Michele Curtoni heads the strategy and new business development at SDX, SIX’s regulated digital asset exchange platform, which is part of the SIX Financial Group, the financial market infrastructure of Switzerland. In this podcast we discuss a wide range of topics from wholesale CBDC projects, cryptocurrencies and a lot more from the optic of a regulated digital asset platform.
What is blockchain?
The first time Michele was explained what is blockchain was in 2014/15. At that time it was described to him as an append only data structure. It’s an Excel where you never can delete a row, you can only add them, but you can look up whatever you wrote before and what other people wrote before it. It has a chatter effect where you have to validate what is heard by the participants in a “room”.
In terms of how it applies to the financial industries, it comes down to the ledger, the compression of the ledger, intermediaries and malicious actors onto a network and how the validation of the blocks would work.
SIX and SDX
SIX is the financial market infrastructure of Switzerland. SIX operates the infrastructure for the Swiss and Spanish financial centres. The BME (Bolsa de Madrid), the stock exchange of Spain, was acquired by SIX in 2020. SIX runs the CSD, central securities depository, in Spain, the clearing house called X-Clear and the listed exchange.
Michele describes, SDX as a bet that SIX took a few years ago to start capitalising on the blockchain revolution. There was a recognition that SIX needed to prepare itself for this digital revolution of digital assets and crypto currencies hitting the traditional FMI space. SDX was built to cater for this new business, of both crypto and digital securities by creating a kind of CSD on blockchain to tokenise those digital regulated securities.
In September 2021, FINMA, the Swiss Financial Market Supervisory Authority issued two approvals to operate financial market infrastructures based on blockchain. Specifically, FINMA has authorized SIX Digital Exchange AG to act as a central securities depository and the associated company SDX Trading AG to act as a stock exchange. This was the first time that a licence has been issued in the Swiss financial centre for infrastructures that facilitate the trading of digital securities in the form of tokens and their integrated settlement. This proved that you can build a CSD under a specific regulatory regime, using a private DLT
This allows for atomic settlements, trading and settling at the same time, and for smart contract enablement.
In November 2021, SIX issued its own dual tranche bond to fund the M&A transaction to acquire BME. The CHF 150m ($162m) bond was composed of a CHF 100m digital bond listed on SDX and CHF 50 million conventional bond listed on the SIX Swiss Exchange. The splitting of that bond in this manner was voted by the participants. The bond was oversubscribed and the rating was equal across the two channels.
Wholesale CBDC projects
SDX participated in two wholesale CBDC projects. Project Helvetia, was conducted by SND, the Swiss National Bank, the Bank for International Settlements (BIS), SIX/SDX and 5 commercial banks. The project looked at introducing a Digital Swiss Franc as a CBDC in Switzerland.
Project Jura, the second wholesale CBDC project involved Banque de France, BIS, SDX and the Swiss National Bank. The project aimed to enable instant settlement of foreign currency transactions as payment versus payment (PvP) and the use of wholesale CBDC to pay for tokenized commercial paper transactions as delivery versus payment (DvP) with immediate settlement. The project also aimed to explore how cross border central bank movements of assets and money would work.
It looked at the concept of DvP, of commercial paper, in this case issued under French law against a Euro CBDC and then a PvP of that Euro CBDC versus the Swiss Franc CBDC. So, a transfer of assets versus cash and then cash versus cash.
The project proved that such kind of transactions were possible but achieving scale is a whole other question.
For example, if assets and cash aren’t on a similar ledger you have the question of interoperability that needs to be addressed. When they are on the same ledger you enter into the topic of whether or not these assets have to be digitised? Cash is easy to digitise but for securities that’s a different question. For example, for a security where does the security sit on the CSD? Is the CSD allowing for tokens? With SDX yes, but with others, no. Thus, you need to be building more digital securities platforms than SDX. So, the benefits on cash do not really help the financial system unless you have digital securities and vice versa.
SDX and crypto currencies?
In December 2021, SDX announced a joint venture with SBI Digital Assets, a fully owned subsidiary of Japanese banking giant SBI Holdings.
The joint venture, Asia Digital Exchange (ADX), would be set up in Singapore through a crypto issuance company and aims to launch an institutional spot crypto exchange.
The new undertaking will offer a range of digital asset products and services in the form of tokenized securities such as digital bonds, digital equities and digital securitized loans.
SDX sees ADX as a potential partner in the future as a consumer or as a servicer of the SDX business.
SIX already has more than 60 ETPs, exchange traded products, based on cryptocurrencies. SDX, being a natively digital company as big crypto plans of its own.
SDX plans for the next 12 months?
SDX frames itself in three big pillars:
Digital securities: growing the FMI business
Crypto
Exploratory business for new business models enabled by blockchain such as a carbon registry, tokenisation of art, NFTS for institutional investors, DeFi and real estate
Ep. 177 – Why decentralised finance matters and the policy implications? – OECD Report
Mar 27, 2022
Iota Nassr is a policy analyst at the OECD within the financial markets division. She currently manages the FinTech experts group of the OECD Committee on Financial Markets, leading the analysis around anything that has to do with digitalization of finance. The OECD Report “Why decentralised finance matters and the policy implications” is product of the committee’s expert group composed of representatives of the 38 OECD members coming from Central Banks, Ministry of Finance and other financial authorities.
What is blockchain?
Iota’s definition of blockchain hasn’t changed much since her previous podcast on Insureblocks on “Tokenisation of Assets and Potential Implications for Financial Markets – OECD Report” on the 13th of June 2021. She still sees blockchain and DLT, more broadly, as a way to record, share information and to exchange value in a decentralised manner without the need for trusted central authorities or intermediaries.
However now she believes the emphasis is now more on the programmable nature of decentralised distributed ledger technologies and the level of disintermediation involved in the different networks and structures that we observe in the market.
Why this report?
The Summer of 2020, also known as the DeFi summer caught the attention of the OECD. This was due to the exponential growth they were observing and the level of participation of retail investors in what is a very highly volatile market that is devoid of the traditional safeguards that are in place for investors and consumers in traditional financial markets.
The feedback loops they have observed between DeFi and mainstream crypto such as Bitcoin, Ether ,the main stable coins along with the recycling of profits between the two kinds of environments, made it increasingly critical for the OECD to have a look at this space.
The final reason for analysing this market was the growing institutionalisation of crypto assets, which may be increasing risks of interconnectedness between decentralised and traditional finance. This report’s objectives is to like into DeFi models to understand the risks, opportunities and implications for traditional finance.
What is Defi?
DeFi, decentralised finance, claims to replicate what is known as traditional finance in a decentralised way in an open way through applications built on Ethereum and increasingly on other blockchains.
There are two possible misconceptions around DeFi. The first is that not all DLT based financial applications are DeFi. So the fact that a financial application is built on the blockchain does not make it by default part of DeFi. The second misconception has to do with self proclaimed DeFi applications that may not be truly decentralised. The degree of decentralisation varies from one project to another.
The report defines three key defining features:
Non-custodial: The protocols and the applications have a non-custodial nature. There is no central authority or other intermediary gains access to or control over participants’ digital assets; instead, participants manage their private keys, and therefore their digital assets, directly.
Self-governed and community-driven: Most DeFi protocols are open-source and allow the community to review and further develop the code underlying the protocols. This happens through the use of governance tokens.
Composable: Existing components of DeFi networks (i.e. digital assets, smart contracts, protocols and applications built on top of the protocol layer) can be combined to create new applications. The open source nature of DeFi applications is a critical enabler of this attribute, as it allows everyone to look at the code and use it to create new applications.
Source: OECD Report Author
Most popular DeFi products
The concept of liquidity mining and of collateralized lending on the DeFi lending protocols was one of the most obvious ways for investors to earn yield on the back of mainstream crypto that they already held. Because of that collateralised lending rapidly became the fastest growing DeFi product followed by decentralised exchanges (DEX) while other applications such as derivates and synthetics also grew in popularity.
Institutional investors alongside decentralised exchanges are also participating in collateralized lending.
Growing interconnectedness between crypto and traditional markets
The OECD Committee on Financial Markets has noticed a shift in traditional financial institutions from the education phase of what is Bitcoin and what is blockchain to the investment phase where they are allocating parts of their portfolio in such assets. The Committee is looking at the potential risk of growing interconnectedness between decentralised and traditional finance which could lead to the potential spill over to the traditional financial system and the real economy.
Iota gives an example that if there was a generalised distress in the crypto market, an investor who is exposed to losses on his crypto related investments may have to close his positions on other parts of his portfolio therefore propagating this kind of shock.
KYC & AML
this is a bit of a paradox because we know that the blockchain allows for complete transparency. And all transactions are traceable and verifiable on the chain. But they are verifiable and traceable in pseudonymous way, we don’t have recourse to the identity of the participating node. And this is what makes it complicated.
Unlimited leveraged trading of crypto-assets
The possibility to engage in almost unlimited leveraged trading of crypto-assets is one of the main risks involved in DeFi. Whilst current DeFi applications benefit from high levels of over-collateralisation, it could be expected that further growth of the Defi market would bring it that level down to allow for better capital efficiency, as competition would put pressure on tokenomics involved in DeFi protocols. The volatility of crypto-asset prices intensifies the fragility of the DeFi market, and volatility spikes in the price of main crypto-assets pledged as collateral for borrowing and leverage or provided as liquidity for yield farming can induce massive automatic liquidations in DeFi protocols. Such liquidations can have a domino effect on investor holdings across the board, and may even have spill over effects in traditional financial markets.
Positives that DeFi applications can provide to financial markets
DeFi applications have the potential to provide benefits to financial market participants in terms of speed of execution and transaction costs, driven by the efficiencies produced by DLT-technological innovation and disintermediation of third parties replaced by software code of smart contracts.
The governance arrangements along with the open source nature of DeFi allow for possibly more equitable participation of users and the promotion of innovation in financial services.
Drivers of institutional investors in digital assets
The OECD has identified three forces that underline and contribute to this increased institutional investor interest in digital assets of which the majority is in Bitcoin, followed by Ether.
The first force has to do with this search for yield in what was until recently a prolonged low interest rate environment. The same kind of speculative forces, the same kind of fear of missing out that led retail investors has been driving also institutions.
The second reason is the potential of crypto assets for diversification and portfolio optimization. Investors perceive as uncorrelated nature of returns, they wish to diversify their portfolio by adding this kind of non-correlated assets such as crypto. However, the OECD’s report dismisses this hypothesis as they have been seeing a growing correlation between mainstream crypto assets and the large traditional asset class.
The third reason is the perceived benefit of crypto for institutional investors as an inflation hedge. However, the OECD’s analysis finds that the main crypto assets have not really performed as effective inflation hedge, but that does not prevent investors from perceiving it as a good inflation hedge which drives them demand for Bitcoin in particular
How can existing regulatory frameworks work with decentralised structures?
Some of the tools that are being used in centralised settings may need to be redesigned in order to be interoperable and compatible with decentralised structures.
One other approach is to re-centralise DeFi in order to get some kind of comfort from a supervisory and regulatory standpoint without necessarily completely undermining decentralisation. Some forms of centralization already exists in such networks and could be considered as this single regulatory access point. For example DAOs could play this role or majority governance token holders.
Other tools could be around regulatory compliance embedded in code, allowing and or demanding the audit of smart contracts, having mandatory reporting in an automated fashion through machine readable formats.
Roles policy makers can have in DeFi
The report lists a number of roles policy makers can provide:
Financial education
Improved disclosures in DeFi applications can be seen as a first easy step towards greater protection of participants. For example disclosures on whether or not someone holds an admin key and what kind of rights it gives its holder.
Increased regulatory clarity
Identify new rules if policy gaps are found and identified.
Ep. 176 – Etherisc’s flight delay blockchain insurance in production
Feb 06, 2022
In 2016, Etherisc was one of the first companies to launch a real world use case for a flight delay insurance policy on a public blockchain. Regulatory and lack of stable coin hindered that early solution. In 2017, they relaunched along with an insurance partner but still had challenges. In today’s podcast, Christoph Mussenbrock – CEO & Founder of Etherisc shares with us what they have learned since 2016 and why their 2022 launch is going to win.
What is blockchain?
Blockchain is a technology which allows you to keep a distributer ledger of transactions. It comes in two flavour as either a public or private blockchain. In a public blockchain, all participants can validate transactions independently thus creating a new level of trust. Some of these public blockchain such as Ethereum offer programmable computing, which enables the running of programs such as smart contracts. Smart contracts can be used to programme a complete insurance business process on top of blockchain which is what Etherisc is doing.
Etherisc was started in 2016 by Chistoph and Stephan when they develop a small prototype for flight delay insurance that they presented at DEFCON2, an Ethereum Developer conference in Shanghai. At that time it was one of the first insurance real world applications. Soon after developing this prototype the Etherisc team started encountering legal and regulatory issues. Whilst tackling those issues they decided to build a whole platform where anybody could build products on top of it, something akin to an operating system for insurance products.
This platform is an open-source common infrastructure, the Generic Insurance Framework (GIF), which includes shared smart contracts, product templates, microservices and the native cryptographic token (DIP) to enable the seamless and efficient creation of decentralized insurance products, with increased transparency and fairness for all parties.
Over the last few years they have developed a new legal model which for the German market and most other European countries which enables them to run insurance products without needing an insurance license which can be quite expensive with a large number of regulatory compliance issues.
This new legal model enables Etherisc to design insurance products without the need of a formal insurance license with the approval of the German financial regulator.
When Etherisc’s flight delay insurance launched as a prototype in 2016 it had no legal framework and no stable coin to leverage for it to have a compelling proposition. The lack of a stable coin meant a highly volatile risk with the use of Ethereum coin leading to insurance payout of either nothing or very large sums of money.
In 2017, Etherisc partnered with Atlas Insurance PCC to address the lack of an insurance license. Etherisc could effectively rent the Atlas Insurance license. However, a Stamp Tax of $15 for each policy meant launching the flight delay proposition was not feasible as the average premium was around $15.
It was only in 2022 that Etherisc could successfully launch their Flight Delay product with a solid legal framework and a stable coin like DAI with which it could run its transactions on.
Thoughts on Fizzy from AXA
In August 2018, Insureblocks featured Fizzy, AXA’s flight delay insurance policy, which subsequently closed in 2020. You can listen to their learnings of that experience on an Insureblocks podcast.
Christoph view on that is that AXA like other traditional financial companies, typically have very complex internal IT systems which are heavily regulated.
Their IT managers and security managers, who are responsible to keep the systems running, are not comfortable with blockchains, and even less with public blockchains. Christoph states that it is completely against their thinking to have an open, anonymous platform that they can’t control and where they don’t run the nodes. Thus, it’s very complicated for a traditional financial institution to integrate with a public blockchain.
User experience
A customer goes to Etherisc’s flight delay website to select airline, enter flight number and date of departure. The price is always the same, set at $15 and the payout varies according to the risk of the flight being delayed. Etherisc believes in transparency as it shoes the probability of the flight being delay in percentage terms and also the percentage of flights which have been cancelled in the last month along with the possible payout.
The purchasing process happens when the customer links their MetaMask crypto wallet. No other details is required. No need to enter name, address, passport and no KYC because the $15 premium is below the threshold of when KYC is needed. In comparison to traditional insurers, there is no personal data that is stored by Etherisc, no paper work and the customer remains anonymous.
If the flight is delayed or cancelled the payout happens automatically and the funds will be placed in the customer’s MetaMask wallet. No need for the customer to file a claim as in the case with traditional insurance.
Chainlink
A smart contract that lives on a blockchain has no direct connection to any external data source. For it to connect with external data you need an oracle as the ones provided by Chainlink. Insureblocks did a podcast with Sergey Nazarov, CEO of Chainlink. Chainlink provides to Etherisc decentralised networks of oracle data which is then aggregated into a single data file which can then be processed by Etherisc’s smart contracts.
With Chainlink, Etherisc has access to an open data marketplace where it can select the relevant data sources such as FlightStats which has access to high quality data from all airports and all airlines.
What’s next
For the flight delay insurance, Etherisc is look for distribution partners such as travel agents as flight delay insurance needs to be integrated at the point of purchase.
Etherisc is launching a platform for them to launch their own risk pools and are also forging a Global Alliance for Climate related risks.
In this podcast we had the pleasure of having Dan Salmons, CEO of Coadjute and John Reynolds, COO and founder of Coadjute return to Insureblocks to share with us the launch of their real estate blockchain platform and their thoughts on a mortgage stablecoin.
What is blockchain?
Dan’s definition of blockchain: In our previous podcast, Dan had used the glass box theory as an analogy to explain what is blockchain. For this podcast he uses a football match. In the old days before live TV existed, you had to rely on a newspaper reporter or a friend at a pub explaining to you what happened in a match that you had missed. In that scenario you have to rely and trust somebody else to share that information accurately and reliably to you. What blockchain does to the property market is that it introduces the possibility of live TV where you can form your own opinion as to what happened as can everybody else. Blockchain brings that sense of all its participants having the information for themselves without having to rely on some other intermediary to give them second hand information.
John’s definition of blockchain: In August 2020, John saw blockchain as allowing the data to flow between the various different systems. Now for him, blockchain is fundamentally about trust. It’s the identity on the digital trust ecosystem that Coadjute has built by connecting numerous platforms and putting in a trusted identity. The data flows whilst important, can only be trusted if you know the identity of the source of the data. Digital identity and trust is fundamental.
Who is Coadjute?
Coadjute recognises that today the experience of buying and selling property in the UK, and in most other countries, is a complex and fragmented activity that takes a very long time, requires the coordination of a lot of parties and is overall a difficult, slow and frustrating experience for both the buyer and the seller.
It’s the same for the people involved in the property market whether it is for the professions involved in legal, real estate, government, financial and son on. They all have to come together on a property transaction for it to work. Today there is no market infrastructure like the ones you find for the stock exchange and others.
What Coadjute does is that it acts as a trusted network that connects all the systems of the different players in the property market in an interoperable manner. This means whether you’re a real estate agent, a legal conveyancer, a mortgage broker you can access your regular platform and yet still have access to the activities of the other parties involved in your transaction. You can see what is being done in real time, share messages, documents, identity funds and much more.
Pilot launch
The housing market in UK is composed of numerous parties ranging from legal firms, estate agents, and lenders to mortgage brokers. Today’s property process involves waiting for documentation, chasing for updates, rekeying data and endless uploading of documents, all of which add to the time and cost of the property transaction.
With more than 25% of deals currently falling through and billions lost in efficiencies, Coadjute is introducing R3’s enterprise blockchain technology to help solve this problem.
With the Coadjute network, there is greater transparency, a reduced risk of fraud and an accelerated process with significantly less admin. Conveyancers will be able to protect sensitive client data by Coadjute’s encrypted network, which only the conveyancer and the receiving party can see. In addition, all parties involved in a property deal – including the estate agent, conveyancer, mortgage lender, and broker – can track the live progress of the transaction from their existing software.
Launching in July 2021, with the first live property deal on the network, a 3-bedroom house, Kent, Coadjute has ambitions to reduce the 5-month average process for buying and selling property by half.
Seven of the most respected software companies in the property industry – including Osprey Approach, Redbrick Solutions and conveyancers AVRillo – have already signed up to the Coadjute network with the full backing of the Land Registry.
There are over 100 software platforms in the UK property market who each have different APIs if they have an API. They all have different data models and data schemas. So for one of those platforms to connect to every other platform it’s an enormous job.
With Coadjute, they connect to one platform they connect to many. Their users can then connect, interact and collaborate with users on all other platforms.
Overall each software platforms that connect with Coadjute gets new features for their users, reduced connectivity backlog, and get to control their own data.
Dan also commented that he was getting feedback from their participants on the network that they were getting closer to each other as if the simple fact of looking at the same data they seem to be getting better along with others on the network. Have you seen something similar to that on your own blockchain network? If yes please do add your comment onto this post.
Top learnings
The need to engage the ecosystem and the role blockchain can play in it. Coadjute has taken the view that blockchain is not a disruptive technology but a connecting technology. John’s advice is when you are looking to transform at the level of the market you really need to understand that market and its current software. Understanding how you can fit, complement and connect within that ecosystem is very important because blockchain is here to connect with it and add value to it.
A mortgage stablecoin
A “stablecoin” is a type of cryptocurrency whose value is pegged to another asset class, such as a fiat currency or gold, to stabilize its price. Today the purchase of a property has numerous different money flows between the conveyancer, lawyers, estate agent, mortgage lenders of the buyer and seller. In addition to payments to HMRC for stamp duty and a whole bunch of other sort of micro payments. All of these money movements are done over the CHAPS system without any kind of orchestrating application. These movements are done as push payments followed by an email or phone call confirming the transaction has been done, which in turn is followed by a number of reconciliation exercises between the parties.
This creates high levels of administration which frequently cause last-minute delays in completion, and the familiar “Friday afternoon rush”. The traditional process is also vulnerable to fraud.
The promise of a stable coin is that the lender could have a node on the network, they then capture the funds within the mortgage account, and they issue a token onto the ledger. That token can freely move around within the Coadjute network.
The benefit of that is that the funds are staying locked securely with the bank, the tokens move around on ledger. Everyone has transparency and visibility of how the funds are being moved around. But the token itself is a claim on the actual mortgage funds that are sitting in the bank account.
The party that then ends up with the token, such as the estate agent, ends up with a token for their portion of the of the sales fee, they can then redeem the token from the lending bank. What it does is it takes out a load of risk around push payment, fraud, it creates radical transparency, so everybody knows what’s going on.
But a major benefit of this system is that you can programme the movement of tokens which enables 24/7 365 days a year, programmable property transactions that happen under a certain set of rules.
New round of funding
In December 2021, Coadjute raised a round of £6m from Praetura Ventures. The funds will be used for Coadjute to roll out its platform across the market. Dan shared that there has been a lot of interest abroad for Coadjute. The markets in which they are the most interested in are ones that have many of the same problems as the UK, being a highly fragmented market with a degree of digitisation and where there is a certain number of platforms for which Coadjute can connect with.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 174 – R3 Product Vision: Market Trends & Needs and R3’s Long-Term Product Investment
Jan 09, 2022
Todd McDonald is the co-founder & Chief Strategy Officer at R3. In this podcast we discuss R3’s Product Vision and their views on market trends, market needs and R3’s long term product investment.
What is blockchain?
Blockchain is a way for multiple participants to join a network and update the state of that network without having to trust someone to coordinate amongst them. For businesses, Todd sees blockchain as a way to connect with more customers and more businesses without having to worry as much around the trust factor.
Three market trends
Back in September of this year Todd presented at CordaCon a presentation entitled “R3 Product Vision: Market Trends, Market Needs and R3’s Long-Term Product Investment.”In it he started by analysing three market trends:
“Everything is an asset”,
“push-pull of (de)centralisation”
“Plan ahead for regulation”.
Everything is an asset
Blockchain has the ability to create digital scarcity. Essentially anything that you can prove ownership of can become an asset. Assets can be digitally mobile such as NFTs and/or they can be used as collateral for a loan.
A digital asset of course can be the digital manifestation or representation of a real physical asset but equally it could also by a pure digital asset. Pure digital assets, such as the purchase of digital property in the Metaverse, have recently seen a bit of an explosive growth. Republic Realm purchased a $4.3 million 24×24 digital piece of land, whilst Metaverse Group in November made a $2.43 million purchase of parcels in Decentraland.
Push-Pull of (de)centralisation
Blockchains are custody and software. They’re the ability to custody digital assets in the software layer without having the need of human beings. Todd shared with us that some of the biggest investors in this space so far have been existing intermediaries. Financial market infrastructure is heavily investing in distributed systems and blockchain.
He then explains what he sees as the different facets of the decentralisation journey:
You need critical mass and become successful. There needs to be a journey to attract people to a network and distribute the roles of that network. Potentially over time the network can become more distributed to decentralised. What is interesting about the crypto side is that with tokenomics all participants can be incentivised from day one onto a decentralised network
Progressive decentralisation a term coined by Jesse Walden, from Andreesen Horowitz, talks about starting out within a bootstrap minimum viable ecosystem, ie. quite centralised, which as it grows can progress into a decentralised one
Plan ahead for regulation
Once regulation starts it pretty much only increases. This comment isn’t specifically related to crypto regulation but more on financial services. There is an increasing amount of regulatory imperatives such as open banking, GDPR, and Central Securities Depository Regulation (CSDR).
Modernising market infrastructure
SIX digital exchange became live on the 18th of November 2021, when SIX, launched a CHF 150 million ($162 million) tokenised digital bond with Credit Suisse, UBS Investment Bank, and Zürcher Kantonalbank acting as the joint lead managers.
What is interesting about this new digital market infrastructure that SIX launched off an R3 Enterprise Corda blockchainis that it leverages an existing ecosystem that SIX had. Second it has the ability to handle an asset through its lifecycle from cradle to grave. Three the settlement process, of settling into what is in effect into a central bank digital currency.
What this illustrates is a way for these new tokenized assets to have higher velocity and to be able to reach across borders in a way that regulators are ok with.
Corda & Conclave
Early on it with the launch of Corda, it became clear that industries wanted to bootstrap networks where the founding participants wanted to control those networks.
However, transactions and data need to be shared within networks but also across networks. Corda has been investing into interoperability overall. That applies to across Corda networks, and to legacy and emerging networks.
With Corda there is a growing installed base of financial services. The question that arises is what is the ability for digital assets that live outside the regulated financial services. Is there a way for them to safely interoperate and take advantage of regulated digital ecosystems like an SDX who has the foundational bedrock for these digital assets on which to operate on?
Conclave is about protecting data in use from prying eyes. It enables business to perform transactions that need to leverage data in a manner where they can still adhere to regulation on the data’s sovereignty. It’s about freeing businesses up from the knots that they potentially are tied in from regulation.
Interoperability
R3 is squarely focused on regulated networks. Todd mention that it’s interesting to see how crypto assets can be brought into an institutional setting, which is something that R3 is working on. There is a need for crypto assets to access settlement services which R3 can provide.
Todd sees Corda as an incredibly compelling private side-chain for crypto networks.There could be a point where regulated assets could flow into permissionless systems such as Defi. Especially around the point of openness, programmability and identity.
Across the crypto industry there is a trend towards openness. That however has to be balanced correctly with privacy. Openness is important as long as its accompanies with protection.
Programmability another key factor has to accompanies with some form of safety. With programmability in environments such as DeFi, code is law. Transactions are fully automated. When errors happen either thought negligence or a misalignment of incentives you can have a problem which begs the question of the role regulation can take
Identity can play a very important role, not necessarily in knowing the identity of all the participants but at least in knowing that the identity of a participant on the network has been validated.
By bringing all these points together you can see how a regulated network can work in bringing in assets from these open networks to bring in a higher level of safety.
R3 long term vision
R3’s long term vision is incredibly focused on digital assets and digital currency and how those are safely issued, settled and traded. They are investing in the future of interoperability whether it is on the networks of networks and bridging the space to open networks and crypto.
They will be focusing on their sandbox for digital currencies and investing in building tools and accelerators so that R3’s customers can more easily natively issue digital assets onto Corda and more easily tokenise arbitrary assets on Corda.
About to release their Corda payments capability which will be able to integrate into existing payment service providers.
Investing to facilitate the creation of asset network and for existing assets networks to integrate into existing payment rails so that over time to have on chain settlement via tokens or central bank digital currencies.
Corda 5 will take the existing Corda and improve its scalability, security and performance for it to provide a market infrastructure that can last decades.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 173 – Obscuro: a secret spell over DeFi
Dec 12, 2021
Over the last 12 months Decentralised Finance also known as DeFi has really exploded with reported total value locked reaching $250bn. R3 who operates in the permissioned blockchain space is spinning out Obscuro into the permissionless space of DeFi. In this podcast we’re joined by James Carlyle who explains the DeFi landscape, the challenges it faces in terms of privacy and scalability and how Obscuro can address these.
What is blockchain?
Blockchain is a distributed databased. Instead of one party running it, it is run as a network by a group of entities who don’t necessarily trust each other. It contains features that ensure that entities don’t need to trust each other, they can trust the infrastructure and the code itself.
James has been on a blockchain journey since 2015 when he started off with permissionless public systems like Bitcoin and Ethereum prior to joining R3 in 2015 and helping to design Corda. Corda though had a very different principles than permissionless public systems as it was designed as a permissioned blockchain. The participants all have a verified identity so you know who you are dealing with, whilst on permissionless system they have a pseudonym. Now with Obscuro, James is returning to permissionless public systems.
Decentralised finance (DeFi)
Over the last 12 months Decentralised Finance also known as DeFi has really exploded. A few weeks ago JP Morgan reports that total value locked (TVL) has grown from last year’s $20bn to $200bn today.
For James, Defi is an expression of freedom and of innovation. It’s growing very rapidly as it’s able to innovate at lightspeed. All of these applications are open source which means that it is possible to take an existing idea to either build upon it or in some cases to steal it and simply rebrand it. These things increase the level of innovation and increase the level of take up.
At the heart of DeFi is transparency. It runs on permissionless systems, which means anyone can take part, download the data and help in the validation process.
The first generation of DeFi builders and users were not interested in privacy and James believes that DeFi is heading towards a new generation to builders and users who are aiming for a more mass market where privacy is important. The ECB released a report on the digital Euro where privacy is seen as a key digital enabler.
Whilst privacy is important it can unfortunately also be used as a cloak for illegal behaviour. For DeFi to be picked up and used by the mass market it has to be more regulated. Regulation needs identity and KYC. R3 is uniquely placed to interact in this space as it has this rich heritage of having very strong ties with regulation and regulators
Miner extractable value (MEV)
In a public blockchain system such as Ethereum there are participants who are submitting transactions. Miners who are here to confirm transactions can see the contents of the transactions that users have submitted. They can take advantage of it in some cases in what is called front running. For example, if you want to buy something on the market you don’t want someone else to bid the price up ahead of the transaction. That’s what is possible when a miner can spot that a user is trying to something and they decide to step in first and thus get the transaction before the user and the user is left behind buying it at a higher price.
It has been estimated that around $1.4 billion of MEV is being taken from Ethereum blockchain users annually from a total DeFi market of around $50 billion. Global financial markets are worth $100 trillion. One of the main motivations of Obscuro is to help solve some of these issues.
Ethereum scalability issues
Ethereum to some extent is a victim of its own success as it suffers from scalability issues. With the explosion of DeFi projects, and their corresponding transactions that need to be processed by all of the nodes on the Ethereum network, that has created a bottleneck issue where people have to bid more to have their transactions processed.
The fees to process the transactions can start to rise very rapidly where whilst it may not be felt so much for low value transactions but for a newly minted NFT piece of art the fees can go very high.
To address this issue other layer 1 networks (L1) like Ethereum, such as Solana, Cardano or Avalanche who reduce the number of validators in the work, or require the validators to run more powerful hardware.
Another approach is to use the L1 as a record keeping layer where the transactions won’t actually be processed but will instead be processed on a second network (L2) and where periodically the transactions from L2 will be recorded onto the L1.
Obscuro
Obscuro, whose origin is Portuguese means “obscure” in English. For James and his team they chose Obscuro due to Harry Porter as it was the incantation of a charm used to conjure a blindfold over the eyes of the victim, therefore obstructing their view of their surroundings.
The objective of Obscuro is to provide confidential, smart contract execution.
It means that until now applications that may have been deployed directly onto an Ethereum distributed application or deployed onto an L2 network, they can now be deployed onto an Obscuro network. The contents of those contracts would remain secret and hidden from users.
A users’ wallet encrypts the transaction and sends it to an Obscuro node on the Obscuro network. Only the Obscuro nodes themselves can understand the transaction. The transactions interact with contracts that have been deployed onto the Obscuro network and the contents of all of those contracts is also encrypted. The Obscuro network is a group of nodes that works within a gossip network, a peer to peer permissionless network.
And it’s encrypted so that only the obscure nodes themselves can understand the transaction. And the transaction interacts with contracts that have been deployed onto the obscure network. And the contents of all of those contracts is also encrypted.
The network processes the transaction and updates the state of the contract. To illustrate this, James provided us with an example of an auction. In an auction on Ethereum everyone can see all of the bids, they can see the addresses of the bidders and the bidding patterns. An auction contract deployed onto the Obscuro network would be hidden. It’s effectively a sealed auction with sealed bids. No one can see other bids. The bids themselves have been encrypted and the linkage of the bid to an identity is also hidden. Privacy is thus achieved for users. Whilst privacy is achieved it isn’t an ultimate form of privacy as if necessary law enforcement bodies can take action against those who would use Obscuro for illegal actions.
One of the design goals of James’ team is that standard Ethereum contracts can be deployed onto the Ethereum contract without changing it.
Incentives and governance
There are a set of economic incentives for people to participate in the network whether they are users or aggregators. Users get some personal benefit from transacting within these contracts whilst aggregators need to be rewarded for running infrastructure. These rewards will be some form of utility token.
James expect that they will set up a decentralised autonomous organisation to govern this network.
Obscuro’s relationship with R3
Obscuro isn’t part of R3’s core business. R3’s core business is trust technology for regulated industries. Whilst the work being done at Obscuro might be very beneficial for regulated industries it isn’t aimed solely at regulated industries. Obscuro is likely to be spun out of R3. However it could actually drive utilisation and interest in R3’s confidential computing product called Conclave.
Ep. 172 – Confidential computing tackling human trafficking – insights from Hope for Justice
Dec 05, 2021
Tim Nelson is the CEO of Hope for Justice and is part of the founding board of the charity which exists to try and end all forms of human trafficking and modern slavery across the globe. They work alongside major multinational businesses through an organisation called the Slave Free Alliance that they set up a few years ago.
What is blockchain?
Blockchain is a distributed database that is shared between the nodes of computer. It stores information electronically in a digital format. It maintains a secure and decentralised record of transactions and what differentiates it to other databases is that it guarantees the fidelity and security of a record. This generates trust without the need of a third party.
Modern Slavery
According to the International Labour Organisation (ILO) there are 40.3 million people in forced labour, sexual exploitation, domestic servitude, organ harvesting and forced marriage worldwide:
Including 24.9 million in forced labour and 4 million in forced marriage.
It means there are 4 victims of modern slavery for every 1,000 peoplein the world
1 in 4 victims of modern slavery are children.
Out of the 9 millionpeople trapped in forced labour, 16 million people are exploited in the private sector such as domestic work, construction or agriculture; 4.8 million persons in forced sexual exploitation, and 4 million persons in forced labour imposed by state authorities.
Women and girls are disproportionately affectedby forced labour, accounting for 99% of victims in the commercial sex industry, and 58% in other sectors
Most people think that slavery was ended with the William Wilberforce Day. However every day around the world people are being trafficked every day. They are forced to work within the supply chains of major multinational businesses, into all forms of sexual exploitation, into forced domestic servitude and in countries where there is no organ donation scheme, there is organ harvesting.
Most people are shocked to know that for example in the UK, the number one place people are trafficked to the UK is actually from the UK. People are actually taken in the UK.
When Hope for Justice started doing rescue and investigation in the UK, the organisation started in an area in West Yorkshire that covers 2.2m people. At that time the entire police force across England and Wales had rescued 88 individuals and said that was the extent of it through an operation called Pentameter one. Hope for Justice within its first year of operation in just West Yorkshire alone, rescued 110 victims of which the youngest was just three months old trafficked for sexual exploitation and the oldest was 58 years old for forced labour.
Impact of COVID
The impact of COVID has been massive on everyone around the world. The shutting down has made a bigger impact on the most vulnerable in the world. Farmers have missed crop planting or harvesting whilst others haven’t been able to go to work putting them into a very vulnerable situation. It is in that backdrop that we see a real shift happening. Companies have rolled back efforts the they were doing globally. According to Tim, COVID has probably hit back the movement against modern slavery about 10 – 15 years.
The vulnerabilities that existed in communities have been exasperated by COVID and one where traffickers have gone in to exploit those individuals who have the greatest degree of vulnerability. The degree of this impact is going to be felt for the decades to come as individuals who have had to take on debt, many of them are going to become debt bonded to the individual traffickers themselves. Whilst those who have taken loans whose interest rate is so high that the will never be able to pay off those loans. There is a quarry in India where 30,000 families are debt bonded to the quarry.
A $150 billion industry
According to the International Labour Organisation (ILO) forced labour generates annual profits of US $150 billion. This makes it the second most profitable, serious and organised crime in the world after drug trafficking. What traffickers say is “if I sell a kilo of heroin, I can only sell at once. But if I can have a person who’s enslaved, I can have them held for years.” To compound this issue Tim believes less than 1% that is being spent against drug trafficking is being spent on stopping human trafficking.
Tim gives the example of a Filipino lady in Los Angeles that was held for 33 years as a domestic slave forced to sleep in a garage and now allowed to leave the house.
There’s roughly 20,000 individuals who are working every day on human trafficking, globally. The majority of those organisations sit in the aftercare space or the awareness space. As a result, the response doesn’t meet the problem. From a UK perspective, last year, there were 10,613 individuals, people who presented the signs of being a traffic of victim, who were entered into the national referral mechanism. For Tim, the challenge for what they’re doing is how can they use technology to help augment the work their doing so that it amplifies and magnifies the impact that they’re making.
The Slave Free Alliance
The UN SDG 8.7 has set the goal of ending slavery in the supply chains of major multinationals. Hope for Justice realised that a number of individuals they were rescuing where from the supply chains of businesses. Hope for Justice worked with Accenture who helped them to productize what they were doing and helped them to set up the Slave Free Alliance in 2018.
Businesses are invited to join a membership scheme where they are given access to the support and services from the Slave Free Alliance. Slave-Free Alliance offers a wide range of services and access to its experts, including training, gap analysis, due diligence, risk management resources, and help with investigations, crisis response, remediation and Slavery and Human Trafficking Statements
Within the last 3 years they have signed up 95 major multinationals and are planning to launch in the US, Norway and Australia by the end of 2021.
Battery
Whether it’s in your mobile phone, laptop or electric car, most batteries today are produced using cobalt of which 70% would have originated from mines in the Democratic Republic of Congo. These are mines are mined by children and or forced labour.
The Paris Accord has set for the increase electrification of cars by car manufacturers. However, to achieve that objective in just Europe and the US would require a 30 times increase in production of cobalt mining for that to happen.
Using confidential computing to fight human trafficking
Tim explains that it’s not until you look at the data that you can start to draw correlations to what needs to happen. There was a clear need to start using data and AI to drive up intelligence that can help the organisation to make the right decision.
An example would be to start pulling information together from various countries to identify a particular type of person that is more susceptible to being trafficked. This can help create red flags Border Force officials to look out for a certain type of person of a certain age that is more susceptible to human trafficking.
It also helps to identify regions that are more susceptible to human trafficking for example in the case of one particular country up to 95% of all victims were coming from within 35 miles of one city.
The hope is to build a blockchain solution that will enable them to have a database that would benefit many industries for there to be a clear a clear understanding of who the good and bad actors are in a particular area. The key point is that when a supplier within a supply chain is identified that industry players don’t just walk away from the supplier but actually try and drive change. Because, if you walk away from that supplier, it doesn’t actually stop it from happening. Whereas if you go back to the supplier and offer to bring real systemic change to that supplier then change is possible.
R3’s Corda blockchain
In terms of identifying a blockchain for Hope for Justice and the Slave Free Alliance’s requirements, Tim’s team chose R3’s Corda as it provided the combination of safety and security they needed. A lot of the trafficked victim’s data that is being stored is very sensitive. As it carries their location but also these are individuals who could potentially form part of court cases, both on civil and criminal litigation.
By having a combination of both Corda and Conclave it provided them with the double level of security and safety that they required.
Plans for the future
In 2020, they have helped 18,110 individuals find freedom. In terms of their plans for the future, they aim to open up another set of operational investigating hubs in the UK, expand in more states in the US and to expand into other countries so that they can operate out of every continent across the globe.
How can you help?
Readers and listeners of Insureblocks can help Tim and his team in three ways: time, treasure and talent.
If you have a core skill and the time to support Hope for Justice head over to their website and tell them how you’d like to help.
Firms have CSR budgets, some give financially directly to charity, some give via fundraising events. Individuals can also donate money for example if costs roughly $500 to see an individual child taken from exploitation, given trauma informed care, catch up education, medical care, clothing and food, looked after for a period and then reintegrate them with their families or foster families and were not appropriate look after them for up to 2 years in that process.
A few years ago, a 14 year old girl raised $65,000 by walking 300 miles.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 171 – Exploring CBDCs – insights from the Bank for International Settlements
Nov 21, 2021
Central bank digital currencies (CBDCs) are increasingly being talked about in the press with announcements of initiatives from different central banks working on CBDCs coming out left right and centre. Few however are as forward thinking and embracing a collaborative approach as the Bank for International Settlements (BIS). For this podcast we are joined by Daniel Eidan, Adviser and Solution Architect at the Bank for International Settlements (BIS) in the Innovation Hub where he builds technology solutions for the central banking community with a special focus on blockchain and CBDC. He will share with us some of the exciting work his team are doing for driving CBDC forward.
What is blockchain?
Blockchain and DLT is often referred to as Web 3.0 whilst the internet of today is Web 2.0.
Web 2.0 enables to globally connect communications protocol whilst blockchain and Web 3.0 isn’t just about putting communication protocols digitally but to store value digitally. What blockchain enables is to execute computations between different members and keep a record of state. Essentially as Daniel mentions we can encapsulate value. Value can be cryptocurrencies, central bank digital currencies, contracts and many other forms of value. This wasn’t something possible in the Web 2.0 because the fundamentals weren’t there.
What are CBDCs?
To fully understand what CBDCs, central bank digital currency, are you first need to understand what is a currency. Money and currency in general have three attributes:
They are a unit of account
A store of value
A medium of exchange
What central bank digital currencies do is that they digitise those three attributes.
To explain how this happens Daniel uses the “money flower” approach which looks at its four different attributes:
Is it universally accessible?
Is it electronic?
Is it issued by a central bank?
Is it moved around in a peer to peer way?
A retail form of CBDC will have all four of the money flower attributes. It will be universally accessible, it will be electronic, it will be issued by a central bank and contain central bank liability, and it will transact in a peer to peer way.
What is important to recognise is that most of the retail monetary base is not central bank money, it’s commercial bank money. For example, when you deposit money at you bank it is likely that a large part of your fiat currency is with a claim against your commercial bank. Then through a set of mechanisms that claim is insured by potentially a central bank or a federal institution.
The only claim that retail can have against a central bank is in the form of cash. Cash of course is a tiny percentage of the total amount of money individuals have. What CBDC does is takes that cash liability, in a retail context, to exist in a digital context in a way that’s accessible to anyone.
The question is what happens to individuals who do not have a smart device, or electricity, or WIFI? In addition, how is universal accessibility attained to individuals with disability issues or are elderly? There are a number of technical solutions that can help to lower this barrier but it is one that is a challenge in terms of the last mile for reaching ubiquitous CBDC.
In the case of wholesale, the case for CBDCs is to broaden the base of digital currency from tier one institutions that are regulated domestically to fintechs, startups and perhaps banks in other jurisdictions. So, it’s really extending the promise and the capability of central bank money.
Privacy
Why is cash private? There isn’t actually a mandate for money to be private. The fact that cash is private is a consequence of the technology. Cash however isn’t always private. For example, purchasing a house in only cash cannot be done in a private privacy manner.
Daniel makes the important point that CBDC will promote more privacy than digital payments of today that are motivated by commercial interests. Daniel then asks “would you be more comfortable just in terms of that privacy aspect to pay with your Visa card, knowing that visa has your data and visa can do whatever they want with your data, as long as it falls within they’re licence as a payment provider versus, something that’s issued by a central bank that the central bank has no other objective other than what’s best for the social good.”
Bank for International Settlements (BIS)
The Bank for International Settlements (BIS)’s mission is to support central banks’ pursuit of monetary and financial stability through international cooperation, and to act as a bank for central banks. As individual’s lives are increasingly becoming more digital and it is increasingly apparent that any central bank whose aim it so provide financial stability has to invest in the digital space. In 2019 the BIS launched the Innovation Hub Network, to support the Innovation Hub priorities, share knowledge about technology projects and discuss innovative answers to problem statements relevant to central banks.
The Innovation Hub Network is a joint partnership between the BIS and regional central banks to open innovation hubs that service the central banks their surrounding regions. The first three were in Switzerland, Hong Kong and Singapore. Now there are new hubs in London, Stockholm, Toronto and a strategic partnership has been set up with the New York Fed. They’re also planning to open hubs in Frankfurt and in Paris amongst many others.
These hubs are going to engage the private sector to bring technical talent and know how to inform policy markets and the central banking community.
CBDC is one of the six verticals that the Innovation Hub Network is working on: supervisory and regulatory technology, next generation financial market infrastructures, open finance, cybersecurity protocols and on green finance.
Project Inthanon-LionRock to mBridge
In May 2019 the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) launched Project Inthanon-LionRock a first common platform for multiple CBDC settlement. Phase 1 of this project achieved a PoC built on R3’s Corda designed to allow the participants of each network to conduct fund transfers and foreign exchange transactions on a peer-to-peer basis, thus reducing settlement layers.
Phase 2 of this project was built by ConsenSys on Hyperledger Besu to extend Phase 1 to two other jurisdictions being the Digital Currency Institute (DCI) of the People’s Bank of China (PBC) and the Central Bank of the United Arab Emirates (CBUAE). The participating central banks are able to control the flow of their CBDC on the prototype, monitor transactions and balances of their issued CBDC, utilise programmable levels of transaction privacy, and automate certain compliance functions.
The project then evolved to Phase 3 called mCBDC Bridge, “m” for multiople, or in short mBridge. As the name implies the platform is built to facilitate multiple different central digital currencies to perform cross border payments in a cheaper, faster and more efficient manner.
Today is obvious that there is no public sector organisation that has the mandate to facilitate cross border payments. It is all provided by private institutions who are commercially driven. The amount charged will depend on locations, currency pairs and the amount of money being sent. Currency pairs for example that do not have a lot liquidity may have to go through a third currency pair to facilitate the transaction leading the user to have to pay 2 FX rates. This contributes to the reason on why remittances can cost 6.5% of fees on the transaction.
With mBridge there is the opportunity to provide a faster, better and cheaper way settling payments in central bank money. Transactions for example have moved from a few days to within two seconds!
mBridge looks to drive the use case around international trade settlements to facilitate international trade between those jurisdictions and also to open up the platform to additional central banks and also to private sector players.
e-HKD is a joint partnership between The Hong Kong Monetary Authority (HKMA) and the BIS Innovation Hub is an attempt at exploring retail CBDC. Retail CBDC is very much about the last mile solutions. It’s about the privacy, offline, how the retail space interplays with the wholesale space and how this doesn’t influence the role of commercial banks in the economy.
In September a whitepaper was published entitled “e-HKD a technical perspective” that explores potential architectures and design options that could be applied to the construction of the infrastructure for distributing e-HKD, and reports the initial thoughts and findings. Specifically, it aims to explore technology solutions that address the problems of cross-ledger synchronisation, over-issuance prevention, privacy-preserving transaction traceability, and flexible instantiations of different two-tier distributions models.
The paper displays the focal point on how money moves between two interoperable systems, one being the wholesale monetary base and the second a retail monetary base with a special focus on privacy.
7 Central Banks exploring retail CBDCs
Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank, Swiss National Bank and BIS have joined forces to explore what a retail CBDC might look like.
In their 1st report, the banks got together to create some baselines for the thinking around retail CBDC. In September 2021 a new report was published that had three categories:
systems design and interoperability. As central banks operate within a domestic agenda, the piece of interoperability is critical to ensure that they can connect to each other
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Leandro Nunes, Vice President, Product Development and Innovation at Mastercard, joins us to share how he leveraged Mastercard’s DNA in scalability, payment automation and governance. We also discuss the important of a data governance model and his top tips for building scalable blockchain solutions.
What is blockchain?
Blockchain is a distributed ledger technology (DLT) that uses a consensus methodology to immutably record blocks in sequence in a ledger. It’s a technology that is driven by data governance. The governance is on the data side not necessarily on the blockchain. Data governance looks at the question of ownership of the data, who has visibility over it and the rights for sharing it.
It allows for the creation of networks to tackle use cases where the participants can integrate their systems in a decentralised environment where they can share the data. This provides the visibility to increase the trust between the participants.
Leandro also stresses what blockchain is not. It’s not the saviour of the world and shouldn’t be a solution looking for a problem. As any other technology blockchain needs to connect and be integrated with other solutions such as AI, IoT, payments and others.
Mastercard’s DNA – network builder
When talking about blockchain there is this dependency on how to build and manage a network for different participants. In some ways these challenges are similar to the one of payment networks like Mastercard who has the established the credibility of having the global coverage, the need to scale, and acts as a neutral network builder not taking any sides. It is this element which is within their DNA. It is this DNA which can be leverage to build and gain adoption to new technologies such as blockchain.
When you swipe your Mastercard within two seconds the user gets an approved message. Within those two seconds a lot of things happens amongst many participants to make sure the settlement is done.
Mastercard provenance solution
Mastercard’s Provenance Solution, is essentially an API layer on top of a Mastercard blockchain that serves as an orchestration hub for an entire ecosystem of partners. It bridges the supply chain traceability events with a payments network. This enables to share supply chain related data to inform the decision making process for the payment side. Decisions can be automated which in turn reduces the reconciliation costs, dispute resolution and speeds up the entire process.
Leandro stressed that they’re not a tech company trying to sell blockchain. They use blockchain as a technology, the value they can bring in addition to combining supply chain traceability along with the payment side is around bringing scalability to the governance. Working with their partners to answer the questions of how do you build a network where you can be neutral within its governance structure? How do you create a governance where you don’t take sides?
Use case: Australian farmers
In August 2021, Cirralto, the B2B payment services business, announced it is leveraging the Mastercard Provenance Solution, and the Fresh Supply Co digital supply chain network, to provide Australia’s farmers with better access to trade finance.
The WTO estimates between 80% and 90% of global trade relies on trade finance, yet there is a $1.5 trillion gap between the market demand and supply for trade finance. Financial institutions usually don’t want to lend money to a small supply chain company that they don’t know. However when you bring traceability, you bring blockchain and you increase visibility and trust these financial institutions realise they can use this data to reduce their risk assessment to make better lending decisions.
Cirralto brings the fintech side, along with local lenders in Australia, to Fresh Supply Co supply chain network who brings the traceability platform and sharing the data with the Mastercard provenance solution. Through enhanced supply chain insight, financial institutions leverage data-driven credit decisions to drive lending confidence and increase trade finance opportunities for farmers.
Exporters can now know exactly what they’re receiving from the growers. They can keep their payment terms of 30 – 45 days to pay the growers, however the growers can access discounted invoice pay where they can get paid within 48 hours.
The buyer knows exactly what’s going on and doesn’t need to spend a lot of money on the reconciliation process. The growers have much more confidence they are going to get paid for what they have delivered and they get paid sooner than usual thus increasing their cash flow.
Networks of networks
During COVID Mastercard made an announcement with AON to introduce a new solution to provide supply chain protection for global Covid-19 vaccine shipments.
The solution provides transparent cargo insurance coverage for Covid-19 vaccines by combining sensor data and analytics. The offering enhances all risk marine cargo insurance with timely payment for doses that fall outside of the agreed-upon temperature range while being transported or stored, enabling more effective risk management and claims support. Real-time reporting of any temperature deviation will also provide for the mitigation of losses and help maximize the number of doses that are administered to the public.
The solution initially started through the partnership between Mastercard Provenance Solution and ChronosCloud alongside DW Morgan partnered to connect all partners of the supply chain with real-time IoT sensors for active condition monitoring. At this point they realised the opportunity existed not just to use supply chain data for payments but also for insurance thus bringing on AON and demonstrating the opportunity for networks of networks
Use case: Zimbabwe – cattle traceability system
In 2018, 50,000 cattle in Zimbabwe died because of a tick-borne disease.
The lack of a traceability system has seen Zimbabwe unable to export beef to lucrative markets in Europe and the Middle East, reducing export earnings from beef to the tune of $50m due to sanctions. The government of Zimbabwe had the challenge to resolve this issue.
E-Livestock Global solution brings end-to-end visibility to the cattle supply chain. Commercial farmers and dipping officers tag each head of cattle with a unique, ultra-high frequency RFID tag – as mandated by the Ministry of Agriculture – and register it and its owner onto the solution. Each time the animal gets dipped, vaccinated or receives medical treatment, the tag records the event onto the traceability system.
Leveraging Mastercard Provenance Solution, E-Livestock Global records these events to maintain a secure and tamper-proof trail of each animal’s history. This, in turn, supports the entire supply chain with trusted, transparent and verifiable data. For farmers, it provides an irrefutable record that proves ownership, supports sales and exports, as well as allows them to obtain a loan, using their cattle as collateral. For buyers, it enables them to efficiently manage their operations and guarantee product quality to their customers.
Coming back to the point about networks of networks is how this solution can enable to provide financial inclusion to the farmers in Zimbabwe by providing them with a digital wallet. It also opens up the opportunity for an insurance company to leverage the data and offer parametric insurance.
Use case: GrainChain
In October 2020, Mastercard announced a collaboration with GrainChain, a technology company that enables supply chain visibility, empowering suppliers and farmers while reducing risks to buyers in the United States, Mexico and Central America. GrainChain tracks over 24 commodities in four different countries.
Together with GrainChain, Mastercard Provenance Solution delivers end-to-end visibility throughout the supply chain, allowing participants to forensically track commodities, from the initial inputs and raw materials to harvesting and processing to logistics and delivery to the consumer’s hands. Doing so enables brands and producers to proactively protect consumers and manage their brand reputation, business efficiencies and bottom line.
The increase visibility enables farmers to get access to finance and also to cheaper finance as the platform can demonstrate the payment guarantees farmers get from the traders.
Key learnings for building scalable solutions
Having worked on a number of use cases with Mastercard across industries Leandro has the following key learnings he shared on Insureblocks:
Build a business incentive model where the participants see the benefit for adopting the solution. It cannot be a big brand mandating them to come on board
Understanding capacity of the participants. They may not have the resources to allocate for a new project
Bring other assets that can enhance the core solution
Use case: Seafood traceability system
Consumers increasingly want to know the story behind the food that they consume–the source of the produce, meats and seafood, and their journey to the table. In October 2019 Mastercard announced a partnership with Envisible, a supply chain visibility in food systems company, to launch a pilot with the largest United States food co-operative Topco Associates and the supermarket chain Food City for its seafood inventory.
Envisible has a platform called Wholechain, a traceability platform. They provide over 10 species of frozen seafood to Topco Association of supermarkets in the US, where each of the items come equipped with a QR code. When Topco distributes the seafood to their member supermarkets they have the traceability of the seafood via the QR code. What Leandro likes about this solution is that each of the supermarkets do not need to adopt the blockchain technology they just need to adopt the Topco programme.
Consumers in the supermarkets can scan the QR code and see where the seafood came from, how it came to its destination and is the sustainability of the supply chain.
The solution is now in production.
Monetisation
Mastercard Provenance Solution uses a SaaS model for monetisation where payment is made upon usage of the solution. When you bundle this approach with a payment component, a transaction fee is charged that comes along with provenance and traceability.
Ep. 169 – The future of governance and collaboration – insights from R3
Aug 29, 2021
Alisa DiCaprio, is the Head of Trade and Supply Chain at R3 and also facilitates a lot of R3’s research. Whilst the concept of governance is familiar to many in the business community it has proven to be quite a challenge to blockchain business networks. In this podcast we discuss with Alisa, her latest research paper on the future of enterprise blockchain governance and collaboration. We cover some of the design and implementation of new business and technical models that will ensure that your blockchain journey is a success.
What is blockchain?
For Alisa, blockchain is just a database but what makes it different from other databases is that it’s decentralised that is global accessible. Like other digital technologies, blockchain requires the same adjustments to the global and commercial infrastructure.
Discussing the future of governance and collaboration
In July 2021, Alisa published a white paper entitled “The Future of Governance and Collaboration”. R3 began itself as a banking consortium and thus gained from the get go experience on how to build and manage consortiums. A lot of their consultations with companies building on Corda was about how do you manage a consortium?
What they realised is that when projects go wrong it often is not because of the technology but because of the decision making process that doesn’t work or something with regards to governance. So, the white paper was an effort to set out the different examples of where governance has worked and all the different choices that need to be made. It sets out the policies that need to be thought of, it defines what is governance, and the questions that need be asked when building on blockchain technology.
What is governance?
Governance refers to the processes and the rules that determine how a system makes decisions as it evolves. It is something that needs to be thought of as early as possible as it establishes the core capability for a sustainable business network to last from its inception to the future.
Are aspects of governance unique to blockchain?
In legacy technologies there are well defined areas for adjudication when things go wrong. As blockchain is a new technology it doesn’t have those well defined adjudication history nor a long lasting legal infrastructure. A lot of today’s rules and regulations don’t apply to blockchain, so for this reason, governance becomes very critical. It contributes to its reputation as a technology that works.
Why do blockchain projects fail due to governance?
For Alisa, there are two types of characters that are early blockchain builders:
Entrepreneurs
Established businesses that may have an innovation fund or some money to play with
Entrepreneurs who build on blockchain are usually new to the technology and are not necessarily thinking about establishing a governance structure. Established businesses which could be large companies or existing consortiums who are building on blockchain have an existing governance structure and they assume that it will work with blockchain and it doesn’t always.
How do traditional business networks differ from blockchain business networks?
Traditional business networks differ from blockchain business networks in three ways:
Consortiums are considerably more common in the setup of blockchain business networks. The reason for that is because blockchain allows to innovate on a sector wide level rather than just a business level
Blockchain business networks take a lot longer to implement than traditional business networks and also to change. Part of the reason is because it’s so new that it is unclear what the regulatory infrastructure is. You may need to establish a rulebook if the legislative component does not exist. And of course, there is a business culture change with suddenly the need to operate in a decentralised way.
The role of the business network operator becomes a lot more important that it is in traditional networks
Moving from a small centralised consortium to a larger decentralised one.
In Alisa’s experience working with a small group of companies trying to affect governance isn’t necessarily easy. Each of those companies may be doing exactly the same process but they’re calling it different thing, they may not have a shared lexicon.
Establishing this shared lexicon and a flow that works for those initial companies is important but equally important is to make it palatable for every new member of the consortium that joins. Thus, it becomes very important that the decisions structure that is developed has the ability to change as the number of new members grows the consortium.
It is important not to lock in too many decisions early as the goal is to grow. You want other companies who join the consortium to see that the process that has been built is easier for them than the existing one and that they have a means to contribute to it.
One of the pieces of work Alisa did was to build the standards body that was initially started with the Marco Polo banks which has since been handed over to the International Chamber of Commerce, now rebranded as the Digital Standards Initiative (DSI). During her time, she surveyed all members to answer 10 – 15 questions, which included questions like:
How many people should be on the board?
Should founding members have special rights once the consortium expands?
Should there be a membership fee?
The output of that survey was used to help build the governance structure. What you don’t want to do is form a working group and ask these questions without having any idea what people incentives are. Because that means you’re working group meetings will take five hours and they’ll just be people yelling at each other.
Having that document enabled Alisa to enter meetings knowing what each players want and have a point to discuss together to establish a common governance.
Administrative governance
The administrative governance structure is the longer term business and commercial activities that are associated within the business network.
The body that administers these functions can be called the Business Network Governor (BNG). This is just a name, it can be a specific company, a group of companies, a board, or any structure. That entity is meant to facilitate the contractual relationship. It is generally responsible and accountable for establishing and maintaining governance policies, and accountable for their implementation and enforcement.
Choosing a legal entity and where it is domiciled?
Choosing a for profit or not for profit legal entity involves important choices such as how they generate revenue. For profits make their money by selling a product whilst a not for profit may generate its revenue from membership dues. Will membership dues be in a tiered way or just one price. Are they per individual members or via a corporate membership.
Choosing what type of legal entity has implications on the jurisdiction that legal entity is in and will influence the structure of that entity.
Policies
Negotiating policies amongst members of a consortium forces the entities to talk about things like how to onboard and offboard an entity. This can be very important especially when thing go wrong. Alisa gave the example with B3 (Brazilian Stock Exchange) about what happens to a misbehaving node.
B3 runs a blockchain network that essentially includes the entire sector. So, if a node is misbehaving, that raises the question, do you kick that node off the network? Because then if all the other companies in that whole entire sector are on the network, can you really exclude just one because then they don’t have access something that the rest of the industry does.
Offboarding is often a lot more complicated and something that isn’t thought off until something goes wrong.
Other policies to look at include: data privacy, data retention, prioritization of features, dispute management, inter-network policies, service level, legal contracting model, business model, data resiliency and system availability.
Technical governance
Technical governance includes the rules and processes that maintain the everyday functioning of the business network. Maintaining system integrity involves tactical decisions around shorter-term tasks like ensuring all of the nodes in the business network are upgrading at the same scheduled time. Technical governance is run by an entity called the business network which could be a number of different types of actors.
Due to some of the difficult decisions that the business network has to take it’s important that this is a neutral entity. For example the off boarding policy is made by the administrative governor but its actual execution of the off boarding will be done by the network operator.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 168 – IDunion a European decentralised identity management platform
Aug 15, 2021
IDunion is a new European decentralised identity management platform that is promising to bring user centric digital identity with privacy at its core. In this podcast we had Adrian Doerk – Product manager at Lissi and communication & Public relations at IDunion, walk us through IDunion.
What is blockchain?
For Adrian, blockchain is just a data structure. When you expand its definition from a DLT (distributed ledger technology) perspective with multiple nodes on a network what makes it interesting is whether the rights to writing on the network are permissioned or permissionless. This is determined by the type of consensus that exists on the network who determines who and what is written into the network.
Present challenges with digital identity
History of the digital identity on the internet:
Isolated siloed identity where users would login and authenticate themselves with the provider of a digital identity for accessing a service
Federate identity where multiple companies and institutions got together and agreed on a single sign on for multiple sites. However, the challenges of this model is that the identity was still focused on a central operator and not all companies and institutions where comfortable with this approach
User centric identity where a classic example is login with Google login or Facebook login. Whilst this is very convenient for the user it does lock up the user in a proprietary ecosystem which is very dangerous since these providers live from user and behavioural data which they resell to third parties.
The next generation of digital identity will be designed with privacy by design principles. It will be a user centric proposition that is both convenient but also gives the user more control around their identity for authentication and identification purposes.
Identification asks: who are you?
Authentication asks: is it you again?
IDunion vision
IDunion is a consortia, whose aim is to build an open ecosystem for self sovereign identities controlled by its user. Whilst the platform can be used everywhere it is based on European values, laws and regulations.
Everyone (including natural as well as legal persons and things) has the possibility to manage their identity information by themselves and to decide when they want to share this information with whom. The sovereignty over one’s own data is tremendously important, especially when it comes to very sensitive and personal information.
Users can choose one of several wallets, which are used for storing and presenting credentials to third parties as required. This is helpful for a wide range of use-cases and enables a new way of identity management. Thus, technology companies are no longer acting as a central identity manager, but the user himself! The user can decide where the information can be seen, which program is used to manage information and with whom this information is shared. We call this concept the self-sovereign identity.
IDunion platform
Source: IDunion
IDunion uses Hyperledger as a kind of technical umbrella for their multiple implementations:
IDunion initiative was started by a number of German stakeholders and early on received some funding from the German government.
The newly founded IDunion organisation will act as the legal entity behind the network and represent the stakeholders’ interests within a European Cooperative Society (Societas Cooperativa Europaea S.C.E.). In addition to operating the network, the organisation’s main tasks will be to attract new partners and to bring together partners working on the same or similar use cases. This ensures that all European participants are put on a level playing field.
The participants in the network have defined rights and obligations to enable legally binding relationships which are in harmony with the European legal framework (especially eIDAS and GDPR).
Benefits for the user – user centric design
The interesting aspect for the end user is that with IDunion they will have peer to peer encrypted communication channels which they can use to exchange verifiable information.
One of several wallet apps offered can be downloaded to the mobile device and used to receive, store, manage and present digital credentials. The data is stored locally on the mobile phone and can be transferred from wallet to wallet thus ensuring data portability.
Selective disclosure of personal data and encrypted communication prevent the creation of user profiles by third parties. The wallet offers the possibility of storing, managing and sharing all personal data in a bundled form as required. For example, users will have a clear history of what information was shared with whom and when giving them a clear history of the shared data and that they can execute data protection rights such as the right to be forgotten.
This facilitates access to online offers of companies and institutions and creates transparency for all parties involved.
