Will blockchain revolutionise the supply chain?

Blockchain and its underlying digital ledger technology (DLT) has been promoted as the business solution for everything from payments and property to securities and the supply chain. GTNews recently met with Roberto Capodieci, described on his LinkedIn account as “an IT artisan who became an IT entrepreneur”, although his c-v includes a stint of nearly 15 years as IT consultant to the Italian police.

Capodieci moved to Asia a decade ago; now based in Singapore, he has said that the city state is poised to become the number one financial technology (fintech) location in Asia. His current roles include founder and chief executive officer (CEO) of Open Trade Documents (OTDocs) a blockchain solutions specialist that provides an electronic communications network for companies in the international trade and supply chain industries to securely manage their flow of documents; founder of Decentralised Business Network (DeBuNe), a peer-to-peer (P2P) network for small businesses to collaborate; and founder of MagniSign.com, developer of ‘The Sound Key’, which provides added security for signing blockchain transactions.

Most recently, he joined innovation technology specialist Digital Billions, which provides venture capital investment, consulting and technology as its chief technology officer (CTO).

Capodieci will be among speaker at the International Chamber of Commerce (ICC) Academy’s upcoming Supply Chain Finance Summit, taking place in Singapore on March 2-3 and now in its fifth year. Prior to this year’s event he offered his insights on whether blockchain can really make a difference for supply chain finance (SCF).

Advantages of blockchain for the supply chain

Despite the rapid advances in IT, the technology that still supports international trade is paper. Even if there are mistakes, losses, fraud or slower processes when paper documentation is used, the prevailing attitude is still “if things go well, why should I change?” says Capodieci. Newer centralised digital solution providers also have challenges, because all parties need to have an account with the same supplier.

Blockchain “allows things that until today were unthinkable” which promises to be a catalyst for tremendous changes in SCF.

A key benefit is that blockchain allows users to create a unique, permanent identification (ID) for documentation, which ensures authenticity. Titles and bills of lading (B/Ls) are unique digitally-signed documents and copies cannot be created. Since it relies on mathematics rather than paper, blockchain is more secure,

Whereas international trade currently uses strings of email or other messages and responses that could be changed, blockchain enables users to create messages with unique IDs. “If there is a digital signature,” says Capodieci, “it is always going to be the same document.”

Costs can also be far lower because blockchain is open source and does not rely on a third party, reducing the higher fees that a proprietary provide would charge.

Another benefit is time stamps. While there has not been a way to certify a precise time for a transaction before now, using blockchain creates a time stamp that cannot be removed. Exporters and importers can show that they deposited goods at a certain time, or that a change of ownership occurred at a specified point in time.

These benefits result from blockchain being public and open, which offers a completely different approach.

Blockchain will take time

The key issue in expanding usage of blockchain, Capodieci says, is in motivating all the parties in SCF to adopt it. Using an analogy of how it was difficult to use fax machines until there was a critical mass of companies using them, he expects blockchain will face similar challenges until a critical mass of users has been developed.

OTDocs and other firms involved in blockchain have been working on proof of concepts (POCs) and pilots, where exporters send documentation to the bank, banks do the checking, documentation is transmitted and the payment is released

What banks need to do, he suggests, is to create specific solutions to manage letters of credit (LCs), exchange documents, and use the processes for chambers of commerce or other organisations to deliver a certificate. Once the process is set up, they can use the electronic network, rather than mailing paper documentation.

Going beyond a POC will, however, take some time. Capodieci reports that while “there has been huge PR” the announcements are “not practical.”

He nonetheless expects to see the first productive usage of blockchain later this year, despite broader adoption inevitably taking longer, and for usage of blockchain to be standard by 2020 – although he obviously hopes that the take-up rate will expand far faster.

One development that could assist the process is for firms to adopt the ICC’s new SCF definitions which were published to coincide with the 2016 Singapore summit. The ICC said at the time that the challenge was to convince supply chain financiers – many of whom had been operating their own set of SCF definitions for years – to start using the ICC-approved ones. This year’s Summit may offer an update on how much progress has been made over the past 12 months.

 

 

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