Supply chain and financial services driving the blockchain market

In conversation with Security MEA, the CEO and co-founder for SettleMint, Matthew Van Niekerk, elaborates how the blockchain has gained pace in past one year and in which direction is it headed.

Covid 19 is said to further accelerate blockchain transition. Elaborate.
There are two ways to look at this. The first is specific to Covid-19 and the second is much broader where blockchain plays a role in companies’ digital transformation. Specific to Covid-19, the production and distribution of vaccines represents a billion-dollar industry and having verifiable proof of not only being vaccinated but also with which vaccine, is extremely important. This has given rise to blockchain supported supply chain tracking solutions, covid passports using SSI and, in the future, will likely lead to the need for precision recall support with blockchain provided provenance trails down to individual vials of vaccines.

While it might seem morbid, given the rushed pace that vaccines have been developed at and the equally rushed approval processes by Drug Administrations around the world, I do believe that we will see at least one major catastrophe where a specific vaccine or a batch of a vaccines need to be pulled from circulation. In this scenario it will be essential that we know who has already been vaccinated with the offending batch. Having a unique identifier at vial or batch level will be necessary to avoid large scale recalls that would see national vaccination programs halted and delayed.

The dark side of a billion dollar industry is that it is also a very attractive industry for counterfeiters to enter. Rest assured that there are criminal organizations already finding avenues through which they can insert counterfeit products into the official supply chains. This will have a terrible effect on unwitting citizens who believe they are safe when in fact they are not. These false positives (people we believe are vaccinated but are not) could disrupt national efforts to eradicate society of the virus.

Blockchain technology embedded in the vaccine distribution system won’t necessarily prevent fakes from entering the supply chain but it will make fakes easy to spot. For instance, a QR code affixed to a shipment of vaccines can be scanned to validate the authenticity of the shipment, enabling participants in the supply chain to act as guardians against fakes. A final scan of a QR code affixed at vial level by the medical practitioner at the time of administering the vaccine would be the last control to ensure that authentic vaccines are being administered.

The second broader trend pertains to digital transformation in general. Covid-19 disrupted how consumers interact with brands in all sectors — from the banks we use to the supermarkets we shop at.

Why is private or permissioned blockchain said to dominate the market?
Private/Permissioned blockchain solutions are dominant today as they provide a sort of “safe-harbor” for companies and ecosystem partners to begin using blockchain technologies. The permissioned nature of these solutions enables them to control who has access to the network, what information each party has access to, what business logic they can deploy to the network and what actions they are permitted to carry out within this business logic. This is not dissimilar to the early days of the internet when universities and militaries set up their own intranets so that access to the network could be controlled.

Later, companies adopted this model as well and over time these became commonplace. It wasn’t till later that the value of having a more open, public-access policy towards intercompany and international information sharing became apparent and these intranets were connected to form the internet. We still have email (encrypted or otherwise protected) to use the internet to send information point to point.

When public blockchains meet ALL of the following criteria, public/permissionless blockchain solutions will follow a similar trajectory:

  • Have well established (battle tested) protocols
  • Can support a wide array of use cases
  • Can process requisite transaction processing times and volumes for these use cases
  • Have non-prohibitive transaction fees

There may remain some use cases where a permissioned network or second layer solution will still be used (we still have intranets and use encrypted communication channels today as well) but we will see much more broad adoption of public blockchain technologies in the public and private sector.

Which industry verticals get the most benefit from blockchain implementation. Can you sight some use cases?
There is potential for blockchain-based solution in each industry vertical, but the main question is whether blockchain is the right technology for your specific use case. As of today, we see many implementations in supply chain and financial services.

In supply chain, blockchain provides an immutable trail of information that can be shared with upstream and downstream actors in a supply chain. This information can then be shared with consumers to build trust through transparency. The benefit is multi-faceted. First, efficiencies in information management can be gained as described in the Covid-19 example above. Second, processes can be automated based on smart contracts that would otherwise require manual intervention. Third, in cases where sustainability is in focus and multiple suppliers of a specific good are involved, best practices from one supplier can be easier to identify and share with other suppliers to decrease waste in the supply chain or reduce the environmental footprint of suppliers. Finally, and in many cases most importantly, it provides enhanced transparency that builds trust with consumers can lead to enhanced brand value.

In financial services, blockchain provides the possibility to achieve faster clearing and settlement times and offers the opportunity to remove agents whose current role in the financial system is to act as a reconciler of information. When information is stored on chain, the need for independent reconciliation is stripped away. The addition of tokenized versions of traditional assets also removes friction, enabling a more peer-to-peer level of connectivity for exchanging assets. DeFi is providing the current financial services incumbents with a looking glass into a possible future, decentralized market infrastructure.

Can you speak to the crypto fraud trends in the market? And how can organizations mitigate these risks?
We need to put this in context in a couple of ways. First, there is literally several million times more fraud without crypto, in terms of the number of active fraudsters, the value of fraud being committed and the number of cases, than with crypto. Second, crypto is an emergent store of value, much like gold has been for most of recorded history, and as such the fact that a small percentage of fraudsters choose to target crypto holders or to demand payment in crypto is inevitable. Third, many assume that because there is no bank involved in crypto that fraudsters operate with impunity with crypto but blockchains that power crypto provide an advanced, decentralized auditing system to “follow the cash”. This immutable audit trail is a forensic accountants’ best friend, providing the ability to track and trace every single unit that was obtained through fraudulent means, at excruciating detail.

As with all frauds, vigilance is the best way for organizations to mitigate risk. Organizations need to ensure that they put the necessary controls in place to filter suspicious mails and to ensure their staff are aware of risks and instruct them on how to deal with these (delete, report to CISO, never open attachments contained in suspicious mails, never execute files, etc).