How interoperability establishes blockchain’s utility and effectiveness for trade finance

blockchain ny

(Pascal Bernardon, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Rebecca Liao, Co-Founder and Executive Vice-President, SKUChain


  • The coronavirus crisis has shown the need for blockchains to share and access information across networks.
  • Making interoperability a first-class citizen of blockchains going forward will be key to maximizing efficiencies.

COVID-19 has highlighted the need for supply chain infrastructures to communicate with one another. Given this fact, interoperability will be essential to blockchains going forward.

While blockchain was conceived as a decentralized technology, individual blockchain networks are not inherently open. In the supply chain context, there has thus far been little incentive to change due to concerns about security and consensus and lack of customer urgency. However, blockchain’s characteristics allow disconnected supply chain management systems to interoperate securely with a reasonable financial investment. Because of the pressing need for supply chain transformation, leveraging these characteristics ensures that blockchain can be useful and effective in the real world.

Key truths and realities

Recently, the blockchain industry has arrived at the following truths:

  • Unlike other battles between technology standards, there will not be consolidation around dominant blockchain protocols that have the primary burden to become interoperable. It is true that Hyperledger Fabric and Corda are the most widely adopted protocols in the enterprise blockchain space. The public blockchain space for digital currency is far more fragmented, but Bitcoin and Ethereum are considered the reference cryptocurrencies. Due to the dynamic nature of open source projects for decentralized systems and fast iteration in early stage technology, these protocols all have strong peers and proprietary competitors. More importantly, convergence around a protocol is absolutely no guarantee that the blockchain networks that use that protocol can readily communicate with one another.
  • As a business matter, the market will consolidate around industry consortia, whose blockchain network will crowd out all other networks in that space. A blockchain network is far more than the infrastructure that supports it. It is also a governance structure, commercial model, application functionality and middleware to communicate between what the end user sees and operation of the blockchain. Especially in enterprise blockchain, where private networks controlled by large, powerful players dominate, network functionality is highly specific to business needs. As a result, industry consortia determined to be full-service blockchains for their members have stalled, and those that are open to interoperability with other networks, including their members’ individual networks, are gaining traction.

In supply chains, it has become clear that there are three areas around which networks and standards form:

● Industry: Enterprises in Steel, Electronics, Commodities, and the like.

● Finance: Banks and Financial Institutions

● Compliance: Governments and Global Regulatory Bodies

One blockchain network will simply be unable to provide all the needs for any given trade transaction. There will need to be multiple networks, each providing specific value. Data from private networks can be routed to other relevant networks for transactions without having to establish a one-to-one integration.

“Everyone is dependent on physical goods’ ability to move across all participants in the global supply chain with minimal friction. We need the same ability to move a digital asset from one blockchain to another without creating redundant data or a new market for intermediaries. This is why blockchain interoperability is critical.” Rasmus Winther Mølbjerg, Director, Deloitte, Denmark.

Blockchain

What is the World Economic Forum doing about blockchain interoperability in global supply chains?

The World Economic Forum has produced a report on “Inclusive Deployment of Blockchain for Supply Chains – A Framework for Blockchain Interoperability”. This report, in collaboration with Deloitte, helps organizations understand the importance of interoperable blockchains and outlines a decision framework to support their development and execution. The report is the seventh in a series, offering analysis that helps organizations responsibly deploy blockchain and distributed ledger technology in supply chains, to maximize the benefits and minimize the risks of the technology.

Interoperability at the data layer: A web of APIs

Interoperability between blockchains is most directly accomplished by facilitating the transfer of data payloads. This is brokered through application programming interfaces (APIs) that are designed specifically to allow systems to communicate with one another. APIs are a well-established tool and generally do not require specialized blockchain programming skills to implement.

However, APIs do not presuppose a governance structure, which makes them flexible and expedient but also a poor choice for organizing interoperability in the long run. They require one-to-one integration between blockchain platforms, which, in addition to being inefficient, introduces the element of a business negotiation between the platforms that adds friction to collaboration (Figure 1, below).

At the same time, APIs send data payloads between platforms, but do not require a cross-platform check of consensus mechanisms. In other words, it is possible that the data transferred from one platform was not first authenticated by a valid blockchain mechanism.

Given these drawbacks, the best way to foster interoperability for those industries where blockchains remain largely fragmented is to work on a data standard as soon as possible. There needs to be a common organizing principle by which interoperability is accomplished at scale, and if it’s not found within the major components of the technology stack, then it has to come from the data payload itself.

