Blockchain’s potential for transforming the fish industry

EM4 20 BlockchainA new basis for international business

This article was featured in EUROFISH Magazine 4 / 2020.

“Blockchain” is for many people still little more than a buzzword they may have heard about in connection with the digital currency bitcoins. But in fact blockchain and artificial intelligence are developing into leading technologies that are “revolutionizing” many areas of the economy. Blockchains provide transparency, enable more control, and simplify traceability in business relationships.

Bookkeeping was for many centuries the daily work of traders, merchants and suppliers who entered their incoming and outgoing goods in thick account books. They recorded meticulously who delivered what and when, where the deliveries went, what had already been paid for, or whether a customer was perhaps already in arrears. The account book was, so to speak, the heart and soul of many businesses and its correct management was decisive for economic success. When a few decades ago computers replaced the long tried and tested books and index cards and rationalised administrative procedures it became clear what advantages digitalisation offered in the area of data acquisition, processing and storage. However, this did not fundamentally change the principle: what used to be written in the account book was now in the computer. Access to the data became easier, faster and more convenient, but computers are still really nothing more than centralised data storage devices. With “blockchain” a completely new digital system is now available in which all transaction data are recorded as usual but stored in several places at the same time. Instead of centralised data storage the blockchain functions as a decentralised network in which all participating companies record and store data on an absolutely equal footing. The transaction data is grouped in blocks and simply attached to the already existing and verified blocks, thereby creating a chain. This is the simple principle behind the name “blockchain”. Blockchains are chains of transaction blocks, such as those created between suppliers and buyers within supply chains. A digital register, so to speak, that stores the data of all transactions that take place in chronological order and keeps them accessible at all times. Thanks to decentralised distribution the data is completely transparent and practically unalterable. Blockchains are also sometimes referred to as “distributed ledger technology”. With this technology, which has really only become feasible through the global networking of computers, all participants share and manage the stored information. There is no longer any individual information sovereignty and no possibility of manipulation as is possible with contracts agreed in writing. The network alone validates the data records and ensures that the transactions are carried out according to the agreed conditions. As soon as the code meets the blockchain standards the next step in the agreed procedure is automatically processed. A distributed ledger is not a centralized database like those mostly still used by companies today but always has a decentralized structure which enables all participants to have individual data records displayed in the distributed general ledger. It is also possible to check the history of all the information stored there. Distributed ledger technology is suitable both for collecting static data, as is common in registries, and for recording dynamic data that arises in the course of various transactions. At first glance, ledgers and blockchains might seem to be identical but in fact blockchains are only one type of distributed ledger. Distributed ledgers do not only exist in the form of chains, as can be seen in the digital cryptocurrency system IOTA (Internet Of Things Applications) or the consensus data structure “hash graph”.

The seafood industry benefits from digital technology

The advantages of the blockchain are not immediately apparent to everyone: why share your data with others, possibly even in the cloud, where third parties might be able to access it? In the fish business many people still rely on personal contacts that create trust, and the handshake is still valued. But it’s worth taking a closer look at the new digital technology which could revolutionize the fish industry in the foreseeable future. Wherever several companies, stakeholders or other organisational structures are involved in business together, for example within a supply chain, the strengths of blockchain technology will quickly become apparent. And as is well known, there are very few sectors of the economy that are as international – in both positioning and operations – as the seafood industry. So despite all control efforts and operational audits it is practically impossible today to know every single supplier and participant in the supply chains personally. Where complete transparency is lacking and the network of controls perhaps patchy there will inevitably be residual doubts as to whether a transaction is trustworthy or whether the documents accompanying a delivery really are correct. This is where the advantages of the blockchain become clear for it functions as a transparent database. Every detail of the processes is recorded in “digital account statements” and can be viewed by the participants in the network. The online network created by the blockchain link is always managed by several computers located in the offices of the participants in the chain of action. For a transaction even to take place it has to be confirmed by each computer. This is, of course, done in encrypted form to ensure security. And this common coding within the blockchain enables unprecedented transparency and control because subsequent alterations, manipulations or even fraud in the system are practically impossible. This strengthens trust between the partners and also helps to eliminate a weak point in the food industry’s supply chains which is often criticised. However, access to verified information, which is managed by several computers simultaneously and is therefore available to every participant in the transaction, is only one of several advantages of the blockchain. This is because digital technology, with its decentralized, verifiable data storage on many computers, also eliminates the need for a central authority to vouch for the authenticity of the data. This accelerates the speed of transactions, orders can be processed securely, individually, and comparatively inexpensively.

