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This Huge Bet on Blockchain Could Change A $50 Trillion Industry - YouTube
Channel: Bloomberg Quicktake: Originals
[2]
Supply chains have grown
increasingly more complex,
[6]
and they are very much global.
[8]
Think about your iPhone for example.
[11]
It's designed in California,
[13]
but components are sourced from suppliers
[15]
in 43 different countries,
across six continents.
[21]
These parts go through their
own manufacturing processes,
[24]
which involve a number
[26]
of different transactions
and interactions.
[28]
It's incredibly hard just
to understand the origin
[31]
of where raw materials are coming from.
[36]
Even in the 21st century,
[37]
large parts of today's supply chains
[40]
still rely on paper based records
[42]
and as products are shipped worldwide,
[44]
the paper trail continues to grow.
[47]
If you want to ship a container
[48]
from Mombasa to Rotterdam,
[50]
you end up with a pile of paper
that is 25 centimeters high.
[53]
So imagine how many documents and papers
[56]
are being moved around.
[59]
With paper comes inefficiencies
[61]
and digital technologies
could help overcome them.
[65]
One of them, blockchain,
is floated as a solution
[69]
that could do that
securely and efficiently.
[72]
It offers a way to trace
a product's journey
[75]
from grain to bottle or
from thread to shirt.
[79]
Brands are now starting
to realize its potential
[81]
with consumers willing to pay
a premium for transparency.
[85]
This is Walmart's second
blockchain project,
[87]
Target is also pushing into this space.
[91]
The $50 trillion supply chain industry
[94]
is moving to blockchain.
[96]
If you are drinking a cup
of coffee this morning
[99]
or tonight you're gonna
grab a bottle of beer,
[102]
there's a very good chance that there
[104]
is a smallholder farmer
in Ecuador or Zambia
[108]
that is growing that
coffee or that barley.
[111]
These are some of the
poorest people in the world,
[115]
and they're completely invisible
in the global supply chain.
[135]
Almost everything we buy
[137]
has passed through a supply chain.
[139]
These vast networks are responsible
[141]
for transforming raw
materials into products
[144]
and getting them into customer's hands.
[146]
Yet for most of us, they remain hidden.
[151]
The upstream parts of supply
chains are the most obscure
[155]
and hardest to untangle.
[157]
This is where the production begins,
[159]
usually with a person that
gathers the raw ingredient,
[162]
a miner, a fishermen or a farmer.
[166]
There is no way you can trace
it back to a mama farmer
[168]
and ensure that the mother got paid.
[171]
Typically what happens - if
I am that smallholder farmer
[174]
and I sell my coffee, cacao,
barley to the buying center -
[178]
is, I might get a paper receipt,
[180]
I might not get a paper receipt.
[182]
Because it is all cash, I'm
never able to build a history
[186]
that allows me to improve my
crop because nobody trusts me.
[192]
From the brand's perspective,
[194]
if you really want your supply chain
[196]
to be traceable and transparent,
[198]
you do need to know who the farmer is
[200]
and blockchain can do that.
[203]
Bitcoin started
[204]
as an open source project in 2009.
[207]
Blockchain was first used to power Bitcoin
[209]
and it's often mentioned in the
context of cryptocurrencies.
[213]
There is this proposition
[214]
that the technology behind Bitcoin
[217]
is gonna take off exponentially.
[220]
It's important to keep in mind
[222]
that blockchain is not Bitcoin.
[225]
Bitcoin is an application
of blockchain technology.
[228]
Just like the email is an
application of the internet.
[233]
The term blockchain is used to refer
[235]
to distributed ledger technology.
[239]
Blockchain is a decentralized
[240]
digital registry where every participant
[243]
in the network holds an exact copy of it.
[247]
In the case of the supply chain,
[249]
it can keep track of
price or who owns what,
[252]
but it can also include information
[253]
about weight, geolocation,
[255]
and quality among many other details.
[259]
Companies using digital
databases can do the same,
[262]
but blockchain is more
resistant to tampering
[265]
because of the sheer number
of copies of the data.
[269]
Every time there's additional input,
[271]
a new time-stamped block of
data is created, encrypted,
[275]
and linked chronologically in a chain.
[278]
A copy of this block is then distributed
[280]
to all the devices across the
network and can be accessed
[283]
via an app, a QR code,
or even a text message.
[289]
The decentralized nature of blockchain
[291]
allows companies to reduce
their risks of data loss,
[296]
corruption, data fraud.
[297]
As essentially there isn't
an intermediary body,
[301]
like a government or a
bank or a third party,
[303]
that manages this data.
[305]
Given that everybody has
the same information,
[307]
it creates this general
level of trust amongst them
[311]
that the information is true,
[312]
it's validated and it's trustworthy.