Benefits for the corporation
The network enables the clear verification of customers, companies and institutions. This facilitates access for customers and saves companies time, costs and administrative work. Since companies can independently verify the identities of business contacts, identity fraud is prevented to a large extent.
Furthermore, the single sign-on functionality offers the user a user-centred alternative to a password or the dependence on a single technology provider. Since users store their data themselves, this leads to fewer obligations and potential penalties of data protection regulations such as the GDPR.
What we have to remember is that personal data can be a liability for companies. If we look at some of the recent data breaches that have led to massive GDPR fines it shows that storing personal data in a centralised way acts as a honey pot for hackers.
Benefits for institutions
Institutions such as educational institutions, state authorities or citizens’ offices can use the network to identify citizens in an eIDAS-compliant manner and thus provide easy access to their services and systems. Once a connection is established, information requests can be sent directly to the citizens’ wallet via an encrypted connection.
Ep. 167 – Empowering individual’s consent using NFTs and blockchain – insights from Acoer
Jul 25, 2021
Jim Nasr, is the CEO of Acoer, a software development company whose vision, and work is all about building useful, usable, real time technologies that are fundamentally targeted at the healthcare industry. Jim was the former chief software architect at the Centre for Disease Control and Prevention (CDC) in the United States. In this podcast we discuss how NFTs and blockchain can be used to empower individual’s consent.
What is blockchain?
Blockchain is a public infrastructure that should be used within the public context. Blockchain provides transparency, auditability and accountability. Blockchain is a layer of trust that can be used to impute trust between parties who don’t trust each other.
Jim is keen for blockchain to move past the world of cryptocurrencies and proof of concepts. He wants to make blockchain as practical as possible with real practical solutions.
Challenges of consent
Consent is an element of compliance.
In the healthcare industry, when you go see your GP, you fill out paperwork to essentially give them consent to your medical health information for all time. For Jim there are a number of issues with that. It’s wrong that the patient doesn’t always fully comprehend what they’re signing, the process is complicated, it has to be done multiple time and the patient has no rights to say they’ve changed their mind. Jim gives the example that “if you’re my orthopaedic surgeon, you should not have access to my mental health information”.
There is a double challenge with regards consent. On one side individuals who sign consent forms have no idea what they have exactly signed, what data is shared and where that agreement is. On the other side organisations have limited idea on who signed what agreements, what data was covered and where the agreements are stored. This creates repetition of the process where the individual is repeatedly asked to sign new consent forms.
Dynamic consent is the recognition that consent is not a and done concept, it is more dynamic with potential multiple phases for providing consent with the ability to revoke the consent, where the consent may expire after a certain amount of time and where it could be renewed.
Dynamic consent is digital which gives it properties to be tracked and monitored.
Data dignity
Data has creators like individuals on Facebook, Instagram and Twitter to name a few who create data on those platforms. Essentially, we are implicitly giving those platforms the ability to use this data and along the way we become the product for the “free usage” of that platform. Consumer of those platform are creating content for the platform to leverage in a manner that creates a financial windfall for themselves. The issue is that we as consumers have no say in how that data is marketed and no say on whether firms like Cambridge Analytica use our data and create secondary data markets for themselves.
Regulation: GDPR & CCPA
Regulation such as GDPR (General Data Protection Regulation) and CCPA (California Consumer Privacy Act) provide an important opportunity for regulators to help regulate consent. GDPR gives EU citizens the right to grant access to their information to third parties, including consent and gives them the right to be forgotten. Crucially this regulation carries some serious teeth where the financial penalties for firms who breach GDPR regulation is up to 4% of gross revenue.
For example Google has received a fine of €50m, British Airways of €22m and Marriott International of €20m.
CCPA is very similar to GDPR in terms of the protection it provides to consumers, in terms of consent and in terms of being fined if firms don’t comply.
In the healthcare industry there is the Cures Act which gives patients the legal right to get access to their health data from their electronic health record irrespective of the type of app they’re using.
Components of consent
There are multiple components to a consent. First of you have who is consenting? With that you have a signatory piece which can be a wet signature on a piece of paper, a digital signature or even an oral consent on a transcript record.
In 2021 and going forward all this information should be captured digitally and traceable digitally. Metadata of the consent needs to be captured such as the time stamp and other characteristics of the consent file such as file size, who touched the file.
Consent files can also be aggregated for reporting purposes such as for understanding what’s happening in terms of vaccinations for COVID-19. This needs to be done within a context of traceability, accountability and traceability and crucially in a privacy preserving manner.
Blockchain and consent
The future of consent is one where it is dynamic. It recognises that individuals will have different states in their life cycles which won’t be contained within one app or one organisation. So, the questions are:
How do you transfer the rights of consent?
How do you maintain the state of consent throughout those different life cycles?
Public blockchain ledger is designed for collaboration amongst parties that don’t know each other. It provides an immutable reference point that can be trusted due to the cryptography and public nature of the network.
Public blockchains can provide the facility to have a public anchor of that consent without the public have access to the file thus keeping the data private. That anchor on a public ledger effectively acts as a chain of custody.
Launch of RightsHash
RightsHash, is a decentralised engine that allows to associate NFTs (non-fungible token) on the Hedera Hashgraph network to any digital asset that will have different states within its lifecycle.
Jim takes us through an example of where a patient goes to see a doctor and signs a consent document. Using OCR, optical character recognition, this document can be digitised as a PDF making into a digital object with its specific public token ID that can be tracked. Which means any time the file is accessed or any changes to its state for example if it expires or if it is renewed, it can all be tracked using that one token ID.
By building on the Hedera network, RightsHash brings a full range of benefits to the underlying process of managing an individual’s rights. These include the ability to track and monitor discrete rights and protections in real-time, tracking transactions from different data sources and across different apps, demonstrating cryptographic proof of action and providing an automated, continuous, transparent auditing of all related compliance transactions. Additionally, RightsHash uses its own distributed architecture, decentralized processing, and storage nodes, physically located across the globe and on different cloud providers to ensure fault tolerance and high performance.
The first production deployment of RightsHash has been dedicated to the process of consent management, in particular for clinical trials with patient health or medical consent scenarios. Acoer has been working exclusively with the Consent Custody Corporation to develop a fully functional blockchain-enabled consent platform based on RightsHash called ConsentHash. Consent Custody Corporation is a custodial bank for consent agreements and personal data assets, and acts as a data fiduciary. Consent Custody Corporation protects people and organizations by safeguarding consent agreements while making consent information available, transparent, and certified anywhere data is managed.
In January 2020, 12 global pharmaceutical companies and 17 public and private entities; including technical, legal, regulatory, academia, research organisations and patient representative organisations, got together to form PharmaLedger, the pharmaceutical blockchain consortium.
Joining us for this podcast is Daniel Fritz, PharmaLedger Industry Project Leader and Supply Chain Domain Architect at Novartis and Marco Cuomo, Manager Applied Technology Innovation at Novartis, a team that brings in new technologies, such as blockchain, into Novartis. Marco is also the co-lead architect at PharmaLedger for the blockchain platform.
What is blockchain?
Daniel likes to introduce blockchain with the five A’s:
Assets, too often blockchain is associated with cryptocurrencies as assets but assets can also be data and medicinal products that can be exchanged on a distributed ledger technology
Audit, the immutability aspect of blockchain is good for audit.
Automation, use of smart contracts eliminate non-value adding steps
Anonymize, especially important in the healthcare care industry to protect the patient’s data by keeping it confidential and protecting their privacy
Authority, no central authority where authority is distributed amongst the participants
For Marco the real strong added value blockchain provide at its core is the immutability function. Whatever you store on the blockchain, transactions and data are immutable so no one can change it.
An introduction to PharmaLedger
PharmaLedger, launched in January 2020 as a public private partnership under (IMI) the Innovative Medicines Initiative, a joint undertaking between the European Union and the (EFPIA) European Federation of Pharmaceutical Industries and Associations. It’s a three project with over €22m of public private funding. There are 29 partners in the consortium which includes 12 pharmaceutical companies whose goal is to accelerate blockchain adoption. Its aim is to prove that this technology can bring value to patients, increase trust amongst all of the different ecosystem stakeholders and enable new capabilities around supply chain clinical trial and health data. In addition it aims to demonstrate that blockchain can address some of the key challenges the industry has around identity and governance.
The whole idea of the IMI is actually about building consortiums to address problems or challenges that are too risk for any one company or too expensive for any one company and which would benefit from having public partnerships.
PharmaLedger use cases
PharmaLedger has launched with 8 use cases broken down into three domains:
Clinical trials
Health data
Supply chain
Within the supply chain domain, you have two versions of supply chain traceability: clinical supply and finished good traceability. There is electronic project information (ePi) which is also known as an e-leaflet, or an e-patient information leaflet. It’s a digital version of the leaflet you find in a medicine box. It contains the latest approved version of that leaflet in a manner that preserves the patient’s privacy. In the future it will have the capability to send out recall notification, if there was a quality issue of that product, to send updated product information and also to apply some additional checks on the provenance of that medicine to help reduce the risk of counterfeits.
On the clinical trial side, they have eRecruitment which is clinical trial recruitment so that patients can share their health profile and be matched through an algorithm to open clinical trials. Clinical trial eConsent aims to reduce the very administrative process for agreeing to undergo procedures and processes for any clinical trials. Clinical trial for IoT devices is for getting data from devices. Personalised medicines is putting it all together with some advanced digital technologies like machine learning and artificial intelligence to help predict what kind of diagnosis or treatment the patient should have in the future.
Competitors collaborating together
For Marco the real transformational aspect of using blockchain is that the entire industry is working together in building digital ecosystems to benefit together from this technology. Building this digital ecosystem means the members have to work and collaborate together to define standards.
All technologies that is developed in the PharmaLedger consortium is open sourced. So, whoever within the consortium develops some code it is open sourced for all other members to use and to build upon.
Governance
Daniel looks at governance from a project governance standpoint and from what he calls a next generation governance structure. From a project governance perspective, they have a steering committee, a project management board and a general assembly for all 29 partners. Any major changes to the membership of the consortium requires unanimous approval of all 29 partners.
The next generation governance structure is here to provide a governance body to manage a blockchain network and ecosystem which should be decentralised but with some kind of control or guidance. The present thinking is to have a foundation ecosystem which is to oversee the blockchain network and how application decisions are done. They will test out this new governance body for the electronic product information. Marco anticipates that there probably won’t be one governance model for all use cases but different ones that fits best each use case. There are ongoing discussions on how best to achieve this.
The PharmaLedger blockchain platform
The PharmaLedger project’s main goal is to establish an ecosystem where everyone can use a blockchain platform without the need to reinvent every time they have an idea to utilise blockchain. However, at the same time Marco points out that they didn’t want one big fat blockchain network but something that is more flexible. They wanted a platform that could grow with time and that had the capability to replace, expand or adopt new technologies.
All use cases don’t all have the same requirements. They don’t all need payments or voting features and some may only need anchoring services.
To achieve this need of flexibility they developed an abstraction layer, called open DSU (dat sharing unit) that separates the blockchain applications from the blockchain and to have the capability to define blockchain networks and blockchain technology for each individual use cases. For example, a use case could choose to have a public, private or hybrid blockchain network.
Due to GDPR and capability issues data isn’t stored on the blockchain. The Open DSU, the abstraction layer, solve the interoperability issues between the different blockchains, applications and where the data ultimately resides. The abstraction layer also handles the questions around private keys and thus helps the application developers to focus on the business solution and not on the underlying technology.
From an identity standpoint the open DSU layer supports different identity systems and issuers. It ensures that the users and the organisations are in control of their identity and of their data and the application who is working with that data is also under their control.
Impact of COVID
COVID has demonstrated the importance of getting reliable information on a product, especially with regards to vaccines. The electronic product information helps to address that. There has been many instances of counterfeited personal protective equipment which can be addressed with ability to track the provenance of the materials.
The IoT use case for clinical trials helps to perform clinical trials without having to come to the hospital through the use of remote devices.
What COVID has provided is the opportunity for what Daniel calls as hyper collaboration where manufacturers joining forces to help fill demand.
Post 2022
The grant agreement with the IMI and EFPIA, which comes to its conclusion at the end of 2022, is to demonstrate the uses cases in a pre-production environment, to document it, to disseminate the information through research papers, conferences, hackathons, and webinars.
For Daniel, a real achievement would be to have one of these use cases in a productive state before the project ends and to have the functional governance set up an operational.
For Marco, the three years of PharmaLedger is really to lay down the foundation that will give birth to many new use cases.
Ep. 165 – Cross blockchain ecosystem collaboration – insights from Contour & MineHub
Jun 27, 2021
Arnoud Star Busmann, CEO of MineHub and Carl Wegner, CEO of Contour join us in this exciting podcast to discuss their cross blockchain ecosystem collaboration. Arnoud and Carl share their insights on how to identify opportunities for cross ecosystem collaboration based on customer overlaps and data to ultimately build an experience that will delight the customer.
What is blockchain?
Carl’s definition of blockchain, within the context of distributed ledger technology, is a way of managing multiple databases and keeping that data where they overlap is in sync. You have a set of consensus mechanisms to manage agreements between the multiple databases, a communications protocol and a rules-based system for them to work.
Arnould’s definition of blockchain is one of a data infrastructure that provides a shared single source of truth that is distributed across an ecosystem. The responsibility for maintaining the shared truth maintained by a neutral, unbiased machine or machines. The data is owned by the data owners but the truth is controlled by none of them. The governance model of data is really the crux of blockchain technology and distributed ledger technology in Arnould’s opinion.
ERP 2.0, it’s the ecosystem resource planning, building the apps and solutions that create value across an ecosystem instead of just one enterprise on the basis of that shared data.
Challenges MineHub addresses
In the mining and metals industry there are many parties involved in post trade management of physical commodity transactions and across general supply chains. The multiple parties have a tendency to collaborate and coordinate themselves via email, sending PDFs or couriering paper documents. So, by the time that information is reconciled and acknowledged to be true, the cargo is already discharged or financed.
There are a number of challenges with this approach in the sense that it is easy to manipulate, hard to trust for important business decisions making such as credit decisions, stockpile optimization, purchasing, pricing and compliance. The worst problem according to Arnoud, is that the valuable information has a tendency of being locked up in courier bags or boxes.
World Economic Forum White paper: “digital transformation is estimated to generate more than $320 billion of value in the metals and mining industry over the next decade, including $77 billion”
MineHub ensures that its users have high quality information, reliable information about the most important risks and opportunities in their daily work available in real time
MineHub has developed its platform on HyperLedger Fabric. However, it is on their roadmap to go multi-ledger because they have a requirement to have a single reliable source of truth with data privacy and data residents.
Challenges Contour addresses
Contour was previously known as Voltron before they rebranded.
Trade finance is a very paper intensive industry where information is being couriered back and forth. Goods are arriving before the paperwork gets there thus making credit decisions harder to make or slower.
Contour focuses on one aspect of trade finance which is a letter of credit, which is where a buyer and seller have some trust issues between each other. The buyer doesn’t want to pay for something that he didn’t want, whilst the seller doesn’t want to ship and let go of his stock until he’s sure he’s going to get paid. They both use their banks to act as intermediaries to effectively manage the trust. That trust is managed by moving documentation between buyer and buyer’s bank and seller and seller’s bank and back and forth.
Contour facilitates all four parties ability to see information at the same time. All four parties can join one ecosystem to support a letter of credit between them using one platform, an R3 Corda platform, instead of potentially four and Contour allows transparency and veracity of information between the parties. The result is that instead of it taking two to three days to issuing a letter of credit it can now take 20 to 30 minutes!
As Corda was built with the support of the whole banking and financial industry, using Corda for Contour was a no brainer as it helped establish trust between the banks and Contour.
The collaboration
For Arnoud there is sufficient ecosystem overlap in their respective markets to establish a close and valuable collaboration for the ecosystem. Customers today are already using multiple platforms for their data to flow in a manner that creates opportunities for them.
Connecting MineHub to Contour in a seamless manner makes it easier for the customer’s data to flow from one platform to the other thus delighting the customer.
For Carl:
The need to have customers in common.
Being able to work with a partner that shares a common mindset.
By sharing customers, the opportunities to delight customers by being able to share information increases exponentially.
The partnership will enable trades on MineHub to flow seamlessly into the Contour network, where a digital letter of credit can be created using API connectivity. MineHub digitises the supply chain by allowing miners to capture mineral digital contracts with buyers and streamline post-trade operations, including document flow, financing, ESG reporting and logistics.
Working together, MineHub and Contour will bring greater trust and transparency to fragmented metals and mining supply chains and trade finance processes, helping data flow across the world’s trade routes, connecting buyers, sellers and their banks.
Interoperability.
Corporates and banks shouldn’t be expected to join one platform and digitise all of their process. The key to interoperability is multi-platform participation. APIs provide the interconnection between the platforms and the data can move seamlessly between the two systems.
Data marketplaces
Arnoud is looking at creating a business model where the customers can monetize their data which currently they have difficulty in doing for different reasons such as regulatory and ones of competition. An opportunity would be for customers to aggregate their data with their competitors and monetize it in a way that they can start generating revenue from it.
For Carl, the opportunity is, if you have data that can be verified, if you have data that’s updated consistently, then you can have different finance and other business models. For example today, if a bank would lend money 90 days before shipment not knowing what the person did until it actually got in the container at the part. By having verifiable data in different milestones that opens up the opportunity for different types of financing from micro financing to dynamic risk financing for example.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 164 – Tokenisation of Assets and Potential Implications for Financial Markets – OECD Report
Jun 13, 2021
Asset tokenisation has become one of the most prominent use-cases of distributed ledger technologies (DLTs) in financial markets, for assets including securities, commodities and other non-financial assets. For this podcast we had Iota Nassr, Economist and Policy Analyst at the OECD, join us to discuss her recent OECD report on the tokenisation of assets and their potential implications for financial markets.
Iota started working as an investment banker at Merrill Lynch and at Citigroup before joining the OECD for the last 9 years working for the committee on financial markets. The committee has set up an expert group on financial digitalisation which includes representatives of central banks, finance ministries, treasuries and other financial authorities from the 38 OECD members. The group looks into Fintech related matters in financial markets and their policy implications including the area of blockchain in finance.
What is blockchain?
Blockchain is a type of distributed ledger technology, that records information in a distributed manner, in an immutable, time stamped and programmable manner that allows for the exchange of value without the need for a trusted central authority or without the need of intermediaries.
This allows for efficiency gains on the back of such disintermediation.
Tokenisation of assets and potential implications for financial markets – OECD report
Since 2018, the OECD committee on financial markets had been working on blockchain related issues. What kicked it off was the ICO (initial coin offering) hype, which the OECD looked at for their potential for SME financing in a report entitled “Initial Coin Offerings (ICOs) for SME Financing ”. With the drop in ICO hype the committee continued to have an interest on the potential of tokens and tokenised markets post ICO, particularly on their potential proliferation in the technique of tokenisation would affect traditional financial markets.
What they were really looking at is a theoretical environment where tokenized assets and market for tokenized assets take off. If that were to happen, how would it affect financial markets? And what do policymakers need to know and think ahead of that? That was the initial objective of the tokenisation of assets report they published in January 2020.
What is tokenisation of assets?
The report looks at tokens from two perspective: (1) tokens representing a pre-existing real asset and (2) tokens “native” to the blockchain.
Source: OECD Report
The firsts case has tokenisation as the process of representing in a digital way by using the DLT an asset that already pre-exists. The tokens exist on the chain and carry the rights of the assets that they represent. They effectively act as a store of value for something that exists in the physical world.
Source: OECD Report
In the second case, we have native tokens which are built directly on the chain and live exclusively on the distributed ledger. Cryptocurrencies like Bitcoin or payment tokens are examples of native tokens which derive their value in of themselves and are defined by their existence on the blockchain.
The difference between the two is that in the first case the real assets on the back of which tokens are issued, continue to exist in the off-chain world. In the case of physical real assets, those would need to be placed in custody as to ensure that the tokens issued are constantly backed by those real assets. In the second case the issue of custodianship or third parties securing the existence of the tokenised asset does not exist.
The role of the custodian in the first case is quite important because they are here to ensure that the real assets continues to exist off chain, that the characteristics of the asset correspond to the characteristics that are assigned to the token issued and to ensure that there is no second token that is issue on the back of the same asset.
Benefits, risks and challenges to the wide adoption of tokenisation
Source: OECD Report
Iota, states that there are a lot of purported benefits to tokenisation, since we are still in a phase of having more pilots than actual practical applications. The number one and the most important one in her view is the efficiency gains such as the transfer of value on the blockchain without the need of an intermediary.
Such kind of disintermediation, coupled with smart contract automation on the blockchain potentially reduces the cost of any transaction and speed of execution.
Blockchain allows for fractional ownership of assets which in the past may have been beyond the reach of the average retail investor. An example of this was when a $30m luxury Manhattan condo development was tokenised back in 2018. Such tokenisation results in a more inclusive investor environment which can increase liquidity to previously illiquid asset classes. SME private placements, venture capital funds, small investor funds which are currently some of the most illiquid asset classes can receive liquidity by tokenising these asset classes.
In addition, as with any DLT based applications there comes the benefit of increased transparency, immutability, security and auditability.
There are however a number of challenges that need to be addressed. There are questions concerning operational risks, the technical feasibility and scalability. Add to that the legacy cost of infrastructure and the need for potential interoperability in the tokenise markets there is still some way to go before the tokenised markets really take off.
The role of regulatory policies
Iota recognises that the possible lack of clarity in some parts of the world, particularly in the early stages of the development of this market, could have acted as a potential hurdle for the industry. However, since then there has been a phenomenal progress. For example the introduction of innovation hubs and sandboxes that cater for DLT based financial services and products. The FCA has a sandbox catering for DLT projects. In the context of the European commission proposal there is a section for specific DLT application based sandbox to receive a number of pilots within it.
By using DLT, transactions can be enabled between participants without the need for a central trusted authority as trust can be distributed between the nodes of the network. No middleman is required to validate the transactions between two parties. Investors for example can actually acts as their own broker/dealers as the transactions are confirmed by the participants themselves. This removes the payment of feeds from the traditional financial markets that would have gone for brokerage or any other entity intermediary functions.
When building their report Iota believed that DLT could potentially disrupt the market making model. Market makers are here to provide liquidity to the market. If DLT was to bring disintermediation to this industry it could potentially remove some of the benefits provided by the market makers. For example, market makers play an essential role in smoothing out disequilibrium and swings in supply and demand during periods of volatility. Disintermediation of market makers could disrupt this kind of liquidity provision provided by market makers and their ability to smooth out volatility levels during periods of stress.
The greatest disintermediation, question comes at the post trade at the clearing and the settlement of the transaction. The post- trade multi-step process is simplified and the back-office administrative burden is lowered significantly as you don’t need the central securities depositories or the need for a clearing house. Because in theory the DLT will be acting as the clearing entity and as the counterparty for the completion of trades.
Trades will be settled and validated by the participants of the network instead of a central authority.
Central bank digital currency (CBDC) or stablecoins in tokenised securities
According to the OECD report, for settlement to be achieved in as near real-time as possible and for delivery to be confirmed, the securities transacted and the corresponding payments need to switch ownership simultaneously. This opens up the opportunity for central bank digital currency (CBDC) or for stablecoins.
With tokenised securities on the blockchain either type of coins would allow for delivery and near real time settlement to become a viable and feasible proposition. This will also allow of the removal of lengthy processing and fees that are used in the off chain environment.
The dilemma between using CBDCs and using private stablecoins affects the atomic settlement. CBDCs for example have less risks than stablecoins whether it’s in the form of credit risk, proper audit or a number of other issues.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 163 – Enabling an open mobility ecosystem – Insights from bloXmove
Jun 06, 2021
Harry Behrens – bloXmove co-founder. Harry was until recently the Head of the Daimler Mobility Blockchain Factory where they built a mobility blockchain platform. Harry describes himself as a software guy. Now, along with his co-founder Sophia Rodiger, he has performed a management buyout of the Daimler Mobility Blockchain Platform which is the core of what bloXmove will be bringing to the market. In this podcast we discuss how bloXmove will enable building an open mobility ecosystem.
What is blockchain?
Harry defines distributed ledger technology (DLT) as way for independent parties to keep a shared set of truthful facts of transactions they conduct amongst each other. It is a peer to peer system that facilitates trusted transactions between trustless parties, where they can trust the distributed ledger to reflect the reality of the business relationships between them.
From Daimler Mobility Blockchain to bloxMove
One of the many uniqueness of this startup is that of the four founders, two of them are women with the CEO being a woman named Sophia Rodiger, who also comes from the Daimler Mobility Blockchain Platform.
The Daimler Mobility Blockchain Platform is a blockchain project at Daimler Mobility AG whose aim is to sustainably optimize booking and invoicing processes for mobility solutions.
Non-native electric automakers, where native electric being Tesla for example, are facing serious transformations, in additions to the challenges of COVID19. Daimler for example is doing a form of demerger of all its entities where the truck unit is being separated from the passenger car unit and its financial arm is being split into two. In such times Daimler, like any other business, needs to focus on its core business. Thus, no matter how promising the mobility blockchain platform could be for Daimler or Daimler mobility it isn’t core business.
The platform was production ready and was ready to be “unleashed” as Harry describes it. However, as the platform was built for ecosystem, he believes that any big player with a very strong brand name will never be able to build an ecosystem because it won’t be able to attract the other brands to its ecosystem. For example, Daimler wouldn’t be able to attract Toyota, BMW or Tesla to join the Daimler Mobility Blockchain Platform.
Thus, the only way to do a platform game, to go into platform economics based on software can only be done via a perceived neutral entity. A platform branded as the Daimler Mobility Blockchain Platform will never be able to become the platform for shared mobility or urban mobility.
It was thus agreed that Sophia and Harry will perform a management buyout of the Daimler Mobility Blockchain Platform via bloXmove with the help of venture capital funding from players such as Outlier Ventures.
“By granting the software license, we want to make it possible for the platform to be used for other areas of application and thus to reach its full potential. I am very pleased that our successful pilot project is now being continued and further developed at bloXmove,” says Carmen Roth-Schäfer, CTO Daimler Mobility AG.
BloXmove being this independent third party is now able to build on this mobility blockchain platform and build a mobility ecosystem to revolutionise the way urban mobility is conducted.
Changes to the mobility industry
About 5 years, Harry shares, that the automotive industry started looking into an analysis of the upcoming megatrends such as “CASE” (Connected, Autonomous, Service/Software, Electrification), development towards smart cities, environmental consciousness and avoiding congestion in the big cities.
Mobility as a service is increasingly growing as large cities are increasingly becoming congested and cities are in turn trying to reduce the number of vehicles in them by adding congestion charges and reducing parking spaces. Cars are increasingly becoming internet connected computer on wheels with higher degrees of being autonomous.
Mobility is increasingly transforming from “I want to ride my car” to “I simply need to move within a city”. The cities of the future are increasingly constituted by many different modalities of transport: micro mobility scooter, walking, bicycle, public transport and other shared resources. This changes the paradigm of the product from a vehicle to mobility as a service where the customer needs the highest level of flexibility in mobility within a city as per their preferences and needs. This requires a clear collaboration between a number of parties where a customer can demonstrate a form of credential that is accepted seamlessly between all the parties. This is similar to a SIM card when it is being used in different countries on a roaming basis.
In this scenario a customer is only onboarded once, payment can be done in a seamless manner where in the backend all of the players can run the settlement between themselves.
To deliver on such a vision you would require a decentralised shared infrastructure. Whilst centralised platforms can develop an efficient system for the end user, Harry describes them as having the potential of being seriously dangerous and almost predatory. He gives the example of a centralised platform such as Uber that manages to take 20 to 25% of revenue from the operator. He believes that they can do that because their power is so imbalanced that the operator has no choice.
For Harry, decentralised platforms are the way that enables the participants to scale together, to have the network effect whilst keeping their customer relationships.
Governance & standards
Decentralised governance is always more difficult to focus and to bring to execution speed of a centralised platform. However, an efficient decentralised governance can be achieved by designing the governance around the common incentives. This ensures that all the participants are behaving around both their selfish own interest and those of the platform.
You have to start at identifying the key stakeholders and their incentives. You then try to find a set of incentives that all parties share in common. Harry makes references to the successes of co-operatives in aligning incentives between all of their participants. When incentives are well aligned between participants and competitors they can continue to compete between each other whilst still collaborate on many levels. The collaboration level does not interfere with their core incentives.
Most standards have a better chance of being successful if they are introduced by a neutral player, government or policy maker who help to define an open standard and an open API standard. For example, in the Netherlands there is an interesting initiative being done by the Dutch Blockchain coalition and the Ministry of Infrastructure which is precisely in going in that direction of defining open standards and open API standards.
bloXmove structure
The platform will be structured from the operational side as a cooperative. Operators are both customers and co-owners of the platform. As customers they pay transaction fees on revenue they make and as co-owners they get to keep a portion of that transaction fee. On a basic level this is the incentive design that is being used to structuring the governance
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 162 – Komgo – rethinking blockchain in trade finance
May 30, 2021
Souleima Baddi is the CEO of Komgo, an innovative platform that powers trade networks. In this podcast we discussed the challenges of bringing blockchain to the trade finance industry. Souleima shared her insights on how to manage the need to bring user value immediately whilst dealing with both tech and user issues for adopting blockchain. How do you manage IT and security departments conventional ways of vetting a new platform whilst gaining the trust of traders accustomed to using email and paper processes for the last decades?
Souleima is a banker, having spent 18 years with Société Générale, of which the last 10 years were in Geneva launching their commodity finance business. She’s also a passionate mum of three kids.
What is blockchain?
Blockchain is a distributed ledger. It is a shared and synchronised database across multiple participants, that enables the recording of interactions and transfer of information, such as identity or values like money and securities, between two parties without the need for a centrally coordinating entity.
Komgo uses DLT to create a digital audit trail of documents which strongly mitigates the risk of hampering the document or using the document multiple times for fraudulent purposes.
Trade finance industry challenges
One of the main challenges of this industry has been its usage of paper based process for such a long time.
There has been an acceleration of digital transformation that has increased due to COVID. However, transforming an industry does take a lot of time. Individuals are not easily willing to change their way of working, their routines, to invest in change management and put extra effort to adopt new processes.
Komgo has more than 150 companies using its platform on a worldwide basis. Souleima recognises that for companies using any new software is a huge investment in terms of time and energy before it brings added value to the company. Teams within companies are swamped with their everyday job with their execution and it is extremely challenging for them, despite their goodwill, to embrace digitisation on top of everything else.
The good news is that the trade finance industry recognises that digitisation is an absolute must and that it will play a major role in the future of the industry. The players who move too slowly in embracing digitisation will lose their competitive edge to others who are faster at it.
Komgo
Komgo is an industry initiative with 20 shareholders from corporates and financial institutions who have merged forces to build a solution that matches the needs of the industry from both sides. Komgo is a software development company incorporated in Geneva in 2018 whose vision is to bring workings solutions to clients that helps them execute more trades, faster and in a more secure manner.
Komgo, offers fours solutions to the market:
Konsole: streamline trade finance – structured and authenticated messaging to issue secure banking instructions
Market: optimize liquidity & manage risk – harmonized data and transactions to enable better choices
Check: simplify onboarding & renewal – a single source to accelerate KYC
Trakk: keep track of document trails – build unique documentary audit trails to guard against fraud and falsification
Konsole
Konsole allows banks and corporates to connect together in an authenticated structured exchange around the full lifecycle of trade finance instruments. Souleima provided an example where corporates can discuss between them and agree on the draft of a letter of credit which they can push it to their banks. There is no need to create new chains of interactions, it goes from opening the issuance, the amendment and the presentation of the document to the settlement of the letter of credit.
In addition there are automated flows between Konsole and the client’s internal systems so that data flows from the eCRM of the trader can move through the platform to the back office of the bank in a fully automated way.
Market
Market answers the challenge around how receivables data is being captured today which is mainly around email or over the phone. Market allows users to have a standard way of exchanging receivables data, reporting them and tracking them. It allows to send request to any counterparty using or not the platform thus increasing the access to liquidity of historical data.
Check
Check is a very simple client portal to accelerate and secure the exchange of documents between counterparties. Today everything is done via email which is unsecured. With Check you have a structured portal where you can the link to the counterparty to have them upload documents.
Trakk
Trakk is Komgo’s product that is using DLT as it allows users to mitigate cyber fraud. Trakk is the backbone of the Komgo platform as it supports Market, Check and Konsole.
Trakk allows users to register the proof of any document to create an immutable digital version of the document, with its authenticity easily verified by anyone. This can be done via an outlook plugin or via a widget on the users’ websites or straight onto Komgo. Using the widget you can drag and drop the document to confirm if it still has the consent of the user. Banks, traders, inspection companies can track what is done with a document if it has been changed or not, thus allows to strongly mitigates the risk of using a fraudulent document.
Komgo’s blockchain journey
Komgo started experimenting with blockchain back in 2016 to the point of creating a smart letter of credit. However, it was clear that the industry wasn’t ready to use it at scale. Souleima has a very strong focus on answering the industry’s challenge now instead of in 5 – 10 years. Based on the user feedback that they received on their smart letter of credit as not answering the needs of the industry, Souleima decided to stop using the smart letter of credit and instead to use blockchain where it is needed, where it adds value to the user and where users are willing to adopt it and pay for it.
Participants in the trade finance industry know that they have no choice than to transform the way they operate. Plenty of companies have been trying to do this over the past decades and have not managed to do it at scale. The hype around the blockchain technology that happened in the industry has been massively driven by the hope that this technology could solve all the problems in one year. As Souleima reminds us that bringing added value to the user is not about technology, it’s about allowing them to execute their business in a faster and more secure way and allowing them to do more business. To achieve that requires much more than just technology.
Komgo proved that you can use blockchain to provide end to end secure messaging and track document data registration. In the future they foresee some business cases that may involve additional blockchain features like token ownership and shared state machines. However, the time isn’t quite right in terms of readiness of the industry.
Barriers to using blockchain
When a company starts using a software, it needs to be vetted by security and IT departments. The first hurdles was that at the beginning no one had agreed to approve a blockchain based platform. This required time for experts to have a think about how they were going to assess blockchain technology in the B2B space. As they started to apply conventional ways of vetting platform this didn’t work as blockchain is a different way of building a tech stack.
As Komgo’s mission is to deliver a solution now, they couldn’t wait for all the experts to agree on setting up a new analysis framework.
On the user side, individuals who execute trade finance deals, they are accustomed to executing them the same way for the last decades. They are not accustomed to platforms, their default tool is email. When they get told by management to use the platform they need to start trusting your platform. Something that is difficult to achieve when too often blockchain is misunderstood as being Bitcoin.
To complicate matters as Souleima states there are as many standards as markets themselves. Some of the standards compete among themselves. To date there isn’t no industry standard.
Souleima’s advice to herself
Souleima was asked if she could advise herself for starting Komgo in 2021 what top tip would she share with her future self. First thing would be not to start with the technology. Always start with solving a business problem and getting the approval of the users. Engage the user straight from the beginning, create design flows that you can share with the user to get their approval. Only when you have understood that you solve a business problem for the user that you can start building the technical solution. If blockchain is the best way of solving the problem then use blockchain, if not don’t use it.
Ep. 161 – ClaimShare a use case in confidential computing
May 23, 2021
Chaim Finizola is the ClaimShare Director and the head of business development for emerging markets over at IntellectEU. In this podcast we discuss ClaimShare’s confidential computing solution built on top of R3’s Conclave and Corda Enterprise platform for the detection and prevention of “double dipping” fraud in the insurance industry which runs in the several billions of dollars each year.
What is blockchain?
Blockchain is a technology that allows different actors to collaborate with each other without having to trust each other. Having a database in the form of a distributed ledger you can have not only the data decentralised, but also the way the data is handled in a decentralised manner.
Independent of the discussion of centralised versus decentralised, Chaim reminds us what is important is to focus on the business use case and then determine the best approach.
What is confidential computing
Confidential computing allows different actors to perform private computations on specific data sets and process data without other actors being aware of each other and without them being able to see what data is being processed.
The party that is hosting this black box whether it’s a regulator or a network operator they can’t see what is being processed within the black box.
An example of such a black box is the Intel SGX chip which has enclaves where the data can be processed in a fully confidential way without revealing any data to external parties.
KPMG has estimated that detected and undetected fraud make up between 5% to 10% of insurers’ total claim payouts. “Double-dipping” fraud a key contributor to fraud, costs the insurance industry several billion dollars each year, which inevitably leads to higher household insurance costs
Double dipping happens when one actor for one loss event goes to multiple insurers to request a same payout. For example, a customer whose had a car accident will go to insurers A, B and C to get a payout from each one of them. This is quite a large problem for insurers which today has been extremely hard to detect. Insurers are usually unaware of this problem as they do not have a way to detect if their customer are insured with another insurer and if a payout has been made on a claim or not.
There has been attempts by insurers to share information via a centralised database but that came up with a number of complexities from a regulatory standpoint and from a GDPR one. In addition, centralised databases run the risk of getting hacked or of leaked sensitive information.
IntellectEU
IntellectEU are the developers of the ClaimShare solution. The firm was founded over 15 years ago as an integration company in the payment sector. They have done over 400 integrations, mainly with SWIFT, in addition to other payment rails. Since 2014 they have been working with DLT and were the first to perform a SWIFT to Ripple integration.
In the blockchain space, IntellectEU has been working first with Ripple, then with Ethereum and in 2016 they were one of the founding members of Hyperledger. Since 2017 they have been working closely with R3
Up to now they have been working with 40 capital market, insurance and telco projects for using blockchain and emerging technologies such as AI, confidential computing and quantum computing.
ClaimShare
Chaim introduced ClaimShare is the first platform that allows the detection and prevention of double dipping fraud in the insurance industry. ClaimShare uses blockchain technology to allow the sharing of public information to match data and match claims based on colour, location and date, for example. They then use, confidential computing part to match sensitive data of the claims that can be the named user, their address and birthdate. This allows insurers to detect double dipping fraud by matching data without revealing data between themselves.
R3’s Conclave platform enables the usage of Intel’s enclave for ClaimShare’s customers to be fully GDPR compliant as no exchange or storage of sensitive or private data of the end users happens on other insurance databases. Enclaves are the hardware chip where the private computation happens, whilst Conclave is R3’s platform that allows the easy usage of this confidential computing chip.
In addition to R3’s Conclave, ClaimShare also uses R3’s Enterprise Corda platform to know the identity of the insurers with whom public data claims is shared. However due to GDPR no client private or sensitive data is stored on the ledger. It is stored off chain which is where the confidential computing part comes into play.
ClaimShare use case
ClaimShare is a platform that is very efficient to match any type of claim and can also work cross claims. For example, a customer could travel to Spain with both a cell phone insurance and a travel insurance. If the phone is stolen then the customer could try to request a payout from both their travel insurance and their phone insurance. It is very hard for the insurers to know if double dipping occurred. These are examples of the type of $5 – $10 billion of double dipping that occurs on a yearly basis.
ClaimShare isn’t limited to one type of insurance as it does this cross-insurance policy type check as well. An example of how this could work is where you have one end user that goes to insurer A to submit their claim. The insurer will use their AI and machine learning (ML) on available public data to see if there is already a case of fraud. If the insurer detects no fraud it will proceed with the payout. What ClaimShare propose is for the insurer to perform one simple API check to the ClaimShare’s Corda public ledger, to see if similar claims have been submitted based on public information. No personal identifiable information is stored on that ledger. As this is the first payout made to that user there are no challenges made.
Now lets suppose the same person goes to a second insurer to request the same payout. The second insurers will also do its own due diligence using their AI and ML techniques and will most likely conclude that the payout can happen. However as the API will be triggered to ClaimShare’s public ledger it will detect a similar or a suspicious claim was done based on public information such as colour of the car, type of accident and date of accident.
If a match has been identified between two similar claims, this is when the confidential computing part is engaged. At this point the two insurers can access the private information regarding the user that they have such as full name, address and birthday. That private information is encrypted and is sent to the Conclave black box where it is decrypted and compared. No one can see what happens in the black box as it is done by machines. Once the comparison is complete an encrypted answer is sent back to the insurers. If the information was proven to be the same then a confirmed fraud message will be sent. If the information was not the same then a confirmation message is sent instructing for the payout to happen.
Confidential computing vs zero knowledge proof
Zero knowledge proof (ZKP) is effectively a technique which uses cryptographic algorithms so that various parties can verify the veracity of an item of information without sharing the data that compose it.
Chaim was asked how does confidential computing compare to ZKP. Chaim believes that from a scalability perspective enclaves are much more widely adopted and more scalable compared to ZKP techniques. Enclaves are hardware chips whilst ZKP is software. Hardware it usually easier to fix than software when problems arise, and the chips are easier to maintain.
Additionally Chain points out that the development experience required to use ZKP is much higher than with using R3’s Conclave where in a matter of two weeks you can set up a Conclave component and start matching private data.
This episode is brought to you by our friends and sponsors at R3.
Privacy-enhancing techniques like Confidential Computing allow different parties to gain reliable insight from data without revealing the actual data to anyone, eliminating concerns around data privacy, lack of control over how data will be used, and – most importantly – fear of it getting into the wrong hands.
Conclave is a new privacy-enhancing platform from R3 that enables the development of solutions that deliver insight from shared data across multiple parties—without the underlying data ever being seen.
Discover how Conclave is powering applications – like Intellect EU’s ClaimShare – that mitigate fraud and deliver trusted collaboration in the insurance industry and beyond by visiting www.conclave.net.
Ep. 160 – NFTs an opportunity for the financial industry?
May 16, 2021
Charles Kerrigan – Partner & Global Head of Fintech at CMS. Charles spends his time looking at what do new technologies mean for the industries that their clients work in from financial institutions to fintechs, crypto firms, and blockchain protocols. In this podcast we take a comprehensive look at NFTs and their impact on the financial industry, on property, transferability and ownership within legal frameworks.
What is blockchain?
Charles gives us a lawyer’s definition, where he sees blockchain as both a puzzle and a challenge. To explain that he gave us an example, where is cryptocurrency property as defined under a legal system in English law. Property can be categorised into two buckets:
Real property, is tangible and is something that can be touched.
Intangible property: Shows in action, is essentially everything else where you can bring an action in relation to it, i.e. that you can sue in court for it.
When Bitcoin arrived, it wasn’t something that can be touched and thus could be considered as an intangible property. However intangible property has been defined over the centuries as something that you can sue under a contract. Bitcoin thus isn’t either an intangible property nor a tangible one.
The theft legislation talks about depriving someone of property, so bitcoins not property, you can’t steal it.
In November 2019 Sir Geoffrey Vos, Chancellor of the High Court came to the conclusion. That crypto-assets have all the legal indicia of property and are, as a matter of English legal principle to be treated as property. There are two primary reasons:
First, the novel features of some crypto-assets, such as intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation, and rule by consensus, do not disqualify them from being property.
Secondly, they are not disqualified from being property either because they can be regarded as pure information, or because it might not be possible to classify them as being things in possession or things in action
Taking the above points into consideration for defining blockchain, Charles explains that blockchain identifies value, it establishes certainty of ownership and is able to transfer value with certainty.
NFTs – Non Fungible Tokens
NFTs provide the opportunity to identify ownership in a digital context and that has value in itself.
A lot of present and historical legal disputes around commercial law are with regard to disputes over ownership. A person acquires a piece of property from another person, not through a valid transfer, whether it’s via theft or mistake, or anything, that means that Person A has lost an asset, Person B has gained an asset in a way that’s invalid. So far, we’ve got an easy case, because Person B should give it back to Person A.
The hard cases come from variations of when Person B, hands it on to person C in exchange for some value. So now you’ve got A out of pocket, and C out of pocket, and B disappears whether physically or financially where they become insolvent. We’ve now got a dispute between A and C, neither of whom are at fault. But both of whom are arguing that they should have this asset returned to them.
NFTs provide an immutable, searchable register in terms of who is the owner of a piece of property.
Because NFTs are sitting on their own blockchain protocol such as Ethereum, they transfer their rights of ownership via an executable code. Two questions arise with regards what is being transferred:
How to reconcile two registrars a real world asset registrar such as the Land Registrar in the UK with a NFT registrar?
Where you don’t have a real world asset registrar for example in the UK, copyrights are not registerable. The protocol on which the NFT is minted and issued will purport to transfer rights, but it’s not transferring rights and their copyright unless the copyright owner is party to that transaction
Who has the ownership rights in relation to a clip of a sports game for example. Because there are the participants that are being filmed? There are the broadcasters, there is the platform on which that clip lives. All of those may have a claim. And the answer to do they have a claim or don’t have a claim is generally written into commercial contracts, So the intellectual property is established and transferred by those commercial contracts. And it is not affected by the NFT. Because often those parties are not party to the creation of the NFT. So, the NFT will transfer a digital certification of the ownership of that piece of digital art, but it probably won’t transfer, intellectual property in the underlying, right.
Do NFTs represent an opportunity for the financial industry?
NFTs are mainly concerned with determining ownership of intangible property. The financial industry fundamentally deals with intangible property. So NFTs do represent an opportunity for the financial industry.
DeFi, decentralised finance, brings a number of benefits such as the ability of market participants to be able to deal not through intermediaries, the reduction in cost, the potential efficiency and the potential for democratisation. However, Charles indicates that the consumer protection question is still an open question.
NFT’s are for the insurance industry a method for both storing information in a safe, secure and manipulable way. They are also a way for engaging with customers who will potentially see these things as having a connection to the type of digital assets that they’ve got on their device.
Charles also believes that on a theoretical basis, if NFTs can provide some of the underlying risk that’s underwritten in policies by insurance companies it could mean that this opens up to a wider market for underwriting that risk. What is also required alongside it is information to enable participants in that market to make judgements about the risk that they should hold. For example, internet of things devices connect to blockchain can enable to manage risk on a real time basis.
Adding smart contracts to the occasion you have automation which with internet of things enables the automation of many more contracts.
Ep. 159 – AAIS’ OpenIDL joins the Linux Foundation
May 02, 2021
Joan Zerkovich – Senior Vice President, Operations at AAIS (American Association of Insurance Services) and Brian Behlendorf, Executive Director of Hyperledger at the Linux Foundation join us to announce that the AAIS’ OpenIDL is joining the Linux Foundation. In this episode we get an introduction to the AAIS, OpenIDL, the Linux Foundation and Hyperledger. We also discussed how OpenIDL will leverage the Linux Foundation unique approach to governance.
What is blockchain?
Joan: distributed ledger technology is a technology that provides a way to have immutable records in the digital world, in a networked environment. Blockchain is used in a number of ways in addition to cryptocurrency, such as for business applications that require data security, privacy and an immutable record. OpenIDL uses blockchain to pursue a path of data security, privacy and transparency.
Brian: blockchain is a shared system of record amongst participants in a commercial ecosystem. Brian, compares blockchain to the mid and late 90s when a group of folks were talking about free software and working on projects with no justifiable economic basis behind them such as the Apache Software project and the Linux project.
Insurance have been conservative about adoption of new technologies, open source software and blockchain technology. However, Brian now thinks that insurers now see blockchain as solving some real problems, particularly problems created in understanding risk within a regulated environment.
Blockchain helps organise an industry to solve a collective problem. A shared system of record, with automation through smart contracts is an essential part of solving these problems and doing that in an auditable and verifiable and, and regulatable way.
AAIS
AAIS is a US based advisory organisation. In the United States, insurance is regulated at the state level. That poses some issues when you’re trying to offer insurance products nationally. The National Association of Insurance Commissioners or representatives from all the states got together and they said we need an organisation that can help them collect data on the insurance market and provide some perspective at the national level. They can use that data to develop products that can be filed in all 50 states to provide a common foundation for insurance companies to add value on top of that with some consistency across all 50 states.
For the last 80 years AAIS has been authorised to collect data from the insurance carriers as an advisory organisation licenced in 50 states. AAIS is allowed to collect data that insurance companies wouldn’t be able to share between themselves due to antitrust concerns. AAIS uses that data to provide reports to the regulators and to develop products that they use.
Linux Foundation and Hyperledger
20 years the Linux ecosystem was composed of a number of open source contributors from RedHat, HP, IBM and thousands of other contributors. A consortium approach was set up as a home for the Linux project where the basic sustainability model was companies paying membership dues tiered by the size of the organisation. They weren’t pay for software development but paying for the coordination overhead, or as Brian calls it, the air traffic control function to all the different contributions coming in.
After a few years there was a sense that this model was stable, that it was reliable and replicatable. The model was thus used for adjacent technology domains like cloud computing, software define networking and industry specific domains like automotive software. For each of these projects there is a clutch of companies who pay yearly membership dues to provide the core essentials, small staff to serve in that air traffic control function and coordinating functions. This has led to the creation of over 400 different projects.
When Hyperledger started five years ago, it was started and continues to be managed in this kind of model where it has its own membership, budget and it is overseen by its own governing board which makes it accountable to its membership. All of its activities are public facing and you do not have to be a member to download the code to use the code for any reason. All the code is under an Apache license.
Hyperledger is the enterprise blockchain, open source community that builds the software that is behind products like Hyperledger Fabric, Hyperledger Besu, Hyperledger Sawtooth, Hyperledger Indy an Hyperledger Aries. These technologies are for organisations and consortia to build their own distributed ledger systems.
Last year they realised two things:
how the governance of permissioned blockchain networks could be enhanced by what the Linux Foundation learned about how open source communities work
because of the pandemic the Linux Foundation launched the Linux Foundation Public Health which Brian is its general manager for blockchain healthcare and identity initiatives
OpenIDL & Linux Foundation
In August 2018 the AAIS launched the Open Insurance Data Link known as OpenIDL with the stated purpose of creating a solution for the insurance industry to solve a problem on data security, privacy and transparency on how data was used. However as they started working on OpenIDL and building out that solutions by working collaboratively with insurance carries, regulators and data providers they realised that this solution could serve many industries in addition to insurance.
OpenIDL was launched with the initial use case of regulatory reporting to demonstrate the technology itself and the solution it provides. The created solution is one where the carriers can keep their data private in their own data centre, what OpenIDL calls a harmonised data store. It is a data repository according to a standard that merges all of the regulatory reporting requirements that a carrier might face.
Using the blockchain technology to write a hash of what’s in that data store on chain that proves to the regulators that the carriers by they have met the regulatory requirement to have it available to answer questions. Through a web interface, regulators would ask questions and regulators could opt in to answer that question where OpenIDL creates a report in which data is anonymised and aggregated and made available to the regulator’s without ever having to transfer the data. This met the needs of the regulators and the needs of the carriers who didn’t have to transfer any data to anyone.
A partnership with the Linux Foundation enables OpenIDL to access a wide range of talent to continue develop the platform not just for the PNC insurance industry but for their partners such as ones in the fire protection and automotive industry to name a few.
OpenIDL is now a project of the Linux Foundation and the governance of the network is moving from AAIS to the Linux Foundation as well.
OpenIDL partners
Chainyard is an infrastructure partner helping OpenIDL with the technology platform and ensuring that it is easily installed and maintained in multiple cloud environments.
OpenIDL has had a long relationship with MOBI (Insureblocks podcast with their CEO, Chris Ballinger). MOBI is interested in data standards and technology platform that support the exchange of automotive information. The insurance industry has a number of auto products that would benefit from a relationship with MOBI.
KatRisk provide catastrophe modelling software with an expertise in flood whilst RMS have a broader platform looking at other types of types of risks such as hurricanes and wind losses. OpenIDL has been working with KatRisk and RMS on a working group focused on floods in the United States. The objective of that group is to gain access to better information, better flood models, better policy and claims data in order to provide a better solution for flood risk and perhaps partner with the federal government to create a new programme that would provide better coverage across the United States.
Whilst KatRisk and RMS are competitors they see value in both competing and adding value on top of the OpenIDL network.
Governance learning for OpenIDL from open source
When looking at the permission blockchain space, it became evident that a lot of blockchain initiatives didn’t make it past the pilot was inevitably a lot of them are put together with a company at the centre of that network. This would cause the other participants to question whether this was a truly distributed network and how different is it to a company saying “we’ve got a central database just trust us”.
Brain reflects on the similarities between the blockchain space and the open source software space from 20 years ago where there was the rise of open source foundation as a home for open source projects as a counter to single vendor hosted open source projects. It was thanks to the Apache Software Foundation, the Python Foundation and the Linux Foundation that so many these open source projects came to become the default standard in their industries.
What is core to the open source movement is the “do-ocacy” principle: “Open source projects adopting the “do-ocracy” governance model tend to forgo formal and elaborate governance conventions and instead insist that “decisions are made by those who do the work.” In other words: In a do-ocracy, members gain authority by making the most consistent contributions.” Source: The Open Source Way.
Having the do-ocracy principle along the transparency principle is core to the open source movement. These principles along with the members of a blockchain consortium providing the financial support for “air traffic control” also apply to management of a permissioned blockchain network.
With regards to governance, Brian looks to ICANN (Internet Corporation for Assigned Names and Numbers) is responsible for coordinating the maintenance and procedures of the global domain name system on the internet. They do their work via a set of contractual relationships they have with domain name registrars around the world. Thus by applying a mixture of technical governance and human governance you have a process to bind nodes on a permissioned blockchain network in an open and transparent manner.
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Ep. 158 – Deep Dive on Plastic Bank’s Blockchain
Apr 25, 2021
Shaun Frankson is the CTO and co-founder of the Plastic Bank. In this podcast we discuss Plastic Bank’s model and perform a deep dive on Plastic Bank’s blockchain and token platform. This is a great example of how blockchain can be used for social good.
What is blockchain?
Blockchain is a secure digital ledger that provides a trusted way for peer to peer data exchanges in an encrypted manner.
The Plastic Bank
Plastic Bank transforms plastic waste into a form of currency to help create ethically sourced ecosystems where communities that collect this plastic receive an above market rate for it.
Plastic Bank uses blockchain technology to work with some of the poorest communities in the world to offer them a digital ID and a digital savings account to provide them with financial inclusion. Plastic Bank’s message is if you have to use plastic ensure that it is plastic that was stopped from entering the ocean and that is used to improve lives and regenerate communities.
Tackling poverty
Shaun explains that when you look at the 17 United Nations Sustainable Development Goals, the first one is poverty. Poverty is the focal point of many other issues including ocean plastic. Plastic Bank uncovered that about 80% of ocean plastics comes from developing countries with almost no waste management systems. They recognise that by creating a business solution where recycling can be an earned income for anyone not as an endpoint in life but as a starting point to a better life, a starting point to education, career training that can provide for all the things a family needs, then this can address both the plastic problem and the poverty problem.
When Shaun looked at bringing technology to bring financial inclusion to the poorest places in the world he came upon a number of problems: no phones, limited connectivity or data, and issues of illiteracy. They had to design a whole interface for first time illiterate person that’s never used a phone, without any reference to any technology and potentially lives somewhere with poor data connectivity.
Plastic Bank designed a system where when they open up a new branch they give the local team a first phone where they can create accounts for non-phone holders upon verifying their ID and age. This will automatically create for them a digital ID and a digital wallet for them to receive the cash earned from the plastic they collect. Like that they can earn their first phone through this system and provide them with full access over their account.
Hitting the 1 billion plastic bottles milestone
The Plastic Bank measured that it takes 50 bottles to reach 1 kilo of plastic. 1 billion plastic bottles resulted in 20 million kilogrammes of plastic waste that was prevented from entering the oceans.
It took them 4 years to reach 500 million collected plastic bottles, this year to reach the next 500 million and in the next 12 months they expect to recycle well over another billion bottles worth of plastic.
The Plastic Bank has a target, that by 2025, they will be becoming a billion dollar company, impacting a billion lives and preventing a billion kilos of plastic from entering the ocean every year.
Plastic Bank’s Blockchain
Need for a digital reward programme where we can ensure that the right people get the right amount of reward. For example, how to ensure in a country like Haiti that you put millions of dollars into the country and ensure it goes to the right people in a safe manner.
Whilst on the other side their client would want a system that is attack proof. They desire a system that is valid and legitimate. This is where blockchain becomes a valuable tool as it provides trust to the data, trust to the impact stats, and trust the right people in some of the poorest parts of the world would receive the right amount of money for their labour in collecting the plastic.
IBM Montpellier’s blockchain team stepped in to provide support to Shaun’s team in helping them build their Hyperledger Fabric blockchain platform, on the IBM LinuxONE Servers on IBM Cloud.
When a plastic collector registers on the Plastic Bank they agree to be part of a traceable supply chain. So, for example when the collector receives their rewards for collecting the plastic onto their digital wallet this provides an element of traceability back to the client. This level of traceability is important for transforming recycling plastic into social plastic that goes into the products of Plastic Bank’s customers such as Henkel and SCJohnson.
From the client side they get a full audit trail of a transaction. They get proof that it’s real people, real plastic. They get access to a special GPS mapping system that shows the location, the distance from the shoreline with the accurate information that verify that it was ocean bound plastic from a registered collector. In addition, Plastic Bank has a team that performs internal audits to make sure there’s no user error or fraud.
Tokens
On this technology stack they also deployed their own token system which has a fractional energy cost which is equivalent to 1/10 the cost of an email. The Plastic Bank token reward programme has one token equivalent to one US cent, which they use as an asset backed stable coin. This has ensured a smooth acceptance of the tokens, backed by a stable coin on a very secure environment, by all the digital payment providers to telecom partners.
Shaun describes the token as a reward for being part of an ethical transparent supply chain. A reward for making the supply chain ethical, making it traceable, and ensuring that recycling can be a livelihood programme. Plastic Bank is able to incentivize behavioural changes by adding a tokenized bonus programme or premium programme on top of the existing market rate of plastic.
When working with local merchants to accept tokens they offer their collectors with either $1 in cash or $2 worth of rice. They can provide subsidised goods in exchange as another outlet to redeem their tokens.
Plans for the next 12 months
On the 31st of March, Henkel and the Plastic Bank opened their first three plastic waste collection centres in Cairo. In addition to this first step on the African continent, Plastic Bank invested a lot of time and effort to standardise their platform to turn into a turnkey franchise style system of how they set up, how they train, and how they audit for that Plastic Bank can expand into many other countries 10 times faster than today.
The aim is for them to put that foundational groundwork so that they can grow exponentially next year and add another billion bottles of collected plastic.
Ep. 157 – SLAFKA – Safeguarding Nuclear Material with Blockchain
Apr 18, 2021
Blockchain is a subset of DLT, which is essentially a combination of a variety of different technologies that have been around for already a number of decades, such as peer to peer protocols, cryptography hashing, to make it an immutable ledger that can be shared securely, digitally, across the ecosystem.
The Stimson Centre
The Stimson Centre is a think tank that was set up in 1989 by Barry Blechman & Michael Krepon at a time when the Cold War was ending shortly before the fall of the Berlin Wall. It’s a nonpartisan and independent centre that looks at real world problems.
The work that Cindy’s team does is evidence-based policy research that sits at the intersection of technology and policy.
Finland is the first country in the world to be building a deep geological repository for its spent nuclear fuel. STUK, its radiation and nuclear safety authority approached the Stimson Centre for helping them develop a prototype.
The question for STUK and for the government of Finland needed to answer is how to ensure that the material underground is also the same that is reflected on the books above ground. Data integrity is very important. The other reason is concerning their relationship with Euratom, the regional safeguards body for the EU’s member states that ensures a regular and equitable supply of nuclear fuels to EU users. The objective is in increasing security, enhancing data sharing and transparency between STUK and Euratom.
For the Stimson Centre, the opportunity, was to see if DLT can actually handle the different types of transactions that are needed under a nuclear safeguards agreement.
Data transactions and trust amongst parties
From a data transaction perspective; nuclear material moves within a facility, within a country and internationally. As it moves it also shifts in form for example from yellowcake or uranium ore concentrates to enriched uranium. All these movements and change of state have to be logged and reported to either a national regulator or a regional regulator such as Euratom within the EU and then to the International Atomic Energy Agency (IAEA) in Vienna.
Source: Stimson Centre
Today’s data transactions come in all shape and form both in terms of paper and in an electronic format. The IAEA has a portal for safeguards declarations but it isn’t universally used. Some countries still provide their declaration on a USB stick whilst others on paper.
In the nuclear world there isn’t a lot of trust among different parties. The IAEA goes in to monitor and verify that what states are doing is actually meeting their obligations in using nuclear material for peaceful purposes.
One of the reasons why the IAEA hasn’t launched a blockchain system is partly due to its stage of digitisation. International organisations such as the IAEA are the still the product of their member states. If member states are not willing to put money in certain thing then it takes a long time for them to happen.
Launch of the Proof of Concept (PoC)
On the 10th of March 2020 the SLAFKA PoC was officially launched in Helsinki. The purpose of the PoC was to demonstrate can the DLT SLAFA prototype handle nuclear safeguard transactions? The answer was yes. The platform was able to demonstrate transactions:
Shipping material within a country or outside of a country
They did not test the security side of things as they wanted to focus on transactions.
Hyperledger Fabric
As Hyperledger Fabric permits different roles for different members and different access in terms of read and write restrictions, this aligned well with the confidentiality aspects related to nuclear material.
In SLAFKA the chain code allows them to build access controls. For example, in a domestic shipment it would check whether the peer proposing it is within a list of approved holders. Holders of nuclear materials or nodes that have the permission to transact that particular batch of nuclear material. There are a number of different confidentiality rules that come with nuclear materials. A nuclear operator for example, such as a nuclear plant can see its own inventory on SLAFKA, but can’t see the inventory of another nuclear operator. The regulator has full access whilst the IAEA has its own range of access controls at an international level.
Next steps for SLAFKA
SLAFKA is a first step that will not be commercialised as it is for demonstration purposes only. SLAFKA is open and transparent to demonstrate and educate different stakeholders within the nuclear fuel cycle on the usage of DLT.
DLT is a disruptive technology, however SLAFKA has to demonstrate that it isn’t going to mess with certainty that nuclear material is not misused or diverted for nefarious purposes. That it isn’t going to mess with the governance structure, the international treaties, the requirements and obligations that are currently established.
Next Steps for SLAFKA:
Test further safeguard transactions in addition to the one related to Code 10 but ones under the “Additional Protocol”.
A system of Nuclear Cooperation Agreement (NCA) which are bilateral trade agreements between states, usually a prerequisite before they can trade in nuclear material. And those agreements will also have specific reporting requirements, and to share information specific to the trade of that nuclear material or technologies. Countries like the United States, Canada or Australia can have nuclear cooperation agreements upwards of 20 – 30 different types of agreements. Being able to have that information in a more efficient ledger would be one area to test.
Transport security
Export controls
Exploring expanding SLAFKA beyond nuclear to the chemical. There are a lot of similarities in international treaties when it comes to non-proliferation. The Chemical Weapons Convention is for disarmament of a category of mass destruction. Under that agreement states have to fully disarm and of course, there are a number of reporting requirements that dwarf the nuclear material space.
The Stimson Centre has a proposal for which they hope to receive funding for them to work with the Organisation for the Prohibition of Chemical Weapons on that. There they are looking at what’s called scheduled chemicals under the CWC (Chemical Weapons Convention), specific chemical that have to be reported in terms of their international trade.
Throughout this process, Cindy hopes to be able to provide a comparison, of their different types of DLT prototypes to show the different lessons that they can learn from them when it comes to not just nuclear, but also chemical non-proliferation, hopefully, also biological non-proliferation, and then she hopes to also getting into small arms and light weapons, and so on and so forth.
Walid Al Saqqaf, Founder of Insureblocks and CEO & Co-Founder of Rebalance Earth joins us in this podcast to discuss the role blockchain has in fighting climate change but also the impact it can have in regenerating biodiversity. In a world that is increasingly threatened by the challenges of climate change, ecosystem destruction, and the 6th mass extinction, carbon credits and carbon offsetting markets seem ill equipped to face them. The markets are plagued by a lack of transparency and a number middlemen here to make a quick buck, can blockchain, AI and Internet of Things along with keystone species like African Forest Elephants provide an answer?
What is blockchain?
Bruce Pon, co-founder of Ocean Protocol, mentioned blockchain as this “general purpose technology” like the steam engine during the industrial revolution. Now everyone will tell you that blockchain is a distributed database that removes the need for intermediaries and that has immutable or tamper proof properties.
From the perspective of Rebalance Earth, Walid looks at blockchain from two perspectives, a short term and a long term one:
On a short term it is a technology that allows for the transparent, traceable and trusted transfer of value, from firms and households wishing to rebalance themselves, to local communities that are here to safeguard keystone species like African Forest Elephants who perform the carbon offsetting services and the maintenance of whole biodiverse ecosystems. All this in a transparent manner to avoid corruption and double counting.
