Blockchain and Supply Chain (Series: Blockchain Basics 2019)

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Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
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DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic
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MEET THE FACULTY
Moderator:
Chris Cahill – Lowis & Gellen LLP
Panelists:
Michael Baumert – Barnes & Thornburg LLP
Leonardo Bonanni – SOURCEMAP
Edward Honour – Tritanium Labs PTE Ltd.
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ABOUT THIS WEBINAR:
Blockchain and Supply Chain
Traceability of components of products – from food to fashion – is central to the promise
of using blockchain to organize and operationalize data from the web of supply chains.
How would traceability bring value? How do blockchain and smart contracts work? And
how would these foster traceability? What has been done so far in this regard? What issues
and tensions account affect adoption of traceability, whether by blockchain or other
means? We have assembled for this discussion a builder of blockchain-based traceability
solutions, a traceability entrepreneur via blockchain and other means, and an intellectual
property attorney (and former software engineer) who advises clients on technology-driven
transactions.
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ABOUT THIS SERIES: Blockchain Basics
In Dr. Strangelove, a party created a “doomsday machine” that would automatically destroy all life if
the machine detected a nuclear attack on that party. There was no override, and, well, let’s just say
that the film is hilarious but probably not a comedy in a conventional sense. There, if the “network”
received certain information, the device would activate. Like a smart contract on a blockchain. The
problem in Dr. Strangelove was that the party that created the doomsday machine activated it
before telling its adversary (i.e., the other network participant). That “smart contract” was critically
not smart. Blockchain smart contracts (with much smaller but still meaningful stakes) are computer
code designed to adjust automatically the rights and obligations of network participants based upon
the inputting of information to the network, with such information visible to all and inputted per
means and procedures agreed upon by all before the contracts become effective. And thus paper-
intensive, multi-step and multi-party transactions, like securities sales, supply chain coordination,
and supply chain finance, might proceed with greater ease and security. Costs could be lowered,
transactional speed quickened, and litigation simplified or evaded entirely. We will examine these
areas of promise.
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EPISODES IN THIS SERIES
8/23/19 Episode #1:
Blockchain and Smart Contracts
9/20/19 Episode #2:
10/18/19 Episode #3:
Blockchain and Trade Finance Tech
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #2:
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WHAT IS BLOCKCHAIN?
• a ledger
• not stored in any one place
• composed of a decentralized network of nodes
• new data on the blockchain must be verified by a majority of nodes
• verification occurs by executing energy-intensive cryptographic
calculations
• once validated, a block of data is added to the chain
• blocks may never be removed or edited
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WHAT IS BLOCKCHAIN?
• Decentralized – data on the blockchain is not stored in any single
place but distributed across many nodes
• Immutable – once data is added to the blockchain, it cannot be
removed, edited or backdated
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TYPES OF BLOCKCHAINS
• Public Blockchains (permission-less)
• Private Blockchains (permissioned)
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FROM CENTRALIZED LEDGER TO
DECENTRALIZED
Blockchain establishes a decentralized ledger, by contrast to the familiar
centralized ledger, with a custodian or administrator being trusted to process
monetary transactions and manage the transfer of property
See the two diagram on the following pages, from David Sneyd, “Blockchain
solutions to ESG problems” (BMO Global Asset Management, Oct. 2018)
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TITLE
Content
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HOW DOES BLOCKCHIAN ESTABLISH
A DECENTRALIZED LEDGER?
Participant makes an entry, i.e., creates a new block
Proposed transaction is broadcast to each participant on the network
Validity of the new block is subject to pre-set criteria and a complex algorithm
called “proof of work”
A majority of miners conclude that transaction is valid
New block is created and time-stamped
All are provided with an updated version of the ledger:
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SOME COMPONENTS OF A BLOCKCHAIN
Each block contains:
-- a “hash,” which is a digital fingerprint or unique identifier
-- time-stamped batches of recent valid transactions
-- and the hash of the previous block
The previous block hash links the blocks together and prevents the past
form being altered or rewritten
Each subsequent block strengthens the verification of previous blocks
(and the entire blockchain)
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SOME COMPONENTS OF A
BLOCKCHAIN, 2
Proof of work requires high computational capacity, provided by “miners”
Miners supply the network with computing power, to allow the updating of the database
A majority of mining power must be able to confirm the new blocks by decrypting the data
Once a “block” (a record of a purchases and sales created by miners by solving
a mathematical puzzle that validates the transactions) is added to the network
ledger of older transaction (the “chain”), such record on the blockchain can’t
be changed or reversed (i.e., the transaction is immutable)
Thus a blockchain, to be non-falsifiable, must not have any operator holding at any time
more than half of the computational power of the chain
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ACCORDING TO SATOSHI
• A coin can be defined as a chain of digital signatures
• The input to each transaction is the output of one or more other
transactions
• The balance in your Bitcoin wallet is the sum of your unspent
transactions
• The coins in your wallet can be traced all the way back to the miner
that mined it
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SO WHAT IS GAINED BY GOING FROM A
CENTRALIZED TO A DECENTRALIZED
LEDGER?