[316]
In the supply chain,
[317]
blockchain acts like a digital
twin of a physical product,
[320]
most often anchoring to its QR code,
[323]
a barcode or an RFID tag,
[326]
things that some industries
were already using
[328]
to track their assets.
[331]
So what happens is when data is tracked
[333]
through the sensors and tags,
[334]
it's automatically sent to a blockchain.
[337]
This adds a level of
operational efficiency
[340]
to supply chain operations,
[341]
which saves a lot of costs for businesses.
[346]
For a while now,
[347]
businesses have been trying
[348]
to use various digital technologies
[350]
to optimize their supply chains,
[352]
but blockchain offers an
added level of security.
[356]
With standard technologies,
[358]
if you digitize a trade document,
[361]
you can very easily copy it.
[362]
Bill of Lading is actually a document
[364]
that shows that you're
the owner of the goods.
[367]
So it's a very, very important document
[369]
in international trade.
[370]
And there have been attempts
to digitize Bills of Lading
[373]
for decades now but the
adoption rate remains very low.
[378]
There were some massive
fraud scandals in Asia
[381]
because an electronic Bill of Lading
[384]
was used twice for financing.
[386]
With blockchain, you have
the guarantee that there
[389]
is, what is called, no double spending.
[392]
That this Bill of Lading
[393]
cannot be used twice for financing
[396]
because it proves the authenticity
of the trade document.
[400]
So for all of these reasons,
[402]
blockchain has generated a lot of interest
[406]
for supply chain management
and international trade.
[410]
It's really hard to say whether blockchain
[411]
has moved beyond the hype completely.
[415]
You know, right now the sort
of stage of the projects
[418]
that we're seeing are
mainly at pilot stages.
[420]
But what I will say is
that I think blockchain
[423]
is being recognized as a really important
[425]
technology for supply chains.
[429]
Blockchain is being used by
a number of big companies,
[432]
big retailers, big shipping companies.
[436]
The fashion industry is using blockchain,
[438]
especially luxury brands
or really fashion brands
[442]
who want to make sure that the products
[444]
that are being sold are not counterfeit.
[446]
And now I scan, click.
[450]
And the magic happens.
[451]
Authenticated.
[453]
Often when the adoption
of blockchain is led
[456]
by a large company, like a
retailer or a distributor,
[459]
they have an incentive to
really encourage small suppliers
[463]
within their supply chain
to also get on the bandwagon
[466]
and adopt blockchain technology as well.
[470]
Increasingly blockchain providers
[471]
are consortiums and large tech companies
[474]
who are integrating blockchain
into their existing tools
[477]
for supply chain management,
[478]
but there's also a
large number of startups
[481]
offering custom solutions.
[483]
One of them is BanQu.
[486]
It has over two million farmers
[487]
and informal waste pickers
across 51 countries registered
[491]
on its blockchain platform.
[493]
Where we operate, like
Zambia, Uganda, Sudan,
[496]
the farmers have a cell
phone that works via SMS,
[499]
not a smartphone.
[501]
We don't need an internet
connection for the mama farmer.
[505]
As long as you have a SIM card
[507]
that's connected, which is geolocated,
[509]
it's just picking up the location
[511]
from farmer to co-op to truck driver,
[514]
truck driver to a weighbridge,
[515]
weighbridge to the final destination.
[519]
One of BanQu's clients,
[521]
an international brewer AB InBev,
[523]
has just started tracking the barley
[525]
that ends up in beer of
their Ecuadorian subsidiary.
[530]
Their buying centers
are in remote locations
[532]
in the highlands where farmers
like Milta Andrango live.
[537]
This area has the highest
poverty levels in the country
[541]
and the company hopes
blockchain can change that.
[547]
The brewer was already using
devices to measure the weight
[550]
and moisture of barley to
determine its quality and price.
[553]
BanQu doesn't need any
additional technology,
[556]
it just taps into these devices.
[562]
The app on the buyer's
smartphone gathers this data
[564]
via Bluetooth and only a low
grade internet connection
[567]
is needed to send it to the cloud
[569]
where it gets added to blockchain.
[574]
The smallholder farmer, mama
farmer or father farmer,
[577]
when they come to sell their harvest,
[580]
they get an SMS message
on their SMS phones
[584]
that confirms what was the quality,
[586]
what was the quantity
and what was the price.
[589]
That digital receipt on their
SMS phone starts building
[593]
that transparency.
[595]
You're not getting rid of middleman.
[596]
You need middlemen.
[597]
But you can reduce
corruption dramatically.
[603]
BanQu doesn't use
[604]
the cryptocurrency feature of blockchain
[606]
and it doesn't handle payments.
[608]
It just provides farmers
with a secure code
[610]
that allows them to cash
out, save money for later
[613]
or transfer the sum to their
bank account if they have one.
