Unlocking the power of blockchain
Darren Vaux looks at the potential applications for blockchain technology in the marine industry.
Blockchain certainly sounds like a nautical term, perhaps forming part of a mooring apparatus. In contemporary language it encompasses a technology that will have far reaching implications for all industries including the marine industry. Almost everybody has heard of bitcoin and cryptocurrencies, and some of us have met, and in some cases sold boats to, people who made significant amounts of money from the cryptocurrencies craze. Beyond the cryptocurrencies themselves, however, there is an underlying technology called blockchain that will revolutionise the way we do business over the next 10 years.
So what is blockchain?
Our traditional economy relies on large intermediaries like governments, banks and exchanges to maintain a record of transactions so we know who owns what and who owes what to whom. This is a central registry and only the registry owner knows who owns and owes what. A central registry inherently relies on the stakeholders or users to trust the integrity of the intermediary who owns the registry, while the registry owner charges fees or transaction margins for managing the registry. Examples of these are land registries, stock exchanges, banks or boat registrations and licenses.
In the blockchain, there is no intermediary. The most current register, in full, is held by every participant and every transaction updates every register. This is known as a distributed ledger. Its security is created by the need to get consensus for each new block in the chain and once a block has been accepted it cannot be altered. Without diving too deep into the technical rabbit hole, each transaction is attributed a ‘hash’ created by a one-way encryption algorithm which is a unique identifier for that particular item.
As a simple example of the technology, when you scan a document to create a pdf, the file is essentially a series of characters and at the most basic level a series of zeros and ones. If you use the blockchain algorithm to create the ‘hash’ (for example the one used for bitcoin) it will always create a ‘hash’ or code of that document that is 256 bits long. The same file will create the same hash no matter how many times you run it. If you scanned the same document again to create a new pdf, to you and I it would look the same but there would be tiny differences in the file and the hash would be different. The blockchain could tell it was not the same file.
The importance of this is that if you are presented with a series of digitally signed contracts you can instantly verify that they are the same as the documents that may have been signed and passed through a number of digital hands before reaching you. This becomes very interesting when you apply the technology to products because theft, counterfeits and verified points of origin are becoming major issues for most global industries.
Blockchain and the marine industry
Counterfeit products are a huge global issue. It is reported that over 1 million people across the globe die annually from taking counterfeit pharmaceuticals. The airline industry has a major problem with counterfeit spare parts (clearly quite concerning in itself). It has been said that the shipping industry runs on counterfeit parts. So what about the marine industry? How do we verify that we are getting what we are paying for, particularly when we are importing direct from overseas? At present we rely on and trust reputable suppliers but, as procurement methods change, so will the trust model.
Regulation also plays its part. As an example, there are varying degrees of regulation across the globe in relation to the importation of teak from renewable sources. There have been reported cases of plantation verified certificates not matching the imported timber giving significant problems to boat builders. So how do you verify that the teak at your factory is the same material that has been certified as renewable? Blockchain has the potential to provide a verifiable chain of custody from the forest to the factory and thereby eliminate substitution and counterfeits. At present only certain parts of the supply chain are verified and it’s the gaps that create risk.
This same principle can be applied to all components of a boat and the boat itself. The unique code (hash) for each component is created at the source. Counterfeiting relies on duplicating a product. The blockchain does not allow two products to have the same hash so consumers expecting a genuine product will be able verify its authenticity, or otherwise, by using something as simple as a phone app that could confirm the chain of custody all the way back to the source.
Building block work
So what are the potential uses of the blockchain in the marine industry?
1. Genuine parts, components and products. As mentioned above, the technology will enable manufacturers to uniquely identify their products and for consumers to verify the authenticity of what they have purchased. Fundamentally, this is both supply chain management from manufacturer to consumer and ultimately quality assurance.
2. National registry of vessels and components. This can include boats, motors, PWCs and other products. This will make the re-badging and sale of stolen goods difficult as each component is given a unique code at the point of manufacture and the blockchain will record a chain of custody for the component. Anything that is stolen would be recorded and flagged when the hash reappears on the system (say on annual registration). More importantly though, the blockchain ledger creates a verifiable registry of ownership which traditional registrations systems do not and as such can deliver a higher level of asset protection.
3. International transactions. Transferring money through the banking system can take two to four days through the SWIFT system as there has to be a process for banks that may or may not have existing relationships with each other to transfer funds, convert currencies etc. Global cryptocurrencies have the potential to enable these transactions to be almost instant and with some currencies like Ethereum enabling smart contracts, the ‘money’ is not transferred until certain conditions have been met. For example, the ‘money’ for a product is not transferred until the blockchain system verifies that the product has been loaded on the ship in a foreign port.
Explore the potential
All of these ideas require the development of bespoke applications to deliver these outcomes and considerable investment is being applied in a number of industries where the issues of supply chain management, quality assurance and counterfeiting are a significant cost to those industries. No doubt there will be the potential for adaption of these applications and technologies to the marine industry.
A more looming issue will be the ability of government regulators to adapt to the changing economic mechanics as these systems often eliminate the target of regulation (like the intermediaries). The benefits of increased efficiency, quality assurance and verifiable transaction histories are significant to consumers, industry and government alike but it is going to require pro-active action by industry and government alike to explore the potential and consequences of these technologies and changing economic models on our industry over the coming years.
About the author
Darren Vaux is director of the Boating Industry Association, vice president of the Marina Industries Association, executive committee member of ICOMIA, director of the award-winning Empire Marina Bobbin Head in Sydney, and the Australia, NZ and Pacific Islands representative for bedsonboard.com.
This article was first published in the June-July 2018 issue of Marine Business magazine.