From a long term perspective, we all know today that biodiversity is important. However we don’t have enough data to understand how important it is, and crucially how much it’s worth. To get the necessary amount of data to begin to understand biodiversity you need a very large number of actors around the world to share their data. This is where blockchain can come in, in the creation of a data marketplace that will facilitate the share of data to unlock the value of biodiversity
Rebalance Earth
Co-founded by startup founder, Walid Al Saqqaf, Assistant Director at the IMF, Ralph Chami, world renown conservationist Ian Redmond, along with 60 volunteers, Rebalance Earth is a purpose driven company whose aim is to re-imagine carbon offsetting as a mechanism to fund the protection of keystone species to promote and regenerate biodiversity. Other ecosystem services attributable to these species will follow as research reveals the value of their role in the ecosystem.
Biodiversity is the variety of life on earth in all its form and all its interactions.
A keystone specie is an organism that helps to define an entire ecosystem. It is one which has a disproportionately large effect on its natural environment relative to its population size. If that species dies an entire ecosystem risks collapsing. Equally if a keystone specie is reintroduced into an ecosystem it can reflourish. This is the case of what happened in the Yellowstone National Park when 31 wolves were reintroduced into it in 1995.
The company headquartered in the UK, uses nature-based solutions augmented with innovative technologies such as blockchain, AI (artificial intelligence), and IoT (internet of things) sensors to monitor the “client’s animals’” and manage the transfer of carbon offsetting dollars to local communities in Gabon.
The Kyoto Protocol
The Kyoto Protocol was adopted on 11 December 1997. Owing to a complex ratification process, it entered into force on 16 February 2005. Currently, there are 192 Parties to the Kyoto Protocol.
In short, the Kyoto Protocol operationalizes the United Nations Framework Convention on Climate Change by committing industrialised countries and economies in transition to limit and reduce greenhouse gases (GHG) emissions in accordance with agreed individual targets. The framework pledges to stabilise greenhouse-gas concentrations “at a level that would prevent dangerous anthropogenic interference with the climate system”.
Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have emission units to spare – emissions permitted them but not “used” – to sell this excess capacity to countries that are over their targets. Thus, a new commodity was created in the form of emission reductions or removals. Since carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the “carbon market.”
Unfortunately the resulting carbon markets were murky, lacked transparency and were full of middlemen whose only objective were to enrich themselves.
Why blockchain?
Carbon Credits and the voluntary carbon offset works with certification bodies such as The Gold Standard and Verra. What are these bodies essentially do is provide trust. Rebalance Earth believes that by opening up its science model of how keystone species like the African Forest Elephants perform carbon sequestration services and demonstrating how its uses a network of sensors to act as what is called in the blockchain world, Oracles (trusted sources of truth) they can build trust with their partners and customers through a transparent and traceable platform.
Walid recognises that from an MVP they don’t necessarily need a blockchain. However when looking at a 5 – 20 years timeline a blockchain platform makes a lot more sense. In the future the science model can be uploaded onto the blockchain platform for national governments around the world to upload their keystone species onto the Rebalance Earth platform as long as they follow the guidelines of the science model. This will enable Rebalance Earth to rapidly scale in a distributed manner and allow nation states to value their natural capital and generated revenue from them. For example Indonesia could generate revenue by uploading the orangutang onto Rebalance Earth. Carbon offsetting buyers will thus be able to have a mixed portfolio of keystone species around the world.
Mixing blockchain along with AI and IoT
For Rebalance Earth to be successful it needs a platform that provides trust, transparency and traceability. Blockchain can provide such a platform but Oracles, trusted sources of data are required. Having IoT (internet of things) sensors that provide imagery, videos, acoustic and DNA data is critical to be able to prove that individual elephants are alive. The the elephants clients have hired out for their carbon sequestration services are alive and in their natural habitat. Using a wide range of sensors requires a sophisticated AI (artificial intelligence) to be able to combine all these different sources of data to distinguish a unique elephant.
What does success look like?
For Rebalance Earth, success is having a platform that achieves the following goals:
Help change the narrative of how local communities see keystone species not just like a nuisance but as an asset. Where conservationism becomes a profitable experience. Where that keystone species is raising their living standards
From a government perspective is about promoting good governance, where money can’t end up in some minister’s bank account and a number of new Mercedes. Everything is traceable. But crucially it’s about making them rich countries in terms of their natural assets. Not one where natural assets like oil, gas or ores are extracted but where natural assets are protected and regenerated.
From a buyers perspective it’s about bringing nature closer to them. You can name and see, hear your elephant. It’s about bringing trust that your Carbon dollars are being used for carbon for social good in building schools and health facility.
From a nature perspective is rewilding, regenerating keystone species
What can you do?
Rebalance Earth is an initiative that has attracted 60 volunteers from around the world. 95% of them have never met! Three principles bind them together:
Be Human
Have Love
Give Hope
Recognising the enormous challenge and requests for support the initiative, Rebalance Earth has launched the Guardian Platform.
Ep. 155 – Digital Euro – Insights from ABI
Apr 04, 2021
Silvia Attanasio, is the Head of Innovation at ABI (Italian Banking Association). Previously to that role she worked for 17 years at ABI Labs, the centre of research and innovation at ABI. Previously Silvia introduced us to Spunta, the private permissioned DLT project for interbank reconciliation. In this podcast she shares with us some of the work that ABI and its consortium of Italian Banks are looking to offer to the European Central Bank in its development of its CBDC called the Digital Euro.
What is blockchain?
Blockchain is a disruptive technology that can deeply transform the way we transact. It may add transparency and eliminate frictions in transactions. Blockchain is not a cost cutting technology. It is a technology that can bring some efficiency gains in due course. Blockchain technology can transform processes
Update on Spunta
Silvia featured on Insureblocks on the 22nd March 2020 where she introduced Spunta, a private permissioned DLT project for interbank reconciliation.
The new application streamlines and automates the reconciliation of transactions, improving governance of the overall Spunta process, a nostro vostro account, and moves from a slow error prone settlement system to a real time management of the reconciliation process.
Today after three waves of migration, nearly 100 banks are in production operating the Spunta DLT daily. Each bank has its own DLT node, geographically distributed in nine different cities across the country processing 322 million transactions.
Introduction to Central Bank Digital Currency (CBDC)
The term CBDC denotes money that a central bank could create in digital form and make available to the general public. It would not be another currency, it will be another form of the existing currency.
In January 2021, The Bank of International Settlement ran an updated survey with central banks around world. In it they found that 86% of central banks are engaged in CBDC work. P from 80% in May 2020. Central banks representing 1/5 of the world’s population are likely to issue a retail CBDC in the next three years.
The goal of improving financial inclusion is much more pronounced in emerging economies, while it is less present in advanced economies like European Union, where the main objectives are the security and efficiency of the payment system.
The Digital Euro
The European Central Bank’s CBDC is called the Digital Euro. The ECV see’s three main benefits in exploring the possibility of launching a Digital Euro:
Support digitisation for a native digital European economy
Respond to the declining usage of cash as a means of payment.
Tackling sovereignty concerns related to foreign private digital means of payments in the euro area or possible future foreign CBDC
There are a few more benefits from the bank’s perspective that Silvia highlighted such as the possibility of enabling use cases based on the programmability of the currency, and the possible application to transactions from counterparties as a machine.
Preserving properties of cash, anonymity and privacy in a Digital Euro
Fabio Panetta, Member of the Executive Board of the ECB stated that in a blog post: “Central to all our discussions is the fact that a digital euro would be a means of payment that would complement cash, not replace it. Abolishing cash is not on the table, as ECB President Christine Lagarde and other members of the ECB Board and Governing Council have stated publicly on several occasions.”
With regards to anonymity. If the identity of Digital Euro users were not verified at any stage of a transaction then they would be anonymous and AML / CFT mechanisms (anti-money laundering / combating the financing of terrorism) wouldn’t be effective. Silvia believes that this would require at least a light identity verification when opening a digital wallet. However as the implementation of a Digital Euro may happen on a DLT platform it is possible to ensure that the information related to the individual is exchanged on a need to know basis. So only the two banks involved in a transaction will have access to the information.
ABI’s 10 considerations for a CBDC
The Italian banks experience in the Spunta project gave them the necessary competences and understanding of what could be possible with CBDCs. ABI has prepared 10 considerations for a CBDC which can be summarised into three main concepts:
The digital euro must be functionally different from an electronic payment instrument in order to complement and not to compete with commercial bank money.
In order to be complimentary and not competing with electronic payment instruments, in the same way that as today, banknotes and coins as well as the different payment instruments are providing an array of choices of choices to the customers and are not competing, it would be useful to start by defining potential synergies with existing payment instruments. A Digital Euro built on DLT, thanks to the programmability could allow banks to deliver and propose new service.
In terms of accessibility and ease of use, since all citizens have the right to access the physical euro, they must have immediate perception and awareness that they are using a digital euro.
ABI’s prepared 10 considerations for a CBDC (source ABI):
Monetary stability and a full respect of the European regulatory framework must be taken into account as a priority.
Italian banks are already working on a distributed ledger infrastructure thanks to the Spunta DLT project. They want to be part of the change that comes from such an important innovation like digital currency.
In the financial environment, a programmable digital money represents an innovation that’s able to profoundly modify the way we conceive currency and exchange. This transformation can potentially deliver a great added value in terms of efficiency for both operational and support processes. This is the reason why it is so important to dedicate attention and energies to develop, quickly and in collaboration with the entire ecosystem, new instruments able to primarily support the development of the Euro area.
It is necessary that digital money deserves the maximum trust from the public. To this extent, it is essential that the highest standards of regulatory framework, security and supervision are fully respected.
Thanks to the key role played by the Central Bank, a CBDC represents the instruments that, more than others, can satisfy the innovation needs in alignment with the current framework of rules, existing instruments and interoperability with the analogical world. At the same time, an instrument like this may reduce the attractiveness of analogue tools issued by private or (in the fully decentralized implementation) non identifiable actors, due to a higher inherent risk.
To deliver at its maximum the potential of transformation of such kinds of tools, it is of absolute interest for the possibility, currently under consideration, to issue a retail European CBDC, that can represent an innovation of cash. Thanks to the role of banks, it is possible to identify technical solutions and an operational framework able to preserve the current characteristics of cash, while adding several typical benefits of the digital world (already satisfied by digital payment instruments), such as the ability not to lose money and, in this period where sanitary risk is under the spotlight, to operate contactless.
Analysing every detail, it would be possible to define how to distribute, store and exchange digital money in a way that enables banks to combine customer needs, together with the ability to ensure that the monetary policy is transmitted to the real economy and compliance to the regulatory framework. For sure, in each of these objectives, The banks role is crucial.
A key success factor for the adoption of CBDC is to reach a frictionless user experience, ensuring, at the same time, full interoperability between digital and analogical worlds and a complete circularity among all ecosystem actors.
According the technological choices that will be taken, a particular attention to the protection of personal data of our citizens is required (privacy).
Thinking to the future that awaits us, the availability of a CBDC will enable several very interesting use cases: to foster peer to-peer value transmission, supporting money exchange between person and machine and in a machine-to-machine scenario; to facilitate cross-border transactions settlement, reducing interest rate, exchange and counterparty risks; to promote, thanks to the programmability of this instrument, the automatic execution of payments when predefined situations arise, reducing administrative processes.
Learnings from Spunta
ABI gained three key findings from their work with Spunta:
Straight from the beginning it is important to work in a collaborative manner
If DLT is a disruptive technology we need to accept and embrace the disruption
In their view the design of a Digital Euro requires careful reflection on the adequacy of traditional governance models that have been applied for infrastructure projects led by the ECB and the Euro.
The digital euro will deeply affect customers, payments, services, processes, and ICT solutions of the payment service providers in Europe.
From this perspective, the banking sector and other providers of retail payments are in the best position to assess potential effects of architectural options on the end users and to quickly evaluate the feasibility on actual payment services. The Italian banking sector would like to share their experience and expertise gained over the last few years with Spunta in particular the infrastructure itself and the distributed governance aspects that proved to be key determinants on the project success. They believe that the set of experiments based on coopetition principles brings great benefit to the market, particularly in the context of distributed paradigms.
Four possible use cases
ABI, along with 18 banks, has spent the last two months developing four possible uses cases to understand the impact of a programmable digital Euro:
Performance of multiple payments expected at the time of purchasing a property through the granting of a mortgage. The execution of payments (to the seller, to the agency, to the notary, to the seller’s bank to pay off a previous mortgage, etc.) through the enabled functionality of making a single transaction divided into multiple payments will simplify and automate the management of transactions towards the various actors involved in the process of buying and selling a property. The distinctive feature of this use case lies in the maximum exploitation of the digital euro as a central bank liability as well as in the combination of two feature of programmability the execution of multiple payments in a single transaction and the possibility of limiting the expandability.
Safe Return
The process of returning a purchase made through an e-commerce. Thanks to the implementation in a distributed ledger of instructions that are binding and executable only on the occurrence of predetermined conditions (so-called Smart contract), it is possible to make the process of returning purchased goods more reliable and consumer-friendly. At the time of delivery of the returned goods by the client, the sum of money can be blocked and kept in an escrow account, which only releases it after confirmation or rejection of the return.
Culture Pass
Culture Pass is related to the bonuses provided by the Government to support some kind of expenses: the development of this case will lead to the creation of specific smart contracts linked to the Digital Euro, which will allow to encode the logic and purpose of expendability of these tokens, making it possible to use the bonus only in compliance with the terms and conditions indicated by the issuing entity. In addition, a simplified prototype linked to the management of sums to minors (pocket money) will be developed, in order to limit the usability only to the categories of purchases allowed by law.
Pay & Split
Execution of payments for products on consignment. The case provides for the transparent management of the execution of payments for products on consignment in the so-called short supply chains, using the functionality of “split transaction” (atomic and instantaneous transactions). At the time of purchase, a single transaction is divided so that payment is directed to the seller of the product and to the various producers making up the supply chain.
This episode is brought to you by our friends and sponsors at R3, one of the pioneers in the Spunta collaboration to provide a faster, more efficient and more transparent way of reconciling interbank transactions.
Visit R3.com to find out how Corda, R3’s enterprise blockchain platform has been adopted as the platform of choice by Spunta and for other innovative blockchain projects across multiple industries including insurance, trade finance, supply chain and capital markets.
Ep. 154 – Trust your supplier by ChainYard
Mar 28, 2021
Gary Storr, General Manager of Trust Your Supplier by ChainYard, explained to us some of the challenges that the supplier information management industry is facing with disparate sources of information and the role blockchain can help to mitigate them. In this podcast you will hear how Trust Your Supplier creates a trusted source of supplier information and digital identity that simplifies and accelerates supplier onboarding, lifecycle management and the seamless exchange of information.
What is blockchain?
For Gary the best way to explain what is blockchain is what it isn’t. Blockchain is not a cryptocurrency, it’s a technology. It isn’t a programming language. Blockchain is a ledger that is organised in a sequence of blocks that are chained together. It is distributed and it’s immutable. Blockchain is highly secure and decentralised, thus allowing for a multitude of participants to store information on the blockchain within the ledger. Security is assured by encryption and hashing technology making it impenetrable from current day hacking.
What is ChainYard?
ChainYard is a subsidiary of IT People Company, founded by Sai Nidamarty, its CEO. IT People Company is essentially an IT staffing business that was started in 1999.
IBM is a close partner to IT People Company, so when Sai noticed that blockchain was taking off he decided to spun off a new organisation called ChainYard with the intent for it to be a service organisation providing IT consulting services in and around blockchain.
Within a few years of launching ChainYard, Sai recognised there was an opportunity to create commercial applications on blockchain to address serious needs within the enterprise, such as Trust Your Supplier.
ChainYard is now a 5 years old organisation with 80 staff providing blockchain services and products.
Challenges of the supplier information management industry
Supplier information management is about getting information on a supplier. It is essentially an identity question which blockchain is particularly good at with regards to establishing an identity and to protecting it.
Traditional enterprises have traditional systems where identities are very segmented. It isn’t unusual for large supplier to have hundreds of identities within the system architecture. This is highly unmanageable. Systems could be storing, for a single identity, multiple versions of the truth for a contact with varying degrees of accuracy. Questions regarding data privacy are another issue.
Coming out of an enterprise and looking at the market a supplier would want to have a single identity as it deals with a number of customers. Similarly to a driver’s license or to a passport you want a single identity to be used across the value chain.
Consequently, there is an opportunity for efficiency, for speed, for reduction of cost, for reduction of risk and for compliance.
Trust Your Supplier (TYP)
IBM, a partner of ChainYard, recognised that there were some pain points within its supplier information. Both IBM and ChainYard expressed the desire to leverage their respective blockchain expertise to tackle those challenges. Trust Your Supplier was thus born to tackle not just IBM’s supplier identity issues, its supplier qualification and lifecycle management issues but also those of enterprises across industries in a decentralised manner.
Within its capacity as a partner IBM teams from TradeLens and Food Trust have contributed to the expertise and development of Trust Your Supplier.
With Trust Your Supplier, every supplier is provided with an identity on a blockchain platform. Provide them with easy tools and applications for them to access and process that identity in a meaningful way.
It allows organisation to discover, identify, qualify, on board and manage relationships with suppliers in a decentralised manner with a single version of the truth.
Trust Your Supplier application is in production for the last 18 months and is used by tens of thousands of users worldwide.
Trust Your Supplier’s underlying architecture, is designed to be interconnected with other networks. It enables to be the identity layer for networks of networks. Whilst TYP is built on Hyperledger Fabric they could theoretically roll out on other blockchain flavours.
Value proposition
From a buyer perspective the procurement officer has a reduced administrative burden thanks to a single version of the truth concerning his/her suppliers. In the past information on suppliers would come from disparate sources scattered around their architecture. This reduced administrative burden, reduces cycle time and in turn reduces costs.
From a supplier perspective their benefits are twofold. (1) Similarly, to the buyer side they get a reduced administrative burden as they don’t have to share the same information repeatedly to their customers. They have one profile with all the information pertinent to that profile published on the blockchain. (2) The second benefit is that as they’re on this digital marketplace they can be discovered and gain new business opportunities.
Third parties like D&B, EcoVadis and others validate supplier records, help fill in missing information and perform watch-list screenings while banks validate account information and financial health. D&B reports are aggregated into the application where supplier sovereign information is accessible along the ones from EcoVadis and other authoritative sources providing a one snapshot on that supplier.
Governance
Vodafone, Anheuser-Busch InBev, Cisco, GlaxoSmithKline, Lenovo, Nokia and Schneider Electric are some of the early participants on Trust Your Supplier. Each of these leading organisations have seeded the TYS network with their supplier base. They have been offered a seat on the board of governors and access to the network at no cost. In return they onboard their suppliers and help inform the direction of new product features and provide guidance in how to evolve the network in the appropriate way.
COVID19 and Trust Your Supplier
In March 2020 there was a recognition that PPE was in short supply from masks, gloves, ventilators and other medical equipment. There was a growing need, particularly for health care organisations to find providers of PPE equipment from a reliable source. TYP partnered with a number of trusted suppliers and health care organisations to provide that trusted source of PPEs.
Ep. 153 – RiskStream Collaborative’s Canopy 3.0 launch – a multi-ledger approach
Mar 21, 2021
Christopher McDaniel is the President at the Institutes’ RiskStream Collaborative. In this podcast he announces the launch of Canopy 3.0 their latest version of their insurance blockchain platform. This new platform, built on Kaleido, supports Corda, Enterprise Ethereum and Hyperledger. Chris also shares with us his plans to launch first notice of loss in production mode on Canopy 3.0 this year.
What is blockchain?
Since the launch of Canopy 1.0 in late 2017, Chris’ view of blockchain has evolved. Back then when they were building Canopy 1.0 their views were that blockchain was fundamentally a sharing mechanism. There weren’t many applications out there so they had to build use cases and applications to demonstrate to the market what is possible.
Now with the launch of Canopy 3.0 things have changed. GDPR, and the right to be forgotten, has had some impact on what you can and can’t do on a blockchain. There are now many parties building out solutions on blockchain compared to back in 2017. Whilst blockchain is still a sharing mechanism there is this realisation that you don’t need to put everything on the blockchain. You can store data off chain and link it to the blockchain via a validated hash. For Chris, blockchain is a great solution for verification, for trust and for facilitating sharing.
Their reason for starting RiskStream Collaborative, is that the management at the Institute realised that emerging technologies such as blockchain, AI (artificial intelligence) and IoT (internet of things) are going to be key things they will need to teach and certify for insurance professionals in the future. Based on that they created RiskStream.
Canopy 1.0
Prior to creating Canopy 1.0 the Institute organised a working group for 30 insurers who wanted to find out more about blockchain. From that event three to four proof of concepts (PoCs) were set up on a public Ethereum blockchain. Some of the learnings they gained from that event was the need to build on a private blockchain. Canopy 1.0 was launched on a private Ethereum blockchain with proof of insurance as the one use case built on top of it.
Canopy 2.0
One of the key learnings that the team took out of Canopy 1.0 is that members of RiskStream Collaborative weren’t comfortable with the classic version of blockchain where everything is shared with everyone on the network. Whilst the information was encrypted and accessed on a permissioned basis it still had trust issues along with legal and compliance ones as it was shared with everyone.
Chris and his team looked for an alternative solution and identified R3’s Corda as it had a point to point approach instead of everything being shared across the blockchain. This was a critical success factor for the consortium’s members. Purist would argue that Corda isn’t a blockchain but a distributed ledger technology (DLT). Whilst this is true from a technical standpoint, the DLT solution provided the answers to the challenges they were facing.
Canopy 2.0 was launched on a Corda Enterprise License with a number of use cases such as first notice of loss, proof of insurance and a number of other applications within commercial lines, workers compensation, certificates of insurance, surety bonds and a proof of concept for the placement process for reinsurance between brokers and reinsurers.
Canopy 2.0 brought significant learnings including one where a number of customer needs and third-party solutions weren’t a natural fit for Corda and thus couldn’t be integrated into Canopy 2.0.
GDPR along with the California Consumer Privacy Act (CCPA) of 2018 introduced some new challenges for blockchain. Both presume the operation of the traditional data model (ie. a centralised one), which makes them difficult to reconcile with a decentralized or distributed data model. These are issues that Canopy 2.0 couldn’t quite addressed which Canopy 3.0 would.
Canopy 3.0 – Multi-ledger
Chris’ vision with Canopy 3.0 was to make it the universal sharing layer for carriers, brokers and reinsurers to transact. With a large number of Insurtechs requesting different blockchain protocols to integrate with, Canopy 3.0 was built with a multi-ledger approach to act as a hub for Insurtechs and also to enable future capability to build tokenisation incentives. Supported blockchain protocols are Corda, Hyperledger Fabric, Ethereum and Quorum.
With Canopy 3.0, RiskStream Collaborative has taken the approach of not having any data stored directly on the blockchain but instead of having hashes linking to it off chain.
Canopy 3.0 benefits
Under Canopy 2.0, it wasn’t easy setting a node. Members of RiskStream Collaborative had different levels of technology capabilities, but on average it would take 2 weeks to set up a node on Canopy 2.0. Having 40 – 50 insurers on RiskStream Collaborative, the support and resource requirements to set them all up with a node and integrate them would be quite high.
With Canopy 3.0 they can perform what they call a “rapid node setup”. Members only need to go to a website and within half a dozen clicks they can choose their cloud service provider and the flavour of the blockchain they wish to have. This is considerably faster than the previous 2 weeks it would take on Canopy 2.0.
This setup creates a lot flexibility for insurtechs and small carriers, who may not have the technical staff, especially as they also get a safe environment for them to perform tests before going into a production environment.
The increased speed for deployment and the way Canopy 3.0 was architected enables insurers to operate on Canopy 3.0 at a lower cost. The DLT stack uses a growing amount of open source technology and it comes with a certain amount of prebuilt modules.
Canopy 3.0 has partnered with Guidewire to facilitate carrier back office integration with Guidewire version 10.
Plans for 2021
Chris’ number one goal is to have their first notice of loss application on Canopy 3.0 in production. In addition he hopes that a number of third parties will build on canopy 3.0 and take advantage of the sandbox environment they have developed for them to build applications on top of.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 152 – Blockchain insurance innovation – insights from Tata Consultancy Services
Mar 14, 2021
Pratap Tambe is the Head of BFSI Blockchain Consulting, UKI and Europe at Tata Consultancy Services (TCS). He has has 25 years of experience has been working in commercial insurance since 2011 and in blockchain with insurance since August 2015. In this podcast we discuss TCS partnership with B3i and how blockchain has evolved in the insurance industry since 2015.
What is blockchain?
Pratap looks at blockchain more from a DLT (distributed ledger technology) perspective. He uses an example where traditionally a transaction is sent to one or more web servers run by one party. Typically, one server validates that transaction, processes it and saves it. In DLT, a transaction is sent to multiple servers run by different parties which validate the transaction and together run a consensus process. Successful outcome of the consensus results in the transaction being processed and saved.
In blockchain that transaction will be saved in a chain of blockchain which isn’t necessarily the case in DLT.
Tata Consultancy Services
Tata Consultancy Services (TCS) is a 50 year old IT services company that is part of the Tata Group which has revenues of $106 billion. TCS has $22 billion worth of revenue from 470k global professionals that employs 36.4% women from a total of 147 nationalities.
TCS partnership with B3i for ecosystems innovations
In November 2020, TCS partnered with B3i to design, develop and launch ecosystem innovations based on DLT for the insurance industry.
Having worked in the London insurance market since 2011, Pratap is sharply aware of the difficulty competitors have in collaborating together. He believes that B3i has managed to launch a consortium blockchain of the ground with the participation of a number of those competitors.
B3i has developed a strong product vision and technology which requires a strong system integrator (SI) partner like TCS. As an SI, TCS plays a key role in enabling and scaling consortium blockchains to succeed.
TCS brings scaling up innovation, pipeline ideation and validation, product engineering, professional services and product support. These are natural services provided by a typical SI.
TCS already works with many global insurers and reinsurers across geographies from providing IT services support. Because of these relationships TCS brings unique value in helping blockchain consortiums provide back end integration into the blockchain to their customers and partners.
The role of the SI is to leverage its relationships to enable and support the baseline success of initiatives in core geographies of the blockchain consortium. Once that is achieved the SI is here to scale up innovation and delivery in core geographies and then to other geographies.
Ecosystems of ecosystems
Insureblocks is a big fan of the notion of ecosystems of ecosystems. We perceive a future where we will see cross industry blockchain consortiums connecting and exchanging value between each other. For example, B3i could connect to PharmaLedger in the pharmaceutical space or to Marco Polo in the trade finance space.
Pratap states that B3i connecting with other blockchain consortiums is part of the agenda. He also states that this fits well within TCS strategy of driving ecosystems whether or not they use blockchain.
One current example that Pratap mentioned is asset or property data. The insurance industry has a lot of this kind of data in various formats and in varying quality of data. The insurance industry could cleanse this data, and leverage it with the appropriate consent to monetise this data to other industries.
Another example of cross industry collaboration is for healthcare industry consortiums interacting with a healthcare ecosystem.
Blockchain in insurance since 2015
In August 2015, Pratap published an article entitled “Blockchains and London insurance market?”. Back then he was a great fan of the potential of blockchain. Over the last 5 – 6 years there have been a lot of PoCs and progress but he personally believes that a lot of potential still lies unactualized. Pratap reminds us that blockchain is a difficult technology and it’s still in its early days.
He points that if you track B3i: In September 2019, B3i released catastrophe excess of loss placement. In September 2020 they released catastrophe excess of loss technical accounting. Pratap predicts that in 2021 they will release claims. With the launch of claims you will have all three pieces of the puzzle and will be able to prove business value.
Private and public blockchains
From August 2015 to about September 2017, Pratap didn’t believe there was an opportunity for public blockchains in the insurance space. However, that changed in September 2017. Pratap believes there is a role for public blockchain with regards to identity, risk and data exposure. For example, he believes that SSI (Self Sovereign Identity) is the best model for KYC. Additionally exposure data as an attribute of an SSI is a natural means for managing that exposure data.
The Baseline Protocol is an approach to using the public Mainnet as a common frame of reference between different systems, including traditional corporate systems of record, any kind of database or state machine, and even different blockchains or DLTs.
This is important for business that wants to utilise the immutability properties of blockchain technology. It lays a foundation for working directly with the widely available public Ethereum network in a manner that is enterprise friendly.
Pratap recognises that whilst the Basesline protocol is very interesting it isn’t going to become a dominant architecture due to the technical constraints of public blockchains.
Cyber risk modelling
In April 2018, Pratap published an article entitled “Improving the quality of cyber underwriting” that was well received by the market. Unfortunately as there wasn’t any privacy protected blockchain solution available at that time, the solution didn’t take off.
Now that B3i blockchain is available having cyber insurance solution on a blockchain is back on the agenda. Products like TCS Ignio, which is installed within an enterprise IT infrastructure, gathers the IT footprint of that enterprise through an inside out manner. This inside outer data is used to fit into standard cyber risk models. In 2018 the dominant approach for cyber insurance solution was the outside in approach. However, by using blockchain you can use a inside out approach in a secure and privacy protecting manner. You can also pool and share claims and loss data.
Cyber security
Pratap brings up the example of deepfakes whether it’s the one of Obama or the most recent one on TikTok with Tom Cruise:
These deep fakes have the potential to create some big losses and Pratap is surprised this hasn’t yet happened. SSI has the potential to help validate the person within a video or if you are speaking to the person you should be speaking to. This is important for it could help staff within a large company to validate that it is the CEO of their company who is instructing them to make a wire transfer for example.
Pratap discusses such kind of mechanisms and others in his video:
Blockchain’s role in sustainability and in reducing modern slavery
Pratap and his wife wrote two papers last year regarding using AI and blockchain to reduce modern slavery: “Reducing Modern Slavery Using AI and Blockchain”. In the paper they discuss the use of Microsoft AI, SSI technology and Ethereum baseline to reducing modern slavery globally. Their paper has garnered interest with both Swedish and UK retailers.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Blockchain is a collectively maintained public infrastructure where people are incentivised to keep the ledger up to date in a trustful manner. It is the backbone of this new generation internet often referred to as the Web 3.
Blockchain allows its participants to collectively settle data transactions, whether its value transactions or data flows on a shared public infrastructure that everyone can trust. This contrasts to today’s Web 2 which is managed by private client server infrastructure where data is managed and stored behind the walled gardens of a server that belongs to a specific institution or a private entity.
Shermin believes that blockchain itself isn’t particularly interesting. What is interesting is that blockchain brought the back-end revolution for a decentralised web or Web 3. Tokens are the killer application of the Web 3 as websites were the killer application of the early internet in the 1990s when the World Wide Web came about.
Types of tokens
Cryptocurrencies and crypto assets are specific type of tokens.
A token can represent money, whether it’s state issued money, often referred to as CBDC (central bank digital currency) or virtual currencies such as cryptocurrencies.
Tokens can represent any type of assets such as commodities, physical assets and fungible assets like art or real estate. Any virtual or real asset can be tokenized and have a digital representative that is easily traded.
Tokens can also be used to represent an identity of a person, machine or an institution. Credential tokens are tokens that are tied to an identity or that have limited transfer abilities.
Token System
A system is use to described how people and objects interact in this physical world. Token systems can have varying degrees of complexity.
Usually, the more actors are involved in a system, the more complex the system and its interactive parts become.
An example of a complex token system is the Bitcoin network which is a network of physical computers operated by humans or institutions. It has a three-layered network composed of tokens, machines, and peer-to-peer network.
An example of a less complex system is a token system that represents tokenizing shares in a company which can be settled on a public or semi-public infrastructure.
Creating a token system, the questions
Source: Token Economy, Shermin Voshmgir
When creating a token system the main questions that one should ask themselves are:
What do you want to do?
What is the purpose of your venture?
For example, if you want to tokenize real estate, the question of how to design your token system is very different than if you want to create a token based social network where the token creation needs an intelligent incentive design for how to incentivize people to upload and curate posts. An example of such a token system is Steem. However, such token systems are very complex and have a lot of unanswered questions.
Tokenising real estate whilst it involves a series of complex legal questions sits within an understood legal framework. Whilst they may seem less complex they can very easily become more complex where your individual real estate objects can be tokenised allowing for fractional tokenization of a single object, like an apartment.
There is a series of technical, legal, economic and ethical questions to be asked when we design our token system, but the first question is always, what do I want to do?
Design thinking and engineering design for token systems
Design thinking became popular in the startup world in the 90s. It helps to strategically plan concepts for any new technology, products or service. The process ranges from problem definition, ideation, solution-focused strategies, modelling, prototyping, testing and evaluating including iterative feedback loops thereof.
In the case of token systems, design thinking approaches, the technology being blockchain allows for interactions to happen on a socio economic level. It also allows for the move away from individual products and services to collectively shared dynamic socio economic systems.
In March 2018, Trent McConaghy, co-founder of Ocean Protocol, coined the terms token engineering and explained his thinking in a blog post entitled “Towards a Practice of Token Engineering”. Which he describes as: “the theory, practice and tools to analyze, design, and verify tokenized ecosystems.“
Trent also defined “Engineering is about rigorous analysis, design, and verification of systems; all assisted by tools that reconcile theory with practice. Engineering is also a discipline of responsibility: being ethically and professionally accountable to the machines that you build”.
For Shermin, engineering always requires the ethical part. Part of the challenges of the early websites is that the engineering ethics of building websites didn’t exist. When websites failed they simply pivoted. Token engineering forces us to think in more robust and responsible ways and it can sit at the intersection of design thinking when creating new token systems.
Technical engineering.
Token systems either have an infrastructure token or an application token.
Infrastructure token are tokens that steer blockchain networks. Bitcoin is an infrastructure token which is used to incentivize participants in the network to contribute to the security of the network. Similarly, Ether is the infrastructure token on the Ethereum network. Infrastructure tokens are used in Web 3 networks that have a native currency to incentivize network behaviour and contribution.
When designing an infrastructure token you have to balance the needs for security, scalability and privacy.
Application tokens on the Ethereum network allow the creation of simple smart contracts on an application level. These application tokens can represent a myriad of different applications such as an asset back currency, a piece of art, fractional ownership of a real estate, a reputation token on a social network and a number of other applications.
When designing an application token you have to balance the needs for infrastructure, interoperability and standards.
Legal engineering
We’ve had securities for hundreds of years. As a society we know how to issue securities, manage securities and manage the issue of fraud and security. Essentially, we have built the mechanisms to prevent fraud, to protect investors and to create a safe ecosystem where we avoid the kind of stock market crash we had in the 1930s.
If we were to tokenising the New York Stock Exchange for example we would need to answer the following questions:
How to do it in a legally compliant manner?
Are new laws or a regulatory environment required to encompass the use of a new technology solution?
Legal engineering, whilst is complex in itself, is only focused on the legal aspect. Tokenisation of existing businesses, networks and institutions predominantly requires legal engineers, which refers to making the tokenization of existing assets, access rights and voting rights legally compliant within relevant local legislation. In this case legal engineering refers to the tokenisation of traditional governance models where smart contracts replace many of the existing human, paper and client server based operations.
Economic engineering
Economic engineering is used when designing “complex token systems”. What contributes to the complexity of a token system is:
how big is the network. The higher the number of individual or autonomous actors are in the network the higher the level of complexity.
Number of interactions
Number of types of tokens you have in a token economy, such as a multi-token economy
Tokens are there to they steer collective action towards a common purpose. The main question that need to be answered in such design process are:
Goal of the token system
Number of different types of tokens – single vs multi-token economy
Purpose of the token
Properties of the token including their transferability and fungibility
The economic engineering aspect of creating decentralised autonomous organisations where you have a number of autonomous actors from different backgrounds you need to have behavioural economics, ecological economics, micro and macro economics. You need network scientists and people of different skill sets.
Ethical engineering
In building effective token systems, you need people with an economics background, network science background, cyber and physical systems background for the economics part, but in the end, these token systems, are about the socio-economic coexistence of people in social network which has many ethical questions.
The question of transparency versus privacy. There is a trade-off between what should be public and what should be private
Power structures. If a token system incentivize network actors with a network token, it needs to ensure that it doesn’t favour a set of network actors over others
Ep. 150 – Bringing innovation into the Polish Financial Sector with the Blockchain Sandbox
Feb 28, 2021
Blockchain Sandbox is Poland’s first business and technology platform designed to accelerate the development of innovative blockchain solutions within an isolated system that simulates real world production environment. To take us through this innovative solution we are joined by Dorota Dublanka, President of the Foundation Cyberium and Head of Human Resources at KIR along with Maciek Jędrzejczyk, Blockchain Technical Leader at IBM for Central and Eastern European Region and lead architect of the blockchain sandbox.
What is blockchain?
Dororta defines blockchain as a list of records that is stored on a wide range of computers. She also refers to blockchain as lego blocks where different participants join together to build a tower together whilst verifying each blocks added to the structure and exchanging information between each other.
Maciek’s defines blockchain as a database with a very specific data structure whereby transactions are put together into a block representing an interval of time between the recording of a previous state and the current state which is going through the approval process. Each block is cryptographically linked to previous blocks and the governance over how the data is stored on the chain is determined by the network. The network decides whether or not certain transactions are going to be included within a block or not.
State of innovation within the financial sector in Poland
Maciek states that to understand the state of innovation in the financial sector in Poland one has to go back 30 years to 1989 – 1990 when Poland transitioned to a market economy. At that time there was no digitisation and computers were virtually inexistent. The financial infrastructure was nearly all paper based. Everything had to be created from scratch which represented both a set of challenges and opportunities for Poland.
Poland had virtually no technical debt, or legacy IT infrastructure within its financial services sector that other countries in Western Europe or in North America had. This enabled the Poles to choose the best and most flexible solution to their specific needs. As the Polish leadership and society were very curious they were also very open to innovation.
Dorota added that, Poland has a relatively high social acceptance for innovative solutions. Poland has one of the highest percentages of mobile banking and debit cards users in Europe. Because of its embracing approach to innovation, Poland has adopted a lot of the most innovative platforms for payment solutions and its IT professionals rank as some of the top 10 best in the world.
The Blockchain Sandbox
Blockchain Sandbox is here to accelerate the development of innovative blockchain solutions in Poland. They aim to demystify what is blockchain and break the view that it’s only related to cryptocurrencies. They wish to develop blockchain technology to support entrepreneurs and companies to access solutions within the sandbox.
Startups and major companies who join the sandbox with innovative ideas can leverage blockchain within the sandbox for developing their applications and business solutions. They will also receive support from the blockchain sandbox founding members.
Foundation Cyberium is the leader of the Blockchain Sandbox. The founding members are PKO Bank Polski,KIR and IBM. PKO Bank Polski is one of the biggest banks in Central and Eastern Europe who has implemented production grade blockchain solutions.
KIR is the hub of shared services for the Polish financial services sector. They build system solutions for the banking business and the government. KIR is one of the sandbox leaders and is implementing innovative solutions to the economy.
IBM is the technology partner to the Sandbox initiative. Chmury Krajowej, the national cloud operator, responsible for sustaining the IT infrastructure for mission critical applications in in Poland, is a technology provider to the initiative.
The Financial Supervisory Authority of Poland acts as a regulator to the financial sectors and reviews solutions built within the sandbox which gives participants some certainty as to whether they can introduce them into the market.
There is an obvious motivation coming from the founding members of blockchain sandbox, to leverage the best of breed blockchain protocol that is being used for businesses in order to provide a safe environment for startups and companies incubated through the sandbox to give them the best tools that are using blockchain as the core infrastructure.
The platform is based on Hyperledger Fabric. Each company that is incubated in the sandbox has access to a simulation of a real world network with a number of organisations where they can develop their applications within. They can also test the overall governance of a decentralised network, test their business solutions’ performance, privacy and confidentiality.
In addition, they will receive advisory services provided by the founding members from a legal, technological and regulatory perspective.
Benefits in joining the blockchain sandbox
Dorota listed out the benefits in joining the blockchain sandbox:
Isolated controlled environment
Latest technologies
Access to development resources
Regulatory support
Marketing and promotional support of startups and businesses to reach customers and investors
Maciek, listed out the benefits from an iterative process:
Qualification stage: each applying member is interviewed by the founding members where the use case is analysed
Onboarding process: the company receives an access to their instance of the sandbox where they receive all the tools they will need for the incubation process
Ongoing process: this is where they receive the advisory support from the founding members
Evaluation process: this is where they get the biggest benefit as it is the moment when their application is verified by institutions and organisations which act within a regulated market
Applying to the sandbox
Dorota stated that they are hoping to attract innovative solutions from non-profits, startups, and big and small companies. Participants don’t necessarily have to come from Poland as they’re open to receiving ones from companies around the world.
Participation in the sandbox is free of charge and no fees are incurred when using the platform. Applications can join by going to https://www.sandboxblockchain.pl/en/ and complete the application form which will be reviewed by the sandbox team. Selected candidates will be invited to join the interviewing process.
Ep. 149 – Innovation and blockchain in the insurance industry – insights from MSG
Feb 21, 2021
Bernhard Lang, Member of the Board at MSG System, joins us to discuss innovation and blockchain in the insurance industry. In this podcast we discuss the importance for the insurance industry to remain relevant in an ever changing market. How making innovation a corporate discipline and embracing a customer centric approach to remain engaged in customer ecosystems is critical to that objective of relevance.
What is blockchain?
From a non-technical point of view blockchain is a form of digital representation of what we naturally do in real life. We want to be part of social communities within which we communicate, make agreements, state facts, and make promises that are then known to the people within the community as a current status of things or an evolving collective truth.
The technical definition of blockchain is that it’s an immutable and distributed technology that enables the creation of new business scenarios. According to Bernhard, too often blockchain technology is looked at from a technology angle first before a business one. He personally prefers that we start with a business problem and then identify blockchain technology if it is the right one for the business problem.
About MSG
Bernhard Lang has been with MSG for the past 25 years. MSG is a German product based system integrator. MSG focuses on 10 different lines of business. Their business strategy is to develop industry specific content, software assets, software solutions, that go very deep into the lines of business along with a consulting services associated with it. The majority of MSG’s business is within insurance but also looks at other industry verticals such as banking, public sector, automotive and others.
Outside of reinsurance, MSG has partnered with Marco Polo, a trade finance blockchain solution, to help them integrate with SAP European Systems.
Insurers approach to blockchain in comparison to mature platforms like SAP
Bernhard believes the insurance industry is quite open to blockchain technology however he notes that the materialisation of previous blockchain investments haven’t been that great. Consequently he believes that in the future the insurance industry might be more cautious to making investments in blockchain.
Source: Cookhouse Labs
MSG has an innovation lab in Canada called Cookhouse Lab. In May 2017, they launched a four week design thinking blockchain workshop along with seven insurance companies where they identified 34 uses cases and created three prototypes. Whilst there was a lot if interest at that time, Bernhard would qualify the output as having had a limited impact and not significant enough to be considered a game changer.
Whilst he believes insurers will keep looking at blockchain technology few will expect high returns.
Evaluating new innovative technologies within the insurance industry
Bernhard candidly describes the decision making process within insurance companies as being sometimes irrational. To support that statement, he recalls a meeting regarding ACORD standards, which in his opinion represent a huge business case. During that meeting, insurance professionals flew in from around the world, agreed to join forces and create a service organisation. All participants were requested to make a €40,000 investment for this initiative. Unfortunately, they had great difficulties in raising that amount of money. Bernhard asks the question that if it was such an obvious use cases with large saving potentials why was it so difficult to raise such a small amount of money?
For Bernhard the insurance industry sometimes makes irrational decisions when it doesn’t go for obvious business cases. He thinks that’s equally true for blockchain. Blockchain can bring great benefits and large saving potential but there’s still some resistance to it. He queries whether the reason blockchain isn’t being fully adopted in the insurance industry is because the industry is doing well enough that it doesn’t need to improve its efficiency.
There is also the case of finding the right top managers within an insurer who has the willingness to take strong decisions.
Bernhard believes blockchain can be a key technology to set up cross industry collaborations. Therefore, he believes that insurance has to collaborate with other industries. Otherwise, he thinks there’s a risk that they are pushed to the second row, and that they lose access to their consumers.
Best practices when evaluating innovative technologies
Bernhard explains how in the past they would receive an RFP, they answered the RFP, they presented their product and if the product was liked it was purchased.
Now he believes that the way of collaboration for new solutions and leveraging new innovative technologies has changed. The whole approach to innovation, open innovation and collaboration in new ecosystems has all changed.
Bernhard believes that now entities need to collaborate at the idea generation, join forces in a co-innovation space where you perform join design thinking sessions and jointly work on the solution. That’s the key to success, to take new fields and leverage digital technologies like blockchain for creating new products and collaborating with customers, partners and subject matter experts from within your industry and outside your industry.
MSG partnered with B3i to create an innovation laboratory for reinsurance solutions
As B3i has a growing community of insurers, MSG believed there was a potential to work with them to understand their needs and work jointly to leverage digital technologies in an innovative environment. MSG comes into the partnership with their reinsurance products and primary insurance products whilst B3i comes with their DLT consortium. They want to connect these two worlds and work jointly on new innovative solutions.
They’ve recently sent out invitations to the market to join MSG and B3i and work jointly on new innovative business ideas, leveraging MSGs products and B3i’s fluidity platform and B3i’s Corda based technology.
Initially working with B3i wasn’t something that MSG had envisioned as their product managers and architects felt that B3i had the potential to disrupt MSG and remove the need for the FS-RI products if everything moved onto blockchain.
However, when they looked at it more closely they realised that if this was to happen it would be much later in the future and in the meantime, there exists many opportunities for the two entities to collaborate together.
It turns out that B3i also initially saw MSG as competitors but both parties now see each other as partners who want to collaborate together to improve the industry.
Changes coming to the insurance industry
Bernhard believes insurance as a service has a great potential. He believes that cross industry platforms that foster cross industry collaboration is the way forward and blockchain is a great technology to support this.
He foresees that we will see more insurance companies partner up with companies from other industries whether it is with Marco Polo or Contour that can expand their products by bundling together insurance to the end customers.
To sum it up Bernhard thinks there is a great potential to bundle insurance as a service in all kinds of cross industry platforms.
Fostering cross industry learnings & remaining relevant
Insurers have to get out of their silos and collaborate with other industries if they still want to main customer relations. They need to understand what is happening in other markets, understand the risk and identify the kind of risk coverage services they can offer. To achieve this you need an ecosystem point of view that is customer centric.
Bernhard reminds us that everybody needs risk transfer but not necessarily from an insurance company. With so much capital in the market, it’s normal that non-traditional risk carriers want to get into that market.
MSGs’ innovation experiences
Bernhard recognises the challenges for a corporate like MSG to successfully perform innovation because of its own corporate culture. As a corporate’s innovation is often stifled by compliance, reporting figures, IT security and other requirements, MSG wanted to have a startup mentality and culture. To reach that objective they took people from the corporate, created an innovation space for them and removed some of the corporate pains by giving them increased freedoms and independence.
Members of the team that work in the innovation lab have some skin in the game and is willing to participate in a risk reward model.
More importantly Bernhard believes that innovation needs to have top management attention and as finance, accounting or controlling, innovation needs to become a corporate discipline in itself.
Figuring out the right approach to installing an innovation culture within a corporate can be a tricky exercise. The Insureblocks team has built over 6 startups and help build 2 innovation labs within large corporates. If you’d like to have a conversation on how to install an innovation culture or innovation lab within your corporate please don’t hesitate to reach out to us on info@insureblocks.com or via Linkedin.
Ep. 148 – Challenges and opportunities of blockchain in the insurance industry – insights from IBM
Feb 14, 2021
Mark McLaughlin is IBM’s Global Insurance Director, leading IBM’s Global Insurance strategy, solutions, and partnerships. Mark’s teams analyse trends in the insurance business and in technology, predict strategies for insurers, and build IBM insurance solutions to meet insurer needs. In this podcast we discuss the challenges and opportunities of blockchain in the insurance industry with special insights from IBM.
What is blockchain?
For Mark blockchain is a trusted shared ledger. It enables business entities with different interest and different goals, that may not 100% trust each other, to establish a common ground where a set of documents, processes and data is maintained by a group across a business network.
It is maintained in a way that is immutable where everybody can see the changes that are going on and where everybody has a record of it. Blockchain also have features like smart contracts that can help automate business processes in a trusted manner by all participants.
Mark points out that there are a lot of different things you can do with blockchain from digital currencies to running shared business processes.
How has insurance embraced blockchain technology?
Mark believes insurers are feeling the heat on innovation due to the 46% CAGR on Insuretech investment and the entry of large players like Ping An and Amazon into online distributed type insurance ventures.
Insurance being baked into other industries such as the purchase of an airline ticket in the US now comes with the offer of travel insurance as part of the process.
The insurance industry knows that they have to figure out ways to connect to broader ecosystems and to innovate. Blockchain is one way of doing that. Whilst insurers have a high level of interest in blockchain they have had a little trouble getting started in some cases.
Blockchain has great potential as a technology and an increasing number of insurers are willing to embrace it. The challenge however is with the business model. Other technologies such as AI (artificial intelligence) do not have the same challenge. AI is very easy to visualise, it can be used to better process a claim, underwrite a risk and advise an insured.
Blockchain is a little tougher. The challenge isn’t the tech it’s the use case behind the technology. Insurers who have been successful at using blockchain are those who have correctly defined the business value. It is however a very tricky exercise because blockchain is about creating networks and you have to ensure that the value line up across all the players within that network.
Digitising business during COVID
There is a tonne of complexities in the insurance industry and people tend to stick to the process they know because they know how to manage the complexities within that process.
However, some forward-thinking companies have during this COVID world looked at digital interactions and how they can rethink their business to leverage new technologies. For Mark, It is about “how do I build better interactions with my end user? How do I get closer to risk? How do I do a better job of providing personalised and customised advice around that risk? How do I connect relevant products and services at the point of risk?” Insurers that can figure that out and do that at scale will be the most successful ones in the future.
Approaches to innovation and blockchain
Too often insurers judge innovation in its ability to sell more of their existing products. The more successful insurers are those that think “Instead of how do I take my existing policies and my existing business and adapt them, they think more about how do I reinvent the entire risk process?” Too often the decision making process insurers get caught up with is very short term instead of thinking more long term and the bigger picture.
Connectivity to customer and connectivity to risk is very important for insurers according to Mark. Blockchain provides some opportunities to either streamline the process to speed up your interactions with the customer and get more conversation, and to connect more risk data to the process and new customers that you couldn’t have easily reached out to before.
With the ever increasing number of blockchain business networks from trade networks, supply chain networks and others, insurers can’t take an approach of selling them insurance. They have to engage them in the early days of their development not to sell them policies but instead to understand the kind of data streams they can now access to better inform their policies and their risk advice.
Best practices when evaluating new innovating technologies
First of Mark advises companies need to understand what the technology can and cannot do. For example, in the case of blockchain they need to understand the value a distributed ledger can bring and what can and can’t be done from a security and an optimization standpoint.
Second you need to understand what’s the business problem you’re trying to solve. Not all business problems can be solved by blockchain. Business problems that are particularly well suited for blockchain are those where there is a large network of players that have complexities in their relationships such as in information exchange between them. These are complexities that blockchain can take out along with a number of costs.
Third tackling those challenges from a consortium perspective has its challenge. Building for example a network of 40 insurers for subrogation, reinsurance, or proof of insurance can take a very long time and once there they tend to move quite slowly.
What Mark feels is more effective is having two or three insurance players who are equally motivated to improve a shared process between themselves. The point being that the issue trying to be resolved only involves a few players instead of a larger number.
The biggest problem Mark points out in blockchain initiatives is on “do we have the value convened correctly?” It’s a lot easier doing that with a few players than with a network of 40. Mark gives us the example of TradeLens which didn’t go to the industry to create a network of 40 shipping companies. IBM instead worked with Maersk, the dominant player in the industry, to work out the challenges of that industry.
Insurers collaborating with other industry led blockchain initiatives
There exists large opportunities for insurers to collaborate with other industry led blockchain initiatives whether that’s in supply chain, pharmaceutical or any other industry. The key though is not about taking a selling traditional insurance products approach.
The key is to look at how to extract data from those chains in order to build a different risk value proposition based on that data. It’s about using that data to more effectively resolve claims in a speedy manner.
The opportunity is participating in these things and developing new risk propositions over time and taking advantage of the data that exists in those change. Insurers can extract value of a chain that’s already connected to risk, use that to inform a claims process, an underwriting process and inform both the servicing and advice being provided.
Ep. 147 – Challenges of adopting blockchain from a governance and risk standpoint
Feb 07, 2021
Dr. Denise McCurdy, Blockchain Governance Advisor at Grove Gate Consulting along with Tom Fuhrman, Blockchain & Cybersecurity Consultant at Vector MV, join us in this podcast to discuss the challenges of adopting blockchain from a governance and risk standpoint.
Denise is a blockchain governance advisor who has written a doctoral dissertation on blockchain with a special focus on supply chain and governance. She’s also the VP of blockchain governance for a supply chain and logistics startup.
Tom Fuhrman is a blockchain & cybersecurity consultant specialised in cybersecurity consulting for the last 25 years. Recently he has extended his scope into blockchain consulting, where he focuses on strategy, governance, risk management, and specifically looks at the intersections between blockchain and cybersecurity.
What is blockchain?
For Denise, blockchain is a database shared across a network of computers. As a record or block gets added to that database the blocks are chained together. Records on the blockchain are very difficult to change because each block has a hash which refers to the previous block. So, any change of a block requires a change of the entire chain. It is this attribute of blockchain which makes it very secure.
For Tom, blockchain is a shared, continuously updated immutable database. It represents a single source of truth amongst trustless participants. As Tom is a cybersecurity expert he believes that blockchain inherently has two of the three attributes that cybersecurity requires:
Integrity because of its immutably nature
Availability because it is distributed
Confidentiality isn’t something that blockchain has inherently but it can be added with encryption
Tom also reminds us that blockchain exists in two basic design philosophies: public permissionless and private permissioned. Permissionless is most famously known via Bitcoin where anyone can participate at any level. Everything is decentralised and transparent in a trustless environment.
A permissioned blockchain has a restricted access. It isn’t as decentralised and they require a certain degree of trust.
What is governance and its impact on blockchain and its members?
Governance is about agreeing upfront the rules and the processes and what to do when things go wrong. It’s a system of rules that helps govern an ecosystem of players in how they can interact.
Whilst working on her dissertation Denise started to interview supply chain business people who were trying to deploy a blockchain solution. During her interview she kept hearing that it isn’t about the technology but instead, a real lack of clarity around how firms need to work together much more closely than they’re used to doing due to the nature of blockchain. What her interviewees were expressing was the need for a governance framework, or playbook.
Blockchain impacts its members because they now have to share business processes, confidential information and intellectual property. It’s synonymous to them having to expose the underbelly of their organisation in ways that they haven’t had to do before.
This closeness of sharing sometimes blurs the lines in their eyes of where their company ends and others begins. For many this is a cultural shift which many companies are not used to.
For Denise one of the key governance challenges is understanding the amount of changes that people and firms are going to have to do.
Collaborative governance as a key mechanism to removing obstacles
Collaborative governance is a particular type of governance that in Denise’s point of view is quite well suited for blockchain as it addresses many of the common issues at the beginning of blockchain such as: information asymmetry, incentives, prehistory of cooperation or conflict of members.
These are starting conditions that have to be addressed at the very beginning. This then flows into an agreement on how to make decisions, what is equitable, how is trust maintained and what is the shared understanding of good governance. With good collaborative governance you can avoid a lot of the pitfalls that usually come out later.
There are a number of design principles that need to be looked at when building a governance structure. Need to include a node to an agnostic party. In the case of the MOBI consortium that was down to MIT. Another design principle is who gets to vote and what happens under special circumstances. For example, what happens when one voting firm acquires another voting firm do they get a majority?
Consortiums, set up as a for profit company or not for profit?
According to Tom there are two points that comes to mind when looking at the implications of a profit versus not for profit consortium:
Membership in the governance body. In a for profit consortium there could be a need or desire to restrict the membership or set up different classes of membership with different authorities and voting rights.
Intellectual property. Intellectual property rights may be easier to be managed in a for profit entity that was created by investment from stakeholders.
Ecosystems as a form of competitive advantage
Supplier excellence leads to competitive advantage. Firms who do this well are known to be good at what they do as it means that their up and downstream suppliers are faster, better, less expensive, etc, with the firm reaping the benefits of that operational excellence.
Denise explains that there are some schools of thought that believe that pods of ecosystems can become more competitive than other po ds. That’s because members within a blockchain ecosystem have access to new customers and have the ability to monetize stranded assets.
What makes a good governance?
Enterprises that have done a good job in implementing effective governance are the ones that have been very clear in expressing what Denise calls, WIFM (What’s in it for me). Every player within an ecosystem needs to be able to get something out of it. It needs to be transparent and there are mechanisms in place to hold entities accountable.
Is blockchain a plug and play technology?
In Tom’s opinion whilst blockchain has clearly improved and matured over the years it hasn’t reached a level equal to a plug and play technology. Blockchain platforms such as Hedera Hashgraph, Hyperledger Fabric, Ethereum, Corda, EOSIO and others now have large development communities as part of their ecosystem with many tools for implementing solutions. These are big steps forward.
Now there are a number of companies such as IBM, T-Systems, Amazon, Microsoft and many more offering blockchain as a service which helps organisations jumpstart blockchain implementation.
But blockchain is a complicated technology to implement as an enterprise grade software system. A blockchain that implements a business model usually depends on a range of external components such as external data storage, resources like oracles and notaries. Architectures can get pretty complicated and smart contracts too. However, once these complexities are ironed out and put under the hood future blockchain implements can adopt those learnings and build on that baseline.
Main risks associated with blockchain platform
For Tom, the categories of risk are the same as for other IT systems but they all have a blockchain flavour. These include:
Technology risk – risk that something could go wrong with the platform that affects the organization’s ability to function. This can be due to a programming error or an implantation error.
Cybersecurity risk – risk that a cyber-attack on a blockchain could disrupt an organization’s operations.
Liability risk – risk associated with the liabilities of distributed peer-to-peer data sharing and processing.
Data privacy risk – risk that personal data protected by law or regulation, protected health information, proprietary corporate data, or other sensitive data could be compromised.
Compliance risk – risk that a blockchain-enabled operation could violate compliance requirements (e.g., anti-money laundering in cross-border payments)
Tom believes there needs to be more maturity and understanding the risks. There needs to be a formal way to manage the risk at the enterprise level and to add blockchain risks to the enterprise risk register. The problem is that many companies don’t have an enterprise risk register that identifies the main risks categorises and what to do about them.
Tom would advise companies to identify the perils specifically associated with blockchain. To map them into the above categories. They then should ask themselves the following questions:
What is the likelihood and impact of those perils?
What if they happened?
What impact would it have financially or otherwise?
What is the chance of it happening?
One way to mitigate those risks is considering risk transfer through insurance including general liability policies, directors’ and officers’ policies, and cyber policies.
Ep. 146 – Self-Sovereign Identity and IoT – insights from the Sovrin Foundation
Jan 31, 2021
Michael Shea is the Managing Director of the Dingle Group and the Chair of Sovrin Foundation’sSSI in IoT Working Group. In this podcast we discussed the white paper he authored on Self Sovereign Identity and IoT. To explain the opportunities SSI can provide to IoT, Michael introduces us to three profiles: Jamie (machine to person), Bob (machine to machine) and Bessie the cow (digital twin).
What is blockchain?
Blockchain is a decentralised database, which is cryptographically secured and immutable. The decentralised part means that it operates in a wider ecosystem than traditional ones, that sits within corporate firewalls, which gives it greater resiliency and redundancy.
The cryptographic component along with the different proof of work, resolve the double spend problem and bring a level of assurance that transactions have not been modified.
An introduction to Self-Sovereign Identify (SSI), Decentralised Identifiers (DID) and verifiable credentials.
Self-sovereign identity is an identity model, where an entity is in control of its own identity and information related to it. SSI as a concept started to take shape in 2016 with Christopher Allen’s 10 principles of self-sovereign identity. In December 2020 the Sovrin Foundation released its 12 principles of self-sovereign identity, which fundamentally is about an entity’s ability to control the information about themselves.
Decentralised identifiers (DIDs) is a pointer to the identify information known as a DID document that helps to create the trust layers within SSI.
A verifiable credential is a cryptographic bundle that is created by an issuer of a credential such as the DVLA for a driver’s license. That credential includes attributes stating that the driver is legally entitled to drive a vehicle and it may contain other pieces of information such as your address and other details. A cryptographic bundle is signed using the public private key of the issuer in this case the DVLA which is then returned to the holder of the driver’s license. That holder can then use that credential to a verifier to indicate his/her authorisation to drive a vehicle.
Internet of Things (IoT)
Machine to Person
Machine to person is where a device is interacting with an individual. The machine can be attached or worn by a person and is measuring some aspect of the person’s personal or physical environment and transmitting this data directly or indirectly to a connected device. For example, a person with diabetes would have a sensor that is attached to their body reading their glucose level and communicating the data to an app on a smartphone or a separate physical device.
Machine to machine
Machine to machine is the communication between an IoT device and a computer, smartphone or device. Using the above analogy, the machine is the device or the smartphone speaking up to a central repository for transmitting that information to an endocrinologist on behalf of the patient.
Digital twins
A digital twin is a virtual digital representation of a physical object. That can be a person, an animal, or a thing. The most common use of digital twins is in an industrial setting. For example, a jet engine has hundreds of sensors embedded inside it, streaming data off to the aircraft engine manufacturers and creating a whole digital profile of itself.
Risks associated with IoT
On the 21st of October 2016, multiple major DDoS attacks happened which took down numerous high-profile websites such as Netflix, Twitter, GitHub, Airbnb and others. This denial of service attack, known as the Mirai botnet attack, was a result of the Mirai malware installed on a large number of IoT devices. Such attacks illustrated the risks associated with poor security on IoT devices.
As the number of IoT devices continue to grow every year, Michael believes that IoT and security is going to continue being very much like oil and water. That’s partly because security is hard. IoT devices have a number of constraints:
Actual device in terms of their CPU and/or microcontrollers and their ability to deal with cryptography
Power constraints
Lack of a trusted execution environment or secure element that allows the device to store keys in a secure manner
On the 1st of January 2020, Forbes reported that the state of California IoT Security Law came into effect mandated that all IoT devices sold in the state must also have “reasonable cybersecurity measures” embedded.
Another point that Michael highlighted in the podcast is the one regarding AI bias. This is a challenge that traditional insurers models are going to run into according to Michael. There has been an increase in statistic models and AI based systems for measuring different things. The problem that many of those algorithms that run statistical models or AIs are bias. There algorithms are completely opaque and there is no open source as they’re often considered as their organisation’s competitive advantage or secret sauce.
To make the SSI community aware of the opportunity that exists in the IoT space
To make the IoT community aware of the potential and the possibilities that SSI, the DIDs and the credentials bring in addressing some of the security challenges that exist in IoT
The white paper uses three personas — Jamie, Bob, and Bessie the Cow —to provide a basic introduction to SSI and IoT, explore practical challenges in context, and describe how SSI in IoT can meet these challenges.
Jamie is a 55-year-old male who has Type 1 diabetes since childhood and has recently been diagnosed with early onset dementia. In recent years, he has been using a glucose meter implanted under his skin. The glucose meter connects to an App on his phone to keep a record of his glucose levels. Jamie has been sharing this data with his endocrinologist.
His challenges and his partner’s challenges are ensuring he gets his regular dose of insulin and the risk of him wandering away because of his dementia / Alzheimer.
With the use of decentralised identifiers and verifiable credentials, it is possible for his partner, Anne, to share delegated authorization to different people to have access to this information, such as access to the glucose meter. The other option, which is at a conceptual level, is to have inserts in Jamie’s shoes which can provide GPS location of where he is. These inserts can recognize Jamie by his gait and can even track Jamie’s physical location. This of course provides very personal information on Jamie.
Anne, being Jamie’s legal guardian can share delegate access to rescue services, both the location information coming from the insert, and potentially the glucose levels information. The aim is that this could lead to a faster and safe recovery of Jamie before he goes into an insulin shock.
Persona – Bob – machine to machine
Bob is a facilities manager in a financial office who is responsible for the infrastructure and keeping the bank’s staff, financial resources, confidential information and proprietary data safe. He has a lot of devices from heating, ventilation, security systems, network access for WIFI access points, area access and CCTV. It’s very labour intensive to set up, provision devices and to set them up on the network.
