and sheer consumer apathy for how goods are made available to them.  There is also the real possibility that, even if a decentralized supply chain – or even a part of it – is demonstrated to be feasible, Nike or Walmart would be the biggest beneficiary of such a system and choose to acquire it.  Finally, we must not ignore the risk that existing trade finance banks develop their own individual systems which frustrate the interoperability of a global trade finance solution.

Still, on the face of current evidence, there is a compelling opportunity for a blockchain technology to support the transition to a new trade finance model with a level playing field for all participants, with full transparency for manufacturers, retailers and consumers.

[1] Also known as Implications of Blockchain Technology for Economic and Financial Development

[2] https://www.worldshipping.org/about-liner-shipping

[3] A letter of credit is a promise by a bank on behalf of the buyer (customer/importer) to pay the seller (beneficiary/exporter) a specified sum in the agreed currency, provided that the seller submits the required documents by a predetermined deadline; definition from International Chamber of Commerce

[4] https://www.fastcoexist.com/3045726/how-bitcoins-technology-could-soon-shed-light-on-how-products-are-made

[5] https://medium.com/@ConsenSys/the-supply-circle-how-blockchain-technology-disintermediates-the-supply-chain-6a19f61f8f35#.q4u8y9jsp

[6] In a process similar to Chapter 7.1 of the ‘Applying cryptotechnologies to Trade Finance’ paper, https://www.abe-eba.eu/media/azure/production/1549/applying-cryptotechnologies-to-trade-finance.pdf

[7] http://eximchain.com