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Blockchain and Supply Chain (Series: Blockchain Basics 2019)

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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.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/blockchain-supply-chain-2019/

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Blockchain and Supply Chain (Series: Blockchain Basics 2019)

  1. 1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 1
  2. 2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2
  3. 3. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 3
  4. 4. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: Chris Cahill – Lowis & Gellen LLP Panelists: Michael Baumert – Barnes & Thornburg LLP Leonardo Bonanni – SOURCEMAP Edward Honour – Tritanium Labs PTE Ltd. 4
  5. 5. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 5
  6. 6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 6
  7. 7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 8/23/19 Episode #1: Blockchain and Smart Contracts 9/20/19 Episode #2: Blockchain and Supply Chain 10/18/19 Episode #3: Blockchain and Trade Finance Tech 7 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.
  8. 8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Episode #2: Blockchain and Supply Chain 8
  9. 9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 9
  10. 10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 1 0
  11. 11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF BLOCKCHAINS • Public Blockchains (permission-less) • Private Blockchains (permissioned) 1 1
  12. 12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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) 1 2
  13. 13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TITLE Content 1 3
  14. 14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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: 1 4
  15. 15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 1 5
  16. 16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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) 1 6
  17. 17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 1 7
  18. 18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 1 8
  19. 19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 1 9
  20. 20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 2 0
  21. 21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 2 1
  22. 22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 2 2
  23. 23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TITLE 2 3
  24. 24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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) 2 4
  25. 25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 2 5
  26. 26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 2 6
  27. 27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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) 2 7
  28. 28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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) 2 8
  29. 29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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) 2 9
  30. 30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 3 0
  31. 31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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 3 1
  32. 32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THE FACULTY 3 2
  33. 33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 3 3
  34. 34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 3 4
  35. 35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 3 5
  36. 36. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 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. 3 6
  37. 37. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. 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. 3 7
  38. 38. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT FINANCIAL POISE DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. Its websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com. 3 8 Our free weekly newsletter, Financial Poise Weekly, educates readers about business, business law, finance, and investing. To receive it simply add yourself by going to: https://www.financialpoise.com/newsletter/ Email addresses are never sold to or shared with third parties.

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