If a bank or credit card company keeping a centralized ledger is hacked,
then other participants lose access to their data
With a decentralized ledger, all participants keep a copy of the data
With a decentralized ledger, there is no extra cost of (or litigation from)
efforts to synchronize records kept by counterparties to a transaction
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SMART CONTRACTS
Smart contracts are “self-executing contracts with the terms of the agreement
between [a] buyer and seller being directly written into lines of code. Once a smart
contract has been created, computer transaction protocols will execute the terms of
a contract automatically based on a set of conditions.” Rensel v. Centra Tech, Inc.,
2018 WL 4410110 at *10 (S.D. Fla. June 14, 2018). The promise re smart contracts:
*self-executing
*additional parties not needed to monitor the transactions
*greater cost efficiency and faster transaction speed
To determine whether contractual conditions are met, smart contracts use “oracles,”
which are agreed-upon real-time data providers which confirm triggering events
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ACCORDING TO THE CDC
• Each year, 48 Million Americans are sickened by a Food
Bourne Illness.
• Globally, over 600 Million People are affected.
• The problem causes $55 Billion to $90 Billion in economic
loss Each year.
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BLOCKCHAIN SOLUTION…
• Food Traceability is a series of inputs & outputs.
• Blockchain stores data in terms of inputs and outputs.
• Blockchain transfers assets across identities.
• Blockchain nodes are public, protected, and easy to
implement.
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TITLE
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A PROPOSED GS1 NUMBERING SYSTEM
THAT WORKS WITH BLOCKCHAIN
PTI label is the GS1 formatted label that goes on around 60% of all produce sold in the US
GS1 is a worldwide organization: its website for the US is https://www.gs1us.org/
• All companies that sell in a store are members of GS1: the UPC barcode is managed by
GS1
• The GTIN (Global Trade Identification Number) uniquely identifies items worldwide
• Items can be identified on the blockchain by address, GTIN, and lot number
• GLN is global location number representing each factory or shipping location
• Companies that sell at retail and need UPC codes for their products must join GS1
• Others on the supply chain join because a party requires it (adoption rate declines
earlier in the supply chain)
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SUPPLY CHAIN, END TO END
• Hundreds of shipping links
• Thousands of vendors, manufacturers, distributors, customers
• Data validation, chain-of-custody reporting, supplier
benchmarking, risk heat maps and alerts, emergency response
• The above parties and factors interact dynamically
• A dashboard display might be needed for “visibility” of a simple
supply chain, with data shifting in real-time
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SUPPLY CHAIN DESIDERATA
Provenance of goods (quality, safety, compliance with norms
and regulations re: environmental and labor and other factors)
More accurate forecasts and product adjustments
More efficient allocation of talent and capital assets
More accurate and efficient inputs for financing supply and
insuring credit
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BLOCKCHAIN-MANAGED SUPPLY
CHAIN – A FEW KEY COMPONENTS
• Purchase Orders
• Ocean Bill of Lading
• Automated Manifest System (required to be field for goods entering
the US)
• Importer Security Filing (same)
• Customs Clearance (same)
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BLOCKCHAIN-MANAGED PURCHASE
ORDERS ON BLOCKCHAIN
• Create indelible record of each step (block)
• Execute encrypted actions (identification of parties, authentication of transaction, time-
stamping blocks)
• Digitization upon the ledger of aspects of the contractual agreements, i.e., smart contracts
• Purchase Orders embed within them many business rules (cover price, currency, quantities,
ship date, Incoterms Rules – which may change over the course of the movement of goods and
components (e.g., production capacity of supplier, changes in raw material costs)
• As each step in the process is verified, invoices can be triggered by smart contracts upon proof
of delivery, the ID of goods can be verified (or not)
Per “Blockchain for Supply Chain: Smart Contracts & Purchase Order Management” (Amber Road White Paper)
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SMART CONTRACT: SMART INVOICES
• Euler Hermes has provided trade credit insurance for over 100 years, and is looking at blockchain-based
“smart invoices” (to help manage transaction for which it provides insurance)
• It experimented with having companies upload their invoices onto the Ethereum “Smart Contract” blockchain
• When a supplier’s invoice is uploaded, the smart contract “reads” it to learn payment due date, amount, and
the purchaser’s identity
• Smart contract then identifies the network of suppliers for that purchaser
• If the supplier is not paid timely, the smart contract can “decide” (based upon rules coded into it), whether to
send an alert (and what kind of alert) to the other suppliers in the network
• PURPOSE: to forestall other payment defaults, lessen trading with insolvent purchaser, and lower risk of
insurable events
Pierre Sein, “Invoices on Blockchain at EHDA” (Medium, July 27, 2017) at
https://medium.com/@pierresein/invoices-on-blockchain-at-ehda-85d03a929062 (visited Aug. 21, 2019)
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BLOCKCHAIN 50: BILLION DOLLAR
BABIES (FORBES, APRIL 16, 2019)
Note: the article includes links to “full profile” of each enterprise described
• Bumble Bee Foods: transparency in the tuna supply chain form catch to grocery stores
• Cargill: using Intel’s Hyperledger Sawtooth to track turkeys through its supply chain;
worked with Intel and Bitwise to build Hyperledger Grid to sell to others
• Foxconn: pilot projects to use blockchain to streamline supply chains and provide working
capital to suppliers
• Golden State Foods: participating in IBM’s Food Trust (consortium of companies seeking
to track food across entire supply chain) and leading effort to track temperatures at which
beef is kept
• IBM: created “IBM Blockchain” and has filed for >100 patents
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BLOCKCHAIN 50: BILLION DOLLAR BABIES
(FORBES, APRIL 16, 2019), CONT’D
• Maersk: with IBM developed TradeLens platform, a global blockchain for shippers
contra paperwork – 100+ organizations have signed up to use TradeLens
• Nestle: testing use of IBM Food Trust to track provenance of food ingredients in baby
food and other products
• Seagate Technology: working with IBM on blockchain to track products through
distribution and life, to ensure that fake hard drives are not returned to its warehouses
(and re-sold by mistake)
• Walmart: has filed for 50 blockchain patents for tracking shipments, operating drones,
and other; focused on finding the culprit in food-safety scares; helped create the IBM
Food Trust; plans to require all lettuce and spinach suppliers to log shipments on
blockchain
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ABOUT THE FACULTY
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Chris Cahill – ccahill@lowis-gellen.com
Mr. Cahill is Head of the Bankruptcy and Restructuring Practice Group at Lowis & Gellen
LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’
committees, potential purchasers and others through bankruptcy cases, out-of-court
workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill has
substantial mega-case experience representing very large debtors, and counsels and
litigates on behalf of manufacturers and secured lenders in large and middle-market cases.
Mr. Cahill also publishes frequently and speaks regularly on commercial insolvency
issues. He is an executive editor of Commercial Bankruptcy Litigation, 2d Edition
(Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2019) and is
the host of Financial Poise Radio, a periodic broadcast for investors and other curious
persons, on www.financialpoise.com.
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Michael Baumert – mbaumert@btlaw.com
Michael Baumert is an associate in Barnes & Thornburg’s Chicago office. As a member of
the Intellectual Property Department and Corporate Department, Michael focuses on
technology-driven transactions, sourcing, cloud computing, and data privacy and security.
Michael has earned a Certified Information Privacy Professional/United States (CIPP/US)
certification offered by the International Association of Privacy Professionals (IAPP).
Michael also counsels clients in technology and intellectual property transactions, and has
developed a focus on blockchain and distributed ledger technologies, autonomous vehicles,
machine learning, and other artificial intelligence-related concepts. Prior to becoming an
attorney, he worked as a software engineer designing and developing business intelligence,
warehousing, and customer relationship management software.
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Leonardo Bonanni – leonardo.bonanni@gmail.com
Leonardo Bonanni is the founder and CEO of Sourcemap, the supply chain
transparency platform. Sourcemap helps manufacturers and brands trace
products from raw materials to end consumers, and in the process save money,
reduce risk, and improve social and environmental compliance. Leo has been
named among the 'Most Influential People in Business Ethics' by Ethisphere, and
among 'America's Most Promising Social Entrepreneurs' by Bloomberg
Businessweek. He is a supply chain transparency advocate, a designer and
engineer. He developed Sourcemap as part of his PhD at the MIT Media Lab in
2006. He also teaches at NYU is a visiting researcher at MIT.
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Edward Honour – ed@tritanium.io
Ed is the Chief Architect of the Tritanium hybrid blockchain. He is a software and
product development expert specializing in entertainment, gaming, financial industries.
Ed leads large product development initiatives for both startups and ongoing global
businesses. His expertise lies in, among other things, cryptographic database
architecture, data security, and Blockchain-related technologies. His specific specialties
include: cryptographic databases, blockchain, Oracle architecture, Rracle database
administration, Oracle RAC, and Oracle mySQL Clusters.
Ed has authored two popular Oracle books: Oracle How-To, and Oracle8 How-To.
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IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily
for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education.
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