To give an example, Skuchain’s deployments in mining and minerals use its proprietary Popcodes technology for traceability. When connecting with its customer’s supply chain ecosystem partners, a common data standard is used for data sent to a partner blockchain, and data sent back is converted to the same format before it is ingested by a Skuchain network.

WEF white paper, “Inclusive Deployment of Blockchain for Supply Chains: Part 6 – A Framework for Blockchain Interoperability”.
WEF white paper, “Inclusive Deployment of Blockchain for Supply Chains: Part 6 – A Framework for Blockchain Interoperability”
Image: World Economic Forum

Network of networks

The most efficient and scalable way to build interoperability is through the joint effort of establishing industry standards as well as identifying a network of networks structure that industry networks can converge around. These are the principles that underlie the DLPC CorDapp, a recently launched Skuchain application that promotes interoperability in trade finance blockchain applications.

This application is the first example of The Bankers Association for Trade and Finance’s Distributed Ledger Payment Commitment (DLPC) operating in a real network. BAFT recognized that interoperability would require a neutral working group to establish some standards around trade finance on the blockchain. The framework for a DLPC was the result. In April 2019, it published the business and technical best practices for the DLPC. Updated best practices will be released in May 2020 to reflect industry feedback and implementation experience.

A DLPC is a fundamental piece of trade transaction. Everyone needs to commit to a payment. The objective of this framework is to allow banks and enterprises to create a legally binding promise to pay and represent monetary value based on a negotiable instrument. It can be assigned and distributed to third parties and is sufficient to trigger payment. Skuchain’s DLPC CorDapp takes this standard a step further and allows transactions to take place between its enterprises on Hyperledger Fabric and their bank partners on the Corda Network (Figure 2).

Image: Skuchain

Significantly, this model for interoperability allows for cross-chain validation of a transaction. First, transactions originating in a Fabric network have signed directives to carve out DLPCs. Second, a smart contract is triggered. This produces the DLPC payload and submits to the Skuchain EC3-Corda gateway. Third, this gateway talks to an EC3 agent node on the Corda Network. Fourth, the Corda node validates the DLPC and submits the transaction.

The ultimate goal of brokering interoperability between Skuchain EC3 and Corda is to allow Skuchain’s enterprise customers to receive trade finance from banks on a Corda implementation without any party having to onboard onto another platform. Rather than thinking of trade finance as the product of a separate bank network, enterprises can now easily access trade finance as native part of their own supply chain platform.

“It will become clear that nominating a blockchain fit for purpose as a facilitator of interoperability will be the most cost and operation-efficient strategy.”

—Rebecca Liao, SKUchain

Interoperability best practices

As platforms approach interoperability in blockchains, the right implementation will be key.

The World Economic Forum, in collaboration with Deloitte, recently released a white paper, “Inclusive Deployment of Blockchain for Supply Chains: Part 6 – A Framework for Blockchain Interoperability,” the final white paper in its series on blockchain and supply chains. It covers several models and best practices for blockchain interoperability. The report takes a holistic approach to elaborate on blockchain interoperability at the governance, business, technical and process levels. The report aims to articulate, in simple terms, important concepts, approaches and success factors as they relate to blockchain interoperability considerations.

“Interoperability and compatibility issues are key to address in a world after the coronavirus pandemic,” Nadia Hewett, Blockchain and Digital Currency Project Lead at the World Economic Forum explains. “The challenge of interoperability is not only a technology problem, but even more so a problem in terms of governance, data ownerships and commercial business models.”

In a separate report, Redesigning Trust: Blockchain Deployment Toolkit, the World Economic Forum covers both functional and non-functional drivers of success for well-thought-out blockchain deployments. While the blockchain toolkit provides tools and resources to address interoperability specifically, it also includes a series of inter-connected topics. Those identified as the most important considerations in supply chain blockchain solutions help organizations with a holistic approach to blockchain development.

The network of networks model for interoperability continues to gain momentum, especially as we see natural blockchain hubs emerge.

