Blockchain: Potential Impact on Shipping and Logistics K. Blythe Daly, New York April 11, 2018

Transcription

1 Blockchain: Potential Impact on Shipping and Logistics K. Blythe Daly, New York April 11, 2018 Copyright 2018 Holland & Knight LLP. All Rights Reserved

2 Blockchain in the News Maersk, IBM Blockchain JV Promises to Save Industry Billions - IHS Fairplay, January 16, 2018 First Freight Deal Settled In Bitcoin - Tradewinds, January 23, 2018 Commodities trader Louis Dreyfus Turns to Blockchain - Financial Times, January 22, 2018 Container Shipping's First Dedicated Crypto Currency Launched - Lloyd s List, February 1, 2018 Singapore s PIL, PSA International, IBM Complete Blockchain Trial - Journal of Commerce, Feb. 27, 2017 Consortium Puts New Blockchain Solution to the Test - Journal of Commerce, Mar. 15, 2018 Blockchain: Is Shipping Prepared? - IHS Fairplay, March 1, 2018 Liner Cryptocurrency Sees First Transaction - Tradewinds, Mar. 19,

3 What Is Blockchain? WHAT IS BLOCKCHAIN? Single platform on which a transaction (or series of transactions) can be: 1. viewed, 2. validated, and 3. authenticated. 3

4 What Is Blockchain? WHAT IS BLOCKCHAIN? Blockchain technology is a subset of distributed ledger technology ( DLT ). All blockchains are DLTs Not all DLTs are blockchains 4

5 Blockchain Defined Definition: a decentralized peer-to-peer network, that maintains a public, or private, ledger of transaction. (1) Ledger: a simple database or spreadsheet capable of storing information. 5

6 Blockchain Defined Definition: a decentralized peer-to-peer network, that maintains a public, or private, ledger of transaction. (2) Decentralized: stored on numerous computers connected to a common network; no central authority, controlling party, or single server. - each computer in the blockchain is called a node - each node has a complete history of every transaction completed in that particular blockchain - the first transaction, or block, is called the genesis block 6

7 Blockchain Defined Centralized This is how most systems in the world today are organized Distributed (or Decentralized) This is a better way to exchange some data and other information 7

8 Blockchain Defined Definition: a decentralized peer-to-peer network, that maintains a public, or private, ledger of transaction. (3) Peer-to-Peer: all nodes (or computers) are connected via the internet and communicate directly rather than through a centralized server. 8

9 Blockchain Defined Definition: a decentralized peer-to-peer network, that maintains a public, or private, ledger of transaction. (4) Network: all nodes operating under the same set of rules (the protocol) embodied in computer code. 9

10 How Does It Work? HOW DOES BLOCKCHAIN WORK? 1. Build a Transaction 2. Sign the Transaction (proof of ownership) 3. Broadcast the Transaction 4. Agree on the Transaction: CONSENSUS 10

11 How Does It Work? 11

12 How Does It Work? HOW DOES BLOCKCHAIN WORK? 1. The network of computers all running on the same common software or rules (protocol) must come to agreement or consensus upon whether a change to the blockchain should be made and what the changes should be 2. Two Common Types of Consensus: i. Proof of Work (miners) ii. Proof of Stake (stakeholders) 12

13 How Does It Work? The Magic: Consensus Fundamental challenge for decentralized systems: Participants must have confidence (without the need for any trust among participants) that all the ledgers reflect the same version of reality. How to overcome the challenge: One or more algorithms or proof requirements which are said to achieve consensus. 13

14 Why Is Blockchain Unique? WHY IS BLOCKCHAIN UNIQUE? 1. Cryptology A. Public Key Infrastructure (PKI) Mathematical equation produces pair of alphanumeric keys Public: given to others and shared freely Private: secret Considered the most secure form of encryption used today B. Zero-knowledge proof: Method by which one party (the prover) can prove to another party (the verifier) that the statement is true without conveying information apart from the fact that the statement is indeed true. 14

15 Why Is Blockchain Unique? WHY IS BLOCKCHAIN UNIQUE? 2. Immutability or the Hash : Each block (and all transactions bundled within) contains a reference (hash) to the block before it. If you change any part of the block or any transaction within it and then subject it to the same algorithm, a different hash will be produced and the block will no longer be valid. Exponentially more difficult to alter a prior entry in the ledger 15

16 Why Is Blockchain Unique? WHY IS BLOCKCHAIN UNIQUE? 3. Transparency: every user sees and maintains the same copy of the ledger Information on the ledger is shared concurrently and the accuracy of the ledger can be verified by any participant Visible and trustworthy transactions 16

17 Types of Blockchain TYPES OF BLOCKCHAIN 1. Unrestricted (or public): anyone can participate Example: Bitcoin 2. Permissioned (or closed): only authorized participants can access May also be known as Consortium or Enterprise Protocols Examples: R3 s Corda (for financial markets) Mediledger (pharma) 17

18 Blockchain Examples EXAMPLES OF BLOCKCHAIN PROTOCOLS Bitcoin Ethereum Hyperledger Ripple Consensus Network (XRP cryptocurrency) (financial services) R3 s Corda Partner Network Tendermint Symbiont Distributed Ledger 18

19 Potential Impact on Supply Chain Logistics SUPPLY CHAIN ACTORS Potential participants in blockchain transactions: importers/exporters ports customs and tariff officials warehouse operators intermodal carriers 3PLs financial institutions (eventually) 19

20 Potential Impact on Supply Chain Logistics WHERE CAN SHIPPING USE BLOCKCHAIN? Potential applications for blockchain in the supply chain: Tracking and Traceability o Ownership o Maintenance Optimization (fuel, slot charters) Automated Payment o Purchase Orders o Invoicing (reduction in AR s) o Letters of Credit Documentation o Bills of Lading 20

21 Bills of Lading & Letters of Credit» Blockchain: 1. A token, or digital twin, is created Unique & immutable Examples until recently, it was thought that the only way, in an electronic environment, to maintain uniqueness, was through a central registry administered by a trusted entity 2. The token can be transferred freely (and securely) on a distributed ledger 3. Code on a distributed ledger uses self-implementing conditions (smart contracts) to release cargo (or funds) automatically without the need to present paper documents» Benefits: 1. High security & elimination of fraudulent documents 2. Reduction of expenses (correspondent bank fees, mailing bills of lading) 3. Efficiency & reduction of delays 4. Elimination of human error 21

22 Bills of Lading ROTTERDAM RULES Article 9 Procedures for use of negotiable electronic transport records 1. The use of a negotiable electronic transport record shall be subject to procedures that provide for: (a) The method for the issuance and the transfer of that record to an intended holder; (b) An assurance that the negotiable electronic transport record retains its integrity; (c) The manner in which the holder is able to demonstrate that it is the holder; and (d) The manner of providing confirmation that delivery to the holder has been effected, or that, pursuant to articles 10, paragraph 2, or 47, subparagraphs 1 (a) (ii) and (c), the electronic transport record has ceased to have any effect or validity. 2. The procedures in paragraph 1 of this article shall be referred to in the contract particulars and be readily ascertainable. 22

23 Bills of Lading BILLS OF LADING Rotterdam Rules, Article 9: (a) The method for the issuance and the transfer of that record to an intended holder; Rotterdam Rules, Article 1:» 21. The issuance of a negotiable electronic transport record means the issuance of the record in accordance with procedures that ensure that the record is subject to exclusive control from its creation until it ceases to have any effect or validity.» 22. The transfer of a negotiable electronic transport record means the transfer of exclusive control over the record. Blockchain Answer: 1. A token on a blockchain is subject to the exclusive control of the person with the private key corresponding to the address where the token is kept. 2. The holder of the private key corresponding to the address at which an electronic B/L is kept will be deemed to have possession of it. 23

24 Bills of Lading BILLS OF LADING Rotterdam Rules, Article 9: (b) An assurance that the negotiable electronic transport record retains its integrity; Blockchain Answer: Blockchain bill of lading is more tamper-resistant than a paper bill of lading: 1. Identity of transferors is authenticated with digital signatures digital signatures more secure than handwritten signatures 2. Digital signature ensures the transaction cannot be changed 24

25 Bills of Lading BILLS OF LADING Rotterdam Rules, Article 9: (c) The manner in which the holder is able to demonstrate that it is the holder; and Blockchain Answer: 1. UNCITRAL Model Law project recognizes that identifying the holder is not required to demonstrate that it is the holder: Moreover, identification should not be understood as implying an obligation to name the person in control, as the draft Model Law allows for the issuance of electronic transferable records to bearer, which implies anonymity. U.N. Doc. No. A/CN.9/WG.IV/WP.135/Add.1 (2015)) Blockchain ledger displays the addresses at which the tokens are kept 3. The addresses are unique cryptographic identities of the holders of the tokens not real-life identities 4. Cryptology solutions such as zero-knowledge proof enables the prover to verify a fact without conveying or disclosing additional information other than the fact that a statement is true 25

26 Bills of Lading BILLS OF LADING Rotterdam Rules, Article 9: (d) The manner of providing confirmation that delivery to the holder has been effected, or that, pursuant to articles 10, paragraph 2, or 47, subparagraphs 1 (a) (ii) and (c), the electronic transport record has ceased to have any effect or validity. Blockchain Answer: 1. Blockchain protocol configured in a way that causes a blockchain-based bill of lading can be transmitted to the carrier upon delivery of the goods similar to a paper bill of lading would be physically surrendered. 26

27 Bills of Lading BILLS OF LADING Conclusions: 1. A blockchain-based bill of lading likely satisfies the requirements for a negotiable electronic transport record as set forth in the Rotterdam Rules 2. The Rotterdam Rules may provide the legal infrastructure necessary to make the use of blockchain technology for electronic bills of lading a reality 27

28 Challenges CHALLENGES TO ADOPTION Uniformity o Standards o Interoperability Stakeholders o Adoption by network participants o Privacy Regulatory concerns Immutability also requires precision Lack of legal infrastructure 28

29 Blockchain in One Minute Ledger Consensus Decentralized Blockchain2.0 PKI Encryption 29

30 Additional Resources» Josias N. Dewey, et al., The Blockchain: A Guide for Legal and Business Professionals (Thompson Reuters 2016)» Josias N. Dewey, et al., Beyond Bitcoin: How Distributed Ledger Technology Has Evolved to Overcome Impediments Under the Uniform Commercial Code, 47 U.C.C. Law Journal 105 (2017)» U.N. Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea (The Rotterdam Rules) (Vienna 2009)» Takahashi, Koji, Blockchin technology and electronic bills of lading, 22 J. Int l Mar. Law 202 (2016) 30

31 Thank you! Blythe Daly New York BLYTHE DALY is a New York litigation attorney in Holland & Knight's New York office and a member of the firm's Maritime Practice Group and Transportation & Infrastructure Industry Sector Group. Her practice encompasses a broad range of domestic and international commercial shipping and transportation matters on behalf of vessel owners, vessel charterers, commodities traders, freight forwarders, insurers, and cargo interests. Her experience includes settling, mediating, arbitrating, and litigating a variety of civil disputes arising out of charter party and contract breaches, maritime collisions and casualties, cargo damage, maritime bankruptcies, personal injury and death claims, warranty and insurance coverage disputes, attachment and arrest proceedings, acts of piracy, General Average claims, and Jones Act regulations. Blythe is the chair of the Standing Committee for Young Lawyers for the Comité Maritime International (CMI), a vice chair of the Business Law Committee of the ABA's Tort Trial & Insurance Practice Section, and a member of WISTA (Women In Shipping and Trade Association). Blythe also serves on the Board of Trustees for the Seamen s Church Institute. Blythe received a certificate in Maritime Law and a Certificate of Mediation Training from Tulane University Law School, where she also served as the editor-in-chief of the Tulane Maritime Law Journal.