[618]
We primarily work in
the developing countries
[621]
because that's where the
biggest disparity is, right?
[624]
That's where the biggest abuse is.
[626]
That's where the biggest
supply chains are, right?
[631]
I mean, you know, Africa
feeds the world, right?
[634]
And you know, Asia makes your garments.
[636]
At the end of the day,
the smallholder farmer
[639]
has never been given
the economic passport.
[643]
This economic passport
[644]
provides crucial evidence of sales
[646]
needed by farmers to open up opportunities
[648]
to borrow money at low interest rates.
[651]
This can then be used to
expand their business.
[665]
If you want to break the cycle of poverty,
[667]
just believe and use this information
[670]
because that's what
banks normally do, right?
[672]
If you needed a loan, you walk
in with your work history,
[675]
your light bill and your education,
[678]
and that's all we're doing.
[679]
Because all the data is on blockchain,
[681]
the farmer owns it
[683]
and if you don't trust me,
call the CEO of AB InBev
[687]
and he has the same
copy of my transaction.
[692]
Another widely adopted feature
[693]
of blockchain is smart contracts.
[696]
It's really a misnomer.
[697]
Actually smart contracts are not smart.
[699]
There's no AI component to them.
[701]
And there are not necessarily
contracts in the legal sense.
[705]
They are computer
programs that self-execute
[708]
when certain conditions are met.
[709]
For example, when a
truck crosses the border,
[712]
payment is made
[713]
or when the price reaches a certain level,
[716]
then an indemnity is being paid.
[721]
So the smart contracts
can actually be used
[724]
to make any type of transaction.
[728]
Using parameters that have been gathered,
[730]
smart contracts can also help
to automatically determine
[733]
a price, safeguarding
smallholder producers.
[737]
This is actually validating
the quality of the crops.
[740]
So when you put in a
parameter, the system says,
[743]
"Hey, this is out of range" or
[745]
"This is in range and
this is the fair price
[747]
that you should get."
[748]
So you can't game the system.
[755]
We can see the origin of
where a product has come from,
[759]
but we can also track its chain of custody
[761]
throughout the supply chain
[763]
and we can see how it's transformed
[765]
to become the end product for the consumer
[768]
and I think that's really impactful,
[769]
not just from a perspective
of understanding costs
[772]
and materials
[773]
but actually there's the
environmental factors.
[777]
Blockchain could help
[778]
to track Scope 3 emissions
[780]
which are the greenhouse gases produced
[782]
along the supply chain.
[784]
These account for about 90%
of a company's emissions.
[790]
But despite its potential
to increase transparency
[792]
and reduce corruption,
exploitation and emissions,
[796]
blockchain is not a silver bullet.
[799]
From a customer's perspective,
[800]
just because we can trace
the provenance on blockchain
[804]
doesn't mean we get the full story.
[807]
We still know only as much
[808]
as the company decides to disclose.
[812]
Blockchain is only as
good as the information
[815]
that is added to the blockchain.
[818]
There's the famous sentence,
garbage in garbage out.
[821]
And so having verification
systems outside of the blockchain
[825]
to ensure that the data that
is entered onto the blockchain
[828]
is of good quality is critical,
but this can be complex.
[832]
It can be expensive.
[840]
Even though blockchain
[841]
is not the only way to prove
the origin or authenticity,
[843]
there's increased interest by
brands in using a technology
[847]
that can help to build consumer trust,
[850]
something that's increasingly important.
[853]
A study by IBM showed that over 70%
[855]
of people who find
traceability very important
[858]
are willing to pay a premium
to companies offering it.
[863]
I think blockchain is being
driven mainly by consumers
[866]
and consumer demand for transparency.
[869]
That's one of the big driving factors
[871]
of blockchain right now.
[872]
And so unless there's that incentive
[874]
to really provide proof that products
[877]
within that supply chain
have been ethically sourced,
[879]
sustainably produced, then
I don't think companies
[882]
are really pushing to use blockchain.
[885]
The existing systems that
they have can do the job.
[890]
And while this shift in our supply chains
[892]
may happen slowly, it could
ultimately be lower costs
[896]
rather than increased transparency
[897]
that will steer the
industries towards blockchain.
[902]
And this could have an impact upstream.
[905]
Farmers through this SMS message
[908]
now have a different
experience when they're sitting
[911]
with a bank, when they're
sitting with the seed company,
[914]
because they're not looked at as a number
[917]
with a piece of paper that crumbles.
[920]
And the best example is, you know,
[921]
you see this mama farmer
[922]
who all her children are in school today.
[925]
They have running water
in their house, right?
[927]
All we have done is restored
[929]
that mother's ability
to prove her existence.
[934]
All we did was make the connection.
[936]
She does all the work.
[937]
We're just the tool.
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