Trust is good, blockchain is better

Strictly speaking, the blockchain is therefore much more than a simple data structure since it also makes it possible to set concrete specifications for transactions or even to conclude “smart contracts”, i.e. digital software-based purchase contracts. These smart contracts allegedly have the potential to save billions in the financial services sector alone. In the global fish trade such smart contracts could remove some barriers and simplify trade relations. Many businesses fail today due to a lack of trust. Who buys fish from an unknown supplier? Especially if they don’t know whether the goods were caught legally or perhaps originated from IUU fishing. How can prospective business partners be sure that they will actually receive the promised goods or money? Worries like these still hinder some commercial transactions today but they can be put on a solid foundation by means of smart contracts which are laid down in a blockchain. For example, it could be stipulated in a contract that the agreed countervalue would be transferred to the supplier immediately after delivery of the ordered products. This would happen automatically, no one would have to trust the other in return. The blockchain code automatically triggers the action as soon as all conditions are met, without any need for a third party to certify or regulate anything between the involved parties whose task is simply to supervise, manage or verify information or values. Transactions become digital “if-then” transactions that function securely and reliably. On this basis it could even become possible to trade with partners one might have previously thought too risky. Greater independence from third parties is one of the decisive advantages of the new digital technology. All parties involved trust the data chain because it is completely transparent and stores the data in an unalterable form. This renders unnecessary the intermediary platforms or higherlevel trading structures that step in when there are problems, the goods do not arrive, or payment is not received. And because the data in the blockchain cannot be altered unilaterally or subsequently by any one of the parties involved, manipulation and fraud are virtually impossible. The automated processes save time and money because there are no costs for notaries, lawyers and bank fees, and trading transactions are possible at any time. Office hours and opening times, which sometimes make it difficult to process transactions quickly, become meaningless. IT experts are already declaring smart contracts to be important key components of Industry 4.0 because they allow direct electronic communication and value transfer without disruptive intermediaries. This reduces global trade barriers and promotes direct business contacts between partners across national borders who do not need to know each other personally. Blockchains and smart contracts thus open up completely new economic opportunities for many companies. Anyone who doesn’t yet really trust the new technology can initially use so-called “permissioned blockchains” for smart contracts in B2B situations. This special form of blockchain is not public; the participants know each other and are expressly invited to participate. In addition, the number of participants is limited which speeds up the process considerably (the fewer participants, the faster it works) and the proof of work is less. However, the number of participants in permissioned blockchains should not be too small so that the distribution of independent interests is maintained. Otherwise, there is a risk that individual participants might form alliances, make common cause and perhaps manipulate certain data after all. Blockchain enables trustworthy traceability Another important field of application for blockchain is the achievement of complete, transparent tracking of product paths within the supply chain. Traceability systems that document the route from the producer via the traders to the customer are not new but the current systems for data exchange in the supply chain require a great deal of effort but are still often not sufficient to dispel all doubts. If, however, all information is stored decentrally in the blockchain and no subsequent alterations are possible this is considered reliable proof of the authenticity of the origin or quality of a fish delivery. Especially since data access, and thus control, is possible at any time. This is even more the case now that fishing enterprises, too, have discovered the advantages of the blockchain for themselves and are using it during the management of their fishing fleets. The demands are particularly high in this area because remote fishing grounds, long journeys, changing crews and intensive fishing activities make communication and controls difficult. However, modern business intelligence, blockchain and cloud technologies that connect each vessel to the management teams in real time provide a reliable basis for data input into the traceability chains. Another application example would be the storage of data on luxury goods (such as caviar) in blockchains. If the products are at the same time marked with microchips they can be identified reliably. This would make it more difficult for potential swindlers to carry out shady business deals because forgeries are detected more quickly. These convincing advantages have already encouraged many retail chains to start converting their traceability systems and B2B contacts to blockchain technologies. In early May 2019, the Ecuadorian industry association Sustainable Shrimp Partnership (SSP) announced at the Seafood Fair in Brussels that it had joined the IBM Food Trust which enables traceability of SSP shrimp from farm to store. According to SSP the Food Trust’s blockchain-based system was “unalterable and incorruptible” and provided a secure platform to guarantee the authenticity of product claims and to offer both retailers and end customers full transparency on the shrimp produced by the association’s members. The production data in the blockchain can be viewed by retailers around the world and used to inform consumers. SSP has announced that it will also provide consumers with access to certain areas of the blockchain via an app.

Application possibilities are currently under development

Blockchain technology which originally only served as a trading platform for cryptocurrencies is now moving more and more into new application areas. Some optimists even hope it might be able to “turn back” the centralization of the trading landscape on internet platforms such as Amazon or Alibaba. If small retailers joined forces, placed their product offers in a transparent blockchain, and processed payments via crypto-currencies like bitcoin they would stand a good chance of winning back market shares. If the processes were to work with real products, however, it would demand a high degree of networking and digitization among participants in the chain. The new 5G standard and fibre-optic cables for fast data transfer would therefore be very helpful. Numerous other possible blockchain applications are being developed worldwide. For example, for logistics tracking, in the detection of real-time errors, or in the area of data and device authentication. The company Figure uses the blockchain to streamline construction financing processes, including credit lines for home loans and loans for craftsmen. The money is allegedly already available just a few hours after filling out a loan application. Verisart uses artificial intelligence and blockchains to certify and verify artwork in real time. The Verisart blockchain enables artists to provide their works of art with encrypted, tamperproof work certificates including timestamps. This makes it almost impossible to sell fakes as originals. The blockchain can also serve as a platform for companies that collect capital and conduct automated marketing. For example, by supporting the company’s placement recommendation and aptitude testing process so that customers can be sure that they are only working with high-quality, reputable partners. The health technology company Vytalyx uses blockchain to store patient-related medical information and then make it available to authorized doctors and other medical staff members. This allows treatment and nutrition plans to be personalized and improves communication between patient and doctor. In the seafood sector, Fishcoin is currently establishing a blockchain- based peer-to-peer network that aims to make traceability more transparent, trustworthy and secure using a common protocol. Unlike most blockchain initiatives, Fishcoin itself is not a central company but a kind of “decentralized ecosystem” of companies and third party providers who benefit jointly from the added value of the network. This is a particularly interesting approach to the digital transformation of the seafood industry. In Denmark, the Centre for Logistics and Cooperation (CLS) recently launched the project “Maritime Block Power” with the Danish Industry Fund, which investigates the blockchain potential of small and medium-sized enterprises in the maritime sector. The project aims to show by means of examples how blockchain technology can be used in practice. One of the study’s focuses is on the ports of Hirtshals, Aalborg, Hanstholm and Grenaa, which with companies in the surrounding area are facing changes in the digital landscape. The Danish trade association Danske Havne is convinced that the results of “Maritime Block Power” will open up promising perspectives for small companies, too, since a company’s size is not decisive for the opportunities in the digital world.