Last week, the World Economic Forum (WEF) published a major new blockchain deployment toolkit designed to help governments, enterprises and organizations worldwide to develop more resilient value chains going forward after the COVID-19 crisis.
The toolkit’s authors believe that the case for blockchain implementation is stronger than ever in the wake of the pandemic and has major potential to help with the global economic recovery through an innovative digitization of trade.
Recognizing that “a fair share of puzzlement and anxiety” persists among supply chain actors when it comes to the blockchain, the toolkit tackles not only technology, but also key areas such as governance, interoperability, digital identity, cybersecurity, and regulatory compliance.
CryptoNewspeople spoke to one of the toolkit’s authors, Nadia Hewett — project lead for blockchain and digital currency at the World Economic Forum — about the core ideas and vision behind the new project.
Marie Huillet: The COVID-19 pandemic has provided the global community with a striking X-ray of the interconnectedness and, in many cases, fragility of global supply chains.
There has been some discussion of — and pushback against — the notion that the crisis could eventuate in calls for some form of deglobalization, involving the “onshoring” of production for critical goods, especially when it comes to medical supplies and food.
Many others say that it is implausible that states and enterprises can reverse decades of liberalization and retreat back into autarky. In all scenarios, a focus on improving resilience and diversification would seem to be on the agenda.
MH: How does the World Economic Forum view the role of blockchain in developing the technological and infrastructural support for the evolution of supply chains going forward?
NH: I would say that the WEF’s new toolkit takes both a technical and non-technical approach to the deployment of blockchain. The extent to which any of the benefits of the technology are maximized heavily depends on the quality of governance protocols — and beyond this, upon establishing policies, norms, standards and regulations. Governance protocols need to be stable and predictable enough to foster confidence — not just between states but also between enterprises, scientists, the general public and investors.
So it’s not that we’re promoting the technology per se. Blockchain does have qualities that can help build resilience and transparency into supply chains, but the mechanisms we deploy need to allow for policymakers to interact at the cutting edge of technological and scientific research.
It’s for that reason that the WEF Centre for the Fourth Industrial Revolution is designed to serve as a hub for public-private collaboration. More than ever, we need a global and trusted space where leading companies can forge partnerships to develop those agile policies and norms.
So that’s the reason the toolkit is not just tech-focused. The project actually takes a very holistic approach to what it would take for blockchain to assist with resilience and agility, to bring trusted data to supply chain ecosystems and into value chains.
For example, many of the modules in the toolkit cover topics such as legal and regulatory compliance, they touch on different laws in various jurisdictions. If we take the issue of data sharing — personal data sharing is not merely a technical matter, it’s also a question of regulations, as with the EU’s GDPR.
MH: Can you talk us through how that holistic approach has played out in how you constructed the WEF’s blockchain toolkit?
NH: Let’s focus on interoperability. In the context of supply chains, that raises questions of transparency, because trusting the data you see all across the value chain depends on achieving end-to-end interoperability. And if you look at our toolkit module, you’ll see it’s not only focused on the technical aspects, but that we’ve built three further layers into our approach: the top layer — the business model layer, involving governance — commercial models, and the legal framework.
Interoperability is a good example of where the technology is not the problem, but rather governance. It’s the willingness of governments, companies, of all stakeholders to work together. We need interoperability at all those layers to intervene effectively in supply chains, to solve the issues we’ve seen exposed in recent weeks.
MH: International cooperation has arguably been compromised by both commercial and geopolitical competing interests during this crisis, and technology — a critical area going forward — has at times been at the center of these conflicts, e.g. with disputes over intellectual property, data privacy and standards setting.
What degree of inter-state collaboration do you think is needed for realizing the opportunities offered by blockchain and do you anticipate any particular challenges?
NH: A lot of the problems we’re seeing are, of course, not new. One big challenge we face is fragmentation into data silos. That existed already before the COVID-19 pandemic. Many incumbents do not want to share data; they see it as a way to protect their own competitive advantage. Stakeholders artificially create data barriers and silos and there’s a difficulty in getting parties to take a different approach.
What does it look like when we share data with each other? How could you design it in a way that everyone is incentivized to do so, so that the different parties are awarded for sharing data?
Here blockchain as a technology for supply chains has great potential. You can share data in a privacy-preserving way, which wasn’t possible before. With many supply chain stakeholders, both in the public and private sector, you see that there’s a perceived loss of control over data. That’s a huge barrier and blockchain technology can help to mitigate exactly this perceived loss of control.
A blockchain system never requires an organization to reveal more data than it is comfortable with. Onchain data can be encrypted so that it’s only visible by authorized parties. When supply chain organizations deploy a blockchain solution they have real flexibility to ensure it addresses both data protection and privacy concerns.
MH: Are there any other sticking points you have identified that may be affecting efficient cooperation, both in the public and private sectors?
NH: Of course we have to be aware of the legal and regulatory barriers that continue to exist. To solve this we’ll need international cooperation. A node on the blockchain can be located anywhere in the world, it can cross jurisdictional boundaries. And of course, global value chains themselves cross these boundaries. Today, that poses a number of complex jurisdictional issues for participants in a blockchain network and also for the contractual relationships between them.
In addition to legal frameworks like GDPR, which have cross-territorial effects, blockchain users and nodes all around the world each have local regimes to deal with. So for anyone who is designing an innovative blockchain solution for supply chains, the kinds of solutions they can devise and actually implement remain limited to an extent.
Stakeholders are having to cope with many of these cross-jurisdictional issues while governments continue to work out both international and local rules. To solve it properly, you need to get all the players around the table from day one; that’s not an easy thing.
It’s very intentional that we’ve included topics like auditing and financial reporting, tax implications, and so on, in our modules. These are vast and diverse topics. We are really trying to encourage an approach whereby you have all the stakeholders involved in the process from the get-go, whether they be tech developers or lawyers. This goes for the public and the private sector, and for collaborations between them.
