Blockchain – the real deal, or a whole
lot of hype?
Skuld Charterer
The general press, along with the marine and marine
insurance press, are awash in stories about blockchain
technology: proclaiming how the technology will revolutionize
both shipping and insurance, while also distinguishing the
blockchain technology from cryptocurrencies such as Bitcoin.
Recently, the marine press was reporting about Insurwave, a new venture
involving, among others, Ernst & Young, Maersk and Microsoft for the
placement of marine insurance on the blockchain “to alleviate a range of
inefficiencies and frictional costs” with respect to buying and selling marine
insurance[*]. Clearly change is afoot.
Yeasayers and naysayers
But for every article proclaiming another roll-out of
blockchain technology(1) in shipping, there are well-crafted counteressays
highlighting the significant systemic hurdles to a blockchain-and-shipping
e-revolution. For example, the banks will resist adopting technology that
could result in them losing fees earned by financing international trade.
Governments are steps behind in regulating a cutting-edge technology and
its applications, and thus will resort to obstructionism. The idea of multiple
sovereign states collaborating to promulgate and adopt international rules
for blockchain’s application to shipping and trade seems especially
farfetched in today’s political climate, say the naysayers.
1
Blockchain Technology
Examples of blockchain initiatives today:
- Maersk advancing blockchain with digital bills of lading
- Insurwave using blockchain to transform cover
- DNV GL employing blockchain to distribute certificates
This is the public framework in which the technology exists and is evolving,
and these are the debates currently underway between those who sing
blockchain’s praises and those who remain sceptical of its grandiose
claims. Meanwhile, the rest of us are still trying to learn the answers to a
few simple, basic questions: what is blockchain, how does it work, why is it
potentially such a big deal, and how will it save shipping “billions” as is
widely promised.
What is blockchain?
For laypersons (including the author), a good place to start is with a
working definition. Blockchain is a “decentralized peer-to-peer network that
maintains a public, or private, ledger of transaction”[**]. It is a single
platform on which a transaction, or series of transactions, can be viewed,
validated, and authenticated. It is often referred to as a “distributed ledger
technology”. I.e., it is a simple database or spreadsheet capable of storing
information but decentralized in that it is stored on multiple computers
connected to a common network (as opposed to a single server). Each
computer in the blockchain is called a node, and each node operates under
the same set of rules embedded in the blockchain computer code.
As for how this works within the context of a real-life trade deal, blockchain
provides the architecture for the structuring of the transaction, establishes
ownership of same, broadcasts the transaction to its stakeholders, and
establishes the parties’ agreement to the transaction via consensus. The
computers connected in the network running the software must all agree
whether the transaction should be consummated and thus added to the
blockchain, i.e., the open, decentralized ledger. As diagrammed in the
presentation referenced below, the “magic” of the transaction is consensus
amongst the parties without the need for a centralized system. The
technology works to fill the gaps ordinarily established by trust between the
parties when no such trust is feasible and/or pragmatic and/or exists.
Further, the immutability of each block of transactions (and the reference
number or “hash” associated with same) makes alteration of the ledger
entries infinitely more difficult, while offering a new level of transparency
for each transaction.
How does this apply to shipping?
The transport of goods aboard vessels and between jurisdictions involves
multiple stakeholders engaged in concentric spheres of commerce. There
is
the shipper/seller who wants to get paid for their commodity,
the bank who finances the transaction for a fee,
the vessel tasked with transporting the goods for hire or freight,
the buyer who wants to ensure the goods arrive in sound condition and
that payment has been effectively executed,
the trader looking to make a profit on the transaction,
insurers collecting premium for insuring risks in the chain,
the governments who will collect taxes and duties on the imported
goods, along with
multiple brokers whose job is to establish trust between insurers and
insured, charterers and owners, customs houses and buyers, sellers and
traders.
In theory, the entire trade could be placed on the blockchain, with each
stakeholder’s computer programmed to follow a specific protocol that
enables each stakeholder to monitor the trade with some confidence that
there is only one established truth and the counterparties to the trade are
who they say they are and do what they are supposed to do at the requisite
time.
Blockchain technology will probably underperform expectations for the
next couple of years, but ten years from now will be a gamechanger,
automating yet more administrative tasks that previously required human-
to-human interaction and verification. If that is the case, blockchain’s
impact could be revolutionary. Or, like so many self-styled technological
revolutions that predated this one, it could be nothing at all.
Skuld as a stakeholder on the
blockchain
Blockchain technology enables stakeholders, including Skuld, to have
access to one established set of facts. Access to relevant data in the
blockchain – i.e. for example bills of lading, charterparties, survey reports,
legal advices, but also insurance documents, information about the
vessel’s location etc. may reduce administrative work. From a claims
handling point of view, this can potentially reduce the time spent on each
claim, and avoid possible misunderstandings and mistakes related to
claims documentation.
From an underwriting point of view, the technology may enable Skuld to
streamline existing processes by linking the Club, brokers, members,
clients and third parties. The data collected from the stakeholders and
placed on the blockchain may potentially reduce costs and time by
lessening the administrative burden through simplifying existing
processes.
Skuld will follow the development closely to, when the time is right, achieve
a successful integration of the blockchain technology into our insurance
solutions. Apart from questions related to the technology itself, for the time
being questions related to the legal framework will have to be answered.
Due to the anonymous and non-specific location nature of the blockchain
technology, governing law and jurisdiction to any transaction in the chain is
difficult to ascertain, which poses an additional challenge to the parties
involved.
Should you have any comments or questions, then please do not hesitate
to contact us at any time.
On behalf of your Skuld team of underwriters and claims handlers who
serve our charterers and traders 24/7/365.
[*] https://insurancemarinenews.com/insurance-marine-news/blockchain-system-now-marine-
insurance-use/
[**] For a concise and informative overview, see “Blockchain: Potential Impact on Shipping and
Logistics,” a presentation delivered by Holland & Knight Senior Counsel K. Blythe Daly to New
York’s Society of Maritime Arbitrators on 11 April, 2018, available here:
https://www.hklaw.com/events/Blockchain-Potential-Impact-on-Shipping-and-Logistics-04-11-
2018/.
