Ports wary of the bitcoin bubble
Ports are sniffing around cryptocurrencies, but with a great deal of trepidation, finds Martin Rushmere.
Port authorities and terminal operators are traditionally meat-and-potatoes types for technology. Reliable, proven and trusted have always appealed to their tastes. New types of gantries, straddle carriers and automation were seen as strange types of food, picked at gingerly before being enthusiastically seized on.
Along comes blockchain and its cryptocurrency derivative. The offering is pushed away with a shudder.
“The problem is that the two are often confused as being the same thing,” says a US analyst, “largely because Bitcoin has become so prominent in the news. Added to this, there has been an explosion of digital start-ups promising their cryptocurrencies can be used for any industry and are secure and legal.”
The analyst says that the market place has become so competitive that start-ups are making unverifiable claims and trying to outdo each other.
Ports point out the turmoil and uncertainty in trading markets as the most immediate deterrent to being involved. Observers agree that in the current climate this is certainly a valid argument, but should not be the reason for avoiding crypto indefinitely.
Aljosja Beije, logistics & technology lead for Blocklab in Rotterdam, says: “Right now cryptocurrency is not an accepted payment for logistics and the supply chain. We must remember that it is not legal tender - yet.” He says it would need to become so in the future for critical national businesses such as ports to deal with it on the same basis as physical currency. “The price and valuation bubble has finally burst, as we knew all along it would.”
But Mr Beije cautions against the antipathy going too far. “The price crash and uncertainty does not mean the underlying idea of cryptocurrency is wrong. What it has been used for is very limited – illegal activities are the main focus of attention - and there is so much more potential. People in the maritime industry (and of course elsewhere) do not understand the technology.”
Despite the torrent of negative publicity causing ports to avert their eyes, international banks, traders and consultants are holding more seminars and conferences – albeit without some of the breathless hysteria that accompanied cryptocurrency three years ago.
Public sentiment emerging from these is that four conditions have to be present for the system to be more palatable and for publicly-owned or operated enterprises to take part: insurance/underwriting and legal redress mechanisms have to be established when payments go wrong; the laws and regulations need to match in applicable trading centres; and there has to be financial stability.
The fourth conditions, and with the most long-term implications, is tax. The IRS in the US is working itself into a frenzy over effective ways to keep track of payments and establish procedures to decide just which transactions, and what proportion, are taxable.
Ian Chan, a blockchain professional with Deloitte in Canada, notes that transaction fees of, mostly, Bitcoin are extremely high. “It’s crazy,” he says. Others back up his observation, pointing out that a main advantage of cryptocurrency – cutting out intermediaries – is lost when fees are higher than for other forms of payment.
He says digital currency needs hedging just like any other currency, however, “the volatility is so much that the cost of hedging makes it prohibitive”.
Mr Chan emphasises that ports must, however, realise that blockchain is “an absolute necessity for the supply chain. I always ask clients to look at what they can do with blockchain today compared with what they could do before it appeared.”
The distaste for any form of Bitcoin in the US is demonstrated by the response from the Port of Los Angeles: “We have not used Bitcoin cryptocurrency, not looking into and have no plans to look into it,” says a spokesman.
One port on the West Coast however, San Francisco, is considering whether to take a taste sample. Leslie Katz, one of the four port commissioners, who oversee operations, says staff have been asked to look into the possibility of using cryptocurrency. “We are looking at crypto generally and are not considering any specific product,” she says.
Recent reports in US and foreign publications claimed said that San Francisco and other West Coast ports were interested in AML Bitcoin. However no port contacted by Port Strategy confirmed this to be the case and four of the biggest West Coast ports said they were not discussing any type of Bitcoin.
Ms Katz notes the advantage of cryptocurrency cutting out the layers of intermediaries in international commerce. “We would of course make sure that any form of digital payment we might use would conform to the highest legal and ethical standards. San Francisco is a forward-thinking city and we would be crazy not to look at new technology.”
Rotterdam’s Blocklab, which includes the port authority as a partner, is steering clear of involvement in digital currency for the moment and working on projects to improve the efficiency of the supply chain through blockchain.
“Supply chain invoices, combining waybills, are of particular interest to us,” says Mr Beije. “The supplier gets paid immediately with no involvement of human beings. It can be used for any other logistics transaction. Inventory finance is another area, where small and medium businesses can get their inventory financed by banks and other financial entities. The data stays in the system and you can make sure people are not messing with the system.”
Mr Beije adds that projects are in the early stage. “We did a proof of concept for demurrage and detention, bringing together logistics providers and a big shipping line. Freight forwarders and lines don’t see eye to eye and just getting them in same room is something of an achievement.” Blocklab is also working on automation of trade lanes between the UK and the Netherlands, partly because of Brexit.
“Tokenisation is the way forward, for the supply chain,” he says, “not as a currency but as replacement of bills of lading. That’s where I hope it is going to go. The difficulty is getting the ecosystem to accept it.
“We are looking at smaller scale logistics, with barge loading. Blockchain will allow customers to trade places easily with someone who is willing to take their token.”
The lab is also researching blockchain integrating with IoT, using a consensus protocol.
“Our aim is to close down the lab eventually - we will not become a software vendor and we are blockchain agnostic, open to working with any protocols.” The three being used at the moment are Ethereum, IOTA, IBM Hyperledger.
In the US, Nevada startup Filament is developing software and Blocklet Chip to allow devices to work together in a blockchain. The company says its technology is “well-suited for environments that operate frequent scheduled services including maritime projects and ports that require attestation to verify specific details of container shipping services.”
Says chief executive Allison Clift-Jennings: “For example, container shipping companies may want their containers to track time from points of origin, around container terminals, and to final destinations in order to improve inefficiencies. In these cases, our blockchain native chip, which brings an established root of trust to a device, can secure data in transit and attest to time.
“Once you have Blocklet Chips securing physical assets within the machines themselves, it’s a natural extension to provide native cryptocurrency capabilities to these machines, including internal corporate tokens,” says Ms Clift-Jennings.
NOT A MAGIC POTION
In a research paper, Deloitte cautions that “blockchain is certainly not the magic potion for all cost- and efficiency-related issues”
Hence, businesses should carefully assess the technology’s applicability and feasibility to different processes, it advises.
In fact, cryptography-based trust models could bring new and unforeseen risks, so companies would need to consider appropriate changes in their risk management strategy and governance models.
There is also a legal hurdle to consider, according to the consultancy. “Smart contracts’ validity is not yet recognised in court, although many states and countries are reportedly working toward it.”
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