SSI along with DIDs and credentials provide the ability to automate to manage credentials for each of those devices whether is to replace them or revoke them for example.
DIDs and credentials provide Bob with a global means to establish the identity of IoT devices, people, and organisations. This enables him to standardise the management of both Machine To Machine interactions (e.g. CCTV cameras uploading their footage to a server) and Machine to Person interactions (e.g. doorways controlling entering and exiting of restricted areas).
The use of DIDs and VC’s in the asset management platform and wider IT ecosystem will increase security by ensuring all IoT devices are able to definitively self-identify and authenticate.
Persona – Bessie the cow – digital twins
Bessie is a Black Angus cow being raised by a rancher (keeper). The keeper (in contrast to the owner) of Bessie is required to keep records about Bessie, from birth to death. The tracking of cattle, and other farm animals, throughout their lives is a critical element in ensuring safety of the food supply chain. This was starkly proven during the foot-and-mouth outbreak occurred in 2007 in the UK when millions of animals were culled.
Today animals have a passport when they are born that tracks all of the animals’ movements. The challenge is that this comes as a physical piece of paper which creates a number of issues from being tampered, modified, and lost.
SSI brings the following elements to Bessie the cow and its ecosystem:
Eliminates paper
Managing multiple stakeholders
SSI brings an element of data quality issue when eliminating paper. Instead of having someone having to write information on a piece of paper or having to rekey something you can avoid spelling mistakes, typos and transcription errors by introducing SSI.
From a multiple stakeholders perspective, there have been issues or instances of where the person who has the cow on their property, along with the cow’s passport decides to sell the cow even if they don’t own it. SSi cryptographic credentials helps to introduce the notion of guardianship and delegation concept to avoid such type of problems.
Business value coming out of SSI solutions
SSI solutions bring two type of business values:
Operational savings through reductions of liability and mitigation of risk. Another example are savings around data quality issues.
When you start to have high confidence, high assurance, high trust around the interaction that you’re having, it starts to open the door for whole new business, different business models, new products and services to be created.
The Sovrin Foundation is a 501 (c)(4) nonprofit organization established to administer the Governance Framework governing the Sovrin Network, a public service utility enabling self-sovereign identity on the internet. The Sovrin Foundation is an independent organization that is responsible for ensuring the Sovrin identity system is public and globally accessible.
Ep. 145 – Parametric insurance revisited – insights from Arbol
Jan 24, 2021
Siddhartha Jha is the Founder & CEO of Arbol, an insurtech platform for parametric products that uses blockchain, big data, machine learning and smart contracts to bring transparency and remove delays and disputes of traditional insurance policies. In this podcast we revisit parametric insurance to discuss why it is now poised for new growth potential thanks to increased availability of granular data, improved technologies and attraction of non-traditional capital.
What is blockchain?
Blockchain is a system of distributed consensus. Instead of having a central authority determining when a transaction takes place, or when a particular event has taken place, you have a distributed consensus around that event or transaction taking place. Blockchain allows for immutability and allows for a tamper proof environment where different parties can agree on something happening without a central coordinating authority.
What is parametric insurance?
Parametric insurance uses data to make a loss assessment instead of having a human check the level of damage from an event and pay based on a subjective loss estimate. Parametric uses data sets as it’s index and a trigger to make a payment.
Sid uses an example of a farmer who takes an insurance policy for $100,000 if he/she doesn’t receive 3 inches of rainfall on his farm. Such parametric insurance changes insurance from this subjective loss assessment process, which can be filled with delays, disputes and sometimes fraud to one where once a trigger is generated an automatic payment will happen.
This creates a great customer experience where there is greater transparency and peace of mind. From an incumbent insurer standpoint, the simplicity of parametric leads to scale and reduce costs. They can avoid relying on loss adjusters, managing different claims process and legal costs as we’re now seeing in business interruption contracts due to COVID.
From a regulator perspective, Sid believes regulators could get interested in parametric insurance in its ability to fulfilling many gaps in the traditional insurance system:
Covering high deductibles
Where data sets are becoming richer to provide new innovative parametric insurance as it removes the proving of burden of loss from the customer to the data set
Why has parametric insurance not scaled yet?
Parametric insurance has been around since the late 1990s but hasn’t quite scaled yet. Sid believes there are a number of reasons for that:
Availability of granular data sets
Technology and processing power can be an issue for processing simulations. For example, Arbol can process 40,000 – 50,000 simultaneous weather simulations to price an entire basket. This would have been very difficult 10 – 15 years ago with the available computing power back then.
Customers are only now becoming comfortable and familiar with parametric insurance
Blockchain and parametric insurance
Very often companies who offer parametric insurance using blockchain are challenged on whether or not they needed a blockchain. Sid believes that if you’re running a simple parametric insurance for one product in one region you don’t need a blockchain. A simple SQL database will be sufficient.
Operating across a large number of regions, especially in regions where trust levels for institutions and insurance companies can be very low, blockchain can help.
The decentralised nature of blockchain means you can have a data infrastructure which is decentralised. Something that Arbol has embraced since day 1. What this means is that when a payout happens a customer can know that Arbol had no control over that and that they can verify the original third-party data if they so choose to.
Another reason why blockchain and parametric insurance can work well together is from an audit perspective. Parametric insurance can be using thousands of different IoT sensors that all require auditing. Blockchain’s time stamping, transparency, traceability and immutability nature of it makes it very valuable for the customer and for reinsurance capital.
A third reason for why blockchain, is with regards to smart contracts that can manage large programmes such as automated payments.
About Arbol & dClimate
Arbol is an insurtech platform for parametric coverage. Arbol connects users such as businesses and farms that are affected by external risks like weather and climate risks to capital that is looking for diversification. Arbol uses big data, smart contracts and machine learning for pricing and AI as an underwriter.
Arbol has the vision of bringing in non-traditional capital into new markets. Parametric insurance is a great bridge between the traditional finance world, which is used to things like derivatives, which are essentially payments based on data, and the insurance world.
Arbol’s products serve a range of industries including agriculture, energy, maritime, leisure, and a host of other bespoke risks.
dClimate is a transparent, decentralised marketplace where climate data, forecasts and models are standardized, monetized and distributed. It is governed by a governance token on the blockchain side. Similarly to how Amazon took AWS from an internal use to an external facing product, dClimate will be easily accessible to entities via a simple API.
Chainlink and Arbol
Insureblocks recently had Sergey Nazarov, founder of Chainlink who spoke highly of Arbol. Sid mentioned that Chainlink plays a key role in their ecosystem as early on they realised how difficult it is to access outside data sets into a blockchain in a stable manner. As Arbol builds up dClimate, Chainlink is going to be an integral part of its infrastructure in terms of reaching out to all the different data sets and validating them.
Growth areas for parametric insurance
Sid identified a number of growth areas such as in the renewable space where hedging for cloud cover and wind speed as the proliferation of solar and wind capacity continues to grow. In the hospitality sector from hedging vacations based on rainfall events.
Finally a third one is in the agricultural space where farm level sensor based coverage can help to cover farmers in a more direct way.
Ep. 144 – A new approach to blockchain – Ping An’s Insights
Jan 17, 2021
Frank Lu is Head of Ping An Blockchain Technology at OneConnect Smart Technology, a subsidiary of Ping An. Previously to Ping An, Frank Lu was one of the original founders of Hyperledger Fabric. In this podcast we discuss the different approaches to blockchain and the advantages of creating encrypted data networks for data privacy, cross validation of data and ability to run business logic on encrypted data.
About Ping An
Ping An is a Chinese holding conglomerate with 30 subsidiaries that mainly deal with insurance, banking, and financial services. The company was founded in 1988 and is headquartered in Shenzhen. “Ping An” literally means “safe and well”.
Ping An ranked 7th on the Forbes Global 2000 list and 29th on the Fortune Global 500 list.
The company is considered to be China’s biggest insurer, with US$107 billion in gross premium income in 2018. Its market capitalization is at US$220 billion in July 2019, making it the world’s largest insurer except for Berkshire Hathaway.
Frank’s subsidiary, OneConnect Smart Technology, is mainly responsible for financial services. Frank heads the Technology Division for blockchain which is responsible for PingAn’s blockchain across the conglomerate.
What is blockchain?
Blockchain is a shared ledger technology which provides a single source of truth to all participants on a blockchain. It’s a way for different participants to be able to manage and work on the same data source. Every time a change is done to the data source, all participants will have visibility of that change. It has features which makes it immutable thus ensuring any attempts to delete a record or change a record will get noticed by the other participants.
Frank’s journey to blockchain
Back in 2013, Frank was part of the IBM WebSphere Strategy Team. His team was working on gamification technology which involved using coins and badges as game elements to motivate a workforce. In 2014, The project was pivoted to a mobile gaming backend as a service working for Jerry Cuomo.
At that time Ethereum hadn’t yet launched but had published the Ethereum whitepaper along with a few lines of code which attracted the interest of the team Frank worked at. They investigated the Ethereum whitepaper to determine how they could use it for their gaming backend work.
Based on the mobile gaming backend work a new project was launched, initially called “Blue Chain” that received $1m to explore blockchain solutions. John Wolpert was invited to lead Blue Chain and Richard Brownwas also invited to participate in the project.
Initially the plan was to avoid having to start from scratch in building a blockchain solution. They looked at the possibility of partnering with Ethereum to bring their technology to the enterprise market. However, due to internal politics it was decided for IBM to build their own blockchain solution. The Blue Chain initiative was then called Hyperledger Fabric. In December 2015, Hyperledger Fabric was formerly launched under the auspices of the Linux Foundation.
In early 2016, PingAn convinced Frank to join them.
PingAn’s blockchain technology
As head of blockchain technology at PingAn, Frank has an interesting view of consortiums. In his opinion consortiums are formed by entities who are interested in accessing other people’s data. Everybody wants to leverage other people’s data, however most aren’t willing to share their own data. His criticism of Hyperledger’s approach to blockchain is its use of channels which is essentially a point to point connection between counterparties, something which you can do with existing traditional technologies. Hyperledger’s approach is if you want to make confidentiality a priority then you should use blockchain technology.
PingAn has a different approach. Their blockchain technology is heavily based on cryptography where all data is encrypted on the blockchain and where the participants can run business logic on encrypted data. Participants can cross validate their data with other participants’ data without actually know the specifics of the data.
This approach can facilitate federated learning activities.
PingAn uses a form of zero knowledge proof, also known as ZKP called 3D ZKP. Frank believes that today’s ZKP is extremely difficult to use and can take a lot of time to prepare. PingAn’s 3D ZKP enables business to create business rules by creating arithmetic equations. This approach ensures that 3D ZKP is significantly more efficient than traditional ZKP. It facilitates the manner in which you can validate your data with other people’s data through a business logic defined by an arithmetic equation.
For companies to collaborate onto the PingAn’s blockchain platform they need to upload their encrypted data. For this to happen two levels must be adhered to. You need a common encryption standard for encrypting the data onto the blockchain.
Most ZKP and multi party computation support the Pedersen Commitment. If you can standardise that commitment you can build different protocols and APIs on top of the encryption technology
In a hypothetical example a shoe factory receives a purchase order of $100,000 for 1,000 shoes at $100 a pair of shoes. The factory needs capital to be able to manufacture the shoes. They need capital to buy the shoes materials and pay for their workers. The factory takes the purchase order to a bank to receive finance on back of the purchase order.
The bank, however needs to be able to confirm that the purchase order is real. The bank can access the data on the blockchain that carries information from the logistics provider from the customs on shoes that have been already been shipped. As the data is fully encrypted by each of those participants the bank can’t access the data itself but they can cross validate their own data with the data owned by other participants on the blockchain such as custom officials, logistics company, insurance company and others. They can validate the number of shoes that have been shipped, the price of the shoes and so on.
The more check points the bank can access onto the blockchain the more they can increase the confidence over the data they have and the more they can reduce the financial risk involved in the trade.
Plans for 2021
Opportunity for linking more data to their existing platforms. To create an ecosystem of inter connected data, along with the creation of numerous APIs to leverage the data of multiple blockchains.
The next big play in Frank’s point of view isn’t about the traditional blockchain use case but about federated learning, where Frank believes there are more opportunities.
Ep. 143 – UN World Food Programme on the blockchain
Jan 10, 2021
Gustav Strömfelt is Project Manager at the World Food Programme & New Venture Consultant. In this exciting podcast we discuss some of the blockchain work the United Nations World Food Programme (WFP) has been conducting over the years including Building Blocks and collaborations with other UN agencies such as UN Women.
Winning the Nobel Peace Prize
Winning the Nobel Peace Prize represents for Gustav an important spotlight on the importance that food has towards global peace.
Awarding the 2020 Nobel Peace Prize to WFP, the Norwegian Nobel Committee described the link between hunger and armed conflict as a vicious circle in which “war and conflict can cause food insecurity and hunger, just as hunger and food insecurity can cause latent conflicts to flare up and trigger the use of violence.”
The Nobel Peace Prize gives WFP recognition “for its efforts to combat hunger, for its contribution to bettering conditions for peace in conflict-affected areas and for acting as a driving force in efforts to prevent the use of hunger as a weapon of war and conflict.”
Gustav feels very humble and proud to be part of an organisation of 18,000 people, their partners and donors who all work together to ensure that the 690 million people who are hungry worldwide do not go to bed worrying about where they’re going to get their next meal.
What is blockchain?
A its core, blockchain is a fancy accounting technology with some interesting bells and whistles. From his perspective, Gustav sees blockchain as an amazing way to ensure a unified vision of the truth across participants in an ecosystem. This creates the opportunity for consensus to be shared between organisations that’s effectively coded into an underlying platform.
From an application standpoint it opens huge opportunities for collaboration and cooperation for use cases that considers the needs of an ecosystem and a common customer. Whether that’s a specific good that’s passing through a supply chain or an individual receiving tokens.
Blockchain is a great way for the WFP to drive transparency, consensus and a unified vision of the truth.
About the World Food Programme (WFP)
Created in 1961, the WFP’s purpose is to eradicate global hunger because one in 11 people worldwide doesn’t have enough to eat.
The United Nations World Food Programme (WFP) is one of the largest UN agency with 18,000 employees serving 138 million people worldwide across 83 countries. Every year the WFP gives out 15 billion food rations and $30m in cash. At the moment the WFP is probably one of the largest operating airlines in the world with over 100 aircraft along with 30 ships, 5,500 trucks actively moving goods and people to deliver humanitarian responses around the world.
The World Food Programmes Building Blocks
Houman Haddad, is the founder of the WFP’s Building Blocks which launched in 2017 as part of their Blockchain for Zero Hunger initiative.
What Houman realised was how inefficient cash transactions are from the creation of beneficiaries accounts to the way transaction are performed.
The majority of cash delivery processes in humanitarian organisations is done through the creation of virtual accounts with a financial service provider. They hold custody of those accounts as in many cases refugees are not given the ability to open their own named accounts. Some from of authentication mechanism is created for the refugee’s virtual account via a card or via biometrics for a transaction to take place between the financial service provider and the merchant which has been contracted by the humanitarian organisation.
That process creates significant costs. In Jordan for example the WFP is servicing 140,000 beneficiaries across two refugee camps, four merchant shops with each transaction costing a fee between 2 – 3%. With 300,000 – 400,000 transactions a month this transaction cost can rise significantly.
With Building Blocks, a custodian wallet is created on behalf of the beneficiary. Transactions are done electronically using digital vouchers where the vouchers are transferred from the beneficiary’s wallet to the merchant’s wallet. A parallel settlement process then takes place where the vouchers the merchants received are paid out in cash. This process reduces transaction fees by up to 98%.
Gustav recognises that at the beginning they could have used a simple database to deliver the building blocks voucher programme. However, blockchain has enabled them to bring on other organisations such as the UN Women. Blockchain has also enabled to create a lot of trust between the WFP and its vendors in Jordan who do not need to invoice the WFP anymore as they trust the information provided to them by Building Blocks.
Gustav shared three key learnings gathered with Building Blocs;
You need a champion to take corporate innovation forward
Create the right kind of ecosystem and the right environment for innovative ideas to percolate. This may include having the right mentors and a steering committee
Availability of funding to support the project
Insureblocks ran in 2018 a campaign to collect funds in support of the WFP by recognising the blockchain work they did with Building Blocks:
Working with UN Women for cash transfers in refugee camps with blockchain
UN Women pay women in refugee camps for the work they do there. Traditionally this was done by cash, where cash was transported to refugee camps which can be risky. UN Women and WFP collaborated together to leverage Building Blocks to facilitate the transfer of cash to women in the Za’atari and Azraq refugee camps in Jordan.
UN Women uses the blockchain system to transact vouchers as a proxy for the Jordanian Dinar. The way it works is that a woman goes into a supermarket, authenticates herself with an iris scan which enables her to access her UN Women digital cash wallet in order to receive cash from the supermarket tills.
The Atrium
The Atrium, an interagency platform for blockchain technology, built on blockchain, designed to support learning, collaboration and conversation amongst the UN community.
The Atrium was created two years by Gustav along with Christina Lomazzo and Ariana Fowler who also appeared on Insureblocks in Utilising blockchain at UNICEF. It was created as the three co-founders realised there was a lot of replication between different blockchain initiatives within the UN. The initial idea was how they can support the sharing of intellectual property, the sharing of ideas between UN agencies and thus reduce replication and increase collaboration.
Since the launch of the prototype in mid 2019 UN staff members can come learn about blockchain and develop their own smart contracts. They can use a private permissioned network within WFP and UNICEF to test out ideas
In just five years, they have evaluated over 6,100 applications, supported more than 100 projects around the world, with 14 innovations scaling up to reach 3.5 million people. In 2020, they were one of 10 organizations worldwide to be named in Fast Company’s 2020 awards: “Best Workplace for Innovators” and “Innovation Team of the Year.”
A number of exciting applications have come up from he WFP Innovation Accelerator Programme such as:
H2 Grow is an innovation under the World Food Programme (WFP) Innovation Accelerator’s Scale-Up Enablement programme, recently brought together a global group of hydroponics experts in a 3-day research event to discuss hydroponics in the humanitarian and development context.
Share the Meal is an app from the United Nations World Food Programme that enables people to “share their meals” with children in need.
Ep. 142 – Smart COVID data on the blockchain – insights from HealthTrends.ai
Jan 03, 2021
Susan Joseph is the CEO and co-founder of HealthTrends.ai, a trusted third party delivering ongoing authoritative health data that’s independently auditable and has legal weight. In this podcast we discuss the challenges the US Health Sector has regarding collection and distribution of health data and what role Smart COVID data on the blockchain can have to help fight the pandemic.
Susan is both a consultant and attorney with startups and enterprises in a variety of settings, including financial services, data usage, ESG, and digital assets. She is also a consortium advisor to the Mining and Metals Industry Blockchain Initiative and is the Executive Director of Diversity in Blockchain, a 501(c)(3) entity that provides education and resources to support diversity and inclusion in the blockchain space.
What is blockchain?
Susan views blockchain as a communications network layer on top of the internet that allows direct peer to peer transactions. To accomplish this, it requires cryptography, incentives such as game theory, other economic incentives, and computing power. It can be applied to a wide range of transactions from anything such as currencies to data usage which is where HealthTrends.ai jumps in.
In our previous podcast together entitled “Innovation & diversity in the Insurance Industry”, Susan had a more technical definition of what is blockchain. Now she views blockchain more as a social, political, economic and computing tool.
Challenges the US Health Sector has regarding collection and distribution of health data
The quality of public health data that is available to collect and act upon is the first defence at the beginning of a pandemic. The current pandemic has demonstrated that the manner in which the US captures public high quality health data, with which to make hard decisions, has been a stress test on every aspect of its healthcare system. That type of data, whilst published, is not easy to access, sort and aggregate thus making it really hard to make decisions in a timely manner in its current published form.
In the US, every state is charged with issuing out public health information and publishing it. But they’re not told how to publish it and in what form to make it available. They just put it up on their website in an unstructured manner. This creates challenges on downloading active data in a timely fashion.
Every state has in a sense, their own standard to the data, making it difficult to have a uniform dashboard where data is easily aggregated or sortable.
The data that the states are publishing has legal weight. It is important to recognise that the state themselves have not been recipient of a lot of infrastructure funds and they do the best they can with what they have. Susan wants to give special recognition to the “data nerds” and public health officials for collating and getting health data every day since the beginning of the pandemic.
She sees HealthTrends.ai as upgrading the data layer by empowering organisations to access the data to make the necessary decisions.
About HealthTrends.ai
Susan, is the CEO of HealthTrends.ai a company she co-founded at the beginning of the pandemic. They are a trusted third party, delivering ongoing authoritative health data that’s independently auditable and has legal weight. They’re the trusted data source that spans legacy and cutting-edge technology solutions, allowing innovative organisations to access both.
Their mission is to help any organisation turn health data into something actionable that they can use and base their decisions upon. The first tool they developed is the Coronavirus API that runs Coronavirus statistics. It is a free tool to support first responders who specifically use the data to confirm trends, assess risk for non-compliance, and create predictions to help manage their populations. Similarly, this type of data is used in insurance, economic projections, supply chain logistics, health equity and academics.
The role blockchain and smart contracts play
Susan views HealthTrends.ai as a bridge, since they use both legacy and blockchain parts in their solution. They currently hash the data onto the Ethereum public blockchain via smart contract which allows them to detect any changes to data published onto the blockchain.
They presently use Ethereum but Susan stresses that they are blockchain agnostic and could publish the data to any public or private blockchain. They’re now building a Chainlink node to afford certain data access within the smart contract environment.
Data standardisation challenges
As previously mentioned each state publishes the data in their own manner which in turn creates data standardisation challenges.
The states are collecting medical records from a variety of sources which could be electronically generated, could be phoned in, and or faxed in. This creates data nightmare scenarios for the people who are collecting and parsing it back out.
HealthTrends.ai takes the available published data and puts it up on the Ethereum public blockchain in a standard form.
Launching a Chainlink node
Source: HealthTrends.ai
HealthTrends.ai is in the process of launching a Chainlink node. By launching their own official Chainlink oracle node, HealthTrends.ai will be able to broadcast state certified, authoritative COVID-19 data from their Coronavirus API onto many of the leading blockchain platforms like Ethereum, empowering a wide range of new smart contract applications to emerge for Life, P&C, and Health insurance, automatic rebalancing of supply chains, asset management and financial risk tools, and more.
They chose Chainlink because they’re the most widely used oracle solution in the market.
Plans for 2021
Susan shared some of the exciting projects they have in the works from an accelerator, a test environment, some AI and ML work, working on search tools and they’re constantly refining their smart contracts.
Recognising the growth in parametric insurance, Susan is keen to explore if there’s a low level parametric insurance that could happen in a pandemic. For example, if there are deaths at a certain level or shutdown orders at a certain level that could trigger business interruption insurance at a certain level. In a smart contract market you could test this hypothesis.
Ep. 141 – How can blockchain and insurance be good bedfellows? – Insights from AXA
Dec 27, 2020
Laurent Benichou, is Head of Blockchain Europe & US, that sits within the Group Emerging Technologies and Data team at AXA. In this podcast we discuss the main takeaways from his experience with Fizzy and more importantly we discuss how can blockchain and insurance be good bedfellows. Laurent shares with us some of the main mistakes insurers make with blockchain but he also the main blockchain opportunities that exist in insurance.
“A blockchain is a fully distributed database. This means it has no single point of failure and no central managing authority.
Blockchain’s technical characteristics, such as its immutability and cryptographic verification, create numerous convenient features including fast and easy payments, smart contracts and the ability to indefinitely store information.”
At that time his answer was a very technical one which he believes misses the essence of what is blockchain. Today, Laurent defines blockchain as a digital system of uncensored value transfer. The winning present blockchain use cases are ones around the exchange of value, such as Bitcoin and lending with stable coins.
Main takeaways of Fizzy
In September 2017, AXA launched Fizzy. Fizzy is a fully automated flight delay insurance policy that runs on the Ethereum blockchain and allows customers to get indemnified as soon as they arrive to their destination. The process is fully automated, with a smart contract deciding whether customers are eligible for indemnification.
In November 2019, over 2 years after its launch AXA closed Fizzy. Laurent describes Fizzy as an opportunity to test out a new type of product based on blockchain technology. It provided his team with an incredible experience, which grabbed a lot more media attention that they had anticipated. They gained a lot knowledge during that experience on things such as: how to use a blockchain, how to handle gas fees on Ethereum, importance of auditing a smart contract, and much more.
Taking the learnings from Fizzy, Laurent has the following top tips for aspiring blockchain projects:
It’s always easier to convince people with a functioning proof of concept than with a PowerPoint.
Never underestimate the cost and complexity of distribution especially when it comes to a B2B to B2C model.
All new digital services need to be API and mobile first
Does blockchain and insurance make bad bedfellows?
“Unifying Insurance and Blockchain has so far been the most difficult task of my entire career”.
Laurent believes that insurance can play a part in protecting the crypto sector. He also believes that at their core both blockchain and insurance share a common element together which is about the exchange of value. However, they both tackle this common element in very different ways. Because of that difference it can be very difficult for them to work together in spite of the benefits blockchain can provide to insurance and insurance to blockchain. He is hopeful that the two will be able to work together.
In the article Laurent lists out some mistakes he has witnessed while seeing “Blockchain projects” being developed, boosted or stopped in the insurance industry:
Blockchain with or without tokens
Add blockchain but leave the rest unchanged
Ignoring the most obvious opportunities
Refuse cryptocurrencies their status of financial assets
Assume you can catch up later
Mistake 1: Blockchain with or without tokens?
Most insurers look at blockchain and decided to focus on the technology without looking at the tokens themselves.
Looking at blockchain technology without the tokens is minimising the number of total use cases you could look at. Laurent gives the example of using blockchain to track a container of rice through an audit trail and a system of signatures. This has some level of use even without a token. However, if you were to tokenise the container of rice you could for example add instant payment to transfer the value of the container of rice. In addition, the value received for that container of rice could be used as a collateral for a loan. Tokens open up new possibilities in terms of financial services. That is why for Laurent, the most revolutionary use cases out of blockchain are the ones that includes tokens in public blockchains.
B3i’s work that focuses on streamlining money streams between insurers and reinsurers is confidential information and thus shouldn’t happen on public blockchains. Most of the work that insurers do on blockchain is related to B3i or Risk Stream Collaborative that requires scalability and speed which public blockchain isn’t quite right for them.
However, Laurent, believes that when use cases come out that involves the retail customer there will be a need to evaluate tokens and public blockchains.
Mistake 2: Add blockchain but leave the rest unchanged
Laurent reminds us that blockchain is not magic and when you consider using it you have to ask yourself the question of do you want to plug into it or do you wish to replace your existing system with it. Whether it is blockchain or the cloud when it came out, disruptive technologies have a range of problems regards compliance, security and other issues.
As insurance works in a regulated industry Laurent believes that it is best to plug blockchain into an existing system rather than starting fresh with blockchain.
With regards to the point of not just connecting to legacy technology but to legacy culture, Laurent believes that legacy culture can help to stress test ideas. Additionally, if your idea is fact based and there is a culture of change management within your incumbent then legacy culture will not prevent you from doing the right project.
Mistake 3: Ignoring the most obvious opportunities
The insurance industry should appreciate that the most immediate opportunities are not related to how crypto can support insurance but how insurance can support crypto. The cryptocurrency sector is a multi-billion dollar industry where a number of insurance products can be designed from insurance of wallets to insurance of custodians to insurance of smart contracts and many other opportunities.
Decentralised insurance might the future of insurance or it might not be. Initiatives like the ones from Nexus Mutual, regarding decentralised insurance, provide the insurance industry with some great learnings.
With regards to what role regulators can play, Laurent believes that regulators can help institutional investors better understand the crypto space which can ultimately help the retail sector to get active in that space too.
Mistake 4: Refuse cryptocurrencies their status of financial assets
According to Laurent, institutional investors are now seeing Bitcoin as the equivalent of digital gold. The Financial Times reports “2020: The year Bitcoin went institutional”. Institutional investors know that Bitcoin is an asset, not only to store value, but also to increase the return of a portfolio for the same level of risk. In a difficult year like 2020 which has been plagued with quantitative easing, the pandemic high levels of state debt, having crypto assets within an institutional investor’s portfolio can help protect that portfolio’s value. That is why companies like Fidelity have launched Fidelity Digital Assets to provide crypto services to institutions.
Insurers aren’t yet investing in crypto currencies yet but Laurent isn’t ruling out the fact that it could happen in the future.
Mistake 5: Assume you can catch up later
Laurent believes that siting on the sidelines regarding blockchain is a dangerous game: “if you say, Okay, I’m on the sideline, and I’m going to be the first follower, because I don’t want to be the first one, the pioneer, and then have the problems of the pioneer and so on. At some point, you may realise that you’re not the first follower at all, you are one of the last followers.”
Blockchain solutions have the potential to be very disruptive, which means if you sit on the sideline for too long blockchain may have completly changed your value chain and disintermediated you.
Thus, it is important for incumbents to be constantly testing out new solutions so if a paradigm shift happens in the value chain you will have something to offer.
Blockchain opportunities in insurance
There are a number of blockchain opportunities within insurance. Laurent names the following ones:
New insurance opportunities: insuring the crypto world
New investment opportunity: hedge against fiat fall
Reshaping insurance and finance
Process opportunity: more timestamping in insurance processes
Opportunity 1: New insurance opportunities: insuring the crypto world
The problem and advantage of cryptocurrencies is the lack of a central party. It can be a problem because if your money gets stolen in the crypto world there isn’t a bank to go to, to help you resolve the problem and reimburse you your money. What cryptocurrencies need is security. This is provided by solutions such as experienced custodians and hardware wallets to name a few. However, you can’t rule out the fact that at some point somebody may be able to steal your cryptocurrencies. This is where insurance can become interesting because it could provide a complimentary layer of protection that security solutions cannot bring but that insurers can bring.
Insurers can insure investors cryptocurrencies to the dollar value of that cryptocurrency no matter what happens to their wallet.
Opportunity 2: New investment opportunity: hedge against fiat fall
The COVID pandemic has put states in very high levels of debts with increased usage of quantitative easing. The expected post-COVID economic recession combined with sharp quantitative easing might lead to episodes of hyperinflation, potentially boosted by investor defiance towards sovereign and corporate debt.
As we increasingly live in a digital world so does the risk of cyber attacks. When you look at all those risks together then you could foresee a potentially very difficult economic situation. Hedging against a fiat fall with investment in Bitcoin could be a useful store of value in the future.
Opportunity 3: Reshaping insurance and finance
The idea that insurance can only be provided by insurers is more and more disputed by new technology and digital disrupters. Traditional barriers to entry to the insurance sector are falling: actuarial expertise is challenged by new armies of data scientists, claims management is becoming useless with parametric insurance and IoT, public smart contracts eliminate the need to trust a big financial brand on the promise of a future payment, capital can be accumulated through liquidity pools and regulation is becoming irrelevant and powerless to regulate decentralized protocols and money flows. Under this new context, the insurance sector has to reinvent itself, disrupt itself before being disrupted, and find new areas where it can bring value.
A number of new entrants have entered in sectors that insurers could have played a role. For example being an oracle (Chainlink), being a custodian (BitGo), insuring exchanges (Binance’s SAFU), inventing distributed insurance protocols (Etherisc), creating decentralized liquidity pools (Uniswap), insuring DeFi / hedging in DeFi (Nexus Mutual).
Insurers should start researching in all of those sectors to determine which ones they should explore investing in.
Opportunity 5: Process opportunity: more timestamping in insurance processes
In insurance processes like a claims process or an underwriting process there are tools that assigns tasks to individuals that don’t always require a signature for that task. This creates scenarios were you’re not 100% sure whether someone has done or not done the task and if they were authorised to do it. This isn’t always exposed to the retail customer.
The opportunity with blockchain is to have audit trails with signatures that are completely exposed to customers. For example, a car crash claims process can have the necessary audit trails from the moment the claims process was started all the way to the payment with all steps being time stamped, provable and digitally signed.
Ep. 140 – How Shell is using blockchain in the Energy Industry?
Dec 20, 2020
Sabine Brink, Global Lead of Blockchain at Shell, shares with us how Shell is using blockchain technology within the energy industry. She walks us through a number of interesting blockchain initiatives they’ve worked on, such as decentralised digital passports, the Energy Web Foundation, LO3 Energy and VAKT. We conclude this podcast with her views on how decentralised technologies can support the fight against climate change.
What is blockchain?
Sabine recognises that there are many definitions to blockchain. One of the definitions that Shell uses is blockchain as an immutable tamper proof shared ledger of state changes of a digital asset. Technologies that enable blockchain such as algorithms, cryptography, and distributed systems have been around for decades. What makes blockchain unique is the combination of these technologies.
Shell’s Blockchain Centre of Excellence
Sabine’s blockchain team sits within the digitalisation organisation within Shell. The team was set up in early 2017 with the aim to help guide Shell through this increasingly decentralised world. They are also tasked to ensure that they accelerate the adoption of blockchain technology within Shell but also in the energy industry.
The Blockchain Centre of Excellence has the following focus:
Partnering with all the Shell businesses to help them realise the benefits of blockchain
Ensure that the right technology choices are made
Building the capabilities, toolkits and skill sets to enable Shell to accelerate their adoption of blockchain
Sabine gave us an example of how that would work where they would partner with the new energy business to develop ideas and concepts for decentralised strategies. The approach they take is first and foremost to understand what is the problem they’re trying to solve.
They would run exploratory workshops where the focus is on understanding the problem that they’re trying to solve, how big of a problem it is and identifying what is the best technology that can help them resolve this problem. If blockchain is the best technology as defined through a clear set of assessments, Sabine’s team would guide the business unit through the process of taking an idea to a proof of concept, pilot and ultimately deployment.
Sabine is passionate about the combination of a disruptive technology like technology and what it can do within the energy industry. She’s very interested in how new technology brings disruption into existing systems and/or in creating new economies.
Sabine initially started off as business analyst within the team before becoming its technical lead and ultimately growing into the lead of the blockchain centre. Her team is now working on 10 different blockchain projects and are very excited about the combination of blockchain technology within the energy industry.
Shell’s early years with blockchain
Shell was an early adopter of blockchain technology and started investigating its use in 2015. In the early years Shell had a small blockchain team testing out concept and running proof of concepts with different business units and building up their technical capability. From the learnings gained in proof of concepts in different business units they were able to formulate a clear strategy early on. This strategy helped them to understand where blockchain makes sense and where it doesn’t make sense.
Shell’s blockchain strategy is defined in three key pillars:
Reimagine current processes with blockchain technology to deliver cost savings, increase efficiency and drive standardisation. This includes creating digital ecosystems with Shell’s partners to remove inefficiencies and standardising non-competitive processes.
Reimagining the operation of end-to-end value chains to find new value propositions, particularly in emerging or rapidly evolving markets such as the electricity market, carbon and mobility markets. Shell sees blockchain as an opportunity to revolutionise those markets by reimagining how the partners interact with each other and how value is distributed along those chains.
Creating completely new markets. Sabine’s team works closely with the Shell Ventures team to identify startups that have potential to creating new markets.
Each of these pillars and also every single use case may include working with or investing in start-ups and emerging companies, participating in industry consortia, establishing joint ventures that create new business opportunities or creating ecosystems.
Shell’s decentralised digital passport
Shell has initiated a pilot project to create a decentralised digital passport system for the authentication of equipment, parts and products within its supply chains. For example, when Shell procures a piece of equipment there will be four or five different company involved from building it, designing it, verifying it and inspecting it. Shell also needs to be 100% sure that the piece of equipment meets their specifications.
A paper trail that follows the piece of equipment and a significant amount of back and forth exists today between all the companies within the value chain.
Shell invited their key partners for mapping out the processes and how they could redesign this process using digital technologies. The output of this exercise was the creation of a digital passport for every single piece of equipment. They realised by doing that they could automate a lot of the transactions and verifications that need to happen through this digital passport that sits within a blockchain network.
Sabine recognises that they could have built this solution in a central way where all the data is captured in a centralised solution. However, it is very challenging to scale such centralised solutions over a very large ecosystem like the one Shell has.
Shell and its partners agreed on a decentralised solution whereby every single partner is able to store data in their own databases with a clear hash towards that digital passport that is shared within an open network.
Now when Shell receives a piece of equipment they can scan it and get access to the complete passport and history of that piece of equipment.
Energy Web Chain
The Energy Web Foundation was set up in 2017 by Shell and 10 other energy companies as a global non-profit organization accelerating a low-carbon, customer-centric electricity system by unleashing the potential of open-source, decentralized technologies. Now in 2020, Energy Web has more than 100 affiliate members.
In June 2019, Energy Web launched the first open-source public proof of authority chain called the Energy Web Chain. This platform is here to provide a customer centric energy grid that includes legacy grid operators, along with renewable energy developed, corporate energy buyers and others focused on open-source and decentralised digital technologies.
The Energy Web Chain is a shared infrastructure for different energy players to build applications on top of this open shared infrastructure. It is one of the key critical enablers for Shell to deploy decentralised applications within this renewable energy space.
The Energy Web Foundation has two main use cases:
Being able to prove the origin of energy. Enabling customers to track energy certificates from the source and verify where the energy came from. Was it from a renewable source or not? It’s effectively creating a digital representation of energy.
Energy Flex (EW Flex) is recognising that historically the energy grid was centrally operated. More and more we’re moving towards distributed energy grids with decentralised storage. What is required is to create digital identities for the new assets and allow them to participate onto that energy grid.
LO3 Energy
In early 2019 Shell invested in LO3 (local energy solutions) Energy, a New York based start-up that uses a modified version of the Ethereum blockchain to help individuals to buy and sell locally produced energy using the existing power network. Users set their preferences on a dedicated mobile app by choosing how and when to use the local energy resources available to them and selecting the specific sources they purchase energy from.
The power flows through the normal grid transmission network, but the private, permissioned blockchain platform manages the definition of the energy source and the contract agreement to pay for it. This enables a wide range of business use cases, including peer-to-peer energy trading, energy hedging for businesses, virtual power plants, dynamic electric vehicle charging and demand response.
The startup has now live projects in the US, the EU, Japan and Australia. They have also migrated their solution onto the Energy Web Chain which allows utility companies and their customers to enable distributed energy resources to be located and connected to these local energy marketplaces.
VAKT Blockchain Platform
VAKT is a consortium that was started off by the Shell Trading business. Shell trading was one of the first business units to start exploring the potential of blockchain technology back in 2016. A number of proof of concepts where established that demonstrated how the technology can remove inefficiencies from the trading processes.
Shell invested and launched VAKT along with a number of major energy companies, trading houses and banks to enable post trade transactions of physical energy commodities. VATK’s goal is to make the market more efficient by bringing together all stakeholders in a single system that is well-designed, tamper-proof and adapted to commodity operators.
Unlike other solutions focused on a narrow piece of the deal lifecycle, VAKT aims to transform the full post-trade lifecycle, becoming the single source of truth for the trading parties and the ecosystem participants: terminals, surveyors, agents, ship owners, brokers, banks, etc.
Alongside VAKT, Shell has also invested in Komgo, a venture which seeks to digitise the trade and commodities finance sector.
Consortium experiences
Shell has participated in a number of consortiums and Sabine listed out some of their top experiences gained:
A common problem creates stickiness amongst members of a consortium
Identifying the incentives for each company to participate within the consortium
The problem is big enough to solve by the members
Be assured of the business value to be gained
It’s not about blockchain technology, it’s about business leaders that have the vision to bring multiple participants together to fundamentally change the way their industry operates
Blockchain protocols and the question of public, private, permissioned and permissionless
Sabine states that her team has been quite fortunate throughout the years to be able to experiment with different platforms, technologies and protocols. However, they are strong proponents of Ethereum. Shell selected Ethereum as the reference architecture for a number of reasons:
Biggest open source community of developers backing and contributing to it.
The platform is widely compatible, generic and modular ensuring that it is easy to build components on top of it.
Cryptographic economic incentives can be built into it
On the debate whether enterprises should build on private vs public and permissionless vs permissioned, Shell sees a shift towards public networks, public permissioned or public permissionless. They see a future where they are going to be shifting more and more of their work to public networks to really benefit from the large benefits of blockchain.
Shell’s use of decentralised technologies to support the fight against climate change
Sabine states that the energy transition and climate change is the biggest challenge facing the world today. Just developing cleaner energy solutions won’t be enough to go through this energy transition. She believes what is needed is a complete change in the way the global energy system works and how it incorporates renewables in its journey towards a greener future. Blockchain along with other technologies will help to tackle that problem and manage a successful energy transition.
There are a number of examples of how blockchain can help in this energy transition:
Peer to peer energy micro grids such as LO3.
Renewable energy trading enabled by blockchain can be more efficient and launched on a larger scale. For example, allowing the participation of energy assets into the grid such as EV vehicles and solar batteries.
Tracking of renewable energy sources to provide the assurance of its low carbon attributes. For example, Shell is exploring being able to verify the sustainable sources of hydrogen having been produced in a low carbon manner.
Explore how nature based solutions and carbon credit tracking can happen through blockchain.
Sabine is particularly interested at the next horizon of capabilities that blockchain could bring which today we may not quite understand. It is about the transformation of the way a value chain operates today. It is about new forms of collaboration within a value chain between non-traditional partners whilst strengthening and redefining the existing collaboration between today’s present partners. This approach will allow the industry to break through certain barriers that exist presently exists to provide low carbon solutions to customers around the world today.
Ep. 139 – Smart Contracts & Oracles – insights from Chainlink
Dec 14, 2020
Sergey Nazarov is the co-founder of Chainlink, a decentralised oracle network that provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain. In this podcast we discuss the fundamental opportunity blockchains along with smart contracts, connected to real world data via oracles, can provide in creating a level of hyper reliability for transactions to occur that hasn’t been possible up to now.
We also discussed how blockchain, smart contracts and oracles can create better insurance products and transform insurance cash flows into securitised tokenised assets.
What is blockchain?
Blockchains are tamper proof data structures that end up creating an immutable highly reliable record of smart contract state or contractual agreement between parties.
The way they do that is through the use of cryptography they prove that the data and the proof within a blockchain is actually reflective of what happened.
For Sergey the fact that you have a system of record and a system of executing transactions that’s hyper reliable is actually a very unique innovation in the history of contracts and in the history of how people interact with each other. Because traditionally what you would have had are multiple parties, within a transaction, keeping their version of what happened.
That means two important things. (1) that version of history, is their vision of history, whether it’s right or wrong. That version for example may have been corrupted or manipulated to their benefit. (2) It’s a version of history that they can’t easily present as a reliable proof of what happened to other parties, whether that’s the counterparty or whether that’s a regulator. This inability to prove what’s happening in a transaction or prove what the underlying value of an asset or prove what happened in an insurance kind of agreement is what leads to the big problems in the global financial system as was seen in the 2008 financial crisis.
The 2008 financial crisis was really a problem of proving that certain assets were in a certain state, and that certain people were in a certain state of solvency. Because everybody had their own version of history, and no one had a unified, single trustworthy version of history, the markets became dislocated and disconnected from reality.
Blockchain provides the ability for all parties in a transaction to have one single, hyper reliable form of history that everyone knows is true. And therefore, nobody even needs to keep their own copy.
Smart contracts
A smart contract is a tamper proof digital agreement that is represented on a blockchain. Blockchain provides a data structure, where the data about a transaction is hyper reliable. With smart contracts you now have a certain logic and conditions that gets executed, as coded into the contract. This is a hyper reliable system that sits outside the control of any of the people in the contract.
Sergey believes that smart contracts should instead be named tamper proof digital agreements. Smart contracts take standard digital agreements and provide a level of unique guarantee that digital agreements can’t provide because they’re not secured cryptographically on a blockchain.
Trust in a brand vs cryptography
The relationship and the brand of an insurance company or financial institution is there to assure you of solvency and of reputational loss if the contract is mishandled, misrepresented or not executed properly. Reputation brand is essentially a mechanism to guarantee reliability.
The internet has created a paradigm shift by being able to reliably guarantee a relationship between a user and the outcomes they expect from an internet based agreement. In those situations, people abandon brand and relationship and simply go towards the quality they can get at the best price.
In addition, publicised failures from recognised brands like WireCard and Enron to name a few, will simply demonstrate that the guarantee of a brand doesn’t mean safety in a relationship with a certain type of contractual agreement.
Mathematically guaranteed internet based alternatives gives people guarantees not based on conversations with other people, but based on firm, mathematically guaranteed outcomes.
What a smart contract does, is it forces that agreement to function in a certain way, regardless of the entity with om the agreement was made. It enables to abstract away the risk that an entity won’t be solvent, or that an entity will fail to follow through on the commitments in the agreement. Parties to a smart contract can verify that the agreement will execute the way it was promised regardless of whatever the entity decides to do. If that’s the level of reliability, you’re now able to achieve from a digital agreement from a tamper proof digital agreement slash smart contract, then the value that a brand presents in creating that same guarantee is deeply lessened.
The role of Oracles
Smart contracts are the representation of a contractual agreement in a blockchain based data structure. In order to achieve their hyper reliability, they are purposefully limited in their interaction with the outside world.
Even though they’re called smart contracts, they cannot actually connect to an external system. So, the only thing that a smart contract can know is the data that’s within a blockchain based system. The only data that’s inherently within a blockchain based system out of the box, is ownership of tokens and private key signatures.
Blockchains are a hyper reliable walled garden, for contractual state that are completely disconnected from the outside world. Oracles are the gateway for the outside world. Decentralised oracle’s are the technology that provides data to smart contracts. What oracles do is expand the two types of data that a smart contract can be about, private keys and tokens to, hundreds, thousands and millions of data points from the real world. This has enabled the appearance of decentralised finance and decentralised insurance to appear.
Chainlink provides the most widely used decentralised oracle mechanism, the most widely used decentralised oracle network that essentially provides data into these smart contracts. Whilst at the same time, does it in a highly validated, highly reliable form, so that the data meets the high reliability standards of the contracts. A universally connected smart contract is a smart contract that’s connected to the real world in a reliable manner from end to end – from the data that controls the contract, to the contract’s execution on chain, to the contracts execution of a payment outcome somewhere else.
Ensuring hyper reliability
Essentially, it boils down to the verification of outcomes, of transactional events, of real world events in the case of an oracle, multiple times by multiple independent agents, independent computing systems also known as nodes.
In tandem with that, you have cryptographic proof, which proves the provenance of the data, which came from multiple sources. It provides an immutable guarantee of being proven by many nodes. In the case of Bitcoin and Ethereum this is from thousands of nodes.
With oracles you have the same logic. You have decentralised computation to create definitive truth, whether that’s for proving the state of the weather, the state of an asset’s price, or the state of a good’s location. With that definite truth, that something has happened in the real world, you can automate the execution of a system and/or relationship in a highly efficient way.
That is the real promise of the combination of Oracle’s and smart contracts that you can prove that something happened and that there’s a system that based on that proof can now act
Adoption drivers of smart contracts in the insurance industry and enterprises in general
The insurance industry seems to have a certain kind of fast follower strategy.
However, just like FinTechs made their way into the global financial system and started eating into the market share of traditional banks and financial institutions. We’re now seeing a growing tide of InsureTechs that are using technology to generate better and easier to access insurance products.
In Sergey’s point of view this is the kind of underpinning force that will drive adoption of smart contracts in the insurance industry. What he thinks will happen is that either smaller, more innovative insurers are going to launch new hyper reliable insurance policies, driven by data, such as parametric insurance and/or that insurance cash flows will become securitized.
Smart contracts are the format in which parametric insurance can actually deliver on its guarantees. Smart contracts together with oracle’s enable parametric insurance to prove that something has happened, guarantees the policyholder of a certain outcome while enabling insurance providers to eliminate claims management.
InsureTechs like Arbol and Etherisc are essentially combining oracle’s and smart contracts to make innovative new insurance products that actually enable them to go into geographies where they don’t even need a legal relationship with users. They can just have a relationship with users on the basis of technology and the users can trust that policy not because there’s a big brand and logo there. But because the technology and its guarantee are so highly reliable that the insurance policy will be acted upon immediately when an insured event occurs.
InsureTechs are building out an increasingly easily consumable, hyper reliable insurance products, built on blockchains and smart contracts as a competitive advantage to guarantee that hyper reliability.
Traditional, larger insurers will essentially continue with their fast follower strategy and will seek to build their own systems depending on their technological readiness and capacity to adapt to blockchain and smart contracts.
The second event that Sergey predicts may happen is that insurance cash flows will become securitized. In his opinion the first people that are going to do that are going to become unbelievable successful.
The way this would work is that you make hyper reliable insurance products that can be adopted by users globally without having to rely on a logo. You take the guaranteed cash flows from those insurance products and you turn them into securitized tokenised assets. This can be done either in the traditional financial world or in the decentralised financial markets. This already exists in the refactoring industry for global invoices and for trade finance. Sergey believes the same thing is going to happen within the insurance industry and that it can be underpinned by blockchain and smart contracts to provide both better insurance products but also the format through which to prove to the market that the insurance cash flows are turned into securitized tokenised assets.
Chainlink enabling enterprises
There’re a few key decisions that enterprises need to think through when they approach smart contracts and blockchains and oracles.
The first key decision is, do they want to be an issuer? Or, do they want to be a participant?
If you want to be an issuer, somebody who issues or generates or creates smart contracts, you essentially make new financial products, new insurance products, new global trade relationships, through smart contracts. You are the party that’s driving that innovation, you’re the party that’s building the contract.
Once the enterprise has decided to become the issuer they need to create a blockchain team. They need to generate an internal competency around how to reinvent certain categories of agreements. They need a go to market strategy to educate their customer base. Numerous Insuretechs like Arbol and Nexus Mutual are good examples of companies who have done that.
To build this you’re going to need contract developers, smart contract developers and oracles to connect to real world data. What Chainlink can enable you to do is to get the data that you need into those smart contracts in a validated form. Chainlink can actually connect your internal systems to those contracts as well.
If you become an issuer or a creator Chainlink will enable you to do two things:
Architect out contracts that are properly connected to real world data
Be the abstraction layer that enables enterprise existing systems to interact with various types of blockchains
If the enterprise doesn’t choose to become an issuer but instead a participant they are still going to still need to interact with contracts. They’re going to find themselves in a similar position that people experienced when email came about is that everybody’s going to start asking you for your email address to exchange information. At that point enterprises who didn’t want to become issuers and didn’t want to move quickly won’t have a choice. They’re going to have to participate in the environment that has the contractual agreement that their counterparty wants.
In that participant category, what Chainlink will offer that abstraction layer, that’ll enable them to basically e-sign, interact with, agree to confirm their relationship to multiple smart contracts on multiple different chains.
Ep. 138 – Regulators fostering innovation in insurance – Insights from the Bermuda Monetary Authority
Dec 06, 2020
George Alayon – Assistant Director in Insurance Supervision at the Bermuda Monetary Authority (BMA). George leads a small team whose responsibility is for pushing the insurance agenda of the authority. They oversee the insurance regulatory sandbox and Innovation Hub as well as the supervision of innovative insurers here in Bermuda. In this podcast we discuss the influential role the BMA plays in fostering innovation in the insurance industry.
What is blockchain?
Blockchain is a digital ledger where information can be stored, duplicated, and distributed across a network of computers whilst being cryptographically protected. For George, it is the opposite of the traditional way of storing information in a centralised manner where there is no single point of failure. This traditional process also may or may not result in the production of digital assets.
Introduction to the Bermuda Monetary Authority (BMA)
The BMA is the sole regulator of insurance companies, banks, trust companies, investments, the Bermuda Stock Exchange and credit unions. Recently they were given the mandate to regulate digital assets.
Locally they issue the Bermuda currency which is pegged to the US dollar.
As the sole financial services regulator on the island, they pride themselves to being responsible for maintaining Bermuda’s reputation as a top jurisdiction of choice especially for insurance and reinsurance.
Bermuda is one of a few jurisdictions in the world that have gained full solvency to equivalence from the EU, as well as having obtained both qualified and reciprocal jurisdiction status from the US NAIC.
BMA defines digital assets to be anything that exists in binary format, and comes with the right to use it and includes a digital representation of value.
In George’s view, blockchain technology is a gateway to revolutionise the financial sector. Blockchain technology allows for the seamless exchange of information related to the basic elements of a contract including the consideration. In the case of insurance, consideration includes the premium paid by the insured in exchange for payment of claims in case of a loss event.
Historically the insurance industry has been heavily reliant on manual processes. The arrival of blockchain technology has given rise to a thriving digital asset business sector, which has forced the insurance industry and the rest of the financial services sector to rethink the way they operate and the future role they will play in this ecosystem.
Over the next two to three years, George sees a lot more market acceptance with the integration of digital assets, as a medium of exchange for insurance policies, as well as a utility pass or access to DLT based ecosystems.
Regulators role
The insurance industry is inherently risk averse.
One of the regulators biggest concerns is whether these technological breakthroughs have policyholder protection has as top of mind? Do they disclose enough information for parties to make an informed decision? How are companies thinking and preparing for the worst case scenarios? How do they intend to protect the data of their customers? Who is responsible for what in this decentralised network? How is the usual risk management process being replaced with this new process? At the end of the day all these questions are here to answer the question about how the interest of the policyholders will be protected?
George recognises that regulators need to think outside of the box and try to understand the technologies themselves.
In addition to performing their legislative mandate, policyholder protection, they can take a more active role in encouraging innovation. For example, by utilising technology to improve their own internal operations, as well as becoming enablers of these changes that can help to reduce the protection gap and making insurance more readily available to more people.
How does the BMA facilitate innovation in the insurance industry?
Early on the BMA’s key initiatives was to establish a regime for their Regulatory Sandbox and Innovation Hub. Effectively they were making a statement to the market that they are here, they want to learn and be part of this innovation journey along with innovators. This has allowed them to establish a closer dialogue with market innovators by giving them appropriate regulatory guidance.
New insurance classes
Source: BMA
In 2018, the BMA started introducing new insurance classes for the sandbox, which is a licensing regime. Such classes include:
Innovative Insurance General Business (IIGB): this class allows for insurers who want to adopt innovative models, such as those that want to have full cryptobased or digital asset-based business models. For example, it’s for companies who wish to collect premiums and make claims in crypto.
Insurance marketplace provider: a new insurance intermediary class for platform operators that facilitate the trade of insurance risk.
Collateralized insurer class: a class similar to their special purpose insurers, but caters to more complex business risks more flexible types of collateral.
Regulatory Sandbox and Innovation Hub
Source: BMA
The Regulatory Sandbox is a licensing regime for insurance companies who wish to do licensable activities as defined under the insurance act. The Innovation Hub is similar to the sandbox but is only applicable for companies that are either not currently captured under either the insurance act or any other financial act that BMA regulates, or those companies that are licensable, but are not yet ready for live testing; companies that are still developing their proof of concept for example.
Source: BMA
To ensure they remain relevant in the future, the BMA’s Regulatory Sandbox and Innovation Hub empowers them to cover both licensable and non-licensable activities.
The sandbox licence is limited for a specific duration of time, for companies to test their products. The sandbox would limit the target market that they can interact with, limit the specific risk or line of business that they are allowed to write, and limit the amount of exposure or risk that they are taking on.
Learnings from the Regulatory Sandbox and Innovation Hub
Since the establishment of the Regulatory Sandbox and the Innovation Hub in 2018 a number of proposed business models have been reviewed. One company that is currently in the Regulatory Sandbox seeks to create an electronic platform to trade insurance risk. Because of such type of innovation, the BMA went ahead and created the new insurance marketplace provider class.
Another entity that has gone through the sandbox offers a B2B placement process to claims management for reinsurance using a permissioned blockchain system. A third entity is using a digital first approach for operation by utilising digitals assets to both admit participants onto their network and as a medium of exchange for their insurance policy.
The BMA has had a number of learnings from those two initiatives. As a regulator the BMA learned a lot from the wide range of interactions with innovative companies. Due to the resource requirements, research and ongoing discussions, George was tasked to build a small team dedicated to focus on such interactions.
Another learning is that innovation can come from many different angles. Innovation can come from the technology side but also can be driven from the capital and capacity providers themselves.
George also believes that the regulatory landscape must be able to move with the time, if it wishes to remain relevant over the next decade. Uncertainty and changes will never disappear. Regulators’ frameworks will have to evolve from a tick box exercise and general standards check to a more customised, fit for purpose, technology driven, data driven and most of all a dynamic supervisory approach.
Companies the Regulatory Sandbox and Innovation Hub wishes to attract
Bermuda has a mature reinsurance market that deals with wholesale excess surplus and complex type of risk, that has always been the niche kind of market that they have cultivated over decades. With successful equivalence in both the EU and the US the BMA has established its credibility as a regulator amongst its peers.
The Regulatory Sandbox and Innovation Hub hopes to attract a good mix of innovative companies that will both: (1) solve current and specific pain points that the Bermuda insurance market and the overall insurance industry is dealing with and (2) those that will help prepare the island and the financial service sector to maintain its position as the risk capital of the world, particularly in addressing protection gaps in evolving risk areas, such as in digital asset covers, where it’s not readily available yet from traditional carriers.
However, George wants to point out that outside of those two points they still wish to attract businesses with quality projects that are owned and managed by quality and credible management teams and shareholders. Bermuda should be considered as a place to test out innovative ideas and for them to flourish.
Legislative enhancements the BMA has put into place to support the insurance industry
The BMA is presently doing a comprehensive review of all the financial sectors that they regulate. They are aware of the breakthroughs that are occurring in the market and they want to make sure they take a holistic approach to regulate these businesses.
They are enhancing their AML/ATF Framework to ensure that that all their experimentation through the Regulatory Sandbox and Innovation Hub that they remain compliant or even above the international standards in financial crime prevention.
They have also introduced the Incorporated Segregated Accounts Companies Act, which is an upgrade of their traditional cell or segregated accounts structures. What this entails is that companies that have cell structures can ensure that each of the cells have their own separate legal entity within the same umbrella.
Plans for the next 12 months
They are an active member of the Global Financial Innovation Network who has recently launched its first cross border trial for companies. What this means is that companies will be able to test out their proof of concept across multiple jurisdictions at the same time.
The BMA will continue to enhance its framework by extending its sandbox regime to the rest of the financial sector.
The BMA will also be taking over the Digital Asset Issuance Act, which is equivalent to what is known as ICOs or initial coin offering to offer a regulatory framework to companies wanting to use digital assets in raising funds for their projects.
Ep. 137 – Confidential Computing – introduction to R3’s Conclave
Nov 29, 2020
Richard Brown is the Chief Technology Officer at R3. He leads the team that has invented, designed and brought to market the Corda blockchain platform. He now also leads the team that’s building out their second major product line, called Conclave a platform to securely share and analyse data using confidential computing.
What is blockchain?
Previously Richard gave Insureblocks a definition of blockchain from an enterprise perspective. A blockchain like Corda is all about allowing multiple firms in a market to be in sync with each other about facts, they care about such as loans and trade deals. Documents which are shared between firms such as notification of loss for an insurance policy, will invariably evolve over time. The claim gets reviewed, processed and authorised. All those business processes are executed within a firm. Other firms across the ecosystem that have a stake in those documents need to be in consensus about their status.
For Richard, blockchain is all about ensuring that all the participants in an inter firm business process are in sync and remain so. The key value proposition being that “what you see is what I see”. Since our last podcast together in April 2019, Richard believes that his original definition of blockchain has been mostly validated by projects R3 has successfully run such as Spunta, by ABI (the Italian Banking Association). Spunta is about ensuring Italian banks are in sync with each other, that their balances reconcile and all the details are correct.
Security on the web – the padlock on your browser
We rarely think about how computers work or what promises they make. This can lead to some unexpected or often problematic outcomes.
When browsing the web, including going onto social media sites like Facebook, we are trained to look out for that padlock next to that URL within our internet browser as it gives us a sense of security. What that padlock tells us is that the connection between ourselves and Facebook is secure. That we are talking to the real Facebook.com and that connection is with servers controlled by Facebook.com.
This means that whatever data you are exchanging with Facebook is protected in transit as it leaves your computer and goes across Facebook servers.
However, what it doesn’t say is what Facebook will do with the data, it simply tells you that they are the ones who will receive it. Once Facebook receives that data they can do whatever they like with it. Something which of course has led to some press scandals as the Cambridge Analytica one.
Social media sites today haven’t deployed any technological measure to constrain or control how they use your data. As consumers we rely entirely on social and legal measures to constrain what they do with that data.
The padlock in the browser effectively gives us a false sense of security, because whilst it gives protection to the data as it moves it doesn’t do anything about how the data is ultimately used by the receiving party.
This problem of course isn’t just for consumers but also for businesses. Banks will route client orders to exchanges to buy or sell shares. Insurance companies will send data to government agencies or third party credit agencies. A lot of the data that is being sent may include personally identifiable and risky information. As a company, the only way you can get comfortable with that is by investigating the reputation and procedures of that firm.
For firms to get a better understanding of their market share or how they compare with their competitors they have two ways of doing that. Share information with their competitors which most wouldn’t want to and even if accepted is usually prohibited in numerous jurisdictions. The other approach is sharing it with third parties such as Bloomberg in the financial industry. Financial institutions share with Bloomberg information regarding trades they’ve done and at what price. Bloomberg aggregates all that data, processes it and anonymize it in order to produce useful market level metrics which they sell back to the market.
If you can’t get comfortable with it then a company will simply not share data with third parties due to the risk of what happens if they do what they shouldn’t with it, in spite of the value you could get in sharing that data.
The real opportunity is thus to give senders the ability to control or constrain how their data is used by the receiving party before they send it out.
Moving the trust from third parties to silicon chips
The padlock allows you to know who you’re sending your data to, and only they can receive it. Confidential computing goes a step further. It allows a computer that somebody is running to prove to somebody else what programme it is running. If we use Facebook as an example, Facebook would have to prove to your browser what they will use your data for. The algorithm will prove that the data can be used to find your friends, to play games but that it cannot sell your data to advertisers or sent it to a government agency.
This is a paradigm shift where you shift the trust based on the goodwill and privacy policies of firms such as Bloomberg to the implementation in chips, like Intel and AMD, of specific cryptographic techniques where even if Facebook wanted to they couldn’t change what an algorithm did, and they couldn’t see the underlying data.
Artificial Intelligence
There are two sides to artificial intelligence (AI). One side is the definition and the training of the models. The second side is the use of those models for some business purpose.
The challenge is the model is as good as the data on which it is trained on. Getting sufficient good quality data from the right sources to train a model is a significant challenge. This requires sourcing data from outside your organisation and reaching out to other players and third parties. The problem is that they may be very reluctant to share that data with you. They may be fine with you using the data only for training your model, but how can they be sure you won’t be using the data for other purposes.
By using cryptographic techniques mentioned earlier a model creator could prove to third parties that their data will only be used to train the model. This will ensure the building of better quality and performant business performance models.
The second side of course is the execution of the model for some business purpose. However, if you wish to licence out the model or give it to your customers to use or integrate into their applications you need to make sure they can’t reverse engineer it. You don’t want them to be able to do anything other than execute the model. The cryptographic technique can also be applied for this use case where you can ensure that the model can only be used to execute its function and not for another purpose.
Confidential Computing
If you sent data to somebody else’s computer, they can do what they like, it doesn’t matter what they tell you, they control the computer, they get to say what happens. So, they might tell you, they’re running a particular programme, but in general, you’ve got no way of knowing they are. And if they change it or inspect what it’s doing, you’ve got no way of knowing.
Confidential computing is a term for a general set of techniques that allows you the owner of the computer to relinquish the right to control what it’s doing or change what it’s doing or see what it’s doing in this context. And you will be able to prove to other people that you’ve done that.
Consequently, senders of data will be comfortable sharing data to your computer as they know the data will be processed in a secure enclave, a protected zone within your computer where you cannot change the data or see the data, as the data is processed only within the agreed manner.
There are a few subtleties which need to be pointed out. The owner of the computer gets to choose the programme that runs within that secure enclave. The sender of the data gets to audit it, to say whether or not they are happy to send their data to that programme within that secure enclave. Most senders will rely on third party auditors to offer such services.
Introduction to Conclave
Conclave is R3’s confidential computing platform that enables multiple parties to contribute data for analysis without revealing the actual data to anyone. It leverages Intel’s SGX chip. With Conclave you can:
Analyse data from multiple parties in a protected algorithm, and verify how data is used
Protect customer data from misuse and provide assurance that the data remains protected when collected, shared and analysed
Reduce time-to-market for privacy-enhancing applications
Access previously inaccessible customer data to deliver new insights and AI without compromising on confidentiality
Streamline business processes between firms, while sharing processing costs and infrastructure
Increase effectiveness of Financial Crime detection by eliminating false positives
Promote transparent and fair price discovery in Dark Pools
iPhone, SIM cards and EMV cards – examples of confidential computing
The core technology of confidential computing is enabled by hardware, rather than software. The core concepts are not new at all. An example of a confidential computer is a SIM card. SIM cards within mobile phones hold a tiny computer that stores some data and can run some programmes. Some of the data it holds is a private key which acts as your identity allowing you to connect to the network.
The chips on EMV cards such as debit or credit cards also use confidential computing techniques. The chips are tiny computers that store data such as your pin and your spending limits for contactless offline transactions to perform basic programmes.
iPhones have implementations of confidential computing techniques. Whilst you may own the iPhone, you can install apps and perform a number of actions on it, you can’t change the operating system. You can’t for example install an Android operating system onto an iPhone, unless of course you jailbreak the phone. That means even though you physically possess that device, Apple is the manufacturer can prevent you from doing certain things.
With confidential computing in the enterprise world, such as with R3’s Conclave, you can choose to use this technology to restrict your own freedoms, you can create massive confidence in your own customers, which allows them the confidence to send you their data. And to the extent you’re in a competitive market, where you can prove how you’ll use a customer’s data and your competitor can’t. The customer will be more willing to deal with you and trade with you than with your competitor, because you can prove to a higher standard of proof, how you will process that data.
Whilst confidential computing isn’t new, what is new is the emergence of this technology into the mainstream and it becoming accessible to regular business developers to build applications.
Confidential computing enhancing blockchain
Richard and his team started working on Conclave several years ago for their own internal use to solve a residual privacy problem on Corda.
In a collaborative business network with lots of blockchain nodes that use Corda these nodes are communicating and collaborating to bring participants within the network in sync. The problem that all blockchains suffer, is that sometimes the way you reach confirmation on the authenticity or validity of data is by reviewing its provenance. For example, if you’re sent a token that represents cash, you need to ensure that it was really issued by a specific bank. This is known as the back-chain problem.
There’s a chain of transactions that led to the current one that you need to verify to check that the current token is entirely legitimate. To verify it you have to receive it and you may be able to infer something about your counterpart’s previous business dealings, there’s a residual piece of privacy, that needs to be solved.
To solve it, Richard and his team encrypted the back chain and instead of sending information on the provenance of the data the sender of the data could remotely attest to it that the data has been verified using the algorithm on a confidential computing chip. The confidential computing platform would have done the verification of the data thus removing the need to review the provenance of the data and consequently eliminating the residual privacy problem.
Within the Corda ecosystem, they realised that lots of parties were using Corda to sync data that they cared about. However, it became clear that parties wouldn’t be willing to share some data under any circumstances but would be happy to bring their datasets together with others for some joint analysis.
Early clients from the financial industry have expressed interest in using Conclave in fraud and in crime analytics such as in detecting money laundering.
Conclave is being built as a standalone product but it will also be integrated into Corda enterprise. It is presently in Beta 4 and is expected to ship out in Q1 of 2021.
Ep. 136 – Convergence of Blockchain, 5G, AI, and IoT – Insights from Vodafone
Nov 22, 2020
David Palmer is the Blockchain Lead and IoT at Vodafone Business, In this podcast we discuss the convergence of blockchain, 5G, AI and IoT (Internet of Things). In addition, we discussed the evolution of internet of things to internet of value and some of the exciting work Vodafone is doing in this space from Smart Cities, to supply chain and to the Energy Web Foundation.
David has been working in the telco sector for the last 20 years. He has worked on broadband, ADSL rollout, satellite broadband and for the last 10 years on IoT including combining it with blockchain for the last 4 years.
What is blockchain?
Blockchain is a distributed ledger that is shared between different parties. When you combine that with transactions you get to the basis of the first use case of blockchain which is Bitcoin. Bitcoin demonstrated how you can build trust by having transactions written on a shared and distributed ledger where different parties validate the transactions and provide its security through their combined computational power.
David notes that this is a simple definition of blockchain. Over the last three years there has been an evolution of blockchain. On one end you have public blockchains such as Bitcoin, Ethereum versus private blockchains with permissioned access formed by consortiums. Issues of interoperability arise when you try to bring those different blockchains together. In addition there are different protocols and consensus mechanisms that come in to play from DAG (Directed Acyclic Graph), proof of stake and proof of work.
Blockchain is a continuously evolving technology, but at its core it is a technology about trust. David mentions that there is a lot of friction today in everyday process. These are essentially processes built to establishing trust. The real power of blockchain is in providing a trusted shared platform to automate those process to remove that friction. Blockchain’s role in digital transformation is in the removal of the trust issue, it’s in the automation of processes which will give rise to a new evolution of automated business models and processes.
Explosion in IoT devices
Source: Statista
Statista is forecasting end-user spending on IoT solutions to reach $1.6 trillion by 2025 from 21.5 billion IoT devices. These are staggering numbers! With the increase adoption of 5G these IoT devices will be able to provide large amounts of data within nano-seconds.
Vodafone has a Global IoT platform called Global Digital Services Platform (GDSP). This platform is at the very heart of the IoT offering to Vodafone’s customers, and is also offered as an IoT platform to other Telco’s. The GDSP provides all the management facilities for customers and channels to manage their individual IoT SIM estates.
Vodafone has been a leader in IoT for the last 10 years as recognised by Gartner’s Magic Quadrant.
What IoT allows businesses to do is to digitise their assets. It allows for those assets to produce data which unlocks new business models and monetisation opportunities. This is a space that Vodafone has experience in which it has been putting to use in helping its clients.
David has seen supply chain as a key industry that is seeing a large growth in IoT devices. For example with recent conversations of the Pfizer vaccine that has to be kept at minus 70 degrees, how is that ensured? You need data from devices at the manufacturer, to supply chain, to delivery which can be provided by IoT devices.
Getting the trust in the data and provenance of the information will need some form of distributed architecture and distributed solution, so that the parties in that can have trust in the data that’s been produced.
Pfizer and the vaccine distribution is a prime example of where new emerging technologies such as IoT, AIs to help manage the risk and blockchain can come together to make a real difference.
Transition of Internet of Things to Internet of Value
Raghavendra Kulkarni, from Bosch, was on Insureblocks to discuss Bosch’s Economy of Things, where he explained the movement of IoT devices to EoT (Economy of Things). David believes that Bosch has a similar vision to them where Economy of Things is basically taking IoT from Level 1 to Level 2. Level 1 is the billions of IoT devices producing data, where those data are siloed within the organisation that is producing them. The next layer, Level 2, is where those billions of devices are interacting and transacting with each other to execute on business use cases.
Smartphones have revolutionised business models. Most people don’t use their smart phone to make phone calls or send texts but to use them for their applications. The phone becomes the starting point or the customer edge point for doing multiple things. That has been a revolution that has been happening from 2007 to now. The next big revolution is in getting a thing such as a car or any other device that a business or a person who owns to automatically interact and transact with each other. That is the foundation of the economy of things. Blockchain will play an important role in that next revolution by establishing trust. It will establish the trust between people, business and devices to allow new transactions and new business models between them.
Convergence of 5G, AI and blockchain
5G offers low latency technology which means you can start to process data more quickly than before. This enables numerous new solutions such as autonomous level 4 for vehicles and opens up new business models.
When looking at data marketplaces, 5G, AI and blockchain each play a key component. 5G provides the speed and low latency that gives rise to new business models.
AI finds data that is useful and monetizable. For example, in automated transactions data can be used to find opportunities to either fill spare capacity or improve utilisation of connected resource.
Blockchain, being the trust anchor, pulls all of those things together.
Convergence of public with private blockchains
Permission blockchain gives enterprises, the opportunity to dip their toes into blockchain to see some value within a controlled environment. Permissioned blockchains offers enterprises both security and control which has led to some successful implementation such as IBM’s TradeLens (TradeLens on Insureblocks).
David believes that what we’re seeing now with technology is the trend for barriers to entry to come down. He gives the example of the taxi industry which previously had large barriers of entry in terms of licenses and then you have Uber & Lyft who come a long with an over the top solution based on technology which disrupted that industry.
When the barrier of entry comes down then you need to expand the trust because you’ve got new participants who are entering it. Those market forces will lead to convergence of permissioned blockchains. You will potentially have one out of two models which will emerge:
Interoperable two layers of permissioned and public blockchain that is more consolidated and refined than now
Or as the internet you will have a convergence towards public blockchain
Vodafone and Smart Cities
Smart cities are the first use cases where you can join up things that are connect that are producing data. You can exploit that to establish a sharing economy and new business models. For that to happen you need three things:
Devices that produce data to be connected
Algorithms that turn that data into information intelligence
Trust powered by blockchain
Autonomous vehicles and mobility is a key component for smart cities. Vodafone has had a number of interactions with MOBIfor autonomous vehicles. These were more technical proof points where a car could automatically transact for parking or tolling.
Blockchain based digital identity partnered with smart contracts, which can dictate the terms between two actors, is the basis for autonomous transactions for autonomous vehicles, for example, to park and pay their toll.
Role of SIM cards
Source: Vodafone
SIM Cards are an important part of the connectivity cycle. SIM cards aren’t just for handsets, for example, Vodafone’s IoT platform has a roaming global SIM card in it. SIM cards play the role of an important edge point with the link to blockchains, to transactions and to identities. The encryption technologies that telcos have is both proven and scalable which is an area blockchain platforms have traditionally struggled with.
Decentralised digital identity is a cornerstone technology that enables the connection of things to blockchain to establish trust. One approach for providing that digital identity is the one provided by SIM cards. There are other elements of digital identity such as DIDs.
Decentralized identifiers (DIDs) are a new type of identifier that enables verifiable, decentralized digital identity. A DID identifies any subject (e.g., a person, organization, thing, data model, abstract entity, etc.) that the controller of the DID decides that it identifies.
What this means is that one’s car can be part of their identity. That car can then participate for its owner in some form of transaction.
Energy Web Foundation
In late 2019 Vodafone formed a partnership with the Energy Web Foundation to integrate distributed energy resources (DERs) with power grids using IoT and blockchain technology.
The Energy Web Foundation has two main goals: (1) to bring transparency to auditing carbon footprint and how energy is produced. (2) to extend the grid beyond the traditional grid by allowing the use of solar panels and storage solutions from car batters as part of a flexi grid.
All of these energy assets including solar panels, wind turbines need to communicate with the grid in a secure a manner and will need identity to do this. Vodafone can deploy SIM centric blockchain identity with IoT connectivity. This will enable not just communication and identity but also facilitate transaction between the different assets.
Ep. 135 – Blockchain and Digital Asset Risk Transfer Insurance Solutions – Insights from Marsh
Nov 15, 2020
Sarah Downy is the Managing Director of FINPRO and co-leads the DART, Digital Asset Risk Transfer, team. In this podcast Sarah shares her insights of the crypto insurance market for 2019 and 2020 along for the need for more education of insurers on the opportunity to serve the need of companies who build blockchain technology and of companies who hold or interact with digital assets.
What is blockchain?
As an insurance person, Sarah defines blockchain technology as a technology that stores digital information on a public database with a number of interesting features such as immutability, transparency and traceability. The way blockchain works is that it stores transactions on blocks that are verified and assigned a hash.
She also notes that insurers often confuse blockchain technology with crypto and illicit behaviour. A perception that Sarah and her team are working very hard to change.
Overview of the Crypto Insurance Market in 2019
Sarah, describes the crypto insurance market in 2019 as very hesitant and uncertain. The cost of insurance was very high and coverage was very limited. The process for clients to get coverage was both complicated and a lengthy one. Marsh’s clients were mainly focused on two types of insurance:
D&O insurance
Commercial crime and specie market coverage
D&O insurance, director’s and officer’s liability insurance protects the individuals running the company. It covers claims brought by investors, shareholders, regulators, against the directors, officers and employees associated with things like a breach of a duty, securities violation, regulatory investigations, or proceedings.
Commercial crime is the coverage that reimburses companies for loss due to theft, disappearance or destruction of property. In the case of digital asset, it protects warm and hot storage wallets as compared to the specie market coverage provides coverage for the loss of digital assets from internal and external theft, damage or destruction of private keys.
A hot wallet is a digital wallet that is online whilst a cold wallet is one which is completely offline. The specie market is insuring vaults that custodians are using to store the private keys.
Sarah notes that if a company is building blockchain technology the pricing should be more favourable and the insurance capacity should be more readily available as opposed to a company that holds a large amount of digital assets or is working with digital assets. However unfortunately companies that build blockchain technology are not being treated in a similar manner to a normal company building legacy or well known technologies as insurers still think of blockchain technology as crypto and elicit behaviour and they can’t separate them out.
However 2019 was also a year of innovation for Marsh as it is the year they launched their Blue Vault facility.
5 key trends evolving in the crypto insurance market in 2020
In spite of COVID19 five key trends have emerged in the crypto insurance market in 2020:
More regulatory certainty
Transitioning market
More insurance purchasing
Crypto maturity
Testing of an untested market
More regulatory certainty
In the insurance industry we are seeing a desire for more regulatory certainty around the digital asset space. Many insurers are tracking what the SEC (US Securities and Exchange Commission) is doing. For example: Spotlight on Initial Coin Offerings and Digital Assets.
With increased regulatory certainty comes more comfort from the insurers.
Transitioning market
Commercial insurance markets in general, are becoming much more challenging, and some might even call them hard markets. Unrelated to digital assets, there has been a large increase in litigation over the last few years resulting in an increase in rates and narrowing of coverage. This has impacted crypto companies where some insurers have decided to simply leave the crypto space thus creating a fair amount of challenges for them to get insured.
More insurance purchasing
The third trend is more insurance purchasing or a shift in the motivation for insurance purchasing. Over the past two years, insurance purchasing really was mainly driven by two things. One was marketing purposes. If a crypto company custodies their assets with an insurance company, their assets are protected. The second was for hiring of experience board members. Board members who have been in traditional industries know that D&O insurance is here to protect them and their personal assets.
There’s an increase emphasis on consumer protection from both regulations and customers. A number of Marsh’s crypto clients are now considering errors and omissions coverage also known as professional indemnity coverage.
Crypto maturity
Insurers like data, they like to have access to long financial histories and to track records of no claim. As the crypto space is still fairly. Young there isn’t quite enough data just yet. So insurers are looking to experienced board members to help them feel more comfortable with insuring a prospective crypto company. They are also looking to see if the company is focused on becoming more regulatory compliant, does the company work with third party vendors such as auditors, accountants and lawyers.
Testing of an untested market
Sarah is wondering if we’re going to see insurance policies being triggered in 2020. Whilst there been a number of highly publicised hacks involving crypto, the crime market hasn’t seen any losses, mainly because those companies that have been hacked, didn’t have insurance.
For Sarah, the idea of a large and very public hack could cause a lot of concern, but on the other, the insurance coverage needs to be tested, and the carriers need to see how it works to find out how to strengthen the offer. As the purchasing of coverage in the space expands, and more policies are offered, the higher the likelihood that an event will actually test the coverage.
Introduction to Marsh’s DART
Marsh’s DART has a team of 15 – 20 people located around the world from NY in the US to Canada, the UK, Bermuda and Asia. They have clients globally.
DARt has two purposes:
work with great clients in the crypto space and help them find the insurance coverage that they need
educating insurers so that they are more comfortable and willing to provide insurance capacity to DART’s clients
Blue Vault
Launched in late 2019 through the specie market at Lloyd’s in London, the Blue Vault facility is a $150 million cold storage insurance facility. This facility provides coverage for loss of digital assets from internal and external theft or damage or destruction of the private keys.
Blue Vault works with a single underwriter that happens to be a Lloyd’s syndicate. That underwriter has the authority to bind up to $100 to $150 million in coverage. The cold storage coverage has an easy process to set up and coverage can normally be put in place in a couple of weeks.
Types of requests for blockchain and digital asset risk transfer insurance
The type of requests Marsh’s DART team gets depends on the requested coverage, the reasons behind needing the coverage and the type of clients. They work with a wide range of clients ranging from crypto exchanges, brokers, dealers, custodians, tech companies and investment advisors to name a few.
For example, a crypto exchange that is holding assets for their customers, theft of assets is obviously top of mind. They would look for crime and specie market coverage to protect against the theft of assets. If there’s a theft or breach, the policy would reimburse the insured company and their customers for the theft of those assets for the value of those assets that were stolen.
For companies who have very experienced directors or officers, those individuals would want to be protected, and would thus be looking to buy D&O insurance. D&O is an old product that’s evolved throughout the years and changing it slightly to make it fit better for blockchain technology companies and digital asset ones. Another popular insurance policy is for errors and omissions coverage, also known as professional indemnity coverage for clients who provide services to customers.
A number of Marsh’s clients who are concerned about a handful of individuals running the company who either know how to access the funds being held or simply the company can’t operate without them, they would look to purchase kidnap and ransom insurance.
What is important to note is that the requests for these types of products aren’t different from requests from more traditional companies. All businesses need certain types of insurance to operate and to grow and to transfer risk away from them and onto a third party. What is different is that because those companies either build blockchain technology or are involved with digital assets the insurance companies treat them differently because of their lack of knowledge about this space.
Measuring risk and pricing the risk
For the most part, what insurers already offer can be modified to fit the crypto space. However due to the lack of data on that space, insurers have a close look at the company’s specific such as how experienced the management team are, what is the company’s story, what do they want to deliver, what is their long term plan, and how regulatory focused are they?
With regards to pricing, when there’s a lack of supply and more exposure, the insurers price the risks towards the high end of what they would offer a more traditional company. However, when the insurers really connect with a client, and they’re comfortable with the client story, and what they do, and how they do it, pricing tends to be more reasonable.
Sarah though admits that it is a struggle to get upper level management of insurers comfortable with blockchain technology and the type of digital assets. This requires either a deep dive into understanding the space or a leap of faith for those who can’t devote the time to learning it.
Ep. 134 – Reducing Friction in International Trade – Insights from Chainvine
Nov 08, 2020
Oliver Oram – CEO & co-founder of Chainvine & Dr. Rajiv Mathur – CTO and co-founder of Chainvine walk us through a use case they worked on with HMRC and a number of other participants to reducing friction in international trade. We also discussed in some detail the key challenges around consortiums, IP and openness. A must listen for blockchain initiatives debating through those various points.
What is blockchain?
Oliver answers this question by explaining why from a business perspective Chainvine uses blockchain as an engine for its platform whose fundamental principles were to have solid identity, self-sovereign data and security.
Rajiv reminds us that there are many different types of blockchains or distributed ledgers. The best examples of blockchains are public ledgers like Bitcoin and Ethereum. Distributed ledgers also come in many different forms with many not actually being blockchains but more as shared ledgers and some who are hybrids between the two. Chainvine takes an agnostic point of view to blockchains and distributed ledger technologies and utilise the most relevant one depending on the use case and problem they are trying to solve.
About Chainvine
The name Chainvine is derived from blockchain and vines. The background of Chainvine is in enterprise and supply chain whose original focus was on fine wine. However, since then they have worked with many other commodities from steel to fair trade coffee.
The challenge of paper in supply chains
On 15th September Lord Holmes publishes a new report, “Reducing Friction in International Trade” (RFIT). Oliver, resumed the challenges of supply chain to one word, “paper”. As part of the research into the writing of the report, it was identified that 80% of the cost of importing grapes in the UK is down to paperwork. The COVID crisis has demonstrated that that the physical way of doing things in trade, in the usage of paper is actually a critical failure in our supply chains.
For Oliver, it is imperative for the UK, to adopt new technologies whether it is blockchain, DLT, AI or machine learning, to become resilient and sustainable to trade internationally.
Intelligent Wine
Chainvine was invited to participate at an event organised by HMRC, where Oliver and Rajiv presented the tale of the ‘intelligent wine” that had travelled with them across Europe gathering intelligence through different data mechanisms, such as distributed ledger, the Chainvine platform, and internet of things (IoT) devices.
This story essentially showed to the HMRC attendees that Chainvine is able to demonstrate where a good is as it moves across borders, how much it’s worth, what condition it is in and with whom that good is. This wasn’t about talking about blockchain this or blockchain that, but about how it was being used in this particular use case.
For Oliver this isn’t about tearing down regulations or standards, it’s about making them easier to comply with, and making it easier for government to absorb that information and ensure that compliance and regulations are being met. It isn’t either about tearing down standards but ensuring that they are better met with this type of technology than it would ever be with any sort of paper system that is being used at the moment. The technology brings a higher level of resiliency and sustainability.
Managing the challenges of consortiums, IP and openness
There was a strong desire by the WSTA and its wine importers and exporters to experiment and innovate in the hope of reducing the burden of paper compliance.
Mike Brookbanks from Exeter and Surrey University played the role of Programme lead to ensure that all participants played their role within this good will project. During Insureblock’s podcast with Nadia Hewett, from the World Economic Forum, she indicated the importance of having an impartial party within a consortium such as a university or a regulator to facilitate conversations and agreements within a consortium.
Mike ensured everyone remained aligned on the shared mission which was the removal of paper.
Ranjiv states that most blockchain consortiums are trying to create proprietary technology to which they hold the intellectual property. For him that stifles innovation and the growth of blockchain consortiums.
The project was very much initiated as a goodwill project where Chainvine provided the funding to the project, as Chainvine’s investors saw this as a long play and saw the importance of bringing in players and knowledge together onto the platform.
Members of the goodwill project include the UK Government departments HMRC/FSA, Australian Export authorities, Wine Australia/ATO, Chainvine Ltd, Importers/producers, Association/trade body representing the Wine and Spirits trade in the UK and Exeter and Surrey University.
The Chainvine platform isn’t an open source platform it is a proprietary one that Chainvine has developed. However, it is an open platform in the sense that they do not control who joins it. Any wine importer can join the platform, to create products on the platform and to be able to trade on it.
Equally any other blockchain and technology company can also come and plug themselves onto the Chainvine platform. The platform is designed in a manner where all participants on the platform are managing and keeping ownership of their data in a sovereign way.
Chainvine charges a fee for issuing the compliance, for the work with HMRC and with the FSA. That fee is significantly less than what wine importers, exporters and producers already pay today in terms of paperwork, agent services and time. The Chainvine platform will automate a lot of these paper and manual processes.
As an example, Ranjiv quotes the courier cost of the VI-1 form for a mid-tier wine importer to the UK is about £50 – £60k per annum. The Chainvine platform essentially removes that cost.
Chainvine is in the process with the other members to create a governance body. The intellectual property won’t be owned by the governance body but by Chainvine. For Ranjiv this isn’t about technology but about the solution. As the solution itself is open there is no conflict over the intellectual property of the technology. The power isn’t in the technology itself but in the solution, which is why the governance body is being set up for the solution, in order to bring a higher level of trust between all the participants.
The platform that Chainvine is building will allow for other solution providers such as IoT providers, legal service providers and others to monetize on the platform. Chainvine, or the platform operator, gets a fee, similar to a commission model.
The platform
As stated earlier on, Chainvine is blockchain or DLT agnostic. For this platform there are using a number of blockchain technologies such as Corda for contract negotiation and contract signing between participants. What this means is that an importer and exporter can agree the contractual side of things such as purchase orders and other matters onto Corda.
For the supply chain side of the platform they use Hyperledger Sawtooth as its blockchain technology is very focused on supply chain type use cases.
To ensure that the platform is open to all other technologies they have built a number of adapters for Hyperledger Fabric, Ethereum and others. Those adapters are used for exchanging information with other blockchain ecosystems.
As the platform works with a number of IoT sensors they have built an IoT gateway which can integrate with any IoT device provider thus allowing the interchange of information between the platform and devices and vice versa.
Data standards
At the beginning of the journey Chainvine created its own data standards based on what they learned from the data requirements for compliance with HMRC, the Food Standards Agency and other key members.
Now that the platform is operational they are looking at integrating into the platform with GS1, regarding wine traceability. What this means is that when a wine exporter creates a wine on the platform three standards are created with it: the Chainvine standard and other existing standards such as the GS1 one and the ISO standard. Chainvine is keen to support all of the leading existing standards to facilitate trade internationally.
Moving from “as is” process to the future
The first and present version of the platform complies to the “as is” process of international trade. The platform is integrated within the HMRC systems where it sends compliance data into HRMC and HRMC sends back data regarding payable taxes to which the participants can pay. The platform has all the capability to process a transaction in the “as is” way therefore nobody has to change. The only change is that some participants will benefit from the documents being in an electronic form which therefore reduces the overall cost of the transaction.
In the future, Chainvine anticipates that HMRC is going to say that with the UK leaving the European Union they will have to handle a lot more declarations onto their system that they can handle. One way of handling this increase in volume is using the platform in addition of smart contracts to automate processes, have an audit trail and thus the platform will become a utility trade platform which is what HMRC calls it.
Republic of Seychelles – Asset Management Facility
Chainvine is now working with the Republic of Seychelles to create a Seychelles National Asset Management facility, using a blockchain platform from Chainvine, which in the first instance will help the Seychelles manage a key asset – fisheries, which is roughly 24% of GDP.
The agreement was signed with the principal secretary for the blue economy which deals with blue bonds. The platform manages exports of fish which is critical as Seychelles has lost 70% of its GDP which came from tourism.
Seychelles has put about 30% of their oceans under protection in order to manage those fish resources for the future and make them more sustainable and resilient. The electronic digital platform will help them manage these resources.
Oliver shared that one of the hardest parts of the project was actually speaking to the different ministries because they liked working with paper. They liked to be able to issue paperwork and know to whom they issue it to. Oliver point out to the ministers that Chainvine’s system is creating self-sovereign data points for each ministry which will give them better management of their data, where it’s going to, and why it is needed.
Ep. 133 – Farmer Connect – Coffee on the Blockchain
Nov 01, 2020
David Behrends, Founder & President at Farmer Connect and Managing Partner and Head of Trade at the coffee trading company named Sucafina, joins us along with Diana Kaliff, Business Development Manager at Farmer Connect to discuss coffee on the blockchain. In this podcast we get to learn about how Farmer Connect is helping to not only to digitise their industry but also in bringing transparency and traceability to all players within the coffee supply chain industry from farmers to the end consumer.
What is blockchain?
Diana describes blockchain in how they use the technology at Farmer Connect. For them blockchain is a secure database that enables to both securely store and share data between different business partners.
For Dave, blockchain is like the arteries in our bodies:
Arteries have thick, strong walls, that make them resistant to high pressure that exists near the heart. This is similar to blockchain’s cryptographic level of security.
Each major organ in the human body has their own special kind of artery that delivers the needed supplies. This is similar to blockchain in the sense that you have public blockchain, private blockchains, permissioned blockchains each one of them with their own specific use case.
Arteries take oxygen away from the heart and distribute it very efficiently to all the body’s tissues. This is similar to a blockchain that has lots of complex data, standardising it and allowing it to seamlessly flow from one participant to another.
Challenges of the coffee industry and its level of digitisation
The coffee industry is characterised by a large amount of smallholder farmers who are facing a lot of issues around traceability and sustainability.
Consumers on the other hand, especially with millennials and post millennials really want to know two things:
Has the coffee been responsibly sourced and has the farmer been paid a fair price
Are the farmers themselves sustainable? Do they take care of social and environmental issues on the farm?
Being able to track both of these points is very difficult and to some degree impossible in the past. However, with the arrival of new technologies such as satellite imagery which can be used to measure deforestation. Soil samples analysis allows farmers to understand how much fertiliser is the right amount to be used for their farm. This kind of precision agriculture allows farmers to use less fertiliser and lower their environmental footprint. Both of these examples produce a lot of data.
In addition you have companies like Starbucks who have announced their intention to go resource positive – storing more carbon than it emits, eliminating waste and providing more clean freshwater than it uses.
All of the forementioned bring up lots of challenges and opportunities around how data is captured? How is it integrated? How is it stored? How is standardised? However, Dave believes that the biggest challenge is concerning the ownership of data. In the past many of the small farmers had zero technological capacity. In the past firms would send an agronomist to the field, they would “harvest” data of the farm, enter it into a table, hop back into a jeep back to the office and upload it into the company’s database to share the data with their clients. That wasn’t a really good model nor did it scale effectively.
Now with mobile phones, farmers can be empowered to own their data, to control their data and hopefully to monetize it as well.
An introduction to Farmer Connect
Farmer Connect is an industry led initiative, based out of Geneva, that is here to tackle the challenges of the coffee industry explained above. Farmer Connect is here to provide end to end connectivity between farmers at the beginning of the supply chain with the consumers on the other end. The vision is to humanise consumption through technology, because they believe that technology should bring people together, empower the individual and small businesses while at the same time reduce costs and inefficiencies for larger enterprises.
Farmer Connect allows for the sharing and storage of traceable data to establish trust between all players along the value chain so that the consumer can get answers to where the product came from and how it was produced.
As Dave mentions, Farmer Connect is here to de-commoditize a supply chain at scale by being able to put faces and names to the people who are growing the products they enjoy. This in turn gives consumers the opportunity to contribute and support farmer communities.
Why blockchain?
Players within the coffee supply chain have their data in silos, stored in different formats on different systems. The opportunity that Farmer Connect provides to these players with blockchain is to build an ecosystem with a large number of competitive participants in the coffee supply chain to interact in a trusted environment to be connected to allow to have end to end traceability.
All participants who upload data in a standardised format onto the platform, to retain control and ownership of the data. Having that control is important as it allows the players to choose to share data with a business partner but not so much with a competitor.
Working with IBM
Farmer Connect uses HyperLedger Fabric provided by IBM. The reason they chose to work with IBM is three-fold:
In addition to blockchain IBM has a very diversified business
Consortium members such as large roasters, which are publicly traded companies, trust IBM.
Food Trust was gaining a lot of momentum with supermarkets where a portion of coffee is sold to supermarkets. Thus, lining Farmer Connect with the blockchain group that was having the most penetration in the retail space made a lot of sense
Dave is keenly watching IBM’s interoperability road map between its different ecosystems so that Farmer Connect can tap into Food Trust and tap into trade finance blockchain solutions and tap into crop insurance blockchains.
Launch of the consortium
Farmer Connect initially started off as an idea for a single company to improve their supply chain. However, as they started looking at it they realised that this should be an open source platform that is inclusive of everybody. They started reaching out to Farmer Associations, trading companies and to roasters to start the conversation about the common issues they are all facing that everyone recognises. Out of these initial conversations a steering committee was formed for Farmer Connect. In addition, they brought in four advisory board members with a wealth of experience who could contribute to the conversation. That was the early days of the consortium and since then has been growing almost daily with new members.
Technologies used in addition to blockchain
Blockchain sits at the centre of the solution as it provides a platform to securely store and share data. To facilitate farmers ability to connect to the platform using their mobile phone, Farmer Connect built a digital identity solution called Farmer ID. This works on any mobile phone that can send and receive SMS or through an app for smartphones.
In its basic form a farmer receives an SMS confirmation of when payment is done for their coffee whilst the buyer gets a digital receipt of that purchase. This provides a great level of transparency onto the Farmer Connect blockchain platform.
No personal information is stored onto the blockchain.
As the platform traces the history of where the coffee came from, and all the players along the supply chain who interacted with the coffee before it was purchased, Farmer Connect has launched an application called “Thank my Farmer”. This app allows the consumer to see where their coffee came from, get to know more about the coffee and it includes a crowdfunding function for sustainability projects in different regions.
Top challenges
The top challenges, Farmer Connect had to face where not so much from the technical side but more from the social and human side. Educating the industry, talking to people and helping them to understand what it is that Farmer Connect do and why on earth would they join an ecosystem and not just use your own internal solution. And if they had developed an internal solution why would they join Farmer Connect. Thus, education was a key challenge.
Another challenge was the hen and egg situation. Where questions of if my supplier or buyer isn’t on board, how do I join?
Farmer Connect, Starbuck’s Microsoft Azure and India’s Eka Plus
Farmer Connect operates in an industry where other players such as Starbuck’s Microsoft Azure blockchain solution and the Indian governments’ coffee e-marketplace called Eka Plus have developed their own solution. However, Diana believes what differentiates Farmer Connect is that they are not a company specific or a market specific platform. They are working globally, with different participants and competitors from the beginning to the end of the supply chain.
Status of Farmer Connect
Farmer Connect is in production. They recently launched their first traceable product on the US market in June 2020. Customers can buy and scan Folgers 1850 Coffee and trace the origin of the coffee.
Diana is excited about the new products and partnership announcements that will be coming to the market very shortly.
Plans for the next 12 months
Farmer Connect has enabled smallholder farmers to connect with a wide range of participants and engage with consumers. The team realised that they could offer this facility to other smallholder farmers who have different types of crops. Farmer Connect now has a solution to chocolate companies in the cocoa sector and they will be launching a whole new range of features and new products in the next 12 months.
Ep. 132 – FedEx’s insights on blockchain
Oct 25, 2020
Dale Chrystie is a Business Fellow and Blockchain Strategist at FedEx who has been in the transportation industry for over 30 years. He also serves as chairman of the Blockchain in Transport Alliance (BiTA) Standards Council, and is a member of the Blockchain Research Institute. In this podcast Dale walks us through the work FedEx is doing in the blockchain space and his view on why he believes the future of blockchain is an open source one instead of a consortium one.
What is blockchain?
Dale believes that to effectively define what is blockchain to as wide an audience as possible you need to use basic language and basic concepts. He boils blockchain down to five words: digital, ledger, permanent, transparent, and shared. Blockchain is a digital ledger that is permanent and uses cryptography. Once an entry is added to the ledger it can’t be changed. It’s transparent to all relevant parties and it is shared which is to say it exists on the cloud.
Having said that, Dale is also known for characterising blockchain at conferences as boring and useless. Because blockchain is just a database that sits amongst many other tried and tested databases that are fast, process millions of transactions, are enterprise ready and ruggedised. Blockchain isn’t quite there yet. It isn’t very fast, scalable or mature. However, what it does, it does really well. For example, where authenticity and provenance matter, blockchain will completely change worldwide supply chains.
Challenges of the logistic industry and the role blockchain can play
The logistics industry is one where information systems use paper legal documents and electronic data is transmitted via electronic data interchange (EDI) and where documents are often shared via email, fax and courier. In the freight industry or the Less than Truckload (LTL), industry as it is known in the US, has been using paper process with bills of lading, documents and manifests for decades. Dale believes it is ripe for moving forward into the digital world.
In 1978, Fred Smith founder of FedEx, is famous for saying “The information about the package is as important as the package itself.” For Dale, Smith was way ahead of his time as that statement still holds true today. He believes that we are at this very unique intersection of the physical world and the digital world. Where on one side you have the physical world and on the other you have a digital twin of it which contains data about the package.
Blockchain is the first technology where companies will be able to share selected data in a peer to peer fashion without the need of middlemen.
For Dale, blockchain has opened our eyes to what is in the realm of the possible. He doesn’t think of blockchain as process improvement. He thinks of it as a breakthrough technology. As he states if you look at blockchain as process improvement you can do this with existing legacy technology. If you look at blockchain within the breakthrough realm then no existing legacy technology could have changed the art of what is possible and the nature of the conversation as blockchain has done.
Fedex blockchain journey
Fedex’s blockchain journey started around a process in the dispute resolution area that was causing freight claims for a couple of million dollars a year. Around that time Walmart had a few early use cases in the food safety space which had inspired Dale on how blockchain could be used. The identified issue was for a three party dispute resolution scenario involving a receiver, a shipper and a carrier. The issue was that the receiver was ordering hypothetically 100 items from the shipper via a purchase order. The shipper then received it and fulfilled it. In their fulfilment process they pushed it to the warehouse in two pallets of 40 items and created a bill of lading. The two pallets of 40 and the bill of lading is given to the carrier and ultimately delivered to the receiver. A few weeks later the receiver sends notification that 20 items are missing. There wasn’t visibility to the missing 20 items.
This same three party scenario could also be used for a number of other examples like payments, rebates or other process examples where you have multiple parties speaking a different data language.
The learning from this experience was that blockchain creates a common language and creates a secure chain of custody. For Dale though the real opportunity is on the peer to peer side. If two parties who want to transact can do it in a trusted environment then you don’t need a whole range of intermediaries that traditionally would have facilitated that transaction.
Blockchain needs to be open
Whilst blockchain consortium may work in some scenarios they don’t believe the consortium model will scale. Every time a new member joins the consortium there is an array of paper documents that need to be signed such as non-disclosures and involvement of lawyers. It can be cumbersome and it can take time. Consortiums can scale to 10, 50 or even 1000 identities but in the global commerce space you are talking of tens if not hundreds of thousands. Because of these reasons an open blockchain based on open licenses can scale globally in the global commerce space much more effectively than with consortiums.
Dale however recognises that in some examples, consortiums can make sense. For example in the US pharmaceutical market if you sign up 100 players on a private consortium blockchain you have the whole industry.
In 2018 at the Consensys conference in NY, FedEx Chief Executive Frederick Smith stated “We’re quite confident that (blockchain) has big, big implications in supply chain, transportation and logistics,” and “In the area where FedEx makes its living, this could be a big deal.” To which Chief Information Officer Rob Carter added “This is such a game changer for us because it extends those boundaries outside of our four walls,”. FedEX wants to support an open blockchain instead of taking the approach of slapping a FedEx logo onto a proprietary blockchain.
Blockchain in Transport Alliance (BiTA)
Dale recognises that standards drives everything. Standardisation of the width of rail tracks in the US in 1863 is what enabled to connect the east coast to the west coast. Because of that, in February 2018, FedEx joined the Blockchain in Transport Alliance (BITA) which was founded in August 2017 and has since grown into the largest commercial blockchain alliance in the world, with nearly 500 members in over 25 countries that collectively generate over $1 trillion in revenue annually.
BiTA is a member-driven organization; members are primarily from the freight, transportation, logistics and affiliated industries. Alliance members share a common mission of driving the adoption of emerging technology forward. They accomplish this by developing industry standards; educating members and others on blockchain applications/solutions and distributed ledger technology (DLT); and encouraging the use and adoption of new solutions.
By working within BiTA, FedEx hopes that by developing open source royalty free standards to help accelerate the adoption of blockchain technology.
The Global Express Association
In November 2019, the Global Express Association that regroups Fedex, UPS and DHL prepared a concept paper entitled “Next generation border clearance through disruptive technologies”, that it presented to the World Trade Organisation and the World Customs Organisation, in which it states that “DLT can overcome many of the current challenges faced by Customs and other border agencies with regard to revenue collection, combating illicit trade, including counterfeit, safety and supply chain security”.
In the paper it also states that EDI and digital signatures have helped to digitise cross border processes in international trade but do not yet allow the verification of authenticity and accuracy of documents such as bills of lading, certificates of origin and invoices which can lead to disputes and delays.
The impact of the pandemic on the industry’s digitisation and blockchain adoption
The concept of co-opetition and of a shared purpose really came to life during the pandemic as companies and governments all identified the shared purpose in providing PPE and other items towards fighting COVID19. The other point to come out is how complex and cumbersome the global supply chain really is. And as at the Consensys conference in 2018, FedEx’s chairman and founder, Fred Smith stated that blockchain will completely change worldwide supply chains. This will be done by streamlining them, peer to peer technology, smart contracts and data that is cryptographically secured and authenticated.
Advice to C-Suites who ignore blockchain
Dale, looks at C-Suites from two angles. On one end they have a technical background, whether that’s in finance or legal or something else. On the other they share risk and opportunity, responsibility and strategy opportunity.
From Dale’s point of view blockchain is not just a technical discussion but also one that involves risk and opportunity.
Blockchain and smart contracts for example will change the speed of when payment is made for services provided. This could be from 30 days to being instant. This gets the attention of the CFO, Chief Financial Officer, the CIO, Chief Information Officer, who will develop the smart contracts. The Chief Legal Officer will need bilingual attorneys to transform paper contracts into smart contracts.
The key piece is the strategy one, when the C-Suite look at blockchain as a peer to peer technology, within a trusted environment, that will disrupt business models by removing intermediaries they will have to understand where their business model sits in this space.
Thus, ignoring blockchain carries the risk that a party may figure out a way to bypass your middleman position. This is why C-Suites need to be actively engaged with blockchain so that they can mitigate that risk by building strategies accordingly.
Ep. 131 – How can blockchain projects expand internationally – Special focus on China
Oct 18, 2020
Ran Zhao is Founder of Blockchain Business Bridge and Innovation Officer at Innovation Centre Denmark, a public organization under Ministry of Foreign Affairs and Ministry of Higher Education and Science of Denmark. In this podcast Ran walks us through the opportunities blockchain projects have to expand in the Chinese market by sharing her experience of such a project for Danish companies.
The innovation Centre Denmark helps Danish companies to build up their innovation and technology development and connect them to international resources.
The Blockchain Business Bridge is a non-profit platform for knowledge exchange, and business communication between China, Denmark and the world. The project serves as a launchpad for Danish businesses to take their blockchain activities to the next level.
What is blockchain?
To define what is blockchain, Ran took us throough a journey across time. From the Stone Age to now trade and transactions have always been the engine of economic growth. Transactions however have become more complicated. Transactions are not just physical goods but services, solutions, stocks and property. The marketplaces themselves have also become more complicated. Technology has enabled trade to move from offline to online as it increasingly becomes more digital. Both the number of participants and locations of those participants has increased, thus complicating trade.
All this complexity leads to one fundamental problem, a problem of trust. To solve this trust issue, we have resorted to the use of centralised intermediaries such as banks, financial institutions and big companies who have excellent credit records.
Big corporates can invade your data privacy, financial institutions have gone bankrupt and banks can deceive us as recently demonstrated in the FinCEN files where major banks like JPMorgan, HSBC, Deutsche Bank and a number of other big banks have defied money laundering crack downs by profiteering from illicit funds from Russian oligarchs and drug lords. Centralised intermediaries are usually inefficient and have numerous points of friction creating increased transaction costs.
Blockchain technology enables stakeholders in a complex ecosystem to coordinate with each other transactions in an efficient and cost effective manner. Blockchain technology has the following attributes:
Cryptographically secure
Distributed ledger where stakeholders can keep their own record of their data in a privacy adhering manner
A consensus mechanism to facilitate agreement between the stakeholders
Smart contracts to automate transactions based on codified rules
Commercial and industrial applications can be built on top of it to create a whole new ecosystem of digital economy.
The Innovation Centre of Denmark
Ran works at the Innovation Centre Denmark in Shanghai, part of the Trade Council of the Ministry of Foreign Affairs and Ministry of Higher Education and Science of Denmark, whose mission is to help Danish companies and higher education institutions explore possibilities in some of the world’s leading innovation hubs, such as in Shanghai, Silicon Valley, Seoul, Boston and Munich.
On one hand they help Danish innovative companies, start-ups and SMEs to enter and scale up in international markets. They help them improve their business models and polish the business plans and help them research of local industry players and potential partners / investors.
On the other hand, they pull the knowledge and experience from all their innovation hubs to Denmark to keep Denmark’s competitiveness, innovation and tech. Blockchain Business Bridget is an example of such projects by bringing the experience on how to develop a blockchain ecosystem and business model from China to inspire Denmark.
Chinese blockchain ecosystem
China is seen as a front runner of blockchain technology and applications. China has the highest number of patents in terms of blockchain and DLT.
Source: blockchain center of excellent, university of Arkansas
According to Coin Telegraph, from January 2014 to October 2019 the National Intellectual Property Administration of China has been awarded 2,218 blockchain patents compared to the 227 by the US Patent and Trademark Office.
China is also running a number of ambitious projects in both the public and private sector from information infrastructure to individual industrial applications. According to Ran this represents a unique opportunity for Danish businesses to learn from what is happening in China, get inspired and to explore application scenarios.
For that last 10 years, there has been a very top down approach from the political system in China for blockchain development. On the 24th of October 2019, President Xi Jinping emphasized the development of blockchain technology and called for more research, investment, and regulations: “Blockchain plays a core role in the next round of technological innovation and industrial transformation,” said Xi according to comments recorded by news agency Xinhua during a meeting with members of the Communist Party’s Central Committee Political Bureau.
Xi emphasized boosting research in blockchain in order to “help China stay on the frontline of theoretical, innovative and industrial aspects of blockchain and also occupy a seat in the global regulation-making process of the emerging technology.”
Xi said the technology should be expanded into other parts of people’s daily lives, like education, employment, health care, poverty alleviation, food safety, and other public services. “By using blockchain technology, the public are able to enjoy more convenient, intelligent and qualified public services,” he said.
On the business side the start-up community in China is very active with blockchain technology, as are the big corporations such as Alibaba, Tencent and Baidu, in addition to the traditional Chinese companies which are also embracing blockchain technology.
In Denmark the situation is very different. When the Blockchain Business Bridge was set up, the traditional big Danish industry players were very hesitant to be the first ones to take the first step into blockchain technology as many to this day still confused it with cryptocurrency. Which is in stark contrast to the traditional Chinese companies who are competing between each other to be the first ones to adopt blockchain technology.
Blockchain Business Bridge
Blockchain Business Bridge really started from Ran’s personal interest in blockchain. In 2018, Ran invited four professors from Danish universities that had a focus on blockchain in addition to two blockchain companies:
They organised for the participants a tour around Chinese innovation hubs in Beijing, Shanghai, Yangpu, Suzhou and Xiang Cheng. Establishing dialogues with local policy makers, blockchain companies, startups and with universities and researchers. From these conversations they identified that there was appetite to explore business opportunities between China and Denmark.
Ran partnered with Professor Roman Beck, IT University of Copenhagen and Head of the European Blockchain Centre to found the Blockchain Business Bridge. Along with Roman, Ran onboarded the Confederation of Denmark Industry, which is the biggest industrial organisation in Denmark with more than 11,000 companies as members. They also onboarded the Danish Chinese Business Forum who is particularly good at organising communication events between China and Denmark.
Source: Ministry of Foreign Affairs of Denmark
Ran built a 4-phase approach to launching the blockchain business bridge:
Mapping – A comprehensive mapping of the blockchain ecosystem in China.
Study Tour – A study trip to China to participate in meetings with government stakeholders, companies and university experts.
Accelerating programme – The accelerating programme will provide carefully selected companies a unique opportunity to deep dive in the Chinese market. Due to COVID19 this was spit in two phases:
Blockchain boot camp online modules that happened in both Copenhagen and Shanghai
In 2021 they hope to run an offline event for Danish companies to participate in person in China to meet potential partners
Twin incubators – Twin incubator launch in Copenhagen and Shanghai, continuously provide all-around support for Danish and Chinese blockchain business and projects.
Blockchain Business Bridge Bootcamp
Source: Ministry of Foreign Affairs of Denmark
The Blockchain Business Bridge Bootcamp was a unique opportunity to discuss and refine blockchain oriented business models. Experts from China as well as Denmark coached and mentored participating teams in their approach to improve their business plan and roll-out strategy. At the end of the programme there was a grand pitch in front of investors and venture capitalist from both China and Europe.
Six Danish companies participated: Avallone, Banktech, Blockshipping, Paiblock, Rittal, Vpledger. The feedback from the programme was beyond their expectations. For example, one of the participants is in conversation for investment from a VC whilst others are establishing collaboration opportunities between researchers and industry.
One of the biggest challenges in running such an event is that in Denmark, blockchain is still a very early stage technology where the ecosystem is not mature. Finding companies to recruit for the bootcamp was a challenge. Getting Danish big corporations educated on blockchain was also a challenge but this isn’t something that these companies were prioritising as they aren’t bought into blockchain technology.
Top tips for blockchain projects wishing to expand internationally
Ran shared that when she talked with Danish companies she always made it clear blockchain is not a panacea for everything. Don’t try to apply blockchain for everything you have to be very customer orientated. Listen and observe what are the true pain pints of your customer. Don’t imagine a problem and try to solve it.
Don’t try to sell blockchain, solve real problems with blockchain and focus on creating real customer value. Ran reminds us that customers don’t care if the solution is AI, blockchain or any other solution. They only care if the solution can bring value to them.
Ran also recommends that whenever a European or Danish startup or company wishes to enter the Chinese market they should identify a local partner that can help them get connected to the right resources as it is very difficult for an individual company to set everything up on their own.
Ep. 130 – Driving trade and working capital innovation with blockchain – insights from Marco Polo
Oct 11, 2020
Robert Barnes is the co-founder and CEO of TradeIX and the co-founder of the Marco Polo network. TradeIX is the network operator that runs the Marco Polo network a consortium of banks and corporates that transact both domestically and globally. In this podcast Rob, takes us through how Marco Polo is able to drive trade and working capital innovation with blockchain technology.
What is blockchain?
Rob, looks at blockchain from a distributed ledger technology (DLT) standpoint because their interest is in peer to peer permissioned transactions.
Rob, explains how there are different types of blockchain from the broadcast model, also known as public blockchain, such as Bitcoin, to the peer to peer model like Corda. A blockchain that has financial transactions, needs a peer to peer network that is highly permissione where only the participants to the transaction have visibility over it.
For Rob, blockchain is a platform that facilitates the sharing of data between different legal entities that are permissioned to have visibility over a transaction.
TradeIX / Marco Polo also use the same technology to run stateless calls. A stateless call is where you’re using the communication protocols of blockchain to call something or to request something that doesn’t need to be written onto the blockchain. By doing this you avoid the use of APIs between the various legal entities, companies and customers. APIs are used to connect into large corporates’ back end systems, ERP systems or underwriting ones to name a few.
DLT breaking down silos in trade finance
When you look at the financing part of trade it is about interactions between corporate entities and their bank. This could be as simple as a payment. Whatever the interaction it happens via silos that need to talk to each other. Most of the time this communication happens via emails with PDFs, via API calls or sometimes it requires the entity to join a particular business network to get access to the data within a silo. If they do join a business network the power is usually centralised, owned by a third party and more importantly you get into issues of data residency.
Blockchain / DLT provides the opportunity for everybody to control and manage their own data within their desired jurisdiction and shared with the counterparties that they are doing business with globally. This enables the breaking down of silos as parties start to communicate and transact between each other across the DLT, whilst providing all the permissioned ones with access to this single version of the truth in an immutable manner.
Having access to this single version of the truth enables all parties to avoid the unnecessary cost of data reconciliation and verification. For Rob, blockchain / DLT at its core affords the ability to take risk and cost out of everyday processes that are done today.
TradeIX
TradeIX started out its journey by being super focused on the actual financial transaction within trade. As they started working with banks, insurers and corporates their journey evolved into solving problems of communication between businesses, financial institutions, and the various ecosystem participants. For example, it enables corporates to exchange purchase orders and invoices between themselves without having to go through a centralised business network, use paper, or email.
Marco Polo
Rob had been involved in trade and trade finance technology for a number of years. He had been looking at a few technologies that were starting to converge which could make a huge difference in the way in which businesses transact and do business globally. Those three technologies were blockchain, cloud and artificial intelligence (AI) / Machine Learning (ML).
Rob felt that if you could bring these three technologies together in a way that created and broke down the silos and created efficiencies in communicating information and documents in a digital way across the globe you could really transform the way in which trade is done.
From a blockchain perspective, TradeIX was experimenting with Hyperledger Fabric before they decided to pivot to R3’s Corda, because they didn’t think it was going to scale to a level they needed for peer to peer transactions in a permissioned and private manner. At that moment they were invited to R3’s offices to meet a number of banks to discuss what they had envisaged for trade and trade finance. Six months from that initial meeting they renamed the project Marco Polo and took off from there.
Today Marco Polo, is a group of corporates and bank who got together to create an environment where exchanging information, specifically to trade and trade finance, is easier, simpler and faster. The initiative wasn’t started from a technology point of view but from a problem point of view. Examples of problems they were trying to solve is the amount of time it took for paper based information to be distributed to a number of parties so that they can agree on the transaction and paying it out. Having all that information digitally available allows each party to auto reconcile based on immutable contracts that are pre-agreed prior to the transaction taking place. This is a much faster and more efficient manner than a paper based one.
ERP Systems
Being able to integrate the TradeIX platfrom with every single entity is critical. Integration with ERP systems from Oracle and SAP amongst others is critical.
You can listen to a webinar of Rob Barnes of TradeIX along with Rik De Deyn from Oracle regarding Trade Finance App Within ERP Environment:
At the moment TradeIX is working with SAP to build generic connectors that will facilitate integration.
Rob believes that they need to be in a position to provide a very rich API set that allows all participants of the Marco Polo network to integrate into and out of their platform. This gives companies the ability to give out a lens into their ERP by using a very safe and secure channel for their supplier, bank or financial institution to get a permissioned real time visibility into the required applications such as cash positions.
Positioning of Marco Polo within trade finance vs We.Trade and Contour
Carl Wegner, CEO of Contour, recently featured on Insureblocks for an episode entitled “Blockchain & Digitising Trade Finance – Insights from Contour”. As Contour specialises in the digitisation of letters of credit, Rob believes that their respective solutions are quite complimentary especially as they both sit on Corda.
We.Trade is a trade finance blockchain application that focuses on the middle markets with a high focus on European markets. Whilst there are some level of competition with We.Trade, Rob believes there is enough space in this market for the both of them and for a few more players. Eventually though Rob argues that all the players in this space should be in a position where they can interoperate between themselves.
December 2019 – Marco Polo Network successfully completed the largest blockchain open account trade finance trial
In December 2019, financial institutions and corporates from more than 25 countries, spanning across five continents, participated in the largest blockchain open account trade finance trial over a seven week period, involving over 340 participants from multiple sectors including financial services, IT and telecoms, logistics, maritime, real estate, hospitality and some of the biggest players in the automotive industry.
With its key focus in increasing efficiencies in trade finance, the Receivables Financing solution available on the Marco Polo Platform and the Corda Network is an integrated solution built to overcome critical trade finance challenges including lack of connectivity, inefficient processes and high onboarding costs.
This trial was a significant milestone because they were right in the middle of re-platforming and one of the biggest learnings was the need to build a network management system (NMS) underneath the network itself so that could provision platforms and applications within seconds and monitor the health of every single platform no matter where they were and provide update and upgrades where required.
Another major learning was the need to make sure that transaction velocity could be increased to cater for some very large players. This required optimisation of the platform and applications that are running on the cloud to ensure they could produce and transact more when required.
Governance of the Marco Polo Network
Marco Polo has three pillars: order to cash, purchase to pay and risk mitigation. Banks which operate in the Marco Polo Network are involved in most of those pillars, some in one and some in all. This created a challenge in terms of creating a consensus across the rule books that were acquired, such as how actors would be governed, how would consensus be established for new members joining and many others. The objective of the governance is to be open and transparent to expose everything to get the trust that is required.
At the moment TradeIX is the business network operator of Marco Polo with its governance board. Eventually they are looking to migrate this to a new independent organisation.
Data standards
The way that Marco Polo controls the states is by making them as flexible as possible. Certain elements of a states are mandatory but others can be expanded depending on the requirements of the different counterparties. For example, an invoice is not an invoice on a state. What they have is an asset state which has a class attached to it and that class could be defined as an invoice for something or a purchase order.
Rob and his team work with the International Chamber of Commerce to try and create standards around states and data sets.
Marco Polo as the App Store of Trade
In a recent interview with Soldo Magazine, Rob discussed Marco Polo as the App Store of Trade. TradeIX isn’t developing all of the apps on their network. They now have three to four partners who are building applications that run on the Marco Polo Network. This ranges from insurance to ERP adaptors, trade dock, on and off ramps onto the network.
TradeIX sees a future where most of the apps on the Marco Polo Network will be built by third parties. TradeIX responsibility will be to ensure that what is on the network is compliant, a good actor and providing value.
How can blockchain solutions like Marco Polo dampen some of the negative effects of COVID19
First point to recognise is that COVID19 is a catalyst for digitization.
Second point is to provide greater. Having a network that’s digital and inclusive for everybody will provider great access to financing capital to run businesses, no matter where they are right down to a single person entity, sitting somewhere in Bangladesh.
Rob is very positive with what they can do by using cloud and DLT, blockchain technology to actually make that a reality.
Plans for the next 12 months
Two thirds of the network is live at the moment and they’re moving the last third of the network to a live status beginning of quarter of 2021. They are going to continue to build more real business rich features that will help solve real business problems.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 129 – Blockchain for Energy Consortium
Oct 04, 2020
Rebecca Hofmann is Chairman of the Blockchain for Energy Consortium (previously known as OOC Oil and Gas Blockchain Consortium) a collaborative effort of 10 major energy companies to learn, lead and leverage blockchain technology for the energy industry. Additionally, Rebecca is Head of Innovation at Equinor, a Norwegian based global energy company operating in 30 countries, where she focuses on the strategy and innovations dealing with blockchain technology.
What is blockchain?
Rebecca looks at blockchain from a business perspective as a back-end technology, with the potential to truly transform how we work. It’s a shared digital ledger, that is allowing to have a more seamless way of working with a central source of truth in which business activity can be self-executed, recorded in real time, in a transparent way, with no central point of failure, that’s making it more secure.
Challenges of the Energy Industry
The energy industry has been facing challenges like never before. There has been extreme price fluctuations in a negative way affecting all of the entire industry. This situation has stimulated the industry to work in a new way and to embrace digitalisation to help them achieve that.
Source: Statista 2020
Low energy prices, the threat of companies having to either merge or actually go out of business has helped the industry to push digitalization in a way it would have been uncomfortable doing in the past.
Additionally, it has pushed the industry to collaborate even further to share the cost of R&D, share the cost of development, share the risk and share subject matter experts to create the right solution that all the companies need.
Rebecca’s journey into blockchain
Rebecca’s journey into blockchain started off when a colleague of hers at Equinor gave her his ticket to attend a conference at Rice University on this new emerging technology called blockchain. During the conference, Rebecca rapidly realised that this technology was about a collaborative tool that also enabled interacting with external parties.
She wrote an email up the chain at Equinor expressing the need to pay attention to blockchain technology and she wanted to be part of it. Equinor already had started some blockchain initiatives and she was able to bring them together into her team as Head of Innovation.
Journey to launching the Blockchain for Energy Consortium
In December 2017, Equinor alongside BP, Shell, ABN AMRO, ING, Société Générale and others launched VAKT a commodity post trade management company. Rebecca describes VAKT as the first real blockchain solution to enter the energy industry in Europe, from which they have gained a lot of learnings from.
After Rebecca’s participation at the blockchain conference at Rice University, representatives from Exxon Mobile and Chevron reached out to her to discuss how they could keep discussing about blockchain as a group of three. As the three of them kept meeting others started joining in and participating in the conversation. As the number of participants grew they decided to formerly start a forum called the US Oil and Gas Blockchain Forum in February 2018.
They met across the year and it rapidly grew to 17 operators. The operators were starting to open up to the idea of collaboration and agreeing that on some use cases that they shared common pain points. They also consciously made the decision not to focus on blockchain as the tool but on the pain points that as an industry they can solve together.
Throughout the launch of the forum they embraced the mantra of “Learn, Lead and Leverage”. They organised a lot of events by bringing experts from different disciplines to expand the learnings of the forum’s members.
Towards the end of 2018 the idea was floated to the17 members of the forum on who was willing to put some money together, some subject matter experts and be willing to work together to actually test the technology around specific use cases. A membership agreement was created and was sent to all the 17 members of the forum. Rebecca expected about 4 – 5 would join but actually 10 members agreed to sign and the Blockchain for Energy Consortium was created.
First use case – Authorization for Expenditure Balloting
In the early days of the forum the members would pretend what if that they had no systems and they could have their druthers and they could create anything they wanted what would it look like? What is that seamless, integrated way of working for our future?
That work was the basis to test the industry’s first blockchain application for Authorization for Expenditure (AFE) balloting.
AFEs are used in the oil and gas industry to approve capital and expense projects and determine working interests among parties participating in projects under a joint operating agreement. They are governing agreements between the interaction of partners. For example, whenever an operator wants to drill they need to get authorisation from the other operators as they have a percent interest in this.
Conventional AFE balloting is a manually intensive and largely paper-driven process where the documents are posted in the mail and that can take significant time and frequently results in subsequent working interest disputes.
Blockchain was seen as a no-brainer to digitalise and automate by streamlining the approval process reducing cycle time and errors, as well as providing an immutable documentation of the final working interests.
The AFE balloting proof of concept (POC) tested the ability to send ballots and make elections digitally utilizing blockchain technology, with smart contract enabled workflows calculating working interests automatically. Each ballot was digitally signed. What the participants liked about blockchain technology was the trust factor it provided, through this single source of truth. Because that working interest will be locked down when it was digitally signed. The working interest on each of the participants revenues and costs was clearly available and digitally signed.
The proof of concept eventually turned into “Integrated Joint Venture Management” which is sponsored by ConocoPhillips.
Produced Water Haulage Pilot
This pilot started off as truck ticketing. It went to water haulage and now it’s a commodity transport application. Just like the consortium’s learnings in their blockchain journey, the use cases they take are maturing and evolving.
Equinor is the sponsor of the produced water haulage pilot. The main goal of the pilot was to prove can they take digital information from its source, perform the necessary validation and create a payment without any manual intervention. No need for the approval of an invoice, no need for approval of a truck ticket because all the rules would have been created up front into a smart contract. All the information is made available to the relevant parties which can include the operator, the trucking company and the disposal company. Invoices that used to go through between all the different players for the safe disposal of salt water from a well are now fully automated.
Equinor partnered with Data Gumbo, utilizing its GumboNet blockchain network, to produce a platform for automating produced water haulage from field reading to invoice payment. It was executed on five Equinor wells in the Bakken field in North Dakota with water logistics and transportation provider Nuverra Environmental Solutions . It was the first industry-wide use of a blockchain-native network for produced water haulage.
Source: Data Gumbo
Data Gumbo was used as the blockchain provider for this solution due to their expertise within the energy industry.
The pilot’s initial results included:
Reducing current process workflow from 90-120 days to 1-7 days and 16 to 7 steps, requiring zero manual intervention;
85% of all volume measurement automatically validating against data from multiple parties, with the potential for near 100% auto validation with future enhancements;
It removed 100% of the rounding practice that used to occur previously
Validations automatically triggering the execution of related invoice transactions, which reduces financial risk by giving assurance that payments coincide with field activity; and
Delivering a potential of 25% – 36% reallocation of resources versus current business process for operator and trucking company.
When COVID hit this pilot was accelerated due to the automation of the processes and the significant reduction in manual intervention.
The pilot started off for water haulage, but the plan is to move it to a commodity transport application for oil, chemicals and other fuels.
Blockchain platform The Blockchain for Energy Consortium positions itself as blockchain platform agnostic. They are focused on the pain points and depending on the required solutions they will determine which platform to adopt whether it’s Ethereum, HyperLedger Fabric, R3’s Corda or Data Gumbo.
The AFE Integrated Joint Venture Management pilot is using R3’s Corda for example.
When the consortium moves into the seismic use case they will need to look at a blockchain platform that can support tokenisation as seismic is both data and an asset. That asset is sold between different parties in the industry. Operators and third parties own their own seismic data. The seismic use case is about giving operators a means to better manage their seismic asset and to create a model where they can buy and sell at least one day of seismic data on the blockchain.
Governance
The Blockchain for Energy Consortium has registered itself as a not-for-profit. Rebecca explains that this was a natural decision for the consortium. The members wanted a place where it felt it was more open and a more collaborative environment. Not-for-profit seemed more suited than a profit one for this purpose.
Additionally, as they are 10 operators coming together to look at new ways of working digitally between their process it was felt that from an anti-trust perspective a not-for-profit setup was a better one.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 128 – Blockchain Supporting Nature’s Solution to Climate Change – Insights from the IMF
Sep 27, 2020
Ralph Chami, Assistant Director at the International Monetary Fund’s Institute for Capacity Development, isn’t a tree hugging hipster. He is a financial economist whose interest in whales has unlocked a well known fact by scientists but not by the general public. A whale during its lifespan is worth $2m in carbon capture and carbon sequestration services, whilst a dead whale’s meat is worth $50,000.
An African Forest Elephant’s tusk is worth $40,000 but an elephant’s carbon capture and carbon sequestration services as a living creature is worth $1.75m! Today we have a market for dead creatures but we don’t have a market for the services rendered, in terms of carbon capture, by living creatures such as whales and elephants.
Join us in this incredible podcast to hear how blockchain can help build a living and regenerative market that not only protects those magnificent creatures but build a circular economy that is a win-win for businesses, governments, local communities and societies around the world.
What is blockchain?
Blockchain is an electronic ledger that ensures that all parties in a contract can record their transactions in a transparent, permanent and permissioned manner on an end to end basis. It also removes the need for intermediaries.
From the IMF to an article on Nature’s Solution to Climate Change
Ralph works as the Assistant Director at the International Monetary Fund’s Institute for Capacity Development. The institute is tasked with training staff of the IMF which includes over 1500 economists as well as the training of the 189 member countries of the IMF.
First was the immensity of the role whales play in carbon capture. Whales capture carbon on their body and capture carbon indirectly through what we call primary fertilisation, the amount of carbon dioxide that the whales contribute to keeping out of the atmosphere, directly and indirectly, is equivalent to that captured by thousands of trees!
Second was the frustration that scientists had in their failure to effectively communicate the first piece of information to saving the whales. Nobody was acting upon it.
Ralph realised that the problem in the conversation between the scientists and the policy makers was that they were speaking in a different language. When scientists put forward plans to save the whales, policy makers only saw costs. The benefits of saving the whales was in the realm of science whilst the costs were in the realm of dollars and cents.
What we had here as Ralph would say from one of his favourite movies, Cool Hand Luke, was a “failure to communicate”. Scientists would communicate the benefits of saving the whales in scientific terms whilst policy makers heard costs in dollars, the units talked about were different. Ralph realised he had to translate the scientific benefits into dollars so that policy makers could understand the cost of mitigation is X and the return in benefits is Y. Ralph made the case in economic terms, in a neutral manner, that demonstrated that the value far exceeds the costs. His article was published on the IMF’s Finance and Development Magazine entitled: Nature’s Solution to Climate Change – A strategy to protect whales can limit greenhouse gases and global warming
Valuing a whale
When writing his article with colleagues of his, Ralph wanted to make the point that even if you don’t care about the whale itself, the whale is saving you. So, saving the whale is saving yourself.
Their approach to valuing the benefits the great whales provide in terms of carbon capture and carbon sequestration:
Look at the whale as a natural asset that produces value over time
You perform a discounted present value analysis for the carbon capture and carbon sequestration benefits over their lifetime. A whale can live between 60 to 125 years depending on the species. For the paper they took a minimum of 60 years
Look at other services performed by the whale for which markets exists for which prices exist in terms of whale tourism and the symbiotic relationship between whales and fisheries. For example, there is scientific work that demonstrates when you have more whales you have more fish.
When you add those three marketable services: (1) carbon capture and carbon sequestration, (2) whale tourism and (3) the symbiotic relationship between whales and fisheries and then you apply a present value analysis you come up with a minimum value of a whale of $2 million over its lifespan. This value excludes the value a whale provides in biodiversity and other services. This value is solely based on prices for which markets exists today.
This value will most likely increase significantly as the price of carbon will skyrocket as nations and corporations around the world increasingly struggle to hit their carbon neutrality targets.
Source – CNBC
Today a whale is valued only when it is dead. In some countries people eat whale meat. The only time a whale has value is when it is dead and being served on a plate. That value is between $40,000 and $80,000. What Ralph has demonstrated is that the value of a living whale ($2m) far exceeds the one of a dead whale.
New Zealand has become the first country in the world to make climate risk reporting mandatory for banks, asset managers and insurers – reported by Financial Review. Under new legislation announced on Tuesday, the 15th of September 2020, large financial institutions would be required to report annually on governance, risk management and strategies for mitigating climate change impacts. Ralph argues that investing in nature based solutions, such as whales, could be part of those financial institutions risk management and strategies for mitigating climate change impacts.
The advantage of using nature based solutions instead of new technologies is that they have no known side effects.
Valuing an elephant
Source – GRID-Arendal 2020
Ralph wrote a similar article to the one about valuing a whale but one for African forest elephants entitled: The Secret Work of Elephants.
The forest elephants today are dying, they’re almost extinct and it turns out that these elephants capture a tremendous amount of carbon. On one hand the ivory of an elephant killed by poachers fetches about $40,000. The total value of the service provided by African Forest Elephants is more than $1.75m.
Source – GRID-Arendal 2020
The detrimental cost of the view that nature is an infinite commodity
In the 16th century we had Cartesianism, developed by René Descartes that viewed the mind as being wholly separate from the corporeal body. Ralph believes that by divorcing the mind from the body, Descartes approach divorced the human being from the natural world. The writers that followed such as Francis Bacon and John Calvin truly believed that humans were meant to rule supreme over the natural world. Not only that but that we were divorced from the natural world and that we were to tame nature. They also believed that nature was endowed with infinite commodities. These assumptions were devasting. Whilst they enabled the industrial revolution to take place it created a human centric view of the world that is independent of nature, where nature is seen as this infinite commodity.
Fast forward to the present, we have a virus, that we can hardly be seen in a local wet market that you probably would never visit in your life, that has brought the whole world to a standstill and brought the economics of the world to its knees, COVID19.
For Ralph, COVID19 is a wakeup call for all of us that (1) we are not independent of nature, we will never tame it and the only thing we can do is change our own behaviour before it’s too late. (2) taking nature for granted is devastating. This is how we’ve treated the whale in every aspect of the natural world.
Nature is profitable for all
That view that nature is infinite or it’s there to be abused is a presumption that we pursue at our own peril, which we’re seeing right now with climate change. By putting the right value on the services that nature provides us we can start establishing a proper balance with the world that we live in. By creating economies around the great whales, the forest elephants and other living creatures, we can create markets that are profitable for everyone to enjoy.
Ralph argues that investing in nature is profitable, not only for the business community, but for governments, communities, NGOs, and everybody, it’s a what he calls the win-win model. The fundamental change is looking at nature not from an extractive point of view but a regenerative point of view.
The existing paradigm that we have been using to value things and to provide guidance on how to live is outdated and does not take us forward. We need a new paradigm based on the valuing of life where investing in the preservation in nature and allowing it to grow and prosper is one which can take us forward.
Changing behaviours – the Palau case study
In Palau, 84% of their ocean is marine protected area. Sharks are important to Palau. According to a paper published in the Biological Conservation, Volume 145, Issue 1, January 2012 “Using data collected from surveys, as well as government statistics, we show that shark diving is a major contributor to the economy of Palau, generating US$18 million per year and accounting for approximately 8% of the gross domestic product of the country. Annually, shark diving was responsible for the disbursement of US$1.2 million in salaries to the local community, and generated US$1.5 million in taxes to the government.”
Sharks individually are worth around $1.25m to Palau. That has however not stopped fishing for tuna in their waters as sharks get accidently caught in what is called “collateral catch”. This is in spite of the marine protected area.
Ralph believes there is an opportunity here to change people’s behaviour. If Palau was to state that if you catch a shark by mistake or intentionally and the shark is worth $1.25m then the penalty for catching or killing that shark is $1.25m. Now imagine a ship captain may consider the option of trying to catch tuna amongst sharks he may think there is a probability he may get caught by the authorities. That simple thought could change his mind and change his behaviour.
What the authorities in Palau could do is define the sharks as an asset that has rights with a monetary valuation of $1.25m and base penalties based on that valuation.
Steps for building a market for a living and regenerative nature
Ralph recommends the following steps:
Establishing a legal framework – a marine protect area
Endow the asset with rights and responsibilities
Establish a credible penalties that are based on the value of the asset
The first step is building the legal framework. New Zealand for example in May 2015 formally recognised animals as ‘sentient’ beings by amending animal welfare legislation.
The Animal Welfare Amendment Bill was passed on Tuesday May 19th, 2015 and it stipulates that it is now necessary to “recognise animals as sentient” and that owners must “attend properly to the welfare of those animals”.
This first step also opens up the opportunity for private enterprises who see an opportunity where there’s a legal framework, there’s a value and there are penalties. They see possibilities of making money from intermediating between the two. For example, insurers could offer tuna fishing captains with insurance against catching or killing sharks by mistake.
Technology entrepreneurs could offer technology that keeps sharks away from ships or uses satellites and buoys to tell ship captains to avoid sharks in a certain vicinity. Insurance companies could offer their policies on a lower premium if the ship installed that technology. These are examples of how a market starts to develop around a living shark, not a dead shark. Locals in Palau can be hired to be monitors that can live from the services that would arise in the market that develops around living sharks.
Markets aren’t built on a system of punishments and penalties. Markets are built on incentives. The penalties are a sense of commitment of putting your money where your mouth is. For example, we know that the penalties in place to protect the elephant from poachers aren’t effective. Penalties aren’t enough and that’s where the valuation comes in, because the valuation comes in by valuing the benefits of a living elephant, or a living whale or a living shark. It says that a living whale, a living shark, and a living elephant is far more valuable to us than a dead one. It’s about building markets that capture the benefits of a living and regenerative nature.
Scientists in Brazil have identified 65,000 whales of different species that have shown that when applying Ralph’s valuation model of whales, that the value of their current population of whales is $82 billion.
Opportunities for poor countries
Poor countries with oceans can now add the capitalised value of a whale at $2m as an asset to their balance sheet. These poor countries have no clue how rich they are.
The steps these countries need to take are:
Accounting: identify the living assets and their contribution to carbon capture
Valuation: how much carbon capture is being done and at what price
Legal framework: creation of penalties and incentives
Everyone can benefit from this:
Businesses can benefit through the creation of new products and services
Local communities will get employment opportunities
Governments will have those living assets added to their balance sheet
Blockchain being the enabler for creating a circular economy for “living assets”
In the podcast, David illustrated how he uses blockchain technology to create a circular economy that matches the work local people perform in picking up plastic to large corporations’ requirements for quality recycled plastic. The corporations like Marks & Spencer and Henkel that purchase recycled plastic from the Plastic Bank see their money sent in a token format back to the local people who can use it to cash it in, pay their mobile phone airtime, their children’s education and their utility bills. This creates a nice circular economy.
We at Insureblocks believe that we have this opportunity here to take the Plastic Bank’s circular economy as a template to create this win-win outcome where the asset isn’t plastic but what we would call “living assets” such as whales and elephants.
What is known is that corporations around the world are increasingly aware of their responsibility regarding climate change and for reaching carbon neutrality targets. By tokenising living assets such as whales and elephants you could match them with corporations who need to hit their carbon neutrality targets. They would pay for the services rendered by those living assets such as $2m for elephants and $1.75m for elephants. Those funds would go to the local communities that are here to sustain the well-being of those living assets, thus creating a circular economy.
This of course is applicable just not for corporations but also for individuals who wish to offset their carbon producing activities such as flying. For example, you could offset your carbon foot print from your next international flight by paying for the carbon capture services rendered by whales. This creates an emotional reaction and would help to contribute to provide the necessary incentives for people and corporations to use this market.
The funds raised through the market would go to the local communities that are here to sustain the well-being of those living assets which in turn could help them reach financial inclusion, to become bankable and help them to grow their local communities out of poverty.
For example, what this means is that a poacher right now could get a few dollars for killing an elephant whose tusk would get about $40,000 on the market. He runs the risk of being shot by guards. That’s not a life. But in a circular economy like the one we are talking about above he could get real permanent employment for keeping this elephant alive as it is worth $1.75m.
So, these markets can create a better life for the local communities. Conservation will only be sustainable, when the local communities where these living assets live find that it’s in their best interest to keep these assets alive, well and thriving.
This would create a market around living things because a vibrant nature is our best defence against climate change, which is why this a win-win. This will be the platform for a whole range of new service providers:
Scientists to do the accounting of all the living assets and their contribution to carbon capture
You need financial economists to do the valuation
Local communities will have to look after those living assets thus creating employment opportunities.
This marketplace will attract innovators from around the world to build upon it and offer their products and services on top. For example, Insurwave can adapt their solution for ship captains and insurers to make informed decisions not just about avoiding war zones but also about avoiding migration lanes used by whales, because the risk of hitting a $2m whale can have a materialistic impact on those insurance premiums.
Blockchain can help to address the following points:
Establish legal rights / protection
Distributed identity or self sovereign identity can be used as the backbone to append legal rights
Valuation of natural services
This distributed circular economy marketplace will provide a dynamic pricing to the valuation of those natural services
Allow for public private partnership
Blockchain governance structure can enable multiple stakeholder to interact and co-ordinate together. The key here is to avoid the tragedy of the commons trap where blockchain can help trustless and semi-trusted actors to co-ordinate their actions in a manner that fulfils both their self-interest and the common good
Encourage community ownership and create employment opportunities
This distributed circular economy will create opportunities for new services to be built upon that can create new business models and thus encourage community ownership and create employment opportunities
Join in the conversation!
Insureblocks is passionate about doing our bit to help tackle the climate change issues we are all facing. With this in mind we want to invite you to participate with us at developing solutions to resolving this problem. We want to invite you to join a webinar / Linkedin Live on the 15th of October at 16:00 UK time / 11:00 East Coast Time / 17:00 Central European Time where both Ralph Chami and David Katz will discuss how to create a circular economy for supporting nature’s solution to climate change. Please join us and let’s make an impact all together!
Ep. 127 – Convergence of IT Services & Financial Services – Insights from T-Systems
Sep 20, 2020
Gleb Dudka is a Blockchain analyst at T-Systems and author of the Blockchain Infrastructure Thesis. In this podcast we discuss opportunities for financial services to work with IT service provider in securing the Web 3.0 and exposing themselves to numerous revenue opportunities. We also discuss the differences between proof of work and proof of stake and the role T-Systems play in providing public network infrastructure to the Web 3.0.
What is blockchain?
Gleb looks at blockchain from a technical, business and economic standpoint.
From a technical standpoint it’s a combination of three key parts:
A distributed database that stores information with multiple parties working together on synchronising and keeping the ledger up to date.
Smart contracts – scripts and if then functions which allow for executable business logic that sits on top of a shared ledger.
Digital assets – tokens which sit on top of blockchain. They play a critical role in incentivising trust-less parties to synchronise and maintain public blockchains such as Bitcoin and Ethereum.
The second dimension or standpoint in which to look at a blockchain is as incentivisation machines. Each blockchain is designed to fulfil a certain goal or a certain value. In order to fulfil that purpose the blockchains rely on some form of infrastructure providers such as miners which need to be rewarded. Incentives are their support the blockchain for it to fulfil its goals.
The opportunities public blockchains have for digital assets and cross company collaboration
In Gleb’s opinion, what makes blockchains really unique is the digital asset layer. Distributed database and smarts contracts aren’t particularly unique to blockchain. The digital asset layer provides the ability to transact value for a trusted digitally scarce asset.
Digital assets enable to bootstrap public blockchain networks by creating incentives for people to participate in these networks. Without these incentives it’s very hard to get people to participate and use a blockchain network. This is a main advantage public blockchains have over private ones as it provides participants with the incentives to join the network and for it to scale.
Gleb believes there is an opportunity for public blockchains to help interconnect private blockchains which effectively sit in different silos. The jury is still out with regards which public blockchain or application specific blockchain could do this whether it’s Ethereum, Polkadot or others.
Enterprise blockchains
Gleb believes they are quite interesting from an innovation standpoint. However as most enterprise blockchains only use distributed database and smart contracts without digital assets, it makes very hard to argue what is the benefit of that technology compared to a centralised database. He would recommend that enterprise blockchains need to develop a digital asset strategy to ensure the long term feasibility and return of their initiatives.
Proof of work and proof of stake
Proof of work
Proof of work is a consensus algorithm used to make a public blockchain secure and to ensure that you don’t have situations where double spending is possible. This is achieved by having miners which calculate hashes (complicated algorithms) and consume a lot of electricity. This requires powerful hardware and lots of electricity to run those calculations. Anyone attempting to “hack” their way through would need to take control of 51% of the network, i.e. purchase all the necessary hardware and electricity to overcome 51% of the network. This is why Bitcoin and Ethereum are secure.
Proof of stake
Proof of stake has the same goal which is to secure the public network. The only difference is that it’s not secured by the hashing rate of the blockchain, but by the amount of the native digital asset of the network participants have at stake.
Ethereum which is at the present using a proof of work consensus algorithm is moving to Ethereum 2.0 with a proof of stake implementation. To participate in securing Ethereum 2.0 would require you to post a kind of collateral in the form of a digital asset, in this case Ether. This is why it’s called stake, because you put your Ether at stake, by exposing it to risk. The network, Ethereum, enforces that all validators, nodes, and miners act in an honest manner by stating that if they act dishonestly they will lose a portion of their collateral. By acting as a validator to keep the network secure, validators can earn rewards. In Ethereum 2.0, the cost of attacking the network means acquiring 51% control of all the Ether in circulation
Validator nodes
The validator is the proof of stake equivalent of a miner on a proof of work blockchain.
Simply put validators are responsible for validating the transaction processing and creation of new blocks for which they get rewarded for doing so. If we use Chainlink (Insureblocks episode with Chainlink: Securing oracles for smart contracts – insights from Chainlink), as an example, whose goal is to bring off chain data to the real world. A validator is responsible for bringing external data such as weather data, stock data and bringing them on chain. To become a validator in the network participants need to pose some kind of collateral, to expose some form of value to risk. If the validator acts honestly they get rewarded if they act dishonestly they get slashed by loosing a percentage of their stake.
Because of this not everyone can become validator, which introduces us to the concept of delegation or delegated proof of stake. This is for individuals who just have the digital asset of the network (eg. Ether). They have an incentive to stake their digital asset with a validator that they trust that will represent their interest and also act in the best interests for securing the network. By delegating the rights of the digital asset to the validator, the validator can use the capital to secure the network and they will share the block rewards with the digital asset owner minus their commission.
T-Systems becomes a Chainlink Node Operator
Generalized mining is a term coined by Jake Brukhman which acts as a catchall term that describes the practice of actively participating in one way or another in networks in order to generate returns. In July 2020, T-Systems became a Chainlink Node Operator. In this scenario, T-Systems uses its tech infrastructure in a manner where it takes the real world data (Eg. weather, stock indices) and makes it available for various smart contracts. For this service T-Systems gets rewarded with native digital assets, LINK, from the Chainlink network. In that sense, T-Systems is participating in some form of mining, which is why it is called generalised mining.
Another example of generalised mining is with Filecoin a decentralised storage network. To participate in this network you provide storage space in order to receive rewards. People will be using your storage, for which you are paid for with a Filecoin digital asset. There are numerous other examples of such generalised mining as this space is growing very rapidly.
As a Chainlink node operator, T-Systems takes various asset prices from the real world such as commodities or stock indices and put them on chain and make it available for applications for DeFi. For the provision of that data, T-Systems receive payment in the form of LINK tokens form Chainlink.
Providing public network infrastructure to the web 3.0 is a natural step for a telco
T-Systems is a software integration company of Deutsche Telekom, the largest by revenue telecommunications company in Europe. Gleb is based within the blockchain solution centre of the T-Systems Multimedia Solutions that has a unit providing public network infrastructure in different forms.
T-Systems believe that providing public network infrastructure is part of their core business to do so because telecommunications companies have historically provided public network infrastructure. Initially they connected people via communication at scale with phones, masts and towers. Then they connected people and organisations via information at scale with the internet. Now they are enabling trustworthy transfer of digital assets (value over IP) via value at scale with blockchains (web3.0).
T-Systems sees itself as operating mission critical infrastructure that is very secure and highly available. They provide public network infrastructure to different blockchains by helping them fulfil their intentions.
Convergence of IT Services with Financial Services
Gleb is very passionate for the potential of convergence of IT services with financial services. By giving individuals with digital assets the opportunity to actively participate in securing these digital networks and participate in the value creation on top of these networks is very powerful. The validator is the mechanism to participate in providing the IT services as well as financial services.
On one hand the validator secures the infrastructure by performing certain tasks. On the other hand it allows for retail investors, token holders and others which have this delegation or staking concept to basically support the network and get exposure to the services the network provides. This means that banks can facilitate their customers to get exposure to the various type of yield opportunities, delegation or staking can offer by working with partners like T-Systems.
The German Act Implementing the Amending Directive on the Fourth EU Anti-Money Laundering Directive
This act basically allows banks to provide custody services to their clients and to offer digital assets to their clients.
When a financial institution offers a digital asset, which has a proof of stake base such as Ether, they will have to think about how do they also stake that Ether. Proof of stake assets are considered as productive since they secure the network and get exposure to the economic activity on top of the network. The yields for that are between 8 – 12% per year. On average 70-75% of all the proof of stake networks assets are being staked. This means that banks and financial institutions that offer crypto custody would have to think about what they do about staking and to think whether or not they wish to run their own validator node or work with a trusted partner to run the validator for them. They would need an IT service provider who can securely and reliably run the validator to provide exposure to their clients to the staking yields of a given digital asset.
Opportunities for enterprises
DeFi (decentralised finance) for example is securing currently around $7 billion in value. As this market grows there will be an increase in assets in DeFi, more trades will happen and it will have an increasing need for real world data. This leads to more calls to Oracles managed by Chainlink leading to T-Systems’ validator nodes being increasingly called up generating more revenue for T-Systems. T-Systems is making a bet that decentralised finance will succeed.
The major opportunity for enterprises is in providing public network infrastructure by enabling these public networks to exists, by supporting them and by monetising some share of economic activity that will happen on top of these networks.
Plans for the next 12 months
T-Systems is planning on vertical and horizontal scaling over the next 12 months. Horizontal scaling is in providing public infrastructure in the form of nodes, validators and staking as a service for multiple blockchain networks. T-Systems sees itself as enabling enterprises that wish to participate as a node operator in permissioned based consortiums run by Corda or Hyperledger or even Libra by offering them a reliable node operator capability.
From a vertical scaling standpoint, T-Systems is venturing into digital asset custody space because they believe this is a key foundation to have with this validator service. You need to have a digital asset first and then you can stake them.
By offering staking services, T-Systems gets paid in digital assets which in today’s market can be quite volatile. They are looking at strategies to hedge the risks through different financial instruments.
Ep. 126 – AgriLedger – Blockchain within the Agro-Food Industry
Sep 13, 2020
Genevieve Leveille, Founder and CEO of AgriLedger, a blockchain solution built on R3’sCorda which has been used to support fruit growers out of Haiti. In this podcast, Genevieve shares with us how their solution enables supply chain through the use of value chain – value transfer and value retention throughout. She also shares how AgriLedger has helped farmers in Haiti get a 750% increase in revenue per kilo of quality mangos sold.
What is blockchain?
For Genevieve, blockchain is an infrastructure technology. Blockchain is a mechanism to allow different parties, with different needs, to collaborate and create information exchange. It’s about capturing data in a fashion that is known to be true at the moment of capture.
Genevieve is interested in the application of blockchain technology for the food industry. She explains that having food poisoning is usually due to the fact that you don’t know where the food came from, if it had the right refrigeration and other factors which blockchain could address.
At the Rio+20 Conference on Sustainable Development in June 2012, UN Secretary-General Ban Ki-moon announced a new global challenge for world leaders and individuals from all sectors: create a world where no one is hungry. He emphasized that there is enough food in the world to feed our population, so the challenge comes from making sure that everyone has access to the food they need to live happy, healthy lives.
Ban called this initiative the Zero Hunger Challenge.
The Zero Hunger Challenge has five pillars:
100% access to food and nourishment all year round
Ending stunting among children under two years of age
Making all food systems more sustainable
Doubling productivity and income for smallholder farmers
Reducing food waste and post-harvest losses
In spite of efforts to meet the zero hunger challenge, global hunger has been increasing even before the coronavirus pandemic, the United Nations has warned, putting its Zero Hunger 2030 target in doubt.
An annual study estimates almost 690 million people went hungry in 2019 – up by 10 million from 2018 and by nearly 60 million in five years according to the latest edition of The State of Food Security and Nutrition in the World (SOFI).Across the globe, the Covid-19 crisis could tip over 130 million more people into chronic hunger by the end of 2020, the report predicts.
According to Oxfam: “COVID-19 is deepening the hunger crisis in the world’s hunger hotspots and creating new epicentres of hunger across the globe. By the end of the year 12,000 people per day could die from hunger linked to COVID-19, potentially more than will die from the disease itself.”
With classrooms closed due to the COVID-19 pandemic, two UN agencies are urging governments to act now to shore up the futures of the 370 million children worldwide who depend on school meals.
Genevieve disagrees with the point that 30% of the food produced is wasted as this only measures food going from the farm to the table. It doesn’t measure the amount of food that goes into the fridge and that is ultimately thrown out.
In her opinion it isn’t that we’re not producing enough food to feed everybody, it is that we’re wasting so much of it, or we don’t know where it is and it isn’t going to the right places. She believes that if we change and we reduce the amount of ways we handle food we can get closer to zero hunger.
In addition to those challenges as there is a drop-in remittance coming in, many of the smallholder farmers will not have grown the food that is necessary. This has created the fear that in the next 9 to 18 months we’re going to see an increase in poverty and hunger out of Africa.
All of those numbers are part of the reason of what Genevieve and her team are trying to do at AgriLedger which is to empower the smallholder farmer by giving them access to markets and access to financial services. Genevieve stresses that whilst she is involved in agriculture she is ultimately involved in the value chain of agriculture. It isn’t about teaching smallholder farmers to grow more food but to grow good value, quality products which gets them a better price.
AgriLedger’s Story
AgriLedger started off as a hackathon in 2016 where the objective was to see how you can use technology to really change the lives of a million plus individuals. Food is something that connects us all. They tried to develop a solution that helps to address the problems of having enough food and not getting sick from food.
Source: AgriLedger
Around the same time the UN’s Sustainable Development Goals (SDGs) were recently launched that helped to guide AgriLedger’s mission which is to work with smallholder farmers to ensure that they get a fair share of the proceeds of their products and for its consumers to have traceability of where the food came from.
AgriLedger’s solution
There are numerous participants to AgriLedger. You have the producer/farmer then you have what they call the extension service which provide the farmer with access to the services they require. The importer/broker who knows the clients who is going to buy the product in their local market. The client who buys the product itself, and finally the bank.
All these individuals and organisations are acting in consortium to ensure the consumer gets the product and that the farmer and all the participants that facilitate making this transaction happen, get money distributed to them.
AgriLedger provides their smallholder producers with a digital identify and a digital wallet that provides them with financial inclusion. This isn’t about providing them with a bank account, it’s more about providing them with the financial history which can be used to demonstrate that they have an income when applying for a bank loan.
Using blockchain and why R3’s Corda
Genevieve doesn’t believe she could have built her solution without a blockchain. Centralised databases brings up the issue of having few people who are controlling it. At the same time aligning every parties’ interests together on a centralised database is more difficult. Blockchain enables traceability in a transparent system and you can enable gamification for participants to behave in a collaborative manner.
By February 2019, Genevieve was introduced to R3’sCorda and she was intrigued by the notary nodes and how data is passed over. As she puts it: “I then knew that the information allowed for collaboration without giving out the secret sauce. So now, if I wanted to protect somebody’s identity, if I wanted to work in an environment where various parties were offering the same service, but wanted to be able to keep their data or their information, private, this would be the platform.”
Pilot in Haiti
AgriLedger has partnered with Ecole Supérieure d’Infotronique d’Haiti (ESIH) to launching its pilot in Haiti providing “boots on the ground” as Haiti has been in a complete political lockdown since September 2019. Part of the contract with ESIH is to provide educational opportunities not just for the students but also at the government level to help expand opportunities. One of their latest educational initiatives was with the ConsenSys Academy in providing 10 scholarships for young women to enter the ConsenSys Developer Boot Camp.
The Haitian government received an IDA (international development association) from the World Bank which is looking at how to alleviate poverty in the bottom 40%. As part of the World Bank’s investigation on how to alleviate poverty they looked at using blockchain technology as they felt it could help solve the problem.
In terms of how the application works. A smallholder producer only needs a phone to get started.
As a national road was being built farmers where invited to register their phone number to participate in the AgriLedger pilot. If the farmer’s trees are bearing fruit they can make a phone call to state how many mangos they have and have them picked up. In the future farmers will be able to do this by SMS.
A message is relayed to the farmer telling them when their fruit will be picked up and at what location point. Logistic providers are provided the information to be able to make multiple pickups along a particular road. The fruits are inspected and counted. A contract is provided to the farmer where they give the right for their fruits to be transported, to be given to a broker to be sold to the US and a promise is made to pay the farmer when payment is made for the fruits. Additionally, the farmer gives the right to AgriLedger to share their data to those who need to know to facilitate the transaction. The contract is signed (in the future it will be digital). Every step of the way including when the fruits are sold, the farmer receives an SMS informing him of each transaction. If the farmer asked to be paid in cash he will be told when to pick up the money from the bank or else payment is made by money transfer or by mobile money.
AgriLedger’s process changes the risk. The farmer has a risk. He has to produce a quality produce. In the past a farmer would get paid $0.14 / kilo but they could sneak in a couple of kilos in a batch that weren’t so good.
A box of 4.5 kilos would get about $0.50 – $0.60 in Haiti whilst in the US it would get $10.50 of which a percentage goes to the broker. A percentage of the funds will go to the transportation company, to the service providers and the rest goes to the farmer. The farmer will get an average of $4 to $5 a box.
On the 1st of May 2020, AgriLedger’s pilot collected 38,000 kilos of mangos resulting in $40,000 of sales minus some losses in between. Of that farmers received 68% of the funds which in comparison to selling to the local market in Haiti represents a 750% increase in funds for those same mangos.
Value chain
Genevieve describes AgriLedger as enabling supply chain through the use of value chain. She believes that value chain is more important than supply chain because if brings fair and equitable value in a clear and transparent manner to all the participants.
Value transfer and value retentions is what’s most important in creating the ability to track quality. AgriLedger isn’t here to encourage farmers to produce more but to understand the market demands, to meet them with the right quality and quantity of produce and to ensure that this amount goes through the whole value chain.
Blockchain and the Web 3.0
For Genevieve, blockchain is the foundational layer of the Web 3.0 that brings in IoT, AI and other emerging technologies. Blockchain is the foundation of creating the trust in data. If IoT isn’t being used then you’re relying on people entering data which is prone to human error and to malicious actors. Using IoT allows to capture data such as humidity, temperature, ethylene level, CO2 and others without have to be concerned that there is this human issue in the middle.
Machine learning and AI allows farmers to be more efficient with how to use weather data.
Plans for the next 12 months
Since July of 2020, AgriLedger has done a number of improvements to the AgriLedger application in Haiti. For example they have created on R3’s Corda an observer node that pulls information from multiple locations to that node.
Additionally, AgriLedger has done a small pivot as with COVID they have identified the need around the whole supply chain of medical goods. AgriLedger has been working on the digitization and tracking of individual tests. They hope by the end of October to have completed a pilot they are working on with a consortium with suppliers in China, partners in Italy, Germany and Switzerland to create the whole picture of certainty and assurance that the goods that have been transported are what they are and they have not been tampered with. And also that the environmental requirements such as temperature and humidity have not been affected.
AgriLedger is also working on a digital passport of immunity.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 125 – Blockchain supporting UN Sustainable Development Goals
Sep 06, 2020
Marianne Schoerling, Head of Stakeholder Engagement at Geneva Macro Labs in Switzerland, joins us to discuss how blockchain can support reaching the UN Sustainable Development Goals. Recognising that blockchain is not a panacea to all sustainable development challenges, it is though an important tool to consider when looking at its costs and benefits and potential impact to affect the well-being of communities around the world.
Marianne has a wide range of professional experience including working at the UN Environment Programme at with several NGOs.
What is blockchain?
Marianne has two answers to the question of what is blockchain. A contextual one and a technical one.
From a contextual perspective she would describe blockchain as a chronologically set of arranged digital blocks that will enable the decentralisation of trade. It will allow peer to peer transactions with a reduced need for intermediaries like companies or banks. It entails an entirely new set of preconditions and possibilities for participation and membership in societies and communities.
This is why blockchain can be seen as a social transforming technology because blockchain combines three different aspects:
Decentralisation
Cryptography for account authorisation and automatic execution
New social pattern for companies, schools, universities, organisations and governments to participate within the societies they represent
From a technical perspective blockchain is a system that enables the addition of data to it without the ability to change or remove previous data within it. This is done through a consensus mechanism between distributed parties that do not necessarily need to trust each other. Proof of work being one of the most famous consensus mechanism.
The UN’s 17 Sustainable Development Goals (SDG)
Marianne introduces the 2030 Agenda for Sustainable Development as a global framework designed to be like a roadmap for collective action towards a productive, vibrant and peaceful life for all on a healthy planet.
There are 17 United Nations Sustain Development Goals which range from poverty reduction to healthy lives and wellbeing for all, to economic growth and partnerships. They reflect the fact that actors from different levels from communities, to cities to national governments all have to collaborate to provide transparency and accountability of the 2030 agenda.
Progress to reaching those goals are tracked via 232 indicators and 169 targets via the UN’s SDG Tracker.
There are two goals that dominate our current time period because of their conditioning nature for sustainable development:
SDG 17 is the most fundamental goal as it’s a process focused goal as it promotes decentralised development, co-operation, and engagement of all stakeholders.
With just under 10 years left to reach the SGDs and in spite of commitments by nations there are massive global challenges that remain in particular with climate change, migration, technology and trade.
source: Sustainable Development Report 2019 by Bertelsmann Stiftung and Sustainable Development Solutions Network.
About Geneva Macro Labs
Geneva Macro Labs leverages the unique institutional, financial and economic capital of Geneva to build a platform and a collective intelligence network. They co-develop policy measures, incubate new concepts and are hosting conversations on emerging technologies such as DTL and sustainable development.
Geneva Macro Labs advocates for solutions that are co-created with their community. These solutions are then used to advice policymakers, business leaders and institutions in their decision making process. In that sense they’re not a classic think tank but more of a “do tank”.
“Do tanks” like Geneva Macro Labs can play an essential role when it comes to design and execution of meaningful impact solutions.
Geneva Macro Labs entered into the blockchain space at the beginning of 2019 as they felt there was a lack of cross sectorial reflection and collaboration on how DLT such as blockchain are used to achieve sustainable development goals through private public partnerships.
The conference was a two day event aimed at offering a new space for information exchange, debate and critical reflection on the opportunities and limitations of blockchain technology in achieving the SDGs.
Whilst blockchain technology has been around for a little while, it’s only relatively recently that we’ve started to appreciate its potential for a much wider range of applications, many of which could help address some key problems we currently have in our global supply chains, climate change, international migration or simply for responsible consumption. The conference was aimed at demonstrating that potential.
The conference offered a space for developers, regulators, and users to better understand each other and how to use blockchain technology.
The conference identified that blockchain can play an essential role in how we reach our SDGs. For this to happen there is a need for a multi-stakeholder approach to it so that different voices can be heard. Three areas were identified in the conference where blockchain can play an important role:
Addressing financial exclusion. Large parts of the world are still excluded from affordable financial services preventing them from mobilising savings, developing businesses and growing.
As globalisation continues to progress, supply management that guarantees ecological and socially responsible production and distribution of commodities remains still a challenge. DLT can be designed in a manner to address these issues and ensure that protocols are respected and certified
Blockchain applications have the potential to give access to an affordable and easily scalable technology to document property rights in a range of areas from the protection of personal data, ecological capital or simply private housing
In many countries, with weak monetary institutions or history of hyperinflation, cryptocurrencies can offer a reliable way of helping people to manage the payments and savings without fearing an erosion of the purchasing power. Blockchain based applications have the potential to re-establish trust in money, because of their unique features combining cryptography, decentralisation and automatic execution.
However, there are many obstacles that remain. There isn’t a single unique crypto currency that exists and central banks are still reluctant to give up the privilege of printing money and financial regulators are quite worried about financial stability.
With regards to crypto currencies such as Bitcoin or Libra, Marianne stresses that above their technical feasibility there are important questions that need to be considered: How much privacy do we want as a country? How much KYC (know your customer) do we want? How many people do we really want to reach who don’t have an ID?
Identification for those who have none
Marianne mentioned that UNICEF and the World Food Programme (WFP) are both exploring how blockchain could enhance traceability within their programmes. However, in the case of the WFP, it built a blockchain solution in partnership with the UN Women’s cash for work programmes to assist Syrian refugee women, the pilot was not really a use case for blockchain for impact. The reason is that there was only a single node and central identification was used instead of applying a decentralised ID system.
With regards to the UNICEF Cryptocurrency Fund, Marianne believes in principle it works. Cryptocurrency works like any other currency in face of local currencies in the sense that they both deal with volatility and financial stability but a key advantage of cryptocurrency is that transactions are easier to be traced.
Digital assets for currently unprotected goods and services
Tokenisation could actually help to translate scientific evidence into impact investment vehicles. Whilst research is still going on, there is a growing belief that blockchain technology can have a great potential to develop a new security that actually combines a financial return with a sustainability goal in the form of reduced carbon emissions.
For example, a whale captures the equivalent amount of carbon to a thousand trees per year. This creates the opportunity to transfer from natural capital to economic capital. Blockchain technology could assist in creating a financial framework for valuing whales and nature in monetary terms.
Blockchain playing a role in restoring trust?
Proof of authenticity in an age of fake news, counterfeits and corruption, can blockchain play a role in restoring trust? Marianne reminds us that blockchain is just a tool. Blockchain itself does not generate trust out of nothing, it actually derives it from the system in which it is being used in. So, trust in the distributed ledger has nothing to say about the identity or trustworthiness of any actor on the network, outside the veracity of a token or transaction in the ledger.
Key blockchain challenges identified
The Blockchain 4 Impact Conference identified four key challenges:
Privacy & transparency – finding the right balance between the two can be challenging
Interoperability
Ecological footprint of blockchain with regards to its energy consumption
Governance – manage contestability with distributed governance and smart contracts
Geneva Macro Labs’ Five Solutions
Post conference, Geneva Macro Labs’ developed five solutions:
Setting up a Global Blockchain Observatory that publish regular reports and recommendations on how the industry should evolve and be regulated. Whilst such observatories exist at the EU level with the European Blockchain Observatory & Forum and for the OECD countries with the OECD Global Blockchain Policy Centre, there isn’t one at a global level.
Fostering industry standards for policymakers, standards, organisations and industry experts to work together to force the efficient approach across SDG targets. Marianne suggests the development of a library of standards on which organisations can build upon. Examples of such standards: sustainable development standards, identity standards, tracking standards and cryptocurrency standards.
Offering safe spaces and sandboxes for innovation to provide a platform for design thinking and a shift towards a more positive narrative around blockchain-driven systems change. This is needed because there are different innovation infrastructures. In Europe for example there is a regulatory approach to regulate the technology upfront to prevent negative impacts. In the US it’s the other way around where innovation happens up front and then regulation comes afterwords.
Regulating service providers and custodians. The law needs to include provisions for trading tokens and digital assets.
Promoting public-private partnerships (PPPs) for Blockchain-4-Impact solutions that can create the best use cases of blockchain implementation and they can set new standards for entire industries.
Blockchain and NGOs
In June 2020, Marianne penned an article “You are muted, we can’t hear you! Digital Advocacy now and in the future”. NGOs help those whose voices can’t be heard. Technology can help to achieve this goal in an efficient and safe manner. Blockchain adoption among NGOs is slowly advancing partly due to lack of resources but as well due to misconceptions of what blockchain can actually do.
In the article Marianna makes a case that in the field of digital advocacy, along with monitoring and accountability efforts, non-tech NGOs actually should explore with blockchain providers whether a blockchain solution could help them fundraise and prove accountability to their donors and in the most efficient way with transparency. Smart contracts could ensure that funding is only spent on approved items.
Blockchain solutions could allow a degree of connectedness between donor and beneficiary that is impractical for existing donor management systems. This is something that Circles of Angels a solution developed by Atix Labs has tried to tackle as explained by their CEO Marcio Degiovannini in our podcast.
Ep. 124 – Reinsurance accounting blockchain, Ritablock integrates with B3i’s Fluidity platform
Aug 30, 2020
Matthias Goessler, CEO of Ritablock and Jean-Pierre Fischer, Markets Director at Ritablock join us in this Insureblocks podcast to discuss their reinsurance accounting blockchain platform called Ritablock and their experience of integrating it into B3i’s recently launched Fluidity Platform.
Matthias has been working in the insurance industry for 25 years and has been Ritablock’s CEO since October 2019.
Jean-Pierre has been working in both the insurance and reinsurance industry for the last 35 years.
What is blockchain?
Jean-Pierre defines blockchain from a non-technical standpoint. For him the block is the digital information that can be reinsurance accounting information or claimed information. That block can be stored in a public blockchain or as in the case of Ritablock stored within a private network on a database.
Challenges of technical accounting and claims data in the insurance industry
The administration process within the insurance industry has a very high admin costs due to too much paper still being used along with PDFs and unstructured files being exchanged along the value chain.
This creates long processing times along with a lack of transparency, inefficiency and inaccuracy. The slow process leads often to inaccuracy in technical and financial accounting, especially for in-house reinsurance within larger groups.
Whilst there are global standards such as ACORD, their implementation on the primary insurance side is very costly leading to a limited adoption of it. This creates problems for reinsurance companies who don’t always get standardised data from the primary insurer.
Jean-Pierre mentioned that there have been studies that showed that by digitising this process and using standardised data formats would lead to a drop of 30-40% of running these admin processes.
Matthias mentioned that one of Ritablock’s clients mentioned that using their system allowed them to run admin processes that typically would take 2 weeks down to a few seconds.
Differences between primary insurer and reinsurer
Jean-Pierre mentioned that the primary insurer isn’t incentivised to send data to a reinsurer in a standardised digital format as the reinsurer will take accounting data in any format today. However, Jean-Pierre believes that as new tech savvy university recruits continue joining primary insurers there will be a push to digitise their processes.
Primary insurers have two issues for sending accounts: (1) they’re not incentivised to implement digital standardised formats and (2) the price of using such standards.
Ritablock’s proposition to primary insurers is for them to send their existing form to Ritablock who will convert it into a digital standardised format when delivering it to the reinsurer. This is done for the primary insurer at a low yearly fee within four digits.
Who is Ritablock?
Ritablock was founded in 2019 by Consurance, a consultancy company and Inveos, a software company.
The idea of Ritablock was born over 4 years ago during a project with a client who wanted to build a flexible interface into their system. When starting this project and developing the software they reached a point where it became too complex due to the need to develop too many interfaces for all the different formats.
From the ideas of this project, Ritablock was co-founded by Thomas Jäschke, (CTO) who built a blockchain prototype and Bernd Zimmermann who developed the business solution.
Ritablock is built on R3’s Corda. Since Corda was developed by the financial industry the Ritablock team felt it had the necessary security measures in it. Every customer of Ritablock will have a node on the Corda Network where the Ritablock app sits. The reinsurance systems, from the sending and receiving party will connect to Ritablock. Accounting systems like ProRis from Inveos, SAP FS-RI and RAIS are already connected to Ritablock and conversations with NTT Data are already happening.
By utilising this system, reinsurers can send messages to the receiver within seconds and have that integrated into their accounting process without the need of sending papers or PDFs.
As to the question on whether or not they needed a blockchain to build this solution, Jean-Pierre gave the example of a large reinsurer like SwissRe which have 200 – 300 API connections cedents that require an enormous amount of work to maintain. The alternative solution in the market is for portal or platform solutions, which carry security risks as the portal or platform solution is effectively a centralised intermediary that has access to all the data including the one of your competitors. Distributed ledger technology (DLT) brings an alternative solution that removes both problems.
Today Ritablock is market ready and is preparing to go live.
Is blockchain a bonus or a hindrance?
Inveos which works with a large number of small and medium sized primary insurers in the German speaking side of Europe state that their clients are usually very reluctant to adopt new technology and don’t want to be on the leading edge. However, when Ritablock demonstrated it to them and how it works it become a “no-brainer” as Jean-Pierre states. At that stage the fact that it is using blockchain technology is seen as a bonus as they see it as a first step in utilising technology that may go mainstream in the future.
In Matthias’ opinion it really depends on whom you are talking to. Chief Digital Officers or Digital Transformation Officers are very open minded to new technologies like blockchain but they don’t necessarily care too much about the business case. In contrast, reinsurance accountants and other business individuals care about the business case but less so on the technology side.
Integrating into B3i via the B3i Fluidity Platform
For Matthias partnering with B3i was a strategic move that will provide their customers with easy access to the value of distributed ledger technology, with a dedicated CordApp that enables integration with multiple reinsurance administration systems, considerably reducing the reconciliation efforts within reinsurance accounting.
Thomas Jäschke, CTO of Ritablock was contracting for B3i, in helping them develop their CAT XL product, between 2018 and 2019. The Ritablock team are very familiar with B3i and support their vision.
B3i’s Fluidity platform offers libraries of codes to accelerate the development, delivery, distribution and monetisation of interoperable and distributed applications across the B3i ecosystem. As Thomas was familiar with B3i’s Fluidity platform and as both Ritablock and B3i are both developed on Corda, integrating Ritablock into Fluidity wasn’t difficult.
Plans for the next 12 months
RiskStream Collaborative, whose blockchain platform is also based on Corda, has developed a reinsurance placement project. Whilst Ritablock is presently focused on the German speaking part of Europe they are planning to expand to the rest of continental Europe, the UK and in the next couple of months to the United States which may include working with RiskStream Collaborative.
Ritablock is at the present moment market ready and they are planning to go live for the first processing of technical accounts in 2020 with a couple of customers.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 123 – Chronicled’s MediLedger – a decentralised solution for the Pharmaceutical Industry
Aug 23, 2020
Susanne Somerville is the CEO of Chronicled, builders of enterprise blockchain solutions for the life sciences and healthcare industry. In this podcast Susanne introduced us to both Chronicled and to MediLedger whilst sharing some insights on how they are tackling some of the inefficiencies in the US healthcare system.
You will also hear about some of her learnings about the differences of launching blockchain solutions based on regulatory compliance compared to one of ROI.
Susanne’s prior experience is in the life sciences where she ran supply chain for pharmaceutical and biotech companies like Genentech and Hoffman LaRoche.
What is blockchain?
Blockchain is a decentralised ledger that can keep record of transactions or data exchanges. Because of its decentralised nature, no individual party can change the data of the recorded transactions or the rules that blockchain is enforcing. For Susanne it is the magic in this decentralisation and immutability that makes a lot of things possible for enterprises that weren’t possible before.
What is the state of US healthcare industry and how digitised, connected and standardised is it?
Photograph by Robert Kaufmann
According to the Centers for Medicare & Medicaid Services, the US National health spending is projected to grow at an average annual rate of 5.4 percent for 2019-28 and to reach $6.2 trillion by 2028.
In comparison to many other countries the US healthcare system is private, which has spurred on a lot of innovation. Due to that a lot of the innovation was done on an individual level, creating many disparate systems across the country. Susanne’s experience is that US healthcare companies are analogue native instead of digital. A lot is still being done on paper and on fax machines. All of this has contributed to create a disconnected US healthcare industry.
A recent report mentioned that even in exciting technology such as AI (artificial intelligence) there was only a 2% adoption rate of it in the US healthcare industry.
Chronicled & MediLedger
Chronicled is based out of San Francisco and it has been tackling connecting the physical to the digital world since 2014. They were looking at a variety of industry use cases and found a sweet spot in the life sciences. In 2017 they launched the MediLedger project to bring together industry leaders to see how blockchain could play a role in meeting regulations and fixing a lot of the issues in their industry.
Since 2017, the project has morphed into the MediLedger Network. Chronicle is the builder of the software solution and is the custodian of the network. The consortium members of MediLedger run the infrastructure and the solution so that they have control over how the network grows.
Building the MediLedger consortium
Susanne recognises that building the consortium at the beginning wasn’t easy but they did benefit from a couple of key points:
Credibility: The Chronicled team had both the deep industry expertise and the technological capability
Regulation: the Drug Supply Chain Security Act that requires an electronic interoperable system by 2023 to manage the track and trace of prescription medicine in the event of suspect product
Ironically a lot of those organisations actually came to the initial working groups to rule out blockchain as an option but now four years later MediLedger is going strong!
The Drug Supply Chain Security Act
Around 2005 and 2006 there was an increasing amount of pressure in the United States from individual states who wanted to improve the security of drugs. Even though the US drug supply is safe, there are cases of products stolen.The question was how to design legislation that could protect consumers against that?
Whilst there a variety of state laws that protect the consumer it was decided in 2013 that there needed to be a federal level law created with the industry as having 50 unique state laws wasn’t practical to handle.
The law states that there will be an electronic interoperable system by 2023 but crucially the FDA made it clear that they wanted the industry to figure it out. The belief is that this will drive more innovation.
Source: FDA
The FDA has designed a plan composed of key milestones for achieving putting the Drug Supply Chain Security Act into law by 2023. There are roughly three key stages:
Product verification – The FDA must be able to verify a product’s “chain of custody” at any time. This means, first, the industry has to create an “interoperable system” — one capable of receiving and parsing data from vastly different software — to store transaction history between business partners.
Serialization – This means creating unit-level product identifiers and deploying them on lots, cases and packages at a global scale.
Traceability – The final step. Using the interoperable system to store unit-level data at each transaction, and deploying such a system downstream in the supply chain to drug dispensers, like retail pharmacy chains and hospitals.
Whilst there have been a few delays in reaching some of the milestones, too much money has been invested by the different organisations that the expectation is that the law will come into effect.
Chronicled’s blockchain technology
MediLedger’s current solution is designed as a permissioned network and is built on Parity Substrate. Susanne recognises that there are many advocates for public blockchains, but she doesn’t feel that their level of security and transaction volume is quite there for the level required for her industry.
The FDA DSCSA pilot
In 2019, the FDA requested pilot studies for the DSCSA (Drug supply chain security act). MediLedger dusted off one of their initial prototypes from their initial working group in 2017 and brought together a larger group of companies across the supply chain.
The pilot is a blockchain-based system for tracking the legal change of ownership for prescription medicines as per the DSCSA guidelines.
MediLedger designed a blockchain solution that has drugs that shop up at Walmart for example. Walmart scans them and can validate that the drug is authentic by the fact that all the rules have been met since the drug was originally created on the blockchain. But Walmart doesn’t get to see all the places where the drug was. It keeps that proprietary information with just the trading partners who were involved in the transaction.
From large and small manufacturers, large and small wholesalers, big retail dispensers like Walmart as well as smaller pharmacy chains and logistic parties to pressure test what they had initially built to understand how this could work in the industry.
Source: Chronicled
In terms of key metrics to measure the outcome of the pilot were:
Feasibility of the participating companies to run the infrastructure and cost of it
Transaction speed: The pilot had estimated a need of 800 transactions per second but the pilot was able to handle over 2000 to 3000 transactions a second
There were some notable findings such as discussion of participation is key and interoperability with other solutions is going to be critical. There isn’t going to be one solution to solve the US Healthcare System and thus interoperability with other solutions providers and industry partners is very important.
The conclusion of this pilot was that blockchain was a viable technology that could allow a decentralised operation across the industry.
Governance of MediLedger
MediLedger has a working group construct where the companies in the network that participate in this working group have a very large say in the design and build of the industry protocols.
When MediLedger moved to a commercialised model and participants are running production nodes in the network the governance model shifted to the node operators. The node operators have a voice at the table as they are the ones who are responsible for the upgrades for themselves and their customers.
Susanne’s top tip regarding governance is to have one that facilitates conversation and where the tech infrastructure is very simple to enable network participants to decide between themselves how to do business.
The industry decides the rules and decides how their business is going to function and Chronicled effectively puts that into code.
Manging IP of MediLedger
At the beginning of MediLedger, Susanne and her team considered inspiring themselves from the Visa network as an interesting business model, where the banks came together and owned what became the Visa company so that they could all participate and benefit from that protocol.
This was something they were looking to consider, however feedback from the participants of the MediLedger network was that they didn’t wish to own it. They feared the risk of being liable if one of their competitors couldn’t ship drugs, because the software didn’t work.
For now, Chronicled owns the IP and is responsible for providing the neutrality that not one company gets a leg up in how the solutions are designed.
Standardisation of data
MediLedger is leveraging all existing standards. They have partnered with GS1 and other standard bodies to inform them of where they’re finding gaps in the standards.
Susanne recognises that they are fortunate to have within their working groups, industry leaders with more than 10 years’ experience in implementing standards for track and trace regulation. This experience has facilitated interoperability with other solution providers.
Contracts & Chargebacks
Chronicled has recently released their production software for their contracts and chargeback solution. The solution aims to eliminate the 5% of chargeback processes in the United States pharmaceutical sector due to differences in business rules and misalignments of data between players in the value chain. The solution is presently being tested by companies and they expect in the next few months for integrations to be complete and for production transactions to start happening.
In comparison to MediLedger which is driven by regulation this is driven by ROI (return on investment).
The problem that this solution is looking to resolve is that in the US drugs are sold from a manufacturer to wholesaler at list price. But hospitals will have negotiated better contract prices, so when the wholesaler sells it to the hospital, at the lower price, they turn around and ask the manufacturer for the difference between the list price and the contract price. Which is called a chargeback.
The dilemma is these companies are all updating their systems’ independently and the data changes all the time. Whether it’s the prices that are changing, information about the hospitals or pharmacies that makes them now eligible or not eligible for different contract prices. If companies change from one wholesaler to another or from one group purchasing organisation to another. All those changes have to be updated continuously and the data misalignment causes disputes and issues.
The solution that Chronicled has developed enables companies in the same network to have access to the same data that’s used to determine eligibility for the lower price. Chronicled’s solution automates the data exchange between parties and automates eligibility assessment.
ROI vs regulation for building blockchain solutions
Chronicled are actually doing some research to differentiate some of the characteristics of those two type of solutions (MediLedger – regulation vs Contracts & Chargebacks – ROI).
Susanne recognises that regulation has brought more people to the table to the point that 95% of all drugs resold in the United States will be verified by the MediLedger network. That kind of adoption is really driven because of the fact that companies have to do it to meet their regulatory requirements.
On the ROI side adoption is a little more challenging. However, companies are more interested in participating because they are all driven every single year to drive efficiency in their processes. Everyone drives efficiencies within their own companies but there is a whole untapped area of inefficiencies to address which is driving efficiency between companies. That is made possible with blockchain technology.
A counterfeit COVID-19 drug solution
As part of the work that Chronicled did for compliance with the Drug Supply Chain Security Act they developed a solution for identifying drugs as being authentic. The way it works is that now when a drug’s barcode is scanned it will hit the manufacturer’s database and answer back in less than a second. To confirm that the data on the box is authentic it will check the item number, the lot number, the expiration date, and its unique serial number.
Dispensers in the US have a requirement by November 2020 to verify any suspect product. As Chronicled had already built this technology, and with the increased reporting of COVID treatments, they decided to use this technology to proactively scan high risk drugs to ensure the hospital dispensing authentic drugs.
Plans for the remainder of 2020
The testing and production go live of the Contract & Chargeback solution is underway.
They’re looking to expand the solution to medical surgical supplies as it shares similar issues to prescription medicine. According to Susanne the pain point there is ten times bigger and she is thus talking to companies to forming a medical surgical chargeback working group.
Chronicled is also having some interesting conversations to create a decentralised solution to track suspicious ordering related to opioids and help mitigate some of the inappropriate behaviour that is stemming from the opioid crisis.
Ep. 122 – Coadjute – Digitizing the real estate industry
Aug 16, 2020
Dan Salmons, CEO of Coadjute and John Reynolds, Founder and COO of Coadjute take us through the work they are doing to digitise the real estate industry using blockchain technology. They also explain to us the differences and advantages of using a SaaS (software as a service) blockchain model instead of a consortium one.
Dan Salmons is the CEO of Coadjute. His background is a mix of large scale executive jobs in banks, head of innovation and head of strategy and CEO to a number of innovative fintech companies.
John Reynolds is the COO of Coadjute. John has spent the last 20 years working within organisations helping with their digital transformation from Dell, to Fujitsu and Lockheed Martin’s digital arm. What John has learned in 20 years is that digital transformation is partly about technology but it’s really about people’s hearts and minds and business change aspects.
As John gave Insureblocks a definition of what is blockchain in our last podcast, Dan offered his definition of blockchain by using the analogy of the Glass Box Theory.
Dan invites us to imagine that you have a locker room at school amongst others who have their own locked lockers. Imagine you want to be sure that no one has stolen your favourite pair of trainers. The traditional central hub type solution is asking the teacher who has a set of keys that can open everyone’s locker, to go and check if the trainers are still there. As the teacher is trusted you trust that they won’t add or remove items from the locker.
The alternative solution is the blockchain one where you have glass doors on the lockers and you don’t need the teacher to check if anyone’s taken the trainers as everyone can see in everyone’s lockers and verify it. The trouble with that is that everyone can see everyone’s lockers. The alternative solution is a DLT one as the R3 Corda’s where you have two doors, one glass and one metal. In this scenario you can only let certain individuals within your class to open the metal door amongst themselves and you can give them permission to check if the trainers are still there. However, they still can’t access what’s in the locker.
Challenges of the real estate industry
Dan believes that the property industry as a whole, in comparison to other industries, is one that spends the least on technology and on innovation. It does have pockets of innovation and digitisation. For example, whilst sectors of the industry such as estate agents might be digitised, it is not digitised on an end to end basis. That’s where the main problem resides.
The challenge is that every player is using their own internal operational systems and their own CRM systems. What this means is that they’re using their core operational software for the day to day activities within their business but every time they want to connect and interact with someone else they use email or telephone.
An easy way to resolve this would be to build an application, a database or a destination portal for the estate agent, the conveyancer, the mortgage lender and everyone would have a single source of truth. This has been tried but the problem is that every one of those businesses have their own operational software and the last thing they want is another portal. John states that feedback from industry players was that even if a new portal was offered, that was better than the current one and was free, they wouldn’t use it.
The reason for that, is as John states, people forget the cost and effort involved in putting in a CRM system, it is significant as is the time to build the operational processes around it. So, the possibility of getting all the players to rip out all their systems simultaneously and move to a new one is very hard.
Coadjute’s approach to this is by connecting all these systems together. The operational software, the CRM systems, the case management systems, the mortgage origination systems are all connected together. Coadjute isn’t here to build a new operational system but it is about the connectivity for the industry of building that digital backbone.
What this means is that each player doesn’t have to move to email or telephone to interact with each other as they can do it natively within their software. They will have document exchange, messaging, automation and real time update as their software becomes connected to the rest of the marketplace.
Dan believes that this solution will help the UK industry save a billion pound a year in email and phone call chasing. He also believes that another billion is lost in revenues from transactions which take too long to complete. For example, 30% of transactions fall through during the course of trying to get a property bought and sold due to the time it takes to complete.
John believes that since there isn’t a need for multiple millions of pounds to liberate that billion pound in savings, businesses are more open to their solution. Coadjute as a SaaS company is all cloud based and thus doesn’t require any upfront investment. Businesses can try it and use it to determine the level of savings they get out of it. Coadjute removes the friction to new systems adoption by connecting through the existing software as there’s no upfront cost for trying their solution.
SaaS vs consortium model
In Q1 2019, Coadjute ran the Instant Property Network trial with 40 organisations in 23 countries across five continents. Organisations such as Ashurst, Baker McKenzie, Barclays, Clifford Chance, AXA XL, Even, Royal Bank of Scotland, Raiffeisen Bank International, Commerz Real, SBI Nihon SSI, SBI Holdings, BBVA, Search Acumen, Shieldpay, Squire Patton Boggs, Davivienda, Swiss Re and SiriVentures participated in this trial.
In this trial Coadjute was building the application, the user interface and their CRM system. That was their initial thinking point. It meant that each of the players would have a login page into this CRM system. John and his team quickly realised that this would be a mammoth endeavour that would require significant design resources, domain expertise and the need for some kind of consortium. Instead they decided to strip it down right back to the core value and that the existing software companies already had those relationship and what they were looking for was how their software could better serve their customers and connect to the rest of the software in the industry.
Coadjute now consequently simply acts as a connectivity layer, where the software vendors will run the Corda node, and Coadjute will provide the application that allows the connectivity. This allows for a very simply charge on a SaaS model basis. This removes the overheads of setting up a governance model as the software vendors already have the commercial relationship and agreements in place.
To the question on why do these software companies simply don’t use APIs to connect between each other? John believes that software platforms don’t want to spend resources to manage over 50 API connections. He also explains the other benefits that come with connecting to a DLT platform like Corda:
You get the identity piece which means all the different platforms’ data can be connected together around a single identity (e.g John’s property). It’s like a virtual deal room where all the pertinent data around that property can sit at a very grainular level
What Coadjute is not doing is acting like an aggregate database where they take all of the information from the different systems via APIs. Software providers retain control of their own data. Coadjute doesn’t see the data, each software provider has their own node and they’re sending data on a peer to peer basis and orchestrating it across a transaction
John also believes there is a migration from complex consortium models, that are slow and struggle to go into production, to one of SaaS businesses. He states how R3 started off as a consortium of banks before becoming an enterprise software company. Just like Marco Polo started off as a consortium before TradeIX moved into a SaaS model.
End-to-End pilot with RBS/Natwest – the startup founder’s perspective
In September 2019, Coadjute built a pilot for a minimum viable ecosystem to connect it along the property value chain. The purpose of this pilot was to prove two points:
From the back end you can connect all these software platforms to a shared ledger and create this virtual deal room to orchestrate transactions
At the front end, both from the business users (estate agents, conveyancers, lenders) and consumers there was value in it
What John and his team learned is that for each one of those people, the homebuyer, the home seller, the estate agent, the conveyancer, the broker, and the lender, there was enormous value in both time and cost.
End-to-End pilot with RBS/Natwest – the corporate RBS/Natwest perspective
At the time of the pilot, Dan was the director of innovation for the home buying and ownership division of NatWest. RBS/Natwest had already done a lot of work at trying to improve the home buying process by digitising the mortgage process and improving the experience for customers. However, they were keenly aware that was only two weeks of a twelve-week process for many customers. So there always was this big question about what they could do about the rest of the process?
When Dan met John and the Coadjute team he was intrigued by their solution and by the fact that they were using blockchain. The global trail was intriguing but the pilot simply blew him away. Each participant of the pilot could see how this technology could halve the length of time it takes them to do what they’re doing.
From a bank perspective one of the key successes of Coadjute was being able to bring the industry, senior representatives from estate agents, surveyors and conveyances to the big banks. The pilot didn’t just demonstrate that the technology worked but it demonstrated the real value Coadjute had in bringing the industry together.
For Dan this Corda based solution was really workable, tangible, robust, secure and you could see it functioning. It didn’t have the feel of a pilot solution and you could see the steps needed to industrialise the solution. Dan was so impressed he decided to join the company.
Coadjute’s progress in 2020
Dan states that since Coadjute’s last podcast with Insureblocks in November 2019 it has changed beyond recognition in some ways but has kept true to its core values of collaboration, innovation and trust. Internally they refer it to as if they have evolved from a project to a company. They have expanded their team which Dan now leads.
In June of this year they announced their first launch partners: Redbrick, MRI and Dezrez. They’re now constantly working with the software players to see how they can further integrate their solutions within Coadjute and how they can jointly work together to bring new solutions to the market.
Coadjute is now busy in fundraising activity as they prepare to launch a new version of their solution by the end of this year / beginning of 2021.
Effect of COVID lockdown on the property market
During the lockdown in the UK, Coadjute initiated a weekly Property Market Insight report as they’ve got 50% of the estate agents in the market and they could report exactly what was going on in the market. The reports demonstrated a V shape recovery that happened amazingly quickly after the lockdown with a great bounce back with buyer registrations and sales enquiries bouncing to a level before the pandemic arrived.
Dan believes that the fact people where stuck in their property during lockdown gave them the time to rethink what they want out of a property such as getting an extra bedroom or live someplace where it is easier to go out for a nice walk.
From his side, John points out that COVID has brought forward the real need for digitisation and automation of low level tasks around following up and chasing up events. John states that yes we can work remotely and we can automate things by connecting up all the industry’s software systems.
Vision for Coadjute
For Dan, Coadjute has a very simple vision which is that one day, it will be really easy to buy and sell property. It won’t be this complex, opaque chore and expensive to operate that it is today. He also states that once Coadjute has provided this digital connected backbone infrastructure to the industry then it’s possible to provide many services that today are quite difficult to do because the market isn’t connected. An example of that is identity, KYC, which is repeated in lots of places and there’s no easy way for any of the players across the value chain to check a customer on behalf of the rest of the industry.
In addition to the value of its technology, Coadjust is also about bringing the industry together and acting as a catalyst for developing new innovative solutions.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 121 – Blockchain & Digitising Trade Finance – Insights from Contour
Aug 09, 2020
Carl Wegner is the CEO of Contour, a blockchain-based open industry platform to create, exchange, approve, and issue Letters of Credit on Corda, R3’s blockchain platform. In this podcast, Carl talks through the challenges the trade finance industry faces in terms of digitisation since 2005 and how blockchain can represent an opportunity to reach that objective.
Carl has been working in the Fintech space for the last 30 years in Asia. Twenty years in large banks such as Bank of Boston, Standard Chartered and Deutsche Bank on transaction banking, trade finance and cash management. Ten years in tech working at GT Nexus, at R3 setting up their Asian operations and now at Contour.
What is blockchain?
To define what is blockchain, Carl prefers to take it down a notch and instead define what is distributed ledger technology (DLT). DLT is an opportunity for enterprises to manage their own data within their own database instead of via a central database. DLT participants own their data and have a protocol to share it. In comparison to blockchain where data is broadcast to everyone with a method of consensus, R3’s Corda, which Contour is built on, allows everyone to have their own database with a protocol to share their data in a selected manner.
International trade and the trust deficit
In 2018, the global trade finance market was valued at $39.7 billion, according to Allied Market Research. Whilst, an ADB’s (Asian Development Bank) 2019 Trade Finance Gaps, Growth and Jobs Survey found that the global trade finance gap remains at around $1.5 trillion, nearly 60% of respondents expect the gap to increase over the next 2 years.
Source: WTO& ICC
In international trade you have a trust deficit between buyers and sellers in far off countries. With the internet that trust deficit has been somewhat reduced. Prior to the internet buyers had to put money down for a shipment that may turn up three months later without necessarily knowing who the seller is.
The challenge for SMEs is related to data. A bank as a lender, a facilitator of credit is looking not to make a mistake. The challenge for SMEs is to have sufficient information to fit the requirements of a bank’s traditional credit scoring sheet.
Organisations like ADB and other development banks will step in and provide some support either directly with guarantees, with training to help SMEs on how to present themselves to banks and other actions. Fundamentally though, the challenge is around data. SMEs being able to provide the right data and bank’s understanding on how to use the data outside of just the traditional model. COVID-19 has created a “digital transformation opportunity for banks to use data in different ways to be more efficient with it and offer credit to a wider range of customers.
The state of digitisation in the trade finance industry
The idea of digitalization of trade isn’t new. How you set standards is one challenge. For example, the ten countries of ASEAN (Association of Southeast Asian Countries) couldn’t agree on a set of standards that worked for all the countries. Each country didn’t want to give up on their own personal set of standards.
When a bank lends money to a small factory owner they don’t know whether he will buy a sports car or the raw materials for the order. If he buys the raw materials the risk has to go down. If he has produced half of the goods the risk has to go down. If all the goods are produced and sitting in a sealed container outside the port the bank views that risk as the same as when the money was given to him to buy his raw materials. All these data points are key milestones that banks can access to determine the credit risk. The challenge is that banks don’t always know how to deal with this extra information. They have been making a lot of progress but there’s still a long way to go.
The arrival of blockchain / DLT has now given the objective of the digitalization of trade a real chance for it to happen.
Letters of credit
Source: WTO
Letters of credit are managed the same way they have been managed for the last hundreds of years. In the late 80s about 80% of global trade in trade finance was on letters of credit. Now it’s around 15%. Letters of credit manage the trust deficit between buyer and seller by having two banks in the middle acting as intermediaries.
It provides a guarantee of payment for the seller for him to ship his goods. It provides the buyer confidence to pay for the goods, before he sees them, because paperwork has been checked to make sure it is what he wants. That worked well when ships took three months to get to their destination. Now with airfreight and 7 – 10 days ship journeys goods are arriving to port prior to the documentation arriving, meaning the goods can’t be unloaded. Letters of credit have provided a great service but being paper based it has been a challenge for them to keep up in modern times.
Contour
Almost three years ago eight banks came to R3 with the aim to investigate if putting letters of credit on a distributed ledger, like Corda, would create efficiencies.
Today there are three silos of information that don’t really connect between each other:
Buyer communicates with their bank via electronic banking
Seller communicates with their bank via electronic banking
The two banks will use SWIFT to communicate between each other
Letters of credit is a global standard that has been operating for a couple hundred years. Every bank and every customer understand the rules that letters of credit are built on. Contour has taken letters of credits and made them easier to use and more efficient.
Contour’s first offering is to put the four players: the buyer, the buyer’s bank, the seller and the seller’s bank all on one platform. There’s no paper, it’s all digital. There’s transparency between the flows of information which speeds up transaction as it saves phone calls, chasing and lack of knowledge. For example, amendments to shipments would traditionally take seven to ten days to resolve, with Contour it would take a handful of hours.
Contour aims to be agnostic about data formats. Contour accepts data in the following manner:
Structured data from ERP systems, data aggregators and other partners
Electronic data such as electronic bills of lading and PDFs which are an electronic representation of paper
Hybrid of electronic data and paper. Some countries for example require data to be presented in both electronic and paper format
Whilst Contour was built on R3’s Corda they work with partners that are built on Hyperledger Fabric, Ethereum, Quorum or non-blockchain ones too.
As to whether or not the solution could have been built without a distributed ledger, Carl believes that banks are less likely to having their data stored in a central database and even less nowadays with the present geographic and geopolitical concerns. Distributed ledgers enable banks to share the information they wish to share without having a central identity controlling it.
The journey to incorporating as for a profit company and moving to production
Contour was previously known as Voltron before they rebranded.
In the early days, Contour was effectively a project led by the banks. Every six weeks they would assemble and decide what they were going to build next and voted on what features and functions to build.
In 2019, Contour’s original founding 8 banks ran a 6-week trial of its letter of credit DLT solution with more than 50 banks and corporates within 22 countries. One of the key successes of this trial is that they managed to bring down the process for letter of credit from 5 – 10 days to under 24 hours. This trial was a key milestone for the founding eight banks as it not only demonstrated the value the platform could generate but the interest expressed by other banks and corporates. The question on their minds was “what do we do next?” and “where do we take this company to the next level?”
After the trial the founding banks decided to make Contour into a for profit company instead of a consortium. The founding banks contributed money to build the IP whilst others contributed proprietary software that they donated to the platform.
HSBC, Standard Chartered, Citibank, ING, BNP Parisbas, some regional banks, SEB, China Trust and Bangkok Bank invested in Contour. With such banks as investors a certain level of governance is expected. Carl states that from the very beginning the banks to a very collaborative approach to working together.
They are actively participating in signing other banks onto Contour. They want other banks to join because they know the value of the network grows as more banks join in bringing in their customers to the platform. Contour has doubled the number of banks from 8 to 16.
The Contour board is composed of credit professionals that have 20-30 years’ experience and know the product better than most people. It also includes individuals with startup experience with investment experience, board members from the bank and some independent directors.
Since the beginning of 2020 they have been building on the infrastructure to be able to onboard customers at scale. The aim is to hit production by the end of September 2020 and to be qualified by banks as a certified vendor.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 120 – UNICEF Venture Fund & Case Studies – OS City, Atix Labs and StaTwig
Aug 02, 2020
Cecilia Chapiro, is the Investment Adviser & Blockchain Portfolio Manager at UNICEF Ventures. Her focus is on sourcing investments across developing and emerging markets, managing blockchain portfolio of investment as well as other frontier technologies. In this podcast she introduces us to the UNICEF Venture Fund and to 3 startups use case studies: OS City, Atix Labs and StaTwig.
Cecilia, is also an entrepreneur, having co-founded Yunus & Youth an organisation working to support the growth of social entrepreneurship.
What is blockchain?
Cecilia, chose to define “what is blockchain” by assuming that we’re all at a party and we’re playing the telephone game also known as Chinese whispers. It’s essentially a word game, a communication game within a circle of friends. Let’s imagine that within a circle of 20 friends one person comes up with a first phrase and starts a chain of communication by whispering that phrase to a person on their left. Each person then takes what they heard and continues the chain of communication by whispering this same phrase to the following person.
This continues until it reaches the end of the circle back to the original source of truth. What usually happens is that the message gets distorted either intentionally or unintentionally. But because there’s only one source of truth, any individual within that network who receives the message has no idea how truthful the statement that they received, is.
However, on the opposite end, if we think about that first person, the original source of truth, the creator of that phrase. If he/she announces the phrase to the entire group at the same time, then even if one individual decides to distort the message, there’ll be enough members of the group who can attest to the one source of truth. The truth is determined by the majority.
For Cecilia, this is what blockchain is all about. It’s distributed data that allows any member within the blockchain network to have a copy of all the data at all times, thus ensuring maximum security of the data.
UNICEF Venture Fund
Source: UNICEF
The UNICEF Venture Fund is a $30 million pooled funding vehicle focused on identifying, piloting and growing technology startups that improves the lives of children. They focus on startups that can impact more than a billion people and lie in $100 billion markets, in other words technologies that can impact large groups of people and be financially sustainable.
Blockchain is one of those key technologies that the fund focuses on. The fund’s main objective is to scale the successful technology solution into digital public goods to ensure open access to these new tools and the benefits that these tools can generate globally.
UNICEF Venture Fund provides startups with up to $100,000 of equity free funding. For this year’s cohort the investment opportunity is a blend of both USD and cryptocurrencies thanks to the UNICEF’s crypto fund that was launched in October 2019. This crypto fund is the first cryptocurrency denominated fund within the United Nations.
UNICEF doesn’t get a financial return on the investment but instead gets a return on the social impact their investment can have. They only invest in solutions that intend to be licensed as open source technologies.
The open source technology that the UNICEF Venture Fund makes available to the world is basically their equity.
Why blockchain?
The Venture Fund sits in the UNICEF Office of Innovation, a team that explores the potential of frontier technologies to improve the lives of the most vulnerable children in the world.
Blockchain is not the only technology the Office of Innovation focuses on, but it’s definitely one of the main ones. The reason being that while there’s not enough proof to understand the impact of the technology, in full, there’s enough evidence to indicate that the benefits to society are worth exploring and prototyping. That’s why for now blockchain explorations sit primarily in the Office of Innovation and are not yet ingrained in one of the main divisions of the organisation like, education. UNICEF is prototyping and exploring the technology to better understand and gather evidence on its potential impact.
Selection criteria for startups and onboarding
The UNICEF Venture Fund looks for companies that have a prototype and some evidence that indicates that their solution has the potential to improve society and ultimately improve the lives and well-being of children.
Assessing the team behind the startups is equally as important as assessing the product, especially in this early stage. Whilst the idea of a startup is important, the real value comes in the team’s capability to execute, team’s understanding of the problem, the engagement with the ecosystem and their previous experience.
The team needs to be well engrained within their local community with a good understanding of the local problems they are addressing.
Having completed the 6 months selection process the startup joins the UNICEF Venture Fund portfolio, with a prototype of their product, for a one year experience. The fund focuses on supporting and strengthening their solution for them to grow and ultimately impact as many people as possible.
The fund organises an onboarding cohort workshop where they are set up with mentors who will organise periodic mentorship sessions on a technical and business level to help them grow their open source community.
2018: the first blockchain cohort
Source: UNICEF
In December 2018 six companies from five countries received investment from UNICEF’s Innovation Fund to solve global challenges using blockchain technology.
The fund invested up to $100,000 USD in the six companies to deliver open-source prototypes of blockchain applications within 12-months.
Selected from more than 100 applications across 50 countries, these six companies built prototypes and systems for global problems like transparency in health-care delivery, affordable access to mobile phone connectivity, and the ability to direct finances and resources to social-impact projects.
Interestingly, not all of them pursued what they were intending at the beginning. But all of them iterated their solution to make their goals fit the needs that were rising through their execution.
OS City
Jesus Cepeda is the founder of OS City whose mission is to accelerate the digital transformation of public administration of government initially in Latin America but now in Spain too.
Prior to COVID-19, OS City’s focus was on facilitating digital transformation within government. Now under COVID-19 and having relocated to Silicon Valley, OS City’s mission is in building the next generation of government with a new governance model for the Ibero-America region. This means that OS City not only provides the technological tools but also the education and skills for public servants to better understand blockchain.
Governments around the world suffer from a level of lack of transparency and efficiency along with a lack of trust. Jesus believes that blockchain can help governments bring transparency in how they make decisions, efficiency in the speed of making those decisions whilst providing trust every step of the way.
OS City’s first project, in helping educate public servants on blockchain, was using blockchain as a database of digital records and digital assets. Blockchain’s key attributes of immutability and being tamper proof is very useful for governments.
Source: OS City
Government subsidies information was the first digital record saved on the blockchain for this project. It recorded the type of subsidy, how money was allocated to it, to whom, its purpose and how it was used. The project expanded to record liquor licenses and construction permits.
Open standard QR codes were also developed to provide a link to digital blockchain certificates. City officials and inspectors wear those QR codes which citizens can scan to confirm if the city official is a genuine one and if they are behaving in their intended manner. Those QR codes are also being used for construction permits so that citizens can scan a construction site and confirm whether or not a construction site is behaving as intended.
These are all examples of digital trustable assets for government information that fosters citizen empowerment and decentralisation of output from government processes. OS City has delivered over 10,000 digital certificates across Chile, Brazil, Argentina, Mexico, Costa Rica and many other Latin American countries.
On the 19th of June, UNICEF’s Cryptocurrency Fund invested 125 ETH in OS City and 7 other startups. With this funding OS City is now developing a new form of digital ID that can perform transactions. For example, the ID could pay taxes only for government services used.
Atix Labs
Marcio Degiovannini is the co-founder of Atix Labs, a blockchain development company with 60 professionals based out of Argentina. Their mission is to make the world more reliable and more transparent. They have developed a portfolio of solutions and tools to bring transparency and trust to communities and organisations around the world.
Source: Atix Labs
For UNICEF, Atix Labs has developed a blockchain platform known as Circles of Angels, a social impact funding platform that matches small to medium-sized enterprises to funders across the world. Their platform allows social enterprenerus to gain access to funding while creating traceability in where the funds are used all while measuring impact. Their aim is to foster accountability mechanisms and ensure consensus for these stakeholders.
The idea behind Circles of Angels is that social projects usually need funding and funders don’t necessarily trust social entrepreneurs. These social projects usually sign up an NGO or other organisation to act as external third parties to bring trust to the process. This is a centralised approach.
Circles of Angles is a platform that has decentralised the way a project is controlled and how it is updated. For example, the social entrepreneur and funder will agree on a project’s key milestones and attributes. Once a milestone is reached the social entrepreneur uploads the evidence and if it fits within the agreed set of rules, further funding is released by the funder. This process removes the need for a central authority and only the project stakeholders can decide on the evolution of the project in a transparent manner.
With the arrival of COVID-19 there has been an increase in social entrepreneurs to the platform looking for finance. Unfortunately, this hasn’t been matched by an increase in funders. To date the platform has raised $140,000 from 15 funders and there are five social entrepreneurs presently funded.
StaTwig
Sid Chakravarthy is the founder and CEO of StaTwig, a blockchain centred supply chain optimisation company, that aligns with the need for transparency and traceability in supply chains, to create trust & transparency among stakeholders. Their solution ensures quality, safety and availability of critical products such as vaccines and food.
StaTwig tracks products at a unique level by creating a digital ID for them once they are manufactured. As the product moves across the supply chain it changes several hands and StaTwig captures the product’s different states in terms of its timestamps, location, temperature which is critical for vaccines and food. The data, along with other key parameters, is recorded onto the blockchain for all stakeholders to know where the product is and what state it is in.
StaTwig is using the UNICEF’s CryptoFund 125 ETH for a rice tracking project, called FoodLedger, for local government in India. The local government procures 200 million bags of rice. Each bag is tagged and its journey is recorded from procurement to distribution. The quality, condition and availability of the bag is recorded every step of the way. Local government officials can get information on the state of rice inventory across different locations for them to be more efficient and more resilient.
With regards to whether or not StaTwig could have built this solution without the blockchain, the answer is with great difficulty. Sid points out that when a vaccine is released would we trust a centralised system to roll out a vaccine to 7 billion people in a fair and transparent manner?
Source: StaTwig
VaccineLedger is StaTwig’s latest initiative which allows for end to end tracing of vaccines from manufacturers to the end customers, providing tracking ability to all the involved stakeholders through blockchain, recording and providing real-time tamperproof data to improve transparency. The platform uses QRcodes printed at unit-levels to track the vaccines from the manufacturer to end-consumer on an open source blockchain platform.
UNICEF’s new cohort and increased diversity
On the 26th of July 2020, the UNICEF Innovation Fund closed applications for its latest cohort. They’ve received more than 500 submissions across 60 countries around the world. For this cohort, UNICEF pushed for gender and geographic diversity as there still is a big gap in female representation in leadership roles in companies. This gap is even bigger in tech companies with women of colour or Latin origins. To date UNICEF has 40% of their portfolio companies that are led by women, but their aim is to reach 50%.
Cecilia points to a fact that 20% of the applications received for this new cohort came from Nigeria which is interesting as the fund doesn’t have any blockchain companies from West Africa. This demonstrated an opportunity for a new blockchain hub in that part of the world.
Her expectation is to select more innovative applications of blockchain, addressing local social problems that are representative of the different regions in the world.
What the future holds and how can you help?
Cecilia believes that UNICEF is still exploring the benefits of blockchain in a humanitarian setting. Nothing is still certain. She’d like to see more blockchain solutions and gather more evidence of blockchain impact and how we can answer key questions from a humanitarian setting such as:
How do we help more people join this digital financial world?
How can a decentralised application enable access to connectivity?
How can we have an increased trust in systems?
How do we secure data?
How do we make autonomous decisions?
These questions are still not quite answered and more evidence needs to be gathered on the role blockchain can play. UNICEF can’t do this on its own and wants to play with other key stakeholders.
To the Insureblocks community if you wish to mentor, finance or help any of the startups in the UNICEF portfolio do reach out to UNICEF: venturefund@unicef.org
Ep.119 – Is Open Source the Future of Blockchain?
Jul 26, 2020
Chris Ferris is an IBM Fellow and CTO for Open Technology and Governing Board Member of Hyperledger. In this exciting podcast we discuss “is open source the future of blockchain”? Open source has increasingly converted enterprises to both use its technology and contribute to its code base. In a similar manner open source in the form of its open governance approach has some important lessons for blockchain networks to analyse and adopt. Have a listen and let us know if you think open source is the future of blockchain?
What is blockchain?
At its essence a blockchain is an audit log of successive records where each successive record in that audit log is cryptographically bound to all of the log entries before it. Blockchain can be used as a means of ensuring that there hasn’t been any tampering of the contents of that audit log. There are other technologies that are built out around it to give it purpose.
What is open source?
The formal definition of open source is that it’s software whose source code is made freely available and can be redistributed and it can be modified.
Derived works can be modified and freely redistributed
Integrity of the author’s source code
No discrimination against persons or groups
No discrimination against fields of endeavour
Distribution of license
License must not be specific to a product
License must not restrict other software
License must be technology-neutral
History of open source & why are enterprises contributors to open source
In 1983 open source was known as the “free software” movement with Microsoft labelling it as the “enemy”. In 1998 “free software” evolved into “open source”. Microsoft wasn’t the enemy anymore and it along with Red Hat, Intel, Alibaba Group, Google, Facebook and of course IBM became some of the biggest enterprise contributors to open source.
What is important to understand is that whilst open source is free many firms such as IBM, Red Hat or Microsoft offer services to support the software or build commercialised versions of open source software.
Brian Behlendorf, Executive Director at Hyperledger was also involved in the original formation of the Apache Software Foundation. At the foundation they have an expression called Do-ocracy, which is where you roll up your sleeves, you get down and you do the work. From an open source perspective, even from a corporate or an enterprise engagement in open source perspective it really is about the notion of do-ocracy.
Enterprises like IBM, Microsoft, Red Hat and others get involved in open source projects because they’re of strategic interest and/or they’re using that technology as a function of a platform, offering or tools they they’re selling. Their contribution to open source projects is out of self-interest.
Chris gives the example that if IBM is using Kubernetes to power the container orchestration within the IBM Cloud, “..well, then we would be silly not to contribute to Kubernetes to keep it, you know, functioning to add new features and capabilities, improve the performance, and so forth”.
Hyperledger & the Linux Foundation
Jerry Cuomo, another IBM Fellow had been working on a skunkswork project internally around building blockchain technology for enterprises. Jerry discussed with Chris on whether or not to open source this blockchain enterprise technology or to have it as proprietary.
Chris stated to Jerry “.. this isn’t going to be successful if it’s just proprietary IBM technology, how are we going to get other companies to buy into an IBM only capability? I said, so I think it really needs to be open source and it needs to be open source under an open governance model”
Chris brought a proposal to Jim Zemlin, Executive Director at the Linux Foundation, to develop an organisation under open governance in the Linux Foundation to focus on developing blockchain technology for the enterprise. Together they brought Hyperledger with an open governance in the Linux Foundation and launched with an initial group of 30 partners. That has since exploded and has since become one of the fastest growing organisation underneath the governance of the Linux Foundation ever.
Financial model in open source
IBM is a big proponent of open governance of open source projects. Because it means that they don’t just share engineering resources to develop the technology but also over head costs such as PR, legal, marketing and staff necessary to keep things running smoothly.
In creating an open governance organisation, such as the Linux Foundation or the Apache Software Foundation, there typically is a sort of tiered membership involved for participation in the project. There’s typically a platinum tier, a general membership tier, and then there’s usually an associate membership tier, for academia and other non-profit organisations to become affiliated.
Some of the larger vendors that will use the technology in a strategic manner are the ones that will put up the most funding in the open governance organisation.
Top level tier usually gives access to a board seat where the board is responsible for how the money is spent on marketing, staffing and other administrative related functions.
The board however doesn’t get involved in saying how the project will evolve from a technical perspective. That is left to the participants, the engineers to apply the do-ocracy to determine that. It is the engineers that are actually writing the code, reviewing the code and putting out releases and so forth, who have a say in the technology direction.
It is rare that situations exist of naked partisanship, where for example a large technology vendor has a development plan that it wants to achieve to meet their customer’s requirements, whilst a competitor may have a different one. In those situations, there usually is a bit of a backlash where the company involved in naked partisanship usually learns a lesson not to repeat this again.
How to incentivize enterprises to open source software?
Chris recognises that even IBM who has a long history of open source software development still has some ways to go in its open source approach. Chris believes that there’s a recognition that the open source capabilities that are being developed, the innovation that’s going on there is really sort of a constantly commoditizing layer of capability.
He gives the example with Kubernetes which is open source. It’s a very complex environment. Any firm that tries to install it and deploy it without any external help will probably struggle.
The value is in delivering open source capability as a service.
The value is in delivering open source capability as a service. The ability to optimise the delivery to the client’s requirements, the support and sustainability of the project itself is where the value is. It isn’t in the software itself.
Proprietary software vs open source software
In the early days of mobile operating software Apple iOS had a 75% market share. When Google decided to open source Android, Google took a 75% market share and Apple iOS fell down to 25%.
Open source’s ability to gain adoption and the network effect usually gives it an advantage over proprietary systems.
For example, there is in excess of 4,000 people who have contributed to Kubernetes. How may engineering departments have 4,000 staff? Even the likes of Google don’t have 4,000 engineers working on a project. Kubernetes contributors come from Google, IBM, Red Hat, Microsoft and of course the very long tail. All these contributors are building expertise within that capability. That creates a market that no single vendor can realistic do on their own.
Open source has won!
When considering how all kinds of players collaborate around open source, it’s open governance structure, the network effect, it begs the question that the future of blockchain is open source.
For Chris, the future of all software is open source. Chris points to how over the last five year most of the software innovations haven’t been essentially proprietary. Initially the technology may have started in some research lab but ultimately it was published as open source.
Today enterprises rely on open source for their cloud operating systems (Linux), databases (MySQL, Redis, MongoDB), programming languages like Java Scripts and Python to name a few.
95% of enterprise believe open source is important
Over the next 12 months 77% of enterprise expect to increase their use of enterprise open source
86% of enterprise believe that the most innovative companies are open source
Source: Red Hat
Source: Red Hat
Source: Red Hat
Public blockchain and enterprise
For enterprises public blockchains are a bit of a challenge due to their underlying technology, how it is delivered and their capabilities. The levels of scale and performance that most enterprises require isn’t always achievable by public blockchains. For example, VISA has a requirement to be able to process 75,000 transactions a second for a sustained period of time. That’s their benchmark. That’s the level of testing that they put all of their software deployments through, in order to get into production. Ethereum can process 25,000 – 75,000 transactions per second at its peak, not for a sustained period of time.
Chris doesn’t believe that public blockchains are enterprise ready at this point of time. He believes for enterprises they’re better off with a private or semi private blockchain network where the entities are known and with an appropriate governance model.
Interoperability
Chris has been doing interoperability for the last 20 plus years, starting with XML web services.
Deloitte whilst working on the World Economic Forum Blockchain Development Toolkit defined three layers of interoperability:
Infrastructure layer – does it run on cloud or operating system
Platform layer – the blockchain layer, does it run on Hyperledger, Corda or Quorum or any other
Application layer – the governance, the business model
Chris looks at interoperability as a business model problem rather than a platform one. Whilst he admits there is a certain degree of interoperability and portability from an infrastructure perspective, it is still fundamentally a business model problem. For example if you have two types of platforms a supply chain blockchain solution like TradeLens and a payment platform. When a shipment has successfully arrived at a port, this could initiate automatically a payment. The problem arises when you have to reconcile these two actions when they use different data standards. Hyperledger Cactus is trying to address those challenges but you still have to map out the data appropriately between those two systems.
Chris likes the work that is being done by the InterWork Alliance in creating a token taxonomy framework. From a token perspective it helps to normalise and establish a standard base to describe a token so that they can be understood, independent of which blockchain they reside on.
How can open source address the blockchain challenges of data standards and governance?
Chris believes that blockchain industry initiatives as those done by Walmart with Food Trust in the food industry or TradeLens in the supply chain industry should be created using the same model of open governance.
You could have a governance model based on the open source principles to manage the evolution of smart contracts, interfaces and how they integrate back to that particular industries back end systems.
The real problem of blockchain is how do I create a consortium? How do I get to that critical mass? By having an open perspective and allowing others to join, to come and contribute in a transparent and open manner you are removing the barriers of a competitive nature between the players. Then if you don’t have a single point of control over the network you can start having a discussion in the industry at large about what standard do we want to establish and what standards do we want to use in our network.
Where would Chris would like to see the open source movement go for blockchain?
Chris would like to see much more collaboration between every one. More collaboration in the same manner as the Token Taxonomy Framework by the InterWork Alliance to standardise tokens. We can start standardising how you submit a transaction? If we standardise and commoditize some of the aspects that are critical to integration with other layers then you can focus on the differentiation of what’s inside the “Black box’ in terms of how does the consensus work within the blockchain and how the interactions work.
Ep. 118 – UAE blockchain deployment case studies and learnings
Jul 19, 2020
Mariam Al Muhairi is the Head of the UAE’s Centre for the 4th Industrial Revolution and Project Manager at the Dubai Future Foundation. She joins us to discuss the UAE’s blockchain deployment case studies and learnings. She also shares some fascinating results of a survey conducted with over 100 stakeholders from more than 60 various governmental and non-governmental entities across the UAE regarding top blockchain implementation challenges and success factors.
What is blockchain?
Mariam likes to see things in the form of physical blocks. For her blockchain are blocks, identifiable by a unique code, that stores information, and stores who is transacting with the information. Each transaction is verified through a process that involves miners on a public blockchain which creates great security. This ultimately also helps to avoid blocks being tampered and used in a fraudulent manner.
Dubai Future Foundation
The UAE’s Centre for the 4th Industrial Revolution is an initiative under the Dubai Future Foundation. The Future Foundation was established in 2016 with a main mandate across five departments to look into the future of Dubai and identify trends that will benefit both the economy but also the society and other areas within the Emirates. The five departments include:
Foresight and imagination – development of trends
Content dissemination – the aim is to fill the gap in the dissemination of scientific and technological content in Arabic to the UAE and MENA region
Capacity building – an academy where people can take courses but also a platform where experts present to the public
A platform to facilitate the partnering up of startups with government entities
Museum of the future is due to open next year as both a touristic attraction but also as a policymaking tool to see how people react to different ideas or different scenarios of the future
UAE’s Centre for the 4th Industrial Revolution, which Mariam leads is a collaboration between the World Economic Forum and the Dubai Future Foundation. The Centre focuses on policy development for emerging technologies such as blockchain, artificial intelligence and precision medicine.
Dubai Blockchain Strategy & The Emirates Blockchain Strategy
The Dubai Blockchain Strategy, launched in October 2016 by His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Executive Council, was the result of a collaboration between the Smart Dubai Office and the Dubai Future Foundation to continuously explore and evaluate the latest technology innovations that demonstrate an opportunity to deliver more seamless, safe, efficient and impactful city experiences. Additionally, it was about creating an industry and a market around this emerging technology as well as figure out how it could be used.
The strategy establishes a roadmap for the introduction of blockchain technology for Dubai and the creation of an open platform to share the technology with cities across the globe. The Dubai Blockchain Strategy is built on three pillars of government efficiency, industry creation and international leadership.
Government efficiency: under this pillar, the strategy will contribute to increased government efficiency by implementing blockchain and enabling a paperless digital layer for all applicable government services.
Industry creation: this will support the creation of a blockchain industry by providing an enabling environment that encourages start-ups and businesses.
Leadership: Dubai aims to lead the global thinking on blockchain technology and become the hub for blockchain intellectual capital and skill development.
Since then the Dubai Blockchain Strategy was used for authoring the Emirates blockchain strategy which has more of a federal strategy. Each time the strategy is reviewed it is scaled, from Dubai to the UAE and hopefully the next time it will be outside the country and into the MENA region. The Emirates Blockchain Strategy focuses on four main themes: happiness of citizens and residents; elevating government efficiency; advanced legislation; and international leadership.
The UAE government, as a part of its digital transformation efforts, decided to capitalize on blockchain technology to transform government transactions on the federal level, 50% of which will be conducted using blockchain by 2021.
Learnings of the Dubai Blockchain Strategy & the Emirates Blockchain Strategy
The UAE has a very active blockchain ecosystem within both the public and private sectors with more than 40 government entities and 120 blockchain companies covering 200 plus initiatives.
The Dubai Blockchain Strategy was put in place in 2016. At that time there was a rush to utilise the technology and to have it underpin a number of public structures or infrastructures. What was realised quite soon afterwards was that blockchain wasn’t always the solution to every challenge.
Last year the Centre for the Fourth Industrial Revolution UAE surveyed over 100 stakeholders from more than 60 various governmental and non-governmental entities across the country actively exploring or implementing blockchain. The primary purpose of the survey was to understand the maturity of the ecosystem and the relevant challenges and key success factors at hand.
Two key findings came out of this survey:
Having the right business case was absolutely critical. Having an understanding of why blockchain is to be used and why you would invest in it.
Stakeholder management. Having the right people on board is key. It isn’t about having just the IT team but it’s about having management, compliance, and the people dealing with data privacy on boad.
A great way to identify the initial business case is through workshops. Design thinking workshops work great for the initial ideation session in discussing whether or not blockchain is a right use case. Mariam doesn’t recommend using a template or set questions because there isn’t a one size fits all. However, with the work collaboratively done with the World Economic Forum blockchain toolkit there are some foundational questions that need to be answered such as who are the stakeholders, what are the incentives for them to be here, what they want to achieve using blockchain, what was the reason for choosing blockchain, who owns the data, who heads the blockchain, what’s the value added and many other questions.
UAE’s embrace of technology
Mariam explains to us that since the formation of the country in 1971 the UAE has had an outward outlook and was always rapid to adapt itself. The country has been blessed with oil revenues that along with good leadership has helped it to deal with challenges from the region and an ability to support countries around them.
Mariam also pointed out that people at the top not just at the governmental level but also within organisations are constantly looking at what’s the next thing and how it can be used? This could have something to do with the country being quite young and its leaders being quite young. They have an innate drive to always be moving towards investigating what the future looks like and identifying new trends.
The Dubai Future Foundation is constantly monitoring those new trends, to follow through and test them out. There is a big drive within the government for Agile Government, for the government to be like the private sector. In the early 2000s, Dubai was nicknamed, Dubai Inc, because of its approach to running the government sector like a corporation.
There is another expression which Dubai uses to measure return on investment (ROI), called “Return on Dubai” – which means is this something that Dubai sees value in as a government, as a country and as a society? Does it bring value in the long term? As Dubai has a strong traditional economic structure in place and a low risk aversity this helps its leaders to not focus on getting an immediate return on their investment but more to focus on providing a “return on Dubai”.
Report: Inclusive Deployment of Blockchain: Case Studies and Learnings from the United Arab Emirates
In January 2020, the UAE Centre for the Fourth Industrial Revolution contributed to the World Economic Forum’s blockchain development toolkit in April and published a white paper entitled “Inclusive Deployment of Blockchain: Case Studies and Learnings from the United Arab Emirates”. A number of key findings were illustrated in the report which by adopting blockchain technology, the UAE government expects to save:
AED 11 billion (US$3 billion) in transactions and documents processed routinely
398 million printed documents annually
77 million work hours annually
The use of blockchain technology will not only allow operational cost reduction but will support the digital security of national documents and transactions, as well as accelerating decision-making processes.
The report identified that whilst heads of blockchain initiatives were aware of how to utilise the technology, service providers and corporates weren’t aware of the regulatory implications. Is there a specific regulatory policy around blockchain? A certain data privacy law in place? These kinds of questions kept coming up at a time when there wasn’t the necessary regulation in place.
The government’s approach to blockchain was very much a try and trail, implement and then identify the areas that needed to be covered from a regulatory standpoint.
The report also included a survey of over 100 stakeholders from more than 60 various governmental and non-governmental entities across the country actively exploring or implementing blockchain. Within the private sector there were the corporates and the solution providers. What Mariam found interesting was that there were very similar identified challenges but everyone was approaching it from their own perspective.
Some of the report’s key findings regarding top challenges to blockchain implementation were:
Survey participants were unified on the opinion that the core challenges in blockchain implementation remain in the operational and regulatory sphere rather than on the technical side.
Bringing stakeholders to the table, alignment of interests, and communication between parties were ranked as top challenges for blockchain projects.
The public sector saw education and alignment with stakeholders as the most pressing challenge, whereas the private sector’s key concern resonated around regulatory uncertainty
Source: UAE’s Centre for the 4th Industrial Revolution
Some of the report’s key findings regarding top success factors to blockchain implementation were:
Key Findings
Key success factors lie in the early stages of planning and defining blockchain engagement, as well as continuous communication and alignment between stakeholders.
80% of government entities stated that the most important factor was planning and identification of the most applicable applications of blockchain early on. For large organizations and some of the government departments, the key success factors were primarily related to definition of project scope, roles, and responsibilities, as well as managing expectations.
Service providers were unified in their opinion that a well-structured engagement strategy and use case definition enabled them to effectively structure implementation and deliver value for clients.
Source: UAE’s Centre for the 4th Industrial Revolution
Use case: DP World
DP World is a world leader in global supply chain solutions, specializing in cargo logistics, port terminal operations, maritime services, free zones and more. It is a leading enabler of global trade and an integral part of the supply chain. The trade enabler has a portfolio of more than 150 operations in 46 countries across six continents.
DP World works in an ever increasing complex global supply chain with a large number of suppliers, custom officials and many other parties within their trade system. Blockchain was brought in as a solution to both generate revenue and to cut costs by paperless strategies, cutting down the time spent with custom officials (verifying packages and cargo) as well as trying to get more suppliers on board and limit time spent with the banks.
The blockchain trade platform helped DP World to manage their large group of stakeholders and orchestrate them in a more time efficient manner.
Use case: Dubai Land Department
The Dubai Land Department was actually one of the first use case that was implemented in the UAE. The main reason for using blockchain was around some confusion regarding land deeds. Land deeds entered in the previous system would sometimes have been altered for different reasons partially due to version control between different officials. It was recognised that the system wasn’t operating as hoped.
Blockchain was brought in as a solution primarily for its verification process as well for its security and traceability capabilities.
Blockchain and COVID-19
Mariam was recently quoted as saying: “The role blockchain technologies can play in the economic recovery post the COVID-19 disruption will be critical. The upheaval has dislocated economies and ecosystems, and has hindered supply chains because of a lack of transparency, visibility and traceability on goods being moved around the world.” She added
“Moving forward, there must be an emphasis on rebuilding global trade networks by learning and putting into practice the lessons emerging from this pandemic. The solutions that blockchain technology provides, outlined in the Redesigning Trust toolkit, can go a long way to future-proofing and safeguarding businesses in the recovery and adaptation to the new normal.”
Prior to COVID-19 Mariam recognised that there was a small decline in the discussion around technology. With COVID-19 there’s been a resurgence in blockchain interest particularly in supply chain, in food traceability, in health records, in immunity passports and medical supplies.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 117 – Monetizing Data in a Data Privacy Manner – Ocean Protocol’s Compute-to-Data
Jul 12, 2020
AI loves data, the more data it has the more accurate the models are which leads to better business outcomes and better research outcomes. A lot of the data today is locked behind closed walls. To unlock the digital economy and to train AI models, you need to unlock private data, that is exactly what Ocean’s Compute-to-Data is doing. It’s unlocking private data while preserving privacy. Join us and Trent McConaghy, Co-Founder of Ocean Protocol, as we discuss how to unlock data in privacy manner in order to monetize it.
Trent has a background in AI and has been working in the real of blockchains for the last several years with a focus on data. His initial work was around IP and data, and then on big data with a blockchain database.
What is blockchain?
A mundane definition of blockchain is that it is a database with three special characteristics: decentralised immutable assets:
Decentralised as in, no single entity owns or controls it. If for example you have tens of thousands of people running it then it starts to act and look like a public utility just as a gas company or the internet itself. This public utility records “state”.
Immutable means once you’ve written onto it, it’s there for good. This is very useful characteristic for tracking provenance whether of financial instruments or of a fruit flowing from a farm in one country to a supermarket shelf in another.
The idea of assets is if you have the private key, or password, to something then you own it. For example, if you have a Bitcoin private key then you own approximately $10,000.
Since that initial inception of blockchain a few new characteristics have been added:
Smart contracts which are essentially unstoppable scripts that run on top of a blockchain automatically when they have received the appropriate inputs.
Blockchains are seen as incentive machines to get people to perform certain actions. Bitcoin for example gets people to add to the security the Bitcoin network through hashing, known as Bitcoin mining. People are willing to expend computational power to do this hashing, add security to the network, in the hope of getting paid in Bitcoins by the Bitcoin network.
About Ocean
Ocean Protocol is a decentralized data exchange protocol to unlock data for AI, launched in 2017. Leveraging blockchain technology, Ocean Protocol connects data providers and consumers, allowing data to be shared while guaranteeing traceability, transparency, and trust for all stakeholders involved. It allows data owners to give value to and have control over their data assets without being locked-into any single marketplace.
The data economy
In July 2019, Trent recorded his first podcast with Insureblocks entitled “The Data Economy – Insights from OceanProtocol”. He sees that the data economy is already a true economy in that there is buying and selling of data but the key is that it’s really hard to see it. You could nearly characterise it as a sort of shadow data economy, where there’s buying and selling data, but it’s mostly behind closed doors.
On the one hand it’s visible if you’re buying data feeds from Bloomberg regarding stock prices. On the other a lot of data is bought and sold behind closed doors that you don’t hear about. For example, we don’t hear about the 150 plus organisations that Facebook is buying data from in order to mine people better to sell ads to.
“The more data you sell, the less valuable it becomes. Instead, if you work with privacy-preserving tools and you allow other people to develop applications and derivative products, using your data, without ever giving you a copy of your data to anyone else — you get all the revenue without the increase in supply. This means, whenever someone wants to do anything with this kind of data, you still have billing power. And secondarily, you also have better pricing power,” concludes Andrew Trask
Compute-to-data and extracting value out of private data
Source: Ocean Protocol
There’s actually no issue in extracting value out of private data. The problem is that people that have private data are very reluctant to share the data because of privacy concern, regulation concerns such as the European data protection regulation under GDPR.
There’s always a difficult choice to be made as on one hand yu want access to large data sets including private data in order to train an AI to improve the AI’s models, improve the business outcomes or the research outcomes in science. However, doing that will hurt privacy and control. For example, large enterprises are worried that their millions of users’ data leaving their premises might fall in the wrong hands and expose them to massive liability risks as well as having a PR disaster. A good example of that is when Equifax was hacked and 147.7 million of American’s credit records was exposed.
Of course, on the other hand you do nothing and therefore no extra value but no privacy concerns.
Ocean Protocol’s “Compute-to-data” enables you to get access to data in a way that it extracts value for your models but at the same time doesn’t have any privacy or control concerns.
Privacy is about information flows, it’s about ensuring that information doesn’t flow everywhere. To extract value out of data in privacy conserving manner can be achieve by having computation running right next to the data for AI eyes only not for humans. Humans never see this data. The data never leaves the premises. From that an AI model is built that can do predictions or maybe simple statistics are done, such as building an average.
The resulting derivative information doesn’t have any privacy or control issues. The data remains secure, it never leaves the owner’s premises. The AI model runs on top of the data and extract insights that don’t impact the data’s privacy or control issues. That’s the heart of the idea of compute-to-data.
This is radically different to the present manner we exchange data as it usually involves a middleman mediating between the person who wants to extract the value from data and the person who has the data. That middleman could steal the data or have their data stolen as was the case with Equifax.
The opportunity is that, what if that mediator is a public blockchain that acts as the middleman to orchestrate those events. A public blockchain would bring in transparency and there wouldn’t be a single centralised entity that owns or controls the data. The public blockchain would help connect the people who are consuming the data with the people with the data.
Ocean is leveraging its access technology so that an entity wanting to run an AI training algorithm can run it next to the data and the blockchain technology is orchestrating it.
Ocean compute-to-data is Ocean’s response to solving the current trade-off between benefits of using the private data and the risks of exposing it. Compute-to-data lets data stay on-premise, while allowing 3rd parties to run specific compute jobs on it, like building AI models. There are multitudes of applications in science, technology, and business contexts because the compute is sufficiently aggregating or anonymizing that the privacy risk is minimized.
Could this have been done with a public blockchain?
Trent recognises that this can be achieved. Sophisticated players can of course talk to each other directly. However, it becomes complicated if they wish to talk to more than one player at the same time. They could of course create numerous relationships one by one but this can rapidly become complicated with significant overheads. The opportunity is to share the data on a data marketplace. With blockchain you can have a trust platform that enables the exchange of value and manage the access rights to the data.
Using and trusting Compute-to-Data
Compute-to-date is a general technology for varying levels of comfortability with AI and other technologies. It can be as simple as computing an average. For example, getting an average of cash flows of offices in different countries for a multinational can be tricky if data can’t leave the offices due to difference privacy rules for certain countries. With compute-to-data an average can be built for each country and summed up locally at head office.
For slightly more sophisticated users a linear regression model can be built using data with a number of variables. Linear regression models, according to Trent, suffices 50-80% of the time when doing AI modelling.
What is key to understand is that the entity suppling the data knows that the AI training algorithm has been vetted and that it’s not going to basically copy all the data back to the person consuming it. Building an average calculation for example requires only three lines of code. Builders of AI models will be using trusted libraries which would have been vetted by some experts. That’s a very small ask for suppliers of data who don’t need to be AI experts.
Monetization – how is price determined for data?
Ocean has a flexibly approach to pricing of data.
Ocean focuses on providing tools for data providers to make a data asset sellable, so that a data consumer can purchase access to the data. In between Ocean provides technology to build data marketplaces. Price of data in a data marketplace is determined by the people running the marketplace. At the moment data marketplaces comes with a fixed price for data. Ultimately though it will be done in an automated manner where price is determined by supply and demand. Ocean’s next version of data marketplaces will also include price discovery of datasets.
Compute-to-date Example – MOBI
Ocean Protocol is part of the MOBI consortium – the Mobility Open Blockchain Initiative. MOBI is a non-profit smart mobility consortium working with forward thinking companies, governments, and NGOs to make mobility services more efficient, affordable, greener, safer, and less congested by promoting standards and accelerating the adoption of blockchain, distributed ledger, and related technologies in the mobility industry. Chris Ballinger, CEO of MOBI was featured on Insureblocks to talk to us about an “Introduction to the Mobility Open Blockchain Initiative (MOBI)”.
Ocean started collaborating with Chris Ballinger in early 2017, when he was still at Toyota research, for autonomous vehicles, electric cars and car sharing. The problem that exists for autonomous vehicles is that the AI algorithms don’t have enough data to reach the required level of accuracy.
Recognising that some of their way competitors were moving faster in accumulating the data, Toyota asked themselves the question “what if we pooled our data with not just ourselves but with the other big automakers such as BMW, Daimler, Volkswagen, GM, and Ford?” That was the initial idea that Ocean started working on with Chris at Toyota in early 2017 by building a decentralised data exchange for autonomous vehicle data exchange around miles driven. That data exchange was decentralised with no single owner or controller that enabled the buying and selling of datasets.
What Ocean identified is that the automakers weren’t keen around their data leaving their premises. For example, Toyota wasn’t so keen on all of its miles driven leaving their premises for being trained by BMW. This concern was partly privacy and partly control. There was also uncertainty on whether the data had identifiable information, or whether it was monetizable and if you shared it would you lose the ability to monetize it. Because of that uncertainty automakers were reluctant to share the data.
This is where compute-to-data comes in. It enables the automakers to pool their data to build accurate enough autonomous vehicles where privacy can be preserved and controlled. What this means is that Toyota can still build an AI algorithm for their autonomous vehicle that uses data from all of its competitors without their data ever leaving their premises. BMW, Daimler, VW and all the others can do the same.
The way this could work is that Toyota might train its model initially on its data to build a baseline model. To update the weights from its model it could bring in BWM data or VW data. Toyota would build a mini training algorithm that goes into the BMW data to run computations for the mini neural network and send updates to its overall neural network at Toyota. Toyota can then use the same mini training algorithm to reproduce the same computations overs at Daimler, GM and Ford to update the weights on its datasets.
In the end, Toyota gets neural network AI model for driving cars that’s been trained across all the automakers that are part of MOBI while at the same time it has preserved privacy of each of those automakers as the data never left their premises.
Compute-to-data and COVID-19
There are a lot of opportunities for AI models and predictions to help to tackle COVID-19. In China everyone is being tracked and are given a colour code of green, yellow or red. Green meaning you’re clear, yellow means you’ve been in contact with someone who had it and Red means you have coronavirus. This kind of surveillance is one which most people in the West are uncomfortable with.
The question is can we do something similar to China but in a data preserving way? Today we are using AI technology to try and measure COVI-19 but it involves looking into a lot of PII (personally identifiable information).
With compute to data you can achieve that. Trent challenges us to imagine a world where you have access to all of the data across the whole life cycle from sensing and contacting coronavirus all the way through to treatment every step of the way, to ty and prevent things from getting worse. Imagine you have access to all of this data but without seeing any PII, where you can run compute-to-data on all of these data sets in order to get a very holistic view for the whole world with AI trying to prevent each step from getting worse.
All this data of course can also be very useful for health insurers who can use the data to build better actuary models.
Plans for 2020
Ocean had an alpha version of compute-to-data late last year and a beta version earlier this year. The platform is now live with several customers using it in beta.
Compute-to-data is now in v2 and Ocean is working on v3 which will have two new main components: data tokens and incentives.
Data tokens
With tokens you can tokenize insurance contracts or tokenize real estate. There are many applications for which you can tokenize. Once you tokenize something you can think of it like removing friction for building financial assets on top of it. For example, once you have a tokenized insurance contract it can flow through the Ethereum ecosystem, and be traded.
In v1 and v2, Ocean had built a blockchain based technology for access control but it was not tokenized. Part of v3 is to tokenize the access control. For example, today to read the Wall Street Journal you need to have a subscription to access the data. Instead of a subscription you could have a data token that grants you access to the Wall Street Journal’s data. However, you can also have an access token for accessing data from BMW or Toyota or to your own medical records.
Ocean is providing the technology for entities to create their own data tokens and to be able to consume them. Once the tokens are created they can flow through the Ethereum ecosystem.
Similar to the Apple Wallet that can hold your boarding passes for an airplane or your cinema tickets. People also have crypto wallets to store their bitcoins and ethers. Eventually inside the Apple wallet or the crypto wallet you could have data tokens that give you access to products and services such as the Wall Street Journal to give you access to its data. Those data tokens can also be used for identity and KYC purposes. You could use them to prove your identity and your credentials for example your PhD from verifiable credentials.
It can also be used for insurance. For example, you can tokenize your Apple Health app data and give your insurance provider a data token to access that data to give you a lower insurance rate.
Incentives
Incentives is about making incentivising people to make the ecosystem more valuable, whilst they are buying and selling data.
With Ocean people will be able to set up their own marketplaces. They will have a degree of automation as market makers. People can add liquidity to his to buy and sell datasets. For every transaction a transaction fee is charged where a percentage of it is used to reward people who do work in the form of referrals, curation and adding liquidity to reduce slippage.
Ep. 116 – INATBA – International Association for Trusted Blockchain Applications
Jul 05, 2020
Marc Taverner is the executive director of the International Association for Trusted Blockchain Applications (INATBA) since the middle of January 2020. He has been active in the global blockchain ecosystem for more than five years, working across 20 countries, engaging with organisations from core crypto currency companies to governments and financial institutions, through to large corporates and industry associations.
As executive director of INATBA, Marc is committed to positioning INATBA as the only international organization truly equipped to convene public and private industry partners with the credible support of powerful allies like the European Commission and key advisory bodies
What is blockchain?
For Marc, blockchain is a type of distributed ledger technology (DLT) where transactions are recorded with an immutable cryptographic signature called a hash. These are added into a chain of blocks, with each block, validating the prior block and creating an immutable audit trail that in turn creates trust.
Distributed ledger technology is a decentralised database managed by multiple participants across multiple nodes.
The reason why blockchain and distributed ledger technology is important is because it finally helps us solve the issue of trust by applying technologies such as cryptography and governance models such as consensus mechanisms.
What is INATBA?
To answer the question of what is INATBA, Marc took us on his journey that ultimately took him to INATBA. In the 2014, Marc was introduced to the world of blockchain and bitcoin when he met Valery Vavlivo, CEO and co-founder of Bitfury, who made him Global Ambassador & Markets Development at Bitfury.
All these applications were interesting for those governments and created a great deal of interest with other governments around the world who wanted to leverage those applications and others. But the friction points were preventing the adoption of blockchain based technologies at a massive scale.
Some of these issues are rooted around the lack of standards and interoperability between technology stacks which would cause governments and large potential customers of this technology to recoil a little from making early decisions for the fear of either putting themselves into a vendor locking position, or a situation where they’ve made the wrong strategic technological decision.
INATBA exists to address some of those friction points. They bring a number of parties together from governments and supranational bodies in the public sector to startups, SMEs and enterprises in the private sector, to try and achieve commonality across standards, good governance and interoperability. By reducing those friction points they hope for blockchain to be massively adopted.
Interoperability
Establishing standards and interoperability from a technology perspective is absolutely needed and very critical for the industry to be able to develop further. But equally important is the focus on governance structures and legal structures.
INATBA established the Standardisation Committee, to work across all working groups with the aim to convene discussions with parties from different standard setting bodies, policy makers and all the elements of public sector and the private sector to reach an agreement on standards and levels of interoperability across technology, across legal structures, and across country boundaries.
From a governance standpoint, INATBA promotes an open, transparent and inclusive global model of governance for blockchain that reflects the shared interests of stakeholders from industry, start-ups and SMEs, civil society organisations, governments and international organisations.
One of the INATBA working groups is the healthcare Working Group who has been very busy working on the COVID-19 pandemic. They are working closely with the World Economic Forum’s COVID Task Force to address the challenges that the pandemic has caused
The Energy Working Group, has been working with UCL, University College of London, looking at the topic of energy in particular peer to peer energy, and very soon they’re going to be producing the output of a series of roundtable discussions they’ve been holding over the last few months.
The privacy working group have been working on mapping the global approaches to privacy around the world, so that INATBA can engage policymakers to support their policy enhancements decisions and help them reach a level of commonality between themselves.
Converge of blockchain, AI and IoT
The convergence of blockchain, AI and IoT is naturally built into the work plans developed by each of the 14 working groups.
Convergence is also the name of an INATBA event which assembled 1500 participants from all over the world within the public and private sector for a series of high-level discussions. It is called convergence to recognise that INATBA isn’t just focusing on blockchain and DLT but on the convergence of everything that is required to establish the massive adoption at scale of blockchain and DLT, andincluding how it needs to interface with other emerging technologies.
Convergence was last held in November in Malaga in 2019. The recording of the events can be viewed here:
Why members join INATBA?
INATBA is open, inclusive, democratic and transparent organisation within its governance model. It is funded through its membership fees and all of its members share an equal voice independent of its size or financial means.
Governments who engage with INATBA gain access to a valuable pool of knowledge in a public or private forum fo their policy creation, development of legislation or their overarching technology strategies that include blockchain and DLT.
The INATBA academic advisory body brings a level of academic rigour for the presentation of evidence from their research and compiled data. The academic advisory body brings academic impartiality which is free from undue commercial influence or political influence.
INATBA, presently has almost 170 members, 20 government and supranational organisations and some 43 individuals representing academic institutions from 18 countries.
COVID-19
INATBA, together with the European Commission and University College London – Centre for Blockchain Technologies, launched a global initiative that convenes public and private entities committed to quickly activate blockchain solutions that address challenges caused by the COVID pandemic.
The INATVA COVID Task Force will convene key players in the global blockchain ecosystem to identify deployable technology solutions that address governmental, social and commercial challenges caused by COVID. Working on an expedited timetable, the Task Force will analyse, sort, package and present solutions to governments and organizations to deliver real value quickly.
So far 25 solutions have been presented to INATBA. Six were around helping to bring the business community together for collective action against COVID. Seven were around how to protect people’s livelihood and facilitate business continuity during the crisis. And 12 were aimed at mobilizing cooperation and business support for the COVID-19 response.
Success in 12 months time
Marc states that when you put to the side the unprecedented conditions caused by COVID-19, in an ideal world, INATBA would have had a real impact on the growth of technology and see real uptake of some applications at a significant scale. INATBA would have influenced regulators and policymakers in getting governing bodies around the world to help them enhance or create policies and pieces of legislation and regulation that would facilitate the adoption of blockchain and distributed ledger technologies in their countries.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 115 – OECD Global Blockchain Policy Centre
Jun 28, 2020
Caroline Malcolm heads the Global Blockchain Policy Centre at the OECD, assessing its policy implications & building solutions to ensure governments across the world can access and respond to the opportunities and challenges it raises.
In this podcast she discusses with us the interesting work the OECD is doing around understanding the potential blockchain can bring to the its members, how they collaborate with other international institutions and she also invites you all to participate in the upcoming OECD Global Blockchain Policy Forum 2020 .
What is blockchain?
Caroline agrees that there is a wide range of views regarding defining what is blockchain.
For the OECD, blockchain is just one type of distributed ledger technology (DLT) and refers itself to a combination of technologies. These technologies create a digital, shared and self-updating ledger of verified transactions or information amongst parties on a network. These blockchains and DLTs more broadly use various types of consensus mechanisms to validate and record those transactions or transfer of information.
They have various governance systems with various degrees of control for the different parties on the network. Blockchain applications have been developed across lots of different sectors, and is often described as the Internet of value.
The OECD is an international organisation with at the present moment 37 members, including Colombia who recently joined. Together with governments, policy makers and citizens, the OECD works on establishing evidence-based international standards and finding solutions to a range of social, economic and environmental challenges. From improving economic performance and creating jobs, to fostering strong education, informing the impact of emerging technologies such as AI and blockchain, to fighting international tax evasion, they provide a unique forum and knowledge hub for data and analysis, exchange of experiences, best-practice sharing, and advice on public policies and international standard-setting.
The OECD Global Blockchain Policy Centre
For the last 6 years the OECD has been looking at cryptocurrencies and their impacts and potential for financial markets. In 2017, the OECD launched a project called Going Digital which broadly looked at digitalization across the policy spectrum. Within 18 months of that project being underway the OECD members decided that going forward they would put their focus on artificial intelligence and on blockchain.
The OECD Global Blockchain Policy Centre was created to support governments to address the challenges raised by DLT and their applications as well as to seize the opportunities it offers for achieving policy objectives. The Centre focuses a significant amount of effort on education – capacity building and focusing on what that means for policy makers.
Caroline and her team recognised that there was a huge lack of understanding about why this technology was not just like any other emerging technology. The decentralised aspect of the technology was what policymakers and regulators need to be paying special attention to.
The Centre created their own course for policymakers to help them get a better understanding of what is the technology, what it’s useful for, what it’s not useful for and help them understand how it is changing the policy implementation environment.
Caroline recognises that striking the balance between a healthy scepticism about blockchain technology and the hype associated with it to recognising with a certain humility that we have seen in the past emerging technologies that have developed and grown into something that we may not have been able to envision.
Since 2018 the Centre runs the Global Blockchain Policy Forum on an annual basis to show the potential of blockchain technology without it being overhyped but concrete and realistic. In 2019 the forum and even more for the 2020 forum is focused on demonstrating that blockchain isn’t something for the future but a technology that is happening now.
The OECD Global Blockchain Policy Centre’s work
The OECD Global Blockchain Policy Centre’s work sits in four categories:
Finance
Supply chains
Government and public goods
Governing blockchain
Finance
The finance category involves work on financial consumer protection in the crypto asset space and asset tokenization. It also involves taxation work, sustainable infrastructure, and within the work of the Financial Action Task Force (FATF) they are looking at both virtual assets and digital identity.
Supply chain
This category is looked at from two aspects: track & trace of goods and a more qualitative aspect.
The track and trace of goods has come to the fore in a kind of post COVID world as society looks at preparing its systems to become more resilient in the future. COVID-19 has demonstrated that perhaps we don’t have a good understanding of our supply chains, and as much control and information and transparency as we thought we had.
With regards to the more qualitative aspect of supply chain and on the due diligence of supply chain. How to use technologies such as Internet of Things (IoT) to get a better understanding of what is happening in supply chain? It’s being able to see beyond just how a good is moved from point A to point B but to be able to see whether child labour or slave labour is being used within supply chains.
Government and public goods
This is about the delivery of public services for things like migration, development aid and sustainable development goals. It’s about using the technology for greater transparency to address corruption risks in aid delivery and ensure that when aid is given it is arriving to the intended recipient.
This category also looks at transport and how blockchain is being used for urban mobility.
Governing blockchain
It’s about digital identity, governance of decentralised systems and understanding the new business models that can arise from it. It’s understanding and working out what are the incentives in those decentralised models and how they are governed.
Cross institution collaboration
In 2019 the OECD crated this informal network along with the European Commission, the WTO, UNICEF, World Food Programme, The World Bank, IFC and the IMF to informally share information about the different projects that they are all working on and identify points of collaboration. One that really emerged quite quickly was around the issue of education for policymakers and for public sector officials for them to understand what does blockchain mean to them as a government official or as a policymaker.
The OECD is developing an online course for these government officials and policymakers to help them understand what is blockchain. The aforementioned international organisations are contributing mini modules to those courses along their areas of expertise.
Different approaches to blockchain
The OECD is composed of 37 member states from across the world. They recognise that there isn’t one size fits all with regards to the approach to be taken on blockchain. This reflects the various different sort of economic and government structures in different parts of the world.
The OECD tries to understand what are the different policy options if there’s been no policy steps already taken by a member state. When governments have started to make moves, the OECD analyses what they’ve done and why it fits in a particular circumstance and try to tease out lessons for other countries about what could actually be useful for them to apply in their own circumstances.
Public private partnerships
Within the private space one of the key challenges that often arises is around consortia. There can be challenges in terms of willingness to share information and how to reach a consortium agreement. Experts have shared with the OECD that when you have government involved it can actually sort of smooth the path to a more effective consortium.
In Singapore, a collaborative project was undertaken with the Monetary Authority of Singapore and a number of the regional banks looking at how to improve KYC processes. Through this public private collaboration it was realised that by sharing information amongst the participants you can get better outcomes for both the banks and the regulators to help them meet their obligations.
Startup community and the OECD
Caroline recognises that they need to be more involved with the startup communities. To help address this they held a startup showcase as part of their Global Blockchain Policy Forum in 2019. It was designed to not just to expose startups to a policy audience but also for policymakers to better understand the specific issues startups face.
The OECD is doing work on individual country studies such as one in Italy focused on the sort of small to medium enterprise sectors in those countries and their blockchain community. This is to gain an understanding of what stage of development and areas of focus does the startup community have and what government policies are in place to align with overall policy objectives.
For this year’s Global Blockchain Policy Forum they would like to showcase additional startups in a virtual way.
OECD’s approach to digital identity, AI and the Web 3.0
The OECD has a comprehensive approach to digital identity solutions that involve DLT based ones and none DLT ones. They take a technology neutral approach when considering the full spectrum of digital identities. The OECD collaborates with a number of organisations including the Financial Action Task Force on digital identity.
Caroline admits that up to now the OECD has looked at emerging Web 3.0 technologies in isolation. However, they are working on updating their 2017 Digital Economy Outlook this year which will look at how these technologies come together. For example, it will look at where blockchain might go if you get greater adoption of the Internet of Things.
How blockchain can help in the COVID pandemic?
The COVID-19 pandemic has presented a series of new and pressing challenges across sectors, from the unprecedented policies required to slow infection and support the economy by governments, to the impacts on business operations right through the supply chain.
As institutions have raced to adapt, questions of privacy, data security, and veracity of information have come to the fore. Governments and corporations have already turned to decentralised systems to address some of these concerns, while distributed ledger technologies like blockchain have attracted attention as a useful means of addressing specific fragilities and building future resilience.
Supply chain management – a key area where DLT can play a role in improving it
Track and trace – the example of the Estonia consortium demonstrated the value of having existing digital systems in place. For the last years, Estonia has made significant digital investments in the delivery of government services and management of information using emerging technologies such as blockchain. They were able to leverage that investment in building a track and trace application that addresses the concerns around data privacy
Data sharing – the research foundry project has been working on how data can be collected by academics and research institutions by allowing them to retain ownership of that data and understanding where it ultimately ended up
The event will run virtually from the 16th of November to the 20th of November 2020 and will convene government ministers and senior policy makers, industry leaders, academics and other stakeholders to:
Discuss the leading applications and significant policy issues confronting the blockchain ecosystem in 2020, including asset tokenisation, central bank digital currencies, and self-sovereign identity
Review the emerging policy responses including through the recent work of the OECD, and share best practices identified across the world
Look ahead to emerging trends in the blockchain industry, and hear from stakeholders on how policy can best support viable and fit-for-purpose innovation and adoption of distributed ledger technologies
Startups will be able to showcase what they’ve been doing to policy makers
As the event is being run virtually, Caroline wants to take the opportunity to enlarge the audience to the forum by including not just policy makers but also industry experts, general public and academics.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
Developed by R3, Corda is light years ahead of other blockchain platforms in terms of privacy, security, scalability and interoperability. And–because Corda was built to meet the stringent requirements of highly-regulated industries, it can be used by firms of any type or size and in any industry.
Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Christina and Ariana produced a report entitled “A Practical Guide to Using Blockchain within the United Nations”. As per its guide blockchain is a type of software made up of records of digital transactions that are grouped together into “blocks” of information and shared securely across computers on a shared network. When a new block is added, it is connected or “chained” to the previous block, making it difficult to change past information. All computers on the shared network retain a complete record of transactions as they occur, representing the entire blockchain. These computers are called nodes. Transactions submitted to a blockchain can only be added and previous data cannot be removed or modified. This is sometimes referenced as an immutable proof of record.
What is UNICEF?
UNICEF, the United Nation’s Children’s Fund, is a 70 years old entity that is part of the United Nations. UNICEF works in over 190 countries and territories to save children’s lives, to defend their rights, and to help them fulfil their potential, from early childhood through adolescence. UNICEF works to serve children and women around the world, in the areas of education, child protection, child survival such as vaccination, health, and water sanitation. Last year UNICEF responded to over 300 emergencies around the world, on gender issues, and supply chain.
The Office of Innovation at UNICEF is a team that looks at emerging technologies and how this will have an impact on UNICEF and the work it performs. A data science team that looks at artificial intelligence and machine learning. A team that looks at drones and how those can be used in a variety of scenarios. Most recently a blockchain team was put together that focuses on a number of areas:
A venture fund that makes early stage investments into start-ups in UNICEF programme countries. The blockchain team acts as technical mentors to those start-ups working on a variety of use cases
Support internal UNICEF countries office teams who might be interested in building blockchain applications or exploring where blockchain may play a role in their process
Running UN courses on what is blockchain and with young people around the world, teaching them about blockchain and Web 3.0
“A Practical Guide to Using Blockchain within the United Nations’
The UN innovation network is an informal, collaborative community of UN innovators interested in sharing their expertise and experience with others to promote and advance innovation within the UN System. Under the UN Innovation Network, Christina and Ariana produced a report entitled “A Practical Guide to Using Blockchain within the United Nations”.
The purpose of producing this guide was to give an introductory resource in what blockchain is. It helps to identify if blockchain is the right technology for a use case. The guide has a number of sections:
A high-level introduction to what is blockchain
Tools, flowcharts and discussion points to determine whether blockchain is the right fit and if so what type of blockchain
Examples of where blockchain can be used with some examples of how it is being used across the UN
Resources within the UN to approach blockchain in a systematic way.
Fungi & Mycelium
In the report, fungi and mycelium were used as a metaphor to explain what is blockchain. There were two reasons for using this analogy. First reasons, the practical guide is accompanied by a tool called atrium a glass space that has some greenery growing in a sheltered environment.
Second reason, as they started developing the paper and thought about using the atrium, as a greenery, they started to think of systems like fungi and mycelium which are vast underground networks that are critical to plants’ survival but are often never seen but yet are so integral to forest and green vegetation. This is very similar to a blockchain network that people don’t really ever see but provide so much benefit to an ecosystem.
General uses of blockchain having at the UN
Blockchain has three key categories of use cases within the UN:
Single source of truth – what is the truth for both public records and supply chain tracking for example
Tracking the exchange of value within digital finance and cryptocurrency – seeing how assets become digital and being able to track their movement.
Increasing organisational efficiency using smart contracts and digital engagement
Single source of truth
Within the public records and supply chain tracking, there is a project in Afghanistan looking at land record management. It’s a collaborative project between two different UN agencies, to digitise land records and having a single version of the truth by putting them onto a blockchain so that everyone knows who owns what land and when the registry had been updated or transferred.
The World Food Programme has a project, looking at how to digitise the supply chain of food in one of their largest food corridors between Djibouti and Ethiopia. Taking an analogue and paper process to making it digital and putting in blockchain features to improve its efficiency.
Tracking the exchange of value
For tracking the exchange of value within digital finance also known as DeFi (decentralised finance) in cryptocurrency world.
Building Blocks is the World Food Programme is a blockchain project used in several refugee camps that uses biometrics instead of paper vouchers for getting goods at stores. It’s digital accounting for some of those beneficiary vouchers.
In the fall of 2019, UNICEF launched its crypto fund for UNICEF to be able to receive,
hold and disburse donations of cryptocurrencies ether and bitcoin. This will allow for transparent donations and investment tracking within the United Nations.
This is a project that Insureblocks supported in Christmas 2018 in its video “This is us”
Smarts contracts and digital engagement
Digicus is a smart contracts platform that allows for the streamlined processing of the disbursement of funds within the vendor procurement process.
When a contractual commitment with a monetary value is made between organisations, this relationship can be codified on a blockchain and when a predetermined milestone is met, payment can automatically be sent.
Digital impact tokens are being used as an incentivizing behaviour mechanism for staff at the UN. The tokens create verifiable proof of participation and can be redeemed to provide nutritional bars to children in need, creating double the impact
The Atrium
The Atrium is a blockchain-based collaboration tool where the UN community can plant and grow ideas around blockchain. It’s an inter-agency collaboration tool where anyone within the UN network can sign up and participate in three key sections:
A section to learn about blockchain
Sharing of blockchain projects and prototypes
Community forum for the exchange of information, identifying of collaboration opportunities and questions and answers
The Atrium is built on top of blockchain and as participants interact with it they can earn blockchain based badges.
When asked if Atrium really needed a blockchain to be built instead of a centralised database. Ariana, completely agreed that Atrium could have been built without a blockchain but in their next iteration there will be the possibility where UN staff will be able to learn how to programme smart contracts, write smart contracts, and then actually deploy them on this network that atrium is built on. This will give them the ability to know what it feels like to build a blockchain application and see it interact within a blockchain.
Cash transfers in refugee camps in Jordan
This is a project supported both UN Women and by the Building Blocks of the World Food Programme where blockchain technology is being used in refugee camps to track cash entitlements that are disbursed to the people World Foord Programme (WFP) serves. Cash value from WFP or other partners is stored in an ‘account’ for individual recipients and is maintained on the blockchain.
The cash that people receive or spend on goods and services is paid to retailers through a commercial financial service provider that is built on a private, permissioned blockchain, and integrated with UNHCR’s existing biometric authentication technology—WFP has a record of every transaction. This not only saves on financial transaction fees in the camp setting but ensures greater security and privacy for Syrian refugees. The project currently coordinates the delivery of food assistance for over 100,000 Syrian refugees. Source: “A Practical Guide to using blockchain within the United Nations”.
Digital impact tokens for chocolate produced in Ecuador
The United Nations Development Program (UNDP) in Ecuador has developed digital impact tokens on the blockchain. For every chocolate bar sold, there are impact tokens associated with that chocolate bar.
When a chocolate bar is purchased the consumer has two options with their impact tokens. They can either take those tokens and send them back to the farmer. When four tokens are sent back to a farmer, a new cocoa tree is planted, with the intent that this allows the farmer to increase their production and therefore their income.
Alternatively, the consumer can choose to get a discount on future chocolate purchases. Because the token is issued using a blockchain, the tokens transfer can be tracked by anyone, creating an immutable and transparent proof of impact.
Vendor payment leveraging smart contracts
Christina and her team are working with the Kazakhstan office on a project called Digicus which is looking to digitise some of the financial processes in Kazakhstan mainly around vendor payments.
UNICEF works with many partners to deliver its mandate and is innovating in managing those relationships. UNICEF recently leveraged blockchain to digitise and consolidate UNICEF’s agreements with its implementing partners on the ground in Kazakhstan (governments, NGOs, academic institutions) by using smart contracts. The goal of the prototype was to develop a platform to streamline processes related to cash transfers to improve the transparency and accountability of partnerships and related transfers of resources.
Ultimately, the platform allowed for streamlined verification of the results achieved by partners and allowed the blockchain-based smart contract to automatically release the payment, after verification and authorisation.
This platform, called “Digicus”, allows all parties to have a common understanding of what stage a project is at, what goals have been achieved, and showcases how smart contracts can be used to expedite processing of paperwork and payment. Source: “A Practical Guide to using blockchain within the United Nations”.
Linking youth to the future of work
This is a collaborative project between UNICEF South Africa and UNDP South Africa. The project is called Zlto “zlah-toh” which is really around matching young people with small jobs or micro tasks.
Allan (left) at a Zlto workshop with Cape Town based App Developers in March 2020
Zlto is an innovative digital rewards system that is aimed at reducing employment barriers youth face such as work experience, the cost of work seeking, and access to credible networks by rewarding them for “doing good”. The micro jobs performed by the youth are stored as a “work asset” on the blockchain which are validated on the platform by recognized reviewers and serve as credible, verified work experience which can assist them in their search for employment.
With the rewards earned through Zlto, young people can access quality opportunities including education, formal jobs, and small business finance. An added advantage of Zlto is that young people earn credits for the micro jobs they perform which can then be exchanged for products and services ranging from basic food supplies such as bread and milk to transport, airtime and electricity. Source: “A Practical Guide to using blockchain within the United Nations”.
Collaboration in terms of technology stack
In 2019 the Office of Innovation at UNICEF drones team launched a corridor in Kazakhstan. This was the first drone corridor to test out how to coordinate drones in an emergency response scenario. The Kazakhstan country office team asked the blockchain team if they could provide certificates that were validated on a blockchain for the companies flying in the drone corridor.
As UNICEF has numerous drone corridors around the world, the companies would be able to provide recognised certificates to each of the drone corridoes. This was one of the first collaborations the blockchain team had with the drones team.
UNICEF Venture Fund
The UNICEF Venture Fund is a $29M pooled Fund investing in early stage, open-source, emerging technology with the potential to impact children on a global scale. It also provides product and technical assistance, support with business growth, and access to a network of experts and partners.
The UNICEF Venture Fund is the first financial vehicle of its kind in the United Nations and enables UNICEF to learn from and to shape markets of emerging technology such as AI, drones, machine learning, AR, VR and blockchain, that exist at the intersection of $100 billion business markets and 1 billion persons’ needs for international development such as refugees to children and other vulnerable populations.
The funds invests in frontier technologies that will have an impact in UNICEF capabilities to reach its mandate. They look for projects that are open source or willing to become open source. The blockchain team within the office of innovation passionately believe in open source technologies and digital public goods impact as being exponential.
They are presently look for start-ups who have an idea for a use case that is relevant to UNICEF’s mandate to improve the lives of women and children around the world.
Ep. 113 – World Trade Organisation – Can blockchain revolutionise international trade?
Jun 14, 2020
Emmanuelle Ganne is the Senior Analyst at the World Trade Organisations’ Economic Research Department. She is an international trade expert with over 15 years of experience in international trade, trade policy, global governance, and diplomacy. In this podcast we discuss whether or not blockchain can revolutionize international trade.
Her blockchain adventure started at the WTO in 2017 and it was ‘love at first sight”. Because her direct colleagues at the WTO didn’t quite understand the technology and its transformational opportunities for international trade, she decided to author the book “Can blockchain revolutionise international trade?“. The book tried to build a bridge between the private sector and the IT community on the one hand and trade officials on the other.
Emmanuelle’s journey over the last two or three years has been to help people understand this unique technology and to create an enabling environment that allows it to be deployed on a large scale to make a difference for international trade.
What is blockchain?
Emmanuelle took the interesting approach of defining blockchain from the perspective of how she explained it to her teenage niece. At that time her niece’s school had a Pokémon craze going on. Every day, she would bring to school a big box of Pokémon cards that she would trade with her friends.
To explain blockchain Emmanuelle, asked her niece to try and imagine if she had an app on her mobile that would store digital twins of all of her Pokémon cards. Having such an app meant she wouldn’t need to bring her big box of Pokémon cards to school. She could digitally trade them as each card has its own unique digital twin like a fingerprint of that paper card.
Normally you can make copies of digital documents very easily but with blockchain you cannot. The mobile app can thus also allow her niece to trace the history of the card including which one of her friends previously owned that card.
Blockchain is like this mobile app. It’s like a giant repository of digital records stored in a specific order that ensures transparency and is highly secure as it also provides the guarantee that the information hasn’t been tampered with. This is achieved because everyone has a copy of the transactions. What you see is what everyone sees. These factors combined provides an environment of trust which means Emmanuelle’s niece can trade with not just her friends but with other individuals knowing that the digital twins of the cards aren’t fake and that all transactions are real and recorded.
Emmanuelle’s explanation of blockchain has some similarities to how Bettina Warburg explains what is blockchain to a 5 year old, a teen, a college student, a graduate student and an expert.
Can blockchain revolutionise international trade?
In November 2018, Emmanuelle published a comprehensive report entitled “Can Blockchain revolutionize international trade?” and then a year later in November 2019 she published the report “Blockchain & DLT in Trade – A Reality Check”. Whilst both of these reports are WTO publications, Emmanuelle clarifies that the opinions expressed in these publications are hers and are not meant to represent the opinions of the WTO and its members.
Blockchain is a technology that presents a unique set of features that make it truly interesting to facilitate trade in terms of:
Traceability of transactions
Removing the need for trusted third parties
Preventing double spending
Recorded data on the ledger is virtually immutable and its timestamps enhances the transparency of supply chain and traceability of transactions. For example supermarket shoppers can scan the QR code of fresh tuna to trace if it was sustainably sourced and slave labour free. It can be used to check if the small farmer that grew the cocoa beans of chocolate bars was paid a fair price or if the luxury bag being purchased wasn’t a counterfeit.
In addition to providing traceability of products, blockchain can also remove frictions from international trade by facilitating trade transactions. Blockchain allows participants who don’t necessarily trust each other to collaborate without the need to rely on a trusted third party, this is why The Economist, call it the trust machine. This is particularly important in international trade as it involves hundreds of actors who don’t necessarily know or trust each other but have to work together to process transactions.
Another important characteristic of blockchain is that it prevents double spending. As previously mentioned a problem of digitalisation is that it enables the creation of numerous copies of the same document. With blockchain that isn’t possible.
This is particularly important in the case of documents of titles that are used in international trade such as the bill of lading which proves ownership of products. This isn’t a document that should be copied several times. Blockchain technology removes the risk of that double spending and when combined with the above other features it can make true digitalization of trade transactions possible.
Blockchain however is only a tool which for it to work to its full potential needs an enabling regulatory environment that recognises e-signatures and e-documents. It needs to address the interoperability issues to avoid the digital island problem of numerous platforms that don’t talk to each other.
Challenges in international trade – labour and paper intensive
“In 2014, Maersk followed a refrigerated container filled with roses and avocados from Kenya to the Netherlands. The company found that almost 30 people and organizations were involved in processing the box on its journey to Europe. The shipment took about 34 days to get from the farm to the retailers, including 10 days waiting for documents to be processed. One of the critical documents missing, only to be found later amid a pile of paper.” Source: Bloomberg – Kyunghee Park
International trade remains very labour and paper intensive. Four billion paper documents are generated each year as a result of international trade. The industry is trying to address that by looking at a number of technologies such as blockchain. There have been a number of PoCs (proofs of concepts) and some like Komgo which are already in production is digitising commodity trade finance.
Source: “Blockchain & DLT in Trade – A Reality Check”.
Most projects are still in their early stages. In her report “Blockchain & DLT in Trade – A Reality Check” co-authored with Trade Finance Global, she tried to map the different projects out there in trade and trade finance by producing a “Periodic Table of DLT Projects”. On a scale of 0 to 5, the average level of maturity was 2.3 showing that most projects are in between the pilot phase and entering production.
Interestingly the current COVID-19 pandemic has shown that it is possible to go digital with millions of people forced to work from home.
A recent ICC study has shown that many banks were taking their own measures to relax internal rules on original trade documentation to help combat the hurdles introduced by the pandemic. They have expanded the use of e-documents, e-signatures and they have put in place new business processes and controls. For Emmanuelle the pandemic has shown that players within international trade can go digital and it has in her view accelerated the move to digitalisation.
A recent Trade Finance Global survey demonstrated that 89% of practitioners surveyed within the receivables and factoring industries see an increase in the usefulness of blockchain because of the current outbreak.
Additionally, two thirds of them shared that the legal validity of documents and common standard are a must have.
Emmanuelle recognises that and whilst there are exchanges of ideas and work being done on joint projects there isn’t a goverance structure that brings them all together for inter-agency cooperation. There is a need for a multi stakeholder dialogue to address the current challenges and allow this technology to work to its full potential and to be deployed on a large scale.
The ICC has launched the ICC Digital Trade Standards Initiative (DSI) which will build on the work done by numerous other likeminded initiatives which aim to digitise trade, notably through the development of open trade and technology standards to promote interoperability.
Four process of international trade where blockchain can help
Source: “Can Blockchain revolutionize international trade?”
There are four processes in international trade where blockchain can help:
Commercial transactions
Trade financing
Transport
Official control measures
Trade finance, transport and official control measures are the key ones that impact the WTO. International trade transactions involves various roles:
Transportation logistics – physical flow of goods from point A to point B
Trade finance – financial flow of money from the buyer to the seller
Documents – flow of documents between parties to complete a transaction such as certificates of origin, phytosanitary certificate and bill of lading to name a few
In all of these process you have a large number of actors involved – importer, exporter, banks for trade finance, freight forwarder, ocean carriers, air transportation services, custom authorities and a number of other authorities for the issuance of certificates for example.
The reason blockchain is interesting is because it allows multiple players within and across different process to interact in near real time in a highly secure and trusted environment. It facilitates collaboration and the automation of processes. You can automate the transfer of documents and with the use of smart contracts you can automate payments under a trade finance transaction.
An example on how blockchain can be used is with the issuance and storage of import and export permits on the blockchain. This helps reduce the risk of fraud, avoid the permits being lost and with the use of smart contracts expired import and export permits can be automatically be rendered as invalid.
Letters of credit vs open accounts
Boston Consulting Group found that more than 20 players are part of a single trade finance transaction creating 5,000 data field interactions with only 1% of these creating real value. The rest of the data is either ignored or transmitted to the next party.
Letters of credit and open accounts are the two main tools for financing trade. A letter of credit, also known as a documentary credit or letter of undertaking is a payment mechanism that is very often used in international trade. It’s a letter from a bank, guaranteeing that a buyer’s payment to a seller would be received on time and for the correct amount if the buyer is unable to make payment on the purchase then the bank would be required to cover the full amount or remaining amount of the purchase price.
It’s often used in Asia but it’s a very paper and labour-intensive process with burdensome procedures. Blockchain can facilitate interaction between the different actors and reduce paperwork.
There have been an interesting number of pilots such as Contour, previously known as Voltron, which have tackled those issues with blockchain technology. What these pilots have demonstrated is that you can reduce the process related to letters of credit from typically five to ten days to less than 24 hours.
An open account transaction is a sale where the goods are shipped and delivered before payment is due. This transaction is advantageous for the importer in terms of cash flow and costs but it carries a high risk for the exporter. Blockchain can help to mitigate the risk that the exporter faces.
There are a number of blockchain platforms that offer open accounts transactions such as We.Trade. We.trade uses smart contracts to provide a guarantee of payment and automatic settlement when the pre-determined conditions, agreed in a contract between the parties, are met. So here blockchain is used more in terms of mitigation of the risk involved in addition to facilitating the entire process.
Blockchain is also increasingly being used in supply chain finance. It’s a financing solution that is initiated by the ordering party, usually a large international party in order to help its suppliers to finance its receivables more easily and at a lower interest rate that they would normally be offered. Blockchain provides greater transparency into the supply chain because all transactions can be monitored for all parties on the chain.
Can blockchain play in a role in reducing the $1.5 trillion gap in trade finance?
The WTO estimates between 80% and 90% of global trade relies on trade finance, yet there is a $1.5 trillion gap between the market demand and supply for trade finance. KYC and AML requirements remain the most cited barrier, with high transaction fees, and low credit ratings rounding out the top three. Small and Medium-sized Enterprises (SMEs) remain disproportionately affected by these and other barriers, experiencing a 45% rejection rate on proposals, much larger than the 17% seen by multinational organisations.
Emmanuelle reminds us that there are many reasons for this $1.5 trillion gap in trade finance. One of them is the difficulty for SMEs to get finance. Blockchain is interesting because it allows for companies to have an identity and to have an immutable evidence of time stamped transactions of how much business they’ve done. It allows for these digital records to be easily accessed and checked. From that respect it can facilitate trade finance.
Blockchain can ease some of the constraints faced by SMEs but it won’t be the panacea to address the $1.5 trillion gap in trade finance on its own. It is one element amongst many others.
The Periodic Table of DLT
Source – Trade Finance Global
As mentioned earlier on in this post Emmanuelle also produced, in November 2019, a report entitled “Blockchain & DLT in Trade – A Reality Check”, co-authored with Trade Finance Global, in this report she published a “Periodic Table of DLT Projects” where on a scale of 0 to 5, the average level of maturity was 2.3 showing that most projects are in between the pilot phase and entering production.
She is hoping to update the periodic table in Q3 of 2020 and she believes that by then the average level of maturity will be above 2.3. We.trade was already mentioned as was Geneva based, Komgo, that was launched in December 2018 which focuses on international commodities trading like oil and gas.
Many other initiative such as Marco Polo and Contour have successfully launched numerous Proof of Concepts and are now entering production. You have many different speeds of developments of blockchain initiatives in trade finance. What explains this difference is that start-ups are more agile and can move faster than consortiums.
Contour for example was previously known as Voltron which was a consortium of banks which was run by committee that made decision making difficult and time consuming. In January 2020, Voltron was re-invented as a separate legal entity called Contour. It had a change in governance structure, a CEO and is now able to provide a full commercial service. This governance structure explains to a large extent the differences in maturity that you see with these different projects.
Emmanuelle believes that in the coming 6 – 12 months the landscape will change quite significantly.
Regulators & regulatory sandboxes
Emmanuelle recognises that it can be a long journey to fully comprehend what is blockchain and its potential. In her opinion there has been a big change over the last years and many more people now understand what is blockchain, what it can do and the challenges that come with it. More work still needs to be done to educate the regulators.
Regulatory sandboxes are regulatory tools that are used by policy makers to stimulate business innovation. They enable the creation of an intimate environment whereby businesses can draw on the expertise and advice of a regulator and to test their products under less stringent regulatory requirements resulting in lower compliance costs. This is very beneficial in the case of a technology like blockchain that is still very new and where there are no regulatory framework.
From the regulator standpoint the regulatory sandboxes allows the regulators to familiarise themselves with the technology and the various regulatory challenges that it raises or that may need to be addressed.
For Emmanuelle these regulatory sandboxes are a win win as they stimulate innovation, test in a way the adequacy of the regulatory regime, identify adjustments that need to be made, and they help regulators to familiarize themselves with the technology.
Could blockchain have helped to limit the economic impact of COVID-19
Emmanuelle points out that blockchain is not a magical wand. Trade plummeted because of the lockdown and many businesses had to stop their activities. Blockchain could not have changed this state of affairs.
However blockchain is an interesting tool to address some supply chain inefficiencies that the current pandemic has exposed. The current crisis has revealed structural inadequacies in our supply chains in the sourcing of some critical supplies such as ventilators and personal protective equipment. It has underscored the need for businesses and governments to improve the integrity and provenance of pharmaceutical products and for supply chains to be more agile.
There has been scandals around millions of counterfeit masks being imported. As Emmanuelle recently expressed in a presentation, the current pandemic has shown that tracking is vital and this is where blockchain can help.
Blockchain based systems provide an open tamper proof record of transactions that allow for transparency across the entire supply chain. It allows to easily identify the source of transgressions and to fight counterfeits. It could help hospitals and healthcare organisations to trace products along the supply chain and ensure that they are certified according to international standards.
This episode is brought to you by our friends and sponsors at R3. In this digital-first world, now more than ever, businesses need to modernize existing processes, systems and models – and enterprise blockchain provides the ideal solution for transacting directly and streamlining business operation.
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Blockchain applications built on Corda can reimagine and increase the potential of existing business networks, enabling direct and trusted transactions that eliminate friction and accelerate growth.
Ep. 112 – Power Ledger – powering energy with blockchain
Jun 07, 2020
Dr. Jemma Green is the co-founder and chairman of Power Ledger. Power Ledger is a four year old technology company, with 20 power projects in over nine countries, that facilitate two things – the trading of electricity and the trading of environmental commodities using blockchain technology. In this podcast we discuss with Jemma how their platform is revolutionising the power industry and how it is being used to democratise power.
What is blockchain?
Blockchain is a like a database that can be used in many different ways. It is a common record keeping system which creates more efficiencies in the transaction process between counterparties who in the past would have had their own record keeping system. Using a blockchain enables an entry in a ledger to contain both the payment and the physical statement of a digital asset. This reduces the settlement risk or the need to reconcile and settle payments which can be very costly for the transacting parties.
With smart contracts, which sit on the blockchain, you can also perform complex commerce transactions.
The Energy Industry
For the last century or so electricity markets have remained relatively unchanged. It is characterised by large power stations, typically, coal and gas fired power, bringing electricity to people’s homes brought by transmission and distribution networks, the grid.
In the past 15 years, a new paradigm has begun to emerge as citizens and business have installed rooftop solar panels on their homes and office buildings. More recently, battery storage is being installed inside homes and businesses, as well as large scale solar and wind farms.
Technology can help facilitate the dispatch of electricity via virtual power plants to stabilise the grid which historically has suffered from volatile prices creating significant problems in the market. Surplus rooftop solar power can be stored in batteries, and that market mechanism, facilitated by Power Ledger’s technology, can help the grid deliver low cost, clean and resilient power.
These power technologies, along with the connectivity of blockchain to bring communities together, serves as a kind of citizen utility which provides a certain level of empowerment that has the potential to drive the next wave of innovation to democratise power.
There are numerous drivers towards the democratisation of power. For some it is about getting a better price for electricity whilst for others it is their concern regarding air quality and the potential to electrify transportation in their city.
Jemma believes that overall people are very engaged in the topic of electricity and becoming much more sophisticated in what they understand of the markets and what they expect of them.
Power Ledger introduction
Power Ledger is a technology company that uses blockchain to facilitate trading of electricity and environmental commodities. Their vision is leading the global democratisation of energy movement. To give people access to energy and to participate directly in energy markets and improve their lives and the lives of others. Power Ledger would like to be recognised as a major contributor to transforming energy markets and sustainability globally and positively impacting the lives of 1 billion people. That’s Power Ledger’s big ambition that makes the, want to get out of bed every morning and do what they do.
Power Ledger the Uber / AirBnB of electricity
Blockchain enables buyers and sellers to transact with each other directly without the need for an intermediary. In the case of electricity, households with rooftop solar panels could sell its surplus electricity to its neighbours in much the same way as Uber and AirBnb allow people to monetize their cars and spare rooms.
Power Ledger works with electricity retailers in providing them with its trading platform to facilitate the retailer’s customers to trade electricity between themselves. Blockchain provides all parties with the source of truth to underpin the buying and selling of electricity and the payment of it.
Did you really need a blockchain?
Jemma recognises that there are many things that could be done without a blockchain. For example, peer to peer trading with one retailer can be done without a blockchain. This however limits what’s possible beyond that. With blockchain you can facilitate cross retailer trading and create a much bigger distributed electricity market.
For example, two retailers on the blockchain can trade with each others customers. Customers with stored electricity in batteries can sell it to their own retailer or to other retailers in the network.
Blockchain technology enables the tracing and verification of used energy sources to audit it in terms of environmental commodity trading like renewable energy and certificate trading. Additionally, blockchain can set all the trades both physically and financially in one block thus reducing counterparty settlement risk and removing the need for brokers which can drive cost efficiencies.
Smart contracts can facilitate more complex transactions between multiple parties within an energy ecosystem like a virtual power plant. And it can also optimise the market for maximum value capture from all available income streams in a virtual power plant.
Virtual power plant
A virtual power plan is where businesses or households install a battery to store their surplus electricity from solar energy and wish to dispatch that electricity from the battery into the market at times of peak demand.
They might also provide what is called ancillary services to the market such as providing frequency and other control services. They might sell into the spot market to add more supply at peak times and provide grid support services to grid operators.
Essentially a customer with a battery can sign up to one of Power Ledger’s partner retailers and use the platform to access the batter for that purpose. Collectively all of the batteries in the network are what’s called a virtual power plant. Together they can add up to the same size as a normal power plant.
The Power Ledger Platform
Source: Power Ledger Whitepaper
When a utility company and customers want to gain access to the Power Ledger Platform a bond must be paid in the form of power tokens (POWR). These tokens can also be independently traded outside the platform as a digital asset on eligible exchanges. Sparkz is an exchangeable energy trading stable token, that can be used when units of electricity like kilowatt hours are bought and sold on Power Ledger’s platform. These tokens are automatically converted into sparks from the local fiat currency to enable energy trading. When energy transactions are settled, sparks are automatically converted back into the customer’s chosen currency. For example, one spark in Australia is one cent, or one spark in Thailand is one Thai baht.
Sparkz are issued against escrowed power tokens via a blockchain enabled smart contract. The Sparkz are sold by the retailer to consumers who use the token to pay for energy. Utility companies need POWR and consumers need Sparkz.
Incentive mechanisms for delivering sustainable outcomes
Jemma points out that in the past being sustainable didn’t always make economic sense. She believes that now making money and delivering sustainable outcomes can be intimately linked. This however depends on how the markets are set up and the incentives created through products and services can support that.
Power Ledger’s platform provides a market mechanism that encourages people to install battery systems that can stabilise the grid and stay connected to the grid. In the past batteries were installed by consumers to self-supply and to be less reliant on the grid. The drop in price of solar panels and batteries makes sense to use them without government subsidies. Connecting them to the Power Ledger platform enables consumers to trade and generate new revenue streams out of them.
Electricity markets for a century had the market built on top of the physical system used to service it. Now there is an inversion where market mechanisms can create the right kind of behaviours that deliver distributed electric market that is stable, clean and low cost.
COVID-19, a wakeup call for the energy sector
Jemma recently wrote an article on Forbes “COVID-19: The Wake-up call the energy sector needed”. COVID-19 has heightened people’s desires about how to become more self-sufficient. In Australia there has been a strong demand for solar battery systems since COVID-19.
Large retail outlets are thinking about how they can incentivise customers back into stores by purchasing their customers’ electricity in store vouchers thus creating a green barter system.
Energy networks, retailers and operators have delivered services in much the same way for a century – driven by fossil-fuels.
New technology is making it easier, more effective and affordable to use renewable energy, and the costs associated with installing those technologies, such as solar and batteries are decreasing.
And most industry players recognise the need to change and evolve in order to remain relevant, or are at least are starting to, with a little nudge from COVID-19.
Self-generating renewable energy infrastructure gives people the power to become self-sufficient for their electricity needs, with some even going ‘off-grid’ altogether. There is more of a sense of urgency to innovate right now and to make decisions.
Global catastrophe’s like COVID-19 are also a catalyst for many things that are ripe for changes in a similar manner as how World War One saw more women get into paid work.
Global partnerships
Power Ledger is working with a number of companies all across the world from Europe, to Asia and North America. Power Ledger doesn’t see itself as just selling a piece of tech. They want to help their clients achieve what’s of fundamental importance to them and to help them reach those ambitions.
In France, for example, they are working with the green energy retailer, ekWateur. ekWateur recognises that their customers want to be able to choose their energy mix, they want to be able to say I want solar from this farm, wind from that farm, and, and solar from my neighbours. Power Ledger’s platform enables their customer base to achieve that.
In the US they have partnered with Clearway Energy Group to roll out a digital commodity trading software in the United States to develop a platform to trade Renewable Energy Certificates (RECs) in the US. Clearway Energy recognises that blockchain can significantly improve the efficiency for the trading of RECs by linking transaction functions within a common platform.
Blockchain Bistro – COVID19 and the economic downturn’s effect on P&C insurance
Jun 05, 2020
Welcome to the Insureblocks first Blockchain Bistro. Blockchain Bistro is a new show that we are adding to our range of podcasts. It’s a live webinar on Linkedin Live where we aim to discuss interesting subjects with a panel of experts. For this first show we had the pleasure of having Patrick Schmid, Vice President of RiskStream Collaborative.
Together we discussed whether or not if COVID19 and the economic downturn’s effect on P&C insurance is an opportunity for technology? We also took a number of questions from the community live in the webinar.
We hope you’ll enjoy this new format and feel free to reach out to us on Linkedin or on Twitter or just add a comment below to give us some feedback or suggest some themes you’d like for us to discuss.
Ep. 111 – COVID19 and the economic downturn’s effect on P&C insurance: An opportunity for technology?
May 31, 2020
Patrick Schmid is the Vice President of The Institute’s RiskStream Collaborative a risk management insurance blockchain consortium. In this podcast Patrick discusses with us the impact of COVID19 and the economic downturn’s effect on P&C insurance and whether or not this represents an opportunity for technology.
What is blockchain?
Blockchain is a distributed ledger that maintains a constantly growing list of chronologically added records in the form of blocks. Blocks contain data such as transactions or smart contracts. They’re verified and confirmed through a decentralised consensus process. This process is why blockchain is often seen as providing the decentralisation of trust without the need for an intermediary or a centralised party.
In this period of economic downturn, due to COVID19, Patrick believes that blockchain can provide the much-needed operational efficiency at a time when privacy and security are of high concern.
Medium article: COVID-19 and the economic downturn’s effect on P&C insurance: An opportunity for technology?
A board member of The Institute challenged Patrick and his team to think about the impact COVID19 would have on insurance and how to think about RiskStream’s strategy for the remainder of the year. This prompted, along with Patrick’s concern about the economy to write the article: “COVID-19 and the economic downturn’s effect on P&C insurance: An opportunity for technology?”
The article analyses the economic impact of the outbreak of COVID19 and the lockdown is having on the US economy and the fallout it will have on the P&C insurance industry. It looks at how it will strain underwriting profits and the impact a decline in interest rates and financial markets will have on net investment yields.
Whilst the P&C industry as a whole has taken these events in its strides it isn’t insulated from the economic fallout.
The impact on business activity is expected to be felt in commercial lines and the effects from declines in residential activity and consumer activity in general, are expected to show up in personal lines.
The effects are expected to impact the P&C combined ratio through changes to premiums, losses and expenses.
A combined ratio above 100 indicates the industry is paying out more money in claims then it is making from policies. Due to effects on policies and losses the industry should expect an increase in the combined ratio. Adding to industry stress, net investment yields are likely to decline as well. The industry typically invests very conservatively, so interest rates are a good measure to track as a proxy.
The decline in P&C investment yields related to lower interest rates will constrain P&C insurance profitability further. The duration of zero-interest rate policy will specifically impact areas of insurance with longer time horizons. Some are even saying there’s the potential for negative interest rate policy which would further stress P&C insurance profitability.
Source: Patrick Schmid
COVID19 & economic downturn’s potential impact on P&C insurance lines
Patrick has seen a distinction between different areas of P&C lines due to the crisis.
He believes there will undoubtedly be changes in the demand for insurance and the new environment will lead to alterations in insurance claims and losses. Down the road, this may also lead to changes in regulation and could even generate new business models.
Source: RiskStream Collaborative
Auto insurance
Premiums are likely to contract across a variety of lines of insurance as the economy weighs on new exposures and causes early policy cancellations. General auto and air traffic will decline as more people stay home. The increase in unemployment will likely show up in reduced premiums for personal auto, aircraft and commercial auto.
In the UK and in the US a number of auto insurance carriers are providing refunds to policy holders due to the reduced amount of driving.
Workers compensation policies
The rise in unemployment claims along with new work-from-home environment may result in businesses cutting workers compensation policies.
Credit & mortgage guarantees
Patrick believes that due to some of the policies being enacted in the US homeowners and mortgage guarantees will have some short run stability. But unfortunately, long term, there’s definitely the risk for foreclosures spiking leading to credit, mortgage guarantee and surety losses expected to increase.
Home insurance
Homeowners may see a slight uptick in losses as more residential activity takes place at home, due to school cancellations and work-from-home policies, thereby increasing risk. Patrick mentioned his own personal risk of his son trying to light a candle one evening!
Business interruption coverage, which can be included in property coverage, is an area of question. This coverage indemnifies companies for lost profits for non-excluded risks, yet outbreaks of disease are generally excluded. Certain policies include coverage for “interruption by communicable disease.” Even with this language included, some policies still exclude contamination due to a pathogenic organism, bacteria, virus or disease. There are a lot of elements to consider with this issue. Therefore, it is likely there will be challenges and litigation related to business interruption.
Is the pandemic a catalyst for tech-adoption in insurance?
The P&C insurance industry, like many others, was thrust into a new business environment due to the global pandemic. Within a week a relatively manual and conservative industry, which relies heavily on face-to-face interaction, showed an impressive ability to adjust and leverage technology to continue to provide products and services.
While some firms within the insurance industry had already made good headway in tech-related innovation and automation prior to the pandemic, the industry as a whole has continued to be somewhat reluctant to adopt emerging technologies. The pandemic and the associated economic fallout may wind up being the key catalyst for widespread tech-adoption within insurance.
Prior to the pandemic the stage for large-scale technological adoption within insurance was already set. While the economic downturn will lower the quantity of available start-ups and InsurTechs, the quality and adoption of technology whether it’s from a start-up or from an incumbent leveraging technology may actually increase.
In addition, the count of internal projects for brokers, carriers and reinsurers leveraging new technologies has been rising over the past few years.
Overall Patrick believes that the insurance industry will most likely see an increase in tech adoption when this pandemic plays itself out.
Importance of innovation
A lot of the carriers (brokers and reinsurers) representatives at the RiskStream Collaborative work within innovation departments have been leveraging new technologies over the last few years. However, in spite of having understood the importance of innovation few had moved their projects to production usage.
On the 5th of March 2020, the credit agency, AM Best released its Scoring and Assessing Innovation methodology. It explains that these company-specific innovation efforts are likely to have a long-term impact on an insurer’s financial strength. Put differently, in order to profit maximize, insurers need to innovate and they need to do it now.
Will the pandemic herald an increase in usage-based insurance (UBI)?
One of the constraints to technological adoption within insurance has been lack of customer adoption. Telematics has been around for a long period of time, but never experienced robust demand. It’s possible the pandemic could change this.
Due to the pandemic related lockdown, miles driven has collapsed and more customers are now unemployed, leading to auto insurers around the world issuing refunds to their customers. Telematics and Usage-Based-Insurance (UBI) may provide angles for auto insurers to maximize retention of policyholders. Whilst there are still some concerns regarding the data security risk the cost-benefit for consumers to exchange private information for a reduced rate is likely to be changing as well.
The opportunity to leverage blockchain type applications may help in this endeavour to reducing the data security risk and thus increase the adoption of UBIs.
Risk singularity
Earlier this year, Christopher McDaniel, spoke on Insureblocks about the Paths to the Risk Singularity, the point where data, intelligence and process transformation have become so advanced that the risk management industry undergoes a dramatic and irreversible change.
Patrick believes that Christopher’s vision is 15 years in the making but one of the key themes that will need to be addressed is around security.
One major challenge with consumer and business-adoption of internet connected devices, like those proposed with UBIs, has been the security risk. There are still some concerns, but security is slowly improving and the risk is becoming more manageable. It’s likely that there’s a methodical upturn in IoT usage over the next few years, but any increase in insurance usage will deliberately focuse on areas where security is tight.
Increasingly, the large scale public adoption of IoT-oriented devices and the data streams associated may also present new insurable opportunities, while simultaneously providing insurers with an ability to further improve operational efficiency through automation.
Certain insurance lines are expected to see an increase in losses, as mentioned earlier, as the economy continues its downward trend. Some of the increase may wind up being attributed to fraud.
AI and machine learning systems could potentially help reduce the cost of reviewing potentially fraudulent transactions identified by traditional rule-based systems. An additional benefit of cognitive fraud detection systems is that they can detect fraud patterns that humans may overlook. This can help save insurers money in a challenging economic environment.
Additionally, in an era where insurers are aiming to maximize policies while reducing expenses due to the economic downturn and remain profitable, AI could potentially help. Artificially intelligent systems have been developed to read contracts, assess which areas of potential risk, and even offer suggestions on how to improve the terms of the contract.
The thought being that, as carriers try to move towards increased operational efficiency within the insurance industry, AI and machine learning might be additional tools in the toolbox to help that process.
The Institute RiskStream Collaborative
The Institute RiskStream Collaborative is a 501c6 non-profit consortium that was formed out of The Institute. The Institute itself is a 501c3 not-for-profit that was set up over a hundred years ago out of the Wharton School at the University of Pennsylvania. The Institute provides knowledge-based solutions with the goal to make the risk management, in the insurance industry, more efficient for industry participants and consumers.
RiskStream Collaborative is a collaboration of over 40 members, made up of some of the largest insurance carriers and reinsurers globally. The goal is to build real-world applications and use cases using emerging technology such as blockchain and distributed ledger applications.
Increased interest in blockchain?
The Institutes RiskStream Collaborative has been working with roughly 40 P&C and L&A insurance-related organizations to design use cases for life and annuities, personal lines, commercial lines and reinsurance over the past few years. RiskStream had expected a downturn in industry participation in our working groups and committees due to COVID, yet they have been surprised to witness more participation and robust growth within their working groups. This may be another signal that the pandemic and economic downturn is causing industry participants to re-evaluate the need for cost savings through technology.
RiskStream offers a number blockchain applications to choose from:
Personal lines auto – proof of insurance application that helps with verification of insurance and a first notice of loss application as well
Life & annuity space – mortality monitor; sharing information on policyholders across difference carries on the life and annuity side
Life & annuity space – a licensing and appointments application
The timing of involvement in industry-wide initiatives may be also be ideal. RiskStream’s Proof of Insurance and First Notice of Loss solutions, have moved through multiple path to adoption steps with members. Therefore, the associated ROI is within reach as mentioned in a podcast we did with Patrick last year entitled: Calculating ROI on blockchain. Once adopted, it’s likely the path forged within these personal lines will allow for easier adoption of use cases being designed/built in other areas, such as commercial lines, reinsurance and life & annuities.
Ep. 110 – The European Commission’s approach to blockchain
May 24, 2020
Peteris is a lawyer by background having a JD degree from the University of Southern California. Since Latvia, Peteris’ home country, joined the European Union in 2005, he has been the Head of Unit at the European Commission working on blockchain and digital innovation.
Peteris has a strong passion for blockchain since 2012. He is the original co-chair of the Fintech Task Force. From both the financial services side and the digital single market, Peteris has been working in legislation, policy, funding infrastructure, research as well as working with stakeholders and international cooperation.
What is blockchain?
From a technical standpoint blockchain is ledger composed of a growing list of records of blocks that are cryptographically linked and managed by a peer to peer network whilst adhering to a protocol for communication between the nodes to validate new blocks.
Essentially it’s a way for validating transactions of data in an immutable and permanent way to ensure that the transaction:
Hasn’t been tampered with
Avoid double spending
Can transfer value
From an EU perspective the EU sees blockchain as a set of distributed ledger technologies which also include Hashgraphand Tangle for example.
Peteris also makes the very permanent remark that decentralisation isn’t black and white. It is a gradient between something that is fully centralised to something that is nearly fully decentralised. This is what makes it so exciting, for Peteris, as it allows for a diverse group of actors to work together whilst preserving their autonomy.
EU Institutions furthering blockchain
Digital Innovation and Blockchain Unit
Peteri’s unit is the policy leader on blockchain as a technology. His unit isn’t composed of programmers but instead of engineers, economists and lawyers looking at digital policy.
Within the unit they have the EU Blockchain Observatory and Forum whose mission is to promote blockchain in Europe by mapping existing blockchain initiatives, analysing and reporting on important blockchain themes, promoting blockchain education and knowledge sharing and holding events to promote debate and discussion.
The European Blockchain Partnership is composed of 29 countries, 27 EU member states along with Norway and Liechtenstein, who are building a European Blockchain Services Infrastructure (EBSI). The European Blockchain Services Infrastructure (EBSI) is a joint initiative from the European Commission and the European Blockchain Partnership to deliver EU-wide cross-border public services using blockchain technology.
EBSI also acts as a regulatory sandbox where EU and national legislation is reviewed to facilitate the adoption of blockchain. For example, they are working to ensure that there aren’t different requirements for smart contracts across the digital single market.
By the end of June, the Digital Innovation and Blockchain Unit will be presenting its blockchain strategy to the European Commission commissioners to review and possibly adopt.
The strategy document will talk about the European Blockchain Partnership initiatives to building blockchain services infrastructure between the member states and the European Commission along with the European Court of Auditors. It will talk about utilising a regulatory sandbox approach to ensure that the EU has a pro innovation regulatory framework in place. It will be addressing applications which can benefit from a pro innovation clear framework, whilst at the same time ensuring that consumer protection and investor protection is properly addressed.
The strategy document will recognise that blockchain isn’t the solution for everything but that it can provide unique solutions for European Union public services where there are multi-level governance that respects the autonomy of having national public sector databases whilst sharing information on common policies. It will bring in private actors, in a public private collaboration framework, to facilitate the sharing of data between competitors in a manner that respects competition laws.
EU Blockchain Observatory and Forum
The EU Blockchain Observatory and Forum is a semi-autonomous think tank, financed by the European Commission, that works for the Digital Innovation and Blockchain Unit. This body looks at the landscape to provide an independent point of view on a set of topics such as blockchain and GDPR, e-identity, blockchain and governance, and blockchain and digital assets such as smart contracts. The EU Blockchain Observatory and Forum’s website lists all their workshops and workshop reports in order to inform the Digital Innovation and Blockchain Unit but also the wider public.
The first two year mandate of the EU Blockchain Observatory and Forum ended on the 6th of May and a new one started on the 13th of May. The European Commission selected a consortium consisting of INTRASOFT, the University of Nicosia, the Centre for Research and Technology Hellas (CERTH), and subcontractors (including Bitfury Group, OpenForum Europe AISBL, White Research, PLANET S.A.) as the new partner to operate the EU Blockchain Observatory and Forum, taking over the role from the consortium led by ConsenSys A.G.
European Blockchain Partnership
The European Blockchain Partnership is looking at implementing a number of use cases later this year such as: regulatory reporting, tax and customs excise area, diploma certification, certification of audit documents, and self-sovereign identity.
A recently announced new use case in March 2020 is here to explore how small and medium enterprise bonds could be issued on the blockchain across the entire digital single market across the 27 countries. The aim is to speed up this initiative in order to facilitate the access of capital to SMEs during this time of coronavirus.
European regulatory sandbox
The European Commission is looking to adopt a regulatory sandbox to help answer the question – is it necessary to look at legislation to evaluate whether or not blockchain is a more efficient way of doing things? For example, the notarization of land sales required all documentation to be done on paper in some European jurisdictions which required changes to the law for it to be done in a digital manner.
This regulatory sandbox is also looking at regulation to identify possible impediments for the usage of digital assets and smart contracts. This means looking at different laws and their interpretation across the member states via a number of actual digital assets and smart contract implementation and possible implementations in the future. Such work by the regulatory sandbox is here to provide legal certainty which helps de-risk further investment by investors in this technology.
How does the EU differentiate itself from China and the US with regards to blockchain?
Peteris recognises that there is a lot of investment and energy in blockchain from both the US and China. In China, for example, you have a lot of blockchain investment and actions looking at a central bank digital currency.
The EU has a blockchain vision that is looking at the convergence of AI, Artificial Intelligence and IoT, Internet of Things. The EU believes there is a third way for looking at those technologies that is based on a human centric internet also called Web 3.0.
The US has a platform economy approach to blockchain as exemplified by Facebook’s Libra initiative or Twitter and Reddit looking at tokenization. In China you have a more centralised approach to blockchain that doesn’t emphasises the decentralisation element.
The EU has a more decentralisation approach to blockchain as demonstrated by its multi-level governance for the public sector. In the near future we will see the implementation of nodes across the 29 EU countries which eventually will be scaled up to the hundreds and thousands of nodes to regions and cities across the EU. This will ensure that the EU has a decentralised and multi-level approach to blockchain as it reflects the EU’s own governance model with each citizen having access to it.
Blockchain and GDPR
Peteris recognises that one of the main challenges of GDPR is with its implementation. He equally feels that whilst blockchain can help EU citizens control their data, ensuring data portability, it is a technical challenge. However, it is one which can be surmounted.
Utilising tools such as zero knowledge proof, chameleon hashes and others, Peteris believes that blockchain can be a state of the art, data protection and data sharing technology that preserves and even heightens self-determination and individual control. Recognising the challenges on issues such as the right to be forgotten, the European Blockchain Observatory and Forum has looked at a proportional application on the right to be forgotten.
Could blockchain have helped Europe deal more effectively with COVID-19?
From a personal perspective Peteris believes that blockchain could have helped Europe deal more effectively with COVID-19. At the same time, he cautions at the idea of thinking of blockchain as the panacea for everything. He believes that if there had been more investment in health, in AI for managing data on a blockchain along with other technologies to ensure citizens’ privacy and reassurance of how their data was being shared, this could have led to a better outcome.
For example, Estonia’s usage of time stamping from Guardtime for the verification of access to healthcare records is something that has greatly ensured and increased the confidence of citizens in the digital health records. For Peteris this is a signal for the EU to invest in public health and in technologies to help doctors and systems work more efficiently and more rapidly.
Building a more resilient world post COVID-19 with blockchain and the European Green Deal
Peteris is convinced of a “#EU Green Deal” equals a “#Digital EU”. The EU very much sees the European Green Dealand a green transformation going hand in hand with digital technology. For example, it is important that within a democratic society, an important decentralisation element, is that the individual citizen can see how their activity can reduce their carbon footprint. The digital technology will be able to demonstrate in a quantified manner how citizens can reduce their carbon footprint by adopting alternative approaches to running their lives for having a positive environmental impact.
The aim is to twofold:
Ability to quantify and design EU policies and laws for reducing carbon footprint
Motivate individuals to reduce their carbon footprint themselves and see the impact they’re having
This can take the form of encouraging citizens to insulating their homes or installing solar panels instead of continue carbon consuming behaviour. It’s about managing citizen’s expectations and giving them real data to inform them of the impact of their choices.
Ep. 109 – World Economic Forum Blockchain Development Toolkit
May 17, 2020
WEF is the international organization for public and private sector cooperation with a mission to improve the state of the world. It is well known for its Davos event in Switzerland that happens every January.
Nadia is based in the San Francisco at the World Economic Forum Centre for the Fourth Industrial Revolution where her colleagues and her work on the foundational technologies that will change the world from blockchain, artificial intelligence and internet of things to address governance gaps in those technologies.
What is blockchain?
To answer this question, Nadia takes a supply chain focus. A typical supply chain normally involves thousands of business transactions on a daily basis across a large number of parties. For example, a product moving from raw material, suppliers, manufacturers, factories, through to retailers, importers, and then to the end customer.
As a product travels from its origin point to its final destination in the supply chain many organisations will have been involved with each of them having their version of the truth about that product’s journey with regards to its location on that journey and all relevant and necessary information. That version of the truth about a product’s journey will be recorded in a ledger. The problem occurs when those multiple ledgers, or those versions of the truth, don’t necessarily align across the supply chain.
A supply chain will typically have 30 or more hand over points. These points have numerous blind spots that often leads to errors, fraud, and delays. Manual updates to a ledger will also often lead to errors.
Blockchain, is a type of distributed ledger technology that can reduce these complex bilateral communications and information links by providing a single shared ledger across all the parties. What this means is that “what I see” is “what you see”.
Blockchain also has a set of unique characteristics:
Immutable / tamper evident – increased trust and transparency in the data
Transactions in a blockchain are typically confirmed by all participants through a consensus mechanism
Security and increased resiliency from having a multi-node architecture instead of a centralised server
The World Economic Forum Blockchain Development Toolkit
The World Economic Forum accelerated the release of the toolkit after witnessing the need to improve both the pandemic and endemic responsiveness and readiness. But also, to address the weaknesses exposed in supply chains. The toolkit is freely available online for organisations to use when embarking on a journey to improve their supply chain systems.
The toolkit is a gold standard in blockchain deployment. When an organisation has identified a use case applicable for blockchain there are a number of tasks they have to tackle such as bringing their ecosystem together, address compliance, optimization and interoperability issues. The toolkit provides the A to Z of both technical and non-technical factors for success for blockchain deployment.
More than 200 organisations have participated in co-creating the toolkit by sharing the set of tools, insights and resources they use when implementing blockchain solutions. This enables new organisations looking to experiment with blockchain to avoid costly missteps in their blockchain deployments.
Source: World Economic Forum
Why a focus on supply chain?
Prior to the pandemic $16 trillion of goods were shipped across international borders each year. International trade plays a critical role in the wider economy. Blockchain technology has the potential to reduce trade barriers, reduce trade costs and bring a greater level of transformation and digitization in supply chain, leading to an improvement in trade of almost 15%. This brings significant benefits to both the global economy and to developing countries.
Whilst the toolkit has a supply chain focus a lot of its findings and resources can be applied to financial use cases, insurance, healthcare and many more. Nadia points out that when you look at enterprise systems and blockchain deployments the success factors are very similar independent of the industry.
How can blockchain have helped with COVID-19?
With the arrival of COVID-19 companies and governments around the world scrambled to import, masks, ventilators, PPE equipment and food supplies. Questions were asked on who are the trusted suppliers? Where are products in the pipeline? Who’s paying for the damage? Who is paying for all the costs? Where’s my goods? Can I trust this product?
Immutability, resilience, security, trust in the data and transparency features of blockchain can help provide better resilience and transparency in supply chains. What is important to note is that blockchain isn’t the silver bullet, it’s just one tool in an overall digitization journey and one tool within a digitalization toolbox.
Barriers in supply chain
There are a number of barriers within supply chain:
Lack of visibility, system interoperability, end-to-end integration due siloed approach
Misaligned interests and lack of trust
Fragmented and stakeholder complexity
Cost prohibitive for SMEs
Supply chain industry is very fragmented across many different parties with each holding on to their own version of the truth. Companies in supply chain hold on to data for themselves for a number of reasons:
They are worried about security
Privacy and confidentiality of data. Regulation such as GDPR makes companies very cautious about sharing personal data
Don’t want to share data in order to keep their competitive advantage
Blockchain has some unique ways of dealing with data protection in a privacy preserving approach that is very much needed within supply chain.
The blockchain deployment toolkit helps organisations through the process of how to deploy blockchain in a responsible way. It ensures that all players have the right discussion to have a responsible deployment of blockchain; it is interoperable and that it has integrity around data, cyber security and compliance.
Source: World Economic Forum
Interoperability
Interoperability in supply chain is a key issue. They are numerous data silos and numerous breakdowns due to the lack of interoperability and the lack of into integration. The toolkit looks at interoperability from three main layers:
Business model interoperability
Platform interoperability
Infrastructure interoperability
Source: World Economic Forum
In the media we hear a lot about platform interoperability: consensus mechanism interoperability, authentication, authorization and blockchain to blockchain interoperability. However, what is key is business model interoperability. It’s not that the technology is the biggest issue, it’s whether or not organisations and countries want to share data with each other?
Business model interoperability is fundamentally about governance and answering key questions around what are the rules of the road, what rules dictate who gets what, who pays for what, data standardization, commercial models and many more. Legal interoperability is another facet of business model interoperability. It’s about having the legal frameworks in place that allows organizations to design blockchain solutions that can be internationally applied.
Consortium formation & governance
Source: World Economic Forum
Similar to Insureblocks, the World Economic Forum recognises that a number of blockchain projects fall over due to governance issues. Nadia states that
“Working with your ecosystem, agreeing and aligning on key aspects of who gets power? Who gets to pay? Who gets value? That’s the tough part. That’s the human piece that’s really difficult.”
The WEF interviewed more than 50 consortia to get their insights on why getting the governance is a key complex issue. Nadia resumes the challenges of governance to the following points:
Companies aren’t very good at having tough conversations with partners and competitors on governance in the early stages of building a consortium. Consequently, governance isn’t thoroughly addressed.
Blockchain brings a cultural paradigm shift. In a non-blockchain world each company has their own ledger with their own set of rules that the company controls. In a decentralised ledger everyone owns a piece of the ledger. Every participant has a node in this shared ledger. With blockchain technology you have competitors working together on building a system or investing in the same system for the first time. Tough questions around who pays what and how is the value allocated between the parties?
The way companies are still evaluating the benefits of a new system is that they’re looking at it from their own ROI perspective. You can’t evaluate the ROI of blockchain from looking at your own. You need to look at the extra value it brings to everybody. Having that wrong type of evaluation will hamper the consortium’s ability to tackle questions around governance
Key lessons for a future consortia:
Role of an impartial party to help get competitors to collaborate – example a university or NGO that has no economic interest
Appoint an independent executive director who is either a respected industry or experienced consortium leader
Inclusion of regulators and academics
Vertical versus horizontal participation and inclusion
Technology and firm agnosticism
Non-binding MOU (memorandum of understanding doc) to help keep speed whilst clarifying important contractual terms
Develop strong antitrust and governance policies
Company representatives evangelise in-house
Establish a foundational use case
Source: World Economic Forum
Digital identity
Digital identity is foundational. As an increasing amount of work is being done on a digital basis businesses need to know the identity of the corresponding party with whom they work with. They will need to know who they are? Is this supplier trustworthy? Organisations need system by which they can verify identities in an efficient, scalable and trustworthy way.
Having a trustworthy digital identity verification system is foundational to any blockchain system.
Autonomous software agents
Nadia reminds us that blockchain technology in itself doesn’t guarantee that information in it is correct. What IoT (internet of things) devices and autonomous software agents enable us to do is capture data where the data was produced and add it to the blockchain.
Numerous blockchain supply chain solutions have to ask themselves the questions on “how do I make sure that the data written to the blockchain is accurate, has integrity and can be trusted?” That’s where you need connected devices such as RFID scanners to ensure data integrity.
Smart contracts enable to code conditions into the blockchain. When those conditions have been met it automatically triggers an event. For example, if a container is delivered to a port. The moment the container is offloaded from the vessel it triggers an event where the bank is notified of that event which automatically triggers a payment from the bank to the factory of origin. Today such a process that eventually triggers the payment to the factory is either done via a number of manual steps or with traditional siloed systems with brokers and intermediaries to advise that the container was delivered and then to trigger that payment.
With smart contracts you can code that condition to say the moment this event hits it will automatically trigger a payment from the bank to the factory. So, the idea is that in the future with digital identities business will be conducted between autonomous software agents.
Legal & regulatory compliance
Source: World Economic Forum
Blockchain still has a number of barriers especially considering legal and regulatory issues. Laws and regulations were not written with decentralisation and distributed ledger technology in mind.
Distributed ledgers imply that you can have nodes located in different parts of the world which can create a number of issues. There aren’t laws which are aligned across the world.
GDPR is a good example where countries that aren’t located within the EU still have to adhere to GDPR regulation when working with EU countries. This is an example of the type of complexities that aspiring blockchain solutions within the supply chain industry have to be aware of.
Ep.108 – End to end solutions against COVID-19 – insights from Blok BioScience
May 10, 2020
Areiel Wolanow is the CTO of Blok BioScience and Managing Director of Finserv Experts. In this podcast we get to learn about the exciting work Areiel and his team are doing in developing end to end solutions against COVID-19. You’ll hear insights about how they developed a self-sovereign “immunity passport”, population testing protocols, supply chain capabilities, and a sophisticated analytical and insights dashboard for governments and enterprises to better appreciate and combat this pandemic. You’ll also hear about the conundrum on how to work with contact and trace applications in a manner that protects the principles of self-sovereignty.
What is blockchain?
Blockchain is a technology that allows multiple companies or people to share a single version of the truth without having to spend any time, effort or money on reconciliation, messaging and synchronization to name a few. The benefit from sharing allows the opportunity for completely new business models and new ways of solving problems to arise.
Areiel, previously featured on Insureblocks to talk to us about “Unlocking investment in blockchain projects”. What has changed in his view regarding blockchain is a very welcome maturation of thought. It is a toolkit for solving problems and for accomplishing what previously what would have taken large numbers of people, or expensive software solutions can now be taken for granted.
What is Blok BioScience?
Blok BioScience is a team of thought leaders in the medical, technology and supply chain industry who’ve grouped together to develop rapid solutions that deliver the best possible medical diagnostic and supply chain capability to fight the unprecedented impact COVID-19 is having on the world. Areiel’s Finserv Experts have entered into a business partnership with Blok to provide technology delivery capability.
Addressing the COVID-19 Ecosystem
The scientific community does not use words like immunity or protection lightly or without a great deal of consideration. When somebody says this vaccine confers immunity to this disease, they are encapsulating and summarizing, in most cases years of scientific study before they’re willing to make that claim. When the WHO (World Health Organisation) recently came out and said we’re not sure that the IgG (Immunoglobulin G) antibody is a marker of immunity, all that they’re saying is that they have not subjected that claim to a level of scientific rigor that would allow them to say yes, the IgG antibody confers immunity.
As the world’s economy has come to a standstill the world is demanding answers of the scientific community far faster than they are normally required to give those answers. And that results in a great deal of uncertainty.
Providing an answer needs to address all of these questions in a holistic way and provide not only say a test capability or a set of scientific studies, or a technical platform, but a holistic end to end solution that encapsulates all of that. And that’s really the ambition that Blok was set up to tackle.
Immunity passports
The WHO issued a warning about immunity passports:
This warning is entirely correct. Just because you have an attested digital or even paper certification that says you have this antibody does not necessarily mean you’re immune to anything. It means you have the antibody via an attested record.
For Areiel what is critical is that the data that is contained in an immunity passport belongs to the individual who had the test. It should not belong to the government, it should not belong to the person’s medical insurer, or their employer. Now, that creates a little bit of a conundrum because employers need to understand their employee’s medical status in order to determine whether it’s safe for them to return to work.
But by current law, an employer can’t ask an employee detailed health questions. How do you square that circle? How do you provide employers a way to get people back to work without breaching data privacy, and the principle that people should own their data?
The main purpose of the immunity passport is to provide the individual with an attested record of their antibody test and symptom status that employers, governments and transportation networks can use in a way that doesn’t compromise the self-sovereignty of that person’s data.
Areiel recognises that there are a number of major efforts around self-sovereignty but none of them have emerged as a standard. Recognising that a solution needs to be delivered very rapidly, Areiel and his team had to build a solution that infers self-sovereignty in a rock solid manner. They achieved this by keeping all of an individual’s data on their mobile device.
Areiel walked us through how his immunity passport app works:
“If you were downloading the immunity passport app onto your phone. In the onboarding process, you would do several things. You would take a picture of an ID that was valid in the country that you lived in, you would take a selfie using the app, you could not choose a picture from your photo library, you had to take a selfie live using the app, and you would give us consent to store that data on your app.
You then go through an attestation process where you would confer with or meet with a designated agent of the government or the enterprise that you have the immunity passport, or that was using it. And you would show an agent of that governmental enterprise, the selfie that you took on your phone, your physical ID that you took a picture of, and the picture on the phone, the agent would look at all four of those things, your selfie, your physical ID and the photo of your ID, and verify that all four of those things were the same. The agent would then indicate on their app that you are now attested.”
At no point during this process or the share of information is the attested person’s name recorded or shared.
The self-sovereignty is protected in the following way:
The fact that the name is never recorded on any database.
The physical evidence, that picture of the passport never leaves the phone, there’s no API that allows anybody to query it. There’s no database that stores it. And all of the test results are there.
The install of the app on the phone allows Blok a way to communicate back and to give good guidance information that is specific to the individual’s antibody status and symptoms. The way this work is that all guidance information is sent to the phone and the app will determine based on the individual’s antibody status which portion of the guidance is relevant to them.
If that individual needs to go back to work they just need to show their employer, or a government official or a security guard their QR code that will show their status without sharing any personal details.
Likewise, the data about the individual’s medical test and their symptom status is absolutely vital to epidemiologists and for companies to plan when their workforce can come back to work, but they don’t need to know who the individual is to draw those inferences.
Blockchain’s role?
Blockchain is a key delivery accelerator and getting these capabilities live fast.
Blockchain plays a key role in several areas. One is that it provides a level of validation of the test results and in keeping those records secure. Just a few days ago both the US and Britain issued a communique, saying that state sponsored hackers are actively working to penetrate labs, universities, pharmaceutical companies to steal, work that is being done on vaccinations and other COVID-19 fighting measured.
Blockchain allows a way of authorizing the sharing of these results for scientific cooperation, for cooperation between enterprise, trade groups and for cooperation between governments. Doing that in a way that respects the sovereign data residency requirements of one country versus another is critical.
These capabilities aren’t new to blockchain and numerous design patterns have already been implemented to do all of those things. So blockchain is a key delivery accelerator and getting these capabilities live fast.
Testing capability
It’s well understood that the rapid home test kits aren’t accurate enough to be useful for diagnostic purposes. If you’re going to base medical advice to somebody on a test, you need to know that the test is good because you’re taking someone’s life into your hands. So, the threshold for accuracy and specificity of a diagnostic test must be very high, or it’s not useful.
Home tests essentially have three purposes:
A test that is, say 90% accurate, is still not accurate enough to be of use for diagnostic purpose.
A test of even 70% of accuracy is still good enough to be of use in epidemiology. For example, wanting to know where in a country or in a large workforce there is an outbreak, a 70% accuracy is quite informative.
Home tests can identify people who could become serum donors as for now the best way to treat people who are critically ill is with blood serum of people who’ve been through the disease.
The approach to defining a good testing protocol is having a multi-tier strategy. Testing a large segment of a population is useful for making decisions about who gets the more accurate lab tests. Designing good protocol means understanding the strengths and weaknesses and capabilities of each of the various kinds of tests and building a protocol that takes advantage of the best of each.
Supply chain capability
Most of the test capability, the ability to manufacture both the high accuracy lab tests and the scalable rapid tests comes from China. This is true for two reasons:
Much of the world’s manufacturing capability comes from China
China was the first country to tackle COVID-19
The world at this point is largely dependent on China for capacity. Blok has a number of good working relationships with Chinese industry. Because of those relationships they are able to source tests from China but also to license the IP of those tests in order to locally source and manufacture the tests here in the UK or in any of the countries that Blok is currently talking with
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