As commercial discussions between blockchains seeking to connect become more complicated and frequent, it will become clear that nominating a blockchain fit for purpose as a facilitator of interoperability is the most cost and operation-efficient strategy.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Nagasaki is ‘a global inspiration’ for peace, UN chief says marking 73rd anniversary of atomic bombing

Predicting two more years of economic stagnation

Bundestag kick starts the next episode of the Greek tragedy

Putin becomes the ‘perfect enemy” for the West

This is how a smart factory actually works

This is what happened to CO2 emissions in the EU last year

From drone swarms to modified E. Coli: say hello to a new wave of cyberattacks

EU-wide penalties for money laundering: deal with Council

Empty stadiums and online streaming: how coronavirus is affecting the media industry

These dogs can smell tree disease – and could help save the world’s orange groves

How to accelerate digital literacy in the enterprise world

Defence: European Commission paves the way for first joint industrial projects under EU budget

Parliament votes reform for better European Co2 market but critics want it sooner than later

COVID-19 has accelerated the digital transformation of higher education

Regional competitiveness and growth: a Gordian knot for Europe

IMF: European banks do not perform their duty to real economy

This is the life of a refugee: the constant destruction and construction of dreams every day

Who and why want the EU-US trade agreement here and now

SMEs and micro firms sinking together with south Eurozone

New seat projections for the next European Parliament

New EU rules and guidance for a fairer online economy

Norway has successfully enforced its foreign bribery laws but faces potential obstacles

Facebook/Cambridge Analytica: MEPs pursue personal data breaches probe

‘Negative developments’ undermining two-State solution in Middle East

Brexit: European Commission recommends the European Council (Article 50) to endorse the agreement reached on the revised Protocol on Ireland / Northern Ireland and revised Political Declaration

South Eurozone countries threatened by rising borrowing cost and expensive euro

Forget 2009, this is the real credit crisis of our time

Schengen is losing ground fast revealing Europe’s clear inability to deal with migration crisis

UN General Assembly celebrates 20 years of promoting a culture of peace

Artificial intelligence: EU must ensure a fair and safe use for consumers

Historical success for the First ever European Presidential Debate

Quality coffee can boost local economies and benefit farmers – here’s how

It’s time to end our ‘separate but unequal’ approach to mental health

Prevent future crises and empower youth – now!

EU Commission and ECB rebuff Germany on the Banking Union

Afghanistan: UN condemns blasts that leave 8 dead at cricket stadium

How to turn Africa’s manufacturing sector into a high-tech powerhouse

Peacekeeping chief highlights challenges facing UN Police

The EU to fight cross-border tax evasion with a toothless directive

Greece bailout programme: Full agreement after marathon negotiations on debt relief between IMF and Eurozone

Food choices today, impact health of both ‘people and planet’ tomorrow

#EUBeachCleanUp: EU organises record number of cleaning actions worldwide

More women than ever are working in Hollywood, but men still dominate key roles

5 ways for scientists and clinicians to double up on healthcare

The Amazon is reaching a dangerous tipping-point. We need to scale solutions now if we have any chance of saving it

Brexit: MEPs concerned about citizens’ rights

Phone lines open between Ethiopia and Eritrea, and people are calling strangers

A European Discovers China: 3 First Impressions

Somalia advancing towards ‘inclusive and peaceful future’ for women, deputy UN chief

We need to rethink the way we heat ourselves. Here’s why

“The markets have moved on renewables, policy makers must keep up”, A Sting Exclusive by Erik Solheim, Head of UN Environment

Why a global recession isn’t inevitable

Mind the (gender) gap: why we should stand together on inclusion

Tuesday’s Daily Brief: Libya civil war, African displacement, global trade tensions, terrorists’ children ‘secretly detained’, and more

Whale populations are slowly recovering – this is why

Coronavirus: Commission offers financing to innovative vaccines company CureVac

Forest fires: Commission adds planes to rescEU fleet to prepare for summer

UN summit tackles climate change-induced threat to mountain water supplies

Why transparency in drug pricing is more complicated than it seems

‘Stand united against anti-Muslim hatred’ urges Guterres, after mosque shootings in New Zealand leave 49 dead

More Stings?

Advertising

Trackbacks

  1. […] more enterprises and large-scale corporations continue to realize that they cannot exist in complete exclusivity, interoperability (in terms of seamless […]

  2. […] more enterprises and large-scale corporations continue to realize that they cannot exist in complete exclusivity, interoperability (in terms of seamless […]

  3. […] (perform(d, s, id) { var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) return; js = d.createElement(s); js.id = id; js.src = ‘https://join.fb.web/en_US/sdk.js#xfbml=1&appId=249643311490&model=v2.3’; fjs.parentNode.insertBefore(js, fjs); }(doc, ‘script’, ‘facebook-jssdk’)); Original source […]

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s