Blockchain – What is it anyway?

With the help of blockchain, transparent and tamper-proof transactions can take place between participants via a decentralised database.

Decentralised basically means that the database is not located on a server, but is distributed on many computers. You can think of the database as a distributed register. The technology is characterised by its independence: In this decentralised system, no individual or company can gain the upper hand.  That means every participant has the same access options.

Transactions in this context are not limited to money transfers, but also include the transmission and sharing of information of all kinds.

Transparency is a central aspect in blockchain technology – everyone is talking about it. But what does that mean in concrete terms? Every transaction that takes place within the blockchain is documented and is visible to all participants. Changes can only be made if all participants agree. Blockchain information is traceable for all participants, so it is secure, transparent and consistent.

Basically, the whole thing works like this: A participant starts a process and creates a data set (also called a “block”) for it, which is checked and saved by the other participants. The checked information block is then encrypted and appended to other information blocks. In this way, blockchains function like a chain in which all participants are integrated and which constantly expands with new blocks of information – hence the name “blockchain”.

You can find more information about blockchain in this explanatory video.

Blockchain enables fast, efficient and transparent transaction processes. The technology therefore has the potential to be used in other business areas such as retail, logistics, banking and even customs.

The trade industry suffers primarily from a lack of trust and coordination between exporters and importers, especially between emerging and developed markets. Especially in international trade in goods, various inefficiencies occur due to the complexity of the operational processes. In addition, shipping and trade still rely heavily on human resources and are influenced by manual and paper-based processes that are very costly, slow and error-prone. With the help of blockchain, processes in the international movement of goods and in payment and customs processing could be optimised and even shortened. Blockchain technology also offers the possibility of preventing fraud and counterfeiting in the movement of goods, as data cannot be manipulated without informing all parties involved. Real-time data exchange also has the potential to prevent delays in the supply chain.

Here are some examples of how blockchain has already been successfully applied in the transport sector:

• A consortium of AB InBev, Accenture, APL, Kuehne + Nagel and a European customs authority has already successfully tested a blockchain solution for container shipping. Blockchain was used to replace printed freight documents. The freight data was made available to the participants involved via the blockchain, which significantly accelerated the exchange of data.

• The Moroccan customs administration has launched a project in cooperation with Allianz to make cross-border trade procedures more transparent, secure and efficient. Through a blockchain-based platform, the customs authority will be provided with transparent information to guarantee the correct assessment of express deliveries.

• Since 2016, logistics company Maersk and IBM have been working together to shorten supply chains, optimise payment processes and advance digital identification through blockchain.

With the founding of BiTA (Blockchain in Transport Alliance) in 2017, blockchain has become an integral part of customs and transport. The association has 500 members from 25 countries, including Lotte Global Logistics, FedEx and P&G. The organisation provides training and an open forum for industry stakeholders interested in blockchain and helps drive the adoption of blockchain and smart contract technology across the transport sector. One of the biggest advances for transport technology is “smart contracts”, i.e. contracts in the form of software. This software is based on blockchain technology and automatically confirms the terms of the contract between the parties. Transport-specific use cases for smart contracts include driver authorisation verification, automated payment approval, automated receivables loans for completed deliveries and linking to associated financial transactions.

However, one important aspect is not given enough attention in the hype surrounding blockchain: In a blockchain where the data cannot be changed, the validity of the data is more important than ever – whether it is description data for products or even movement data along the supply chain. In the future, standards will be established that define how data is written and how it is stored within the systems.

Many companies are currently working on the topic of blockchain, but the technology is currently still largely in the testing phase and is not yet fully developed in many areas.  Many companies are particularly concerned that a firm legal framework for blockchain applications does not exist yet. In addition, the integration of blockchain technology into existing IT infrastructures is a major challenge. Especially at the EU level, implementation could take longer, as each national customs authority currently has its own IT systems that first have to be integrated into the blockchain.

Blockchain technology has great potential for applications in customs and transport. Currently, most of the examples of applications come from partnerships between companies or organisations. It is therefore an open question whether blockchain technology will also become established for individual companies in the near future. The prerequisites for this are an open interface that companies can connect to and the creation of a legal framework.