MH: You’ve emphasized the need to have a plurality of stakeholders involved and as wide and inclusive a vision as possible —even just to solve one commercial hurdle or a single policy coordination.
Do you think that this recent shock will spur greater willingness to tackle these complex challenges head on? Are private actors and states now more likely to recognize that developing resilience is necessarily tied to a framework of interdependence and coordination?
Nadia Hewett: Firstly, I would emphasize that the issues we face with supply chains — for example, the persistent lack of willingness to share data — are not unique to international value chains.
We face a lack of visibility and transparency, difficulties with data integrity, a lack of real-time data, difficulty integrating data from Internet of Things technologies — all these challenges exist both for domestic and international supply chains.
I would also point out that we’ve seen major international disruptions to supply chains in the past, as for example with E. coli. The United States renegotiated contracts for ports with their labor unions in 2002, 2005 and 2012. There were weeks of disruptions to supply chains at that time. People forget that now. And at that time we saw various firms coming up with proofs-of-concept (PoCs), pandemic insurance PoCs, for example.
But after a while, people went back to what they used to do, the momentum just wasn’t there. Many of those PoCs, including those involving blockchain, were shelved. Other things became more important. Yet now in the past few weeks we’ve seen those companies going back to those PoCs, dusting them off and taking a look again. The momentum is significantly greater than what we’ve seen before.
Public and private sector actors are looking at what they already knew — and, in some cases, had already tested. Previously they didn’t have a sufficient push or willingness to tackle all the interoperability issues we’ve discussed, all the complex pieces that are involved.
MH: Are you seeing any evidence that the pandemic is already encouraging actors to take the kinds of holistic and interlocking approaches you believe to be necessary?
NH: Now, as you can imagine the momentum is there, a recognition that we need to get this right, and this applies whether we source regionally or internationally. Following the pandemic there will definitely be regional sourcing to some extent, it’s inevitable.
The difficulty is that when the media reports on issues with supply chains they tackle the impact at a macro level, but it’s impossible to look with a broad brush at supply chains and conclude with any meaningful insights; you need to take a much more granular approach.
For example, we have commodity markets, or PPE, medical supplies, footwear, textiles, military equipment, and project cargo for infrastructure development. The impact of this crisis will play out very differently depending on which value chains we’re talking about, there’s a degree of nuance that we need to preserve.
MH: You’ve spoken about interoperability being a much broader question than just one involving technology. Yet if we set aside for a moment questions of governance, legal and regulatory aspects, all those layers that are connected with blockchain’s implementation for global value chains, is there any particular aspect of blockchain development that you would say needs particular development?
NH: I would say that in the enterprise blockchain sector, there’s still a long way to go with standardization. There’s no sign yet of a single platform. Public blockchains such as Bitcoin are much more developed, and we see a number of solutions in the public chain space that are tackling questions of interoperability.
At the enterprise level, interoperability is still very much at its beginning stage, and the problem here again is one of incentives. How can we spur solution vendors to work more intensively together?
One thing we’ve been seeing in recent years is a proliferation of blockchain consortiums. Specific industries are forming dedicated blockchain consortiums, working on problems specific to their industry. Say, for example, the Mobility Open Blockchain Initiative, or consortiums for the mining and metal industries. These tend to cooperate on very specific industry problems and I expect these kinds of consortiums will continue for the next couple of years and will help to set data standards and industry-wide solutions.
But the challenge is to encourage work on interoperability, on infrastructure and platforms, that could cross over into other sectors. For now, any data standardization beyond an industry’s particular use case —which is what we really need — remains secondary.
MH: Staying a bit longer with the technology, it would be interesting to hear more thoughts on what the WEF’s toolkit defines as the trade-offs between decentralized and centralized components of blockchain systems.
Can you relate these trade-offs to the kinds of multi-layered public-private sector interactions we’ve been speaking about?
NH: It’s important to recognize that many supply chain processes today use technologies that are designed for siloed centralized systems. So for supply chain companies to really take advantage of blockchain, they need to conduct a review both of the process and the technology. Governments and businesses must recognize that a business process that is inherently centralized, or designed based on centralized trust, might not actually be effective using a blockchain system.
The way we see it is that decentralization is not an all-or-nothing objective. Unlike for the public blockchain space, when you talk about enterprise systems — about supply chains which have for decades been based on centralized trust controls — you need a balanced objective. This does require tradeoffs, for practical reasons, and a system might well require both centralized and decentralized components.
That being said, of course, it’s very important to remember that the decentralization benefits do degrade, that distributed ledger solutions can very quickly become diluted the more centralized components you have. So that brings you back again to looking at whether you really have a business problem for which blockchain really is the most appropriate technology.
MH: Before you go, are there any particular areas within supply chains which you have identified as likely to benefit from a blockchain solution?
NH: There are, of course, but I think that in general one could point to the concept of a “shared truth” — the fact that what I see is what you see.
This is particularly important when you need to establish the provenance of a product; to establish traceability, transparency, where it comes from. Is your truth my truth? Wherever it’s really important that what I see is what you see, that is where blockchain has so much to offer for supply chains.
Looking at the pandemics we’ve faced in the past, a lot of the issues arose from livestock mishandling or food quality issues, again recalling e.coli. Can I trust where this product comes from? With blockchain, the fact that we have a shared truth here becomes really useful.
This goes for any use case where having a trusted data piece is critically important. When you look at medical supply chains right now amid the COVID-19 pandemic, we’ve been seeing issues with counterfeit ventilators. Overnight, you need to be able to verify whether you are dealing with credible suppliers. So blockchain can enable that shared version of truth, which is so vital for securing data integrity and trust.