Kieren James-Lubin: 0:04

What we don't have from a technological perspective is a really clean system for managing Global supply chains trade cross border that serves the function of establishing where something has come from, what it is, what the quality of the underlying materials, ingredients, et cetera, are that sort of seamlessly spans different trading parties.

Tom Raftery: 0:27

Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast. The number one podcast, focusing on the digitization of supply chain. And I'm your host global vice-president at SAP Tom Raftery. Hieveryone. Welcome to the digital supply chain podcast. My name is Tom Raftery with SAP and with me on the show today, I have my special guest Kieren. Kieren, welcome to the show. Would you like to introduce yourself.

Kieren James-Lubin: 0:53

Absolutely. Thank you, Tom. My name's Kieren James Lubin. I'm the CEO of a company called BlockApps. We're an enterprise focused blockchain company with a large emphasis in supply chain, particularly in the track and trace area fairly technical as far as CEO's go, actually wrote code for the company. At one point those days are long gone. Had be happy to be here, Tom. And I would mention that this is BlockApps second appearance on the podcast. Though my first.

Tom Raftery: 1:19

And thank you for coming back. Not coming back, but thank you for helping me out producing another show, because it was one of your colleagues who was on about six months back. I want to think now at this point talking about some of your apps in the ag space, but we're going to take a broader perspective now on blockchain and supply chain in general, as opposed to just any one particular vertical in, in, in supply chain. Yeah. Why blockchain and supply chain? What, What good is blockchain for supply chain?

Kieren James-Lubin: 1:51

So blockchain for supply chain. We've seen the last couple of years, a lot of coverage of supply chains. It's in the public consciousness in the way that it hasn't been in the past. Really due to the pandemic, starting with shortages of PPE, very early on to all sorts of demand, shocks that we're seeing now rising prices, et cetera. What we don't have from a technological perspective is a really clean system for managing Global supply chains trade cross border that serves the function of establishing where something has come from, what it is, what the quality of the underlying materials, ingredients, et cetera, are that sort of seamlessly spans different trading parties. So each big companies SAP obviously makes the, probably the world's most popular ERP system that touches every supply chain transaction for the companies that use it. Every company has its own system for accounting for all of this. There's not a great level of synchronization across different businesses of this activity. It felt like the ERPs, were developed first or concurrently with messaging systems that allow the data interchange to happen. But there's not a real single source of truth if you will. And you're you actually, if you look at a sector like financial services they have their own version of this challenge and they solved it. In the legacy world by creating clearing houses, like the DTCC swift parties that can say, okay, this is what happened. And when and why. And this is the final record of who owns what et cetera. At the end of the day supply chains are bigger. They're more complicated, there's more parties. So there's just not been any ability. Yeah. Point to clearinghouse, so to speak. And so you have in the case of trade finance, you've got basically escrow agents that are on both sides of an international transaction. But you just don't have a consistent record of where something has come from, what it is, where it's been. And that's the problem that blockchain really solves. It creates a signal. Data model set of workflows and an integration methodology across many different enterