Malta: Blockchain: The Potential To Change The Entire Economic World

Click here to connect with G M Corporate and Fiduciary Services on LinkedIn

The shipping industry has been given a fresh opportunity to strengthen the security of their data that could spell the end of paper documentation.  Blockchain technology promises to revolutionize container logistics by connecting the supply chain in a way the industry has never seen before. Should the technology enter operation it could also bring annual cost savings, eliminate time-consuming processes, as well as create trust and partnership to all parties involved. Blockchain establishes a shared, immutable record of data which is encrypted and inherently resistant to modification, requiring confirmation from all participants in the network before any changes can be made.

What is blockchain?

A blockchain is a database that is used to store digital assets or transactions which is then replicated and shared across a network. There is now wider interest from the maritime industry in the potential uses of this technology to streamline maritime transactional processes.

Its ability is to create "mutual distributed ledgers," which are self-governing, tamper-free, online databases that no one owns but that everyone has access to and can trust. It promises the potential of mass disintermediation of trade and transaction processing.

Container logistics is rooted in a byzantine world of legacy IT systems, massive amounts of data-entry-type paperwork and milestone management processes. Each process requires a different set of documents, typically done by humans interacting with multiple parties, whether that's with legacy computer systems, email, phone calls or sometimes even faxes.

Each of these interactions represents a potential point of failure, vulnerable to illicit manipulation or simply human error.

The money spent on processing documents that are not digitized is astronomical.

The introduction of blockchain in the marine shipping environment eliminates much of the problem in today's cargo logistics process. Each blockchain consists of records, called "blocks," which reference and identify the previous block using a cryptographic function. This forms an unbroken, verifiable chain of custody. Old transactions are preserved forever and new transactions are irreversibly added to the ledger. The beauty of this process is that it's distributed, meaning it can live on multiple computers at the same time, accessible to anyone with an interest in that particular transaction. So it literally could enable smaller companies to be more agile within the global trade environment.

Blockchain Benefits

A blockchain has three main characteristics that lend itself to improving transactions. It is distributed, immutable and permissioned. As the information within a blockchain is duplicated throughout a network it is not stored in a centralized location, which allows anyone to access an up-to-date version of the information (distributed). The information is protected as old blocks cannot be tampered or altered, and new blocks of information must be verified by consensus of other members in the network before it is appended to the previous block (immutable). Which, in the maritime example as it uses a private blockchain, can only be done by those within a set network that have the correct read/write approval (permissions). This creates a tamper-proof and time-stamped digital paper record of the origin and journey of all the transactional documents.

For the maritime industry, the cost and efficiency benefits of blockchain technology are noticeable in the context of cargo management, as the safety of cargo transportation requires considerable logistical and administrative investments. In the case of paperwork, these include Bills of Lading, Letters of Indemnity and Charters. To complicate matters, cargo, like oil, can be sold multiple times in rapid concession during short voyages. The final paperwork must be signed and approved by a multitude of entities within the transaction before the cargo can be discharged. This, in turn, would mean it must be couriered between these entities, which is both time-consuming and expensive. With the adoption of blockchain technology, it could create a more efficient and secure platform for transactional demands.

Blockchains would also help replace the typical transactional paper documents with digital forms. By allowing IoT (Internet of Things) port infrastructures to automatically update cargo information it would also allow for the tracking of containers from boat to stack, or verifying the weight of goods during discharge.

Blockchain in the Real World

The main attraction of blockchain as an efficient platform is to reduce the instances of an criminal or terrorist activity.  Two examples of document fraud for criminal gain that blockchain could inhibit are Forged Bills of Lading and the "Trojan" Container.

In the first instance, an attacker creates a fake set of Bills of Lading (acknowledgement of receipt of cargo) to allow the discharge of cargo in advance of the intended receiver. To create these 'documents', it requires specific "insider" knowledge of the cargo. Blockchain technology can limit viewing rights to specific documents within the transaction to the multiple entities that require it. It also would create a log every time a document is viewed and by whom. This digital verification of paperwork would mitigate against the acceptance of forged Bill of Lading by local shipping agents.

In the second scenario, the spectre of the "Trojan" container is becoming more common as vessels are able to carry a far greater number per voyage than ever before.  With the turnaround times in ports kept to a minimum in order to reduce downtime of vessels, it is impossible to rigorously check the manifests and contents of all containers. Therefore, containers carrying cargo different from that of the official documentation is a genuine possibility.  Incorporating a blockchain system into the customs processes would reduce the required time for the verification of documents to occur.

In both of these examples, there is potential for terrorist groups to utilise these attacks. By being able to hide cargo in containers and circumvent the port security, it can allow the movement and trade of weaponry or explosive materials used to fund terrorist activity.

Risks and Challenges of Blockchain

Blockchain technology facilitates customs clearance processes through integration of electronic processes.

There are potentialities for an attacker or hacker to manipulate the transactional system. This highlights the human oversight that should remain in order to verify the accuracy of inputs.

There is also an interest in the possibility of implementing smart contracts, which would allow the automation of parts of the transactional cycle, including the ability to issue a refund if cargo verification fails. Currently, within transactional documents, there are a wide range of clauses, including force majeure (unforeseen circumstances affecting charter) or demurrage (failure to meet contractual agreements). This makes it difficult to build these into an automated system as insurers rely on their claim adjusters to make a fair assessment of the facts pertaining to the loss. An automated database would not be able to account for the ramifications of breaches due to the type of transaction, the vessel classification and the route for example.

Also, there needs to be a system of governance and consciousness that we apply when determining whether the technology should be deployed.

Relationships that are valued in the market today will look completely different in the future. Today it's human-to-human selling or interaction, whereas tomorrow most of this information or the ability to create those relationships will be managed more by technology and by processes rather than human beings selling to each other. Blockchain would dehumanize the process of buying, selling and perhaps operating.

At the same time, there's a duty of care to ensure this technology is implemented in the right settings. For example, we don't need to go and create social-economic issues in developing countries where jobs might be replaced by automation. But at the same time, in European and Western countries where we have a higher head-count cost, the technology can enable us to reduce those costs.

 The Future of Maritime Blockchain

If successful it could lead to the reduction of paperwork required per transaction, in turn, reducing overall costs and improving efficiency. A trading platform based on blockchain technology could create an auditable and tamperproof paper trail which in turn will improve overall confidence in the transactional security and reduce the scope for criminal and terroristic activity.

Blockchain will also allow humans to collaborate with each other and create the trust that has never been created before. It has a very wide-reaching potential that, if applied in its most holistic sense, would be extremely beneficial.

Wide-scale adoption of the technology could be hampered, however, if large industries and the people involved in supply chain management don't move beyond the current "proof-of-concept" trials out of apprehension over sharing data. Or worse, from fear about how it will change their business models. And that's the biggest risk of all: that the technology won't be used.

The beauty of the technology is that no one needs permission to implement the use of blockchain; there are no regulations—the field is wide open—we can simply go ahead and do it. But there's an inherent lack of understanding of the technology that is inhibiting a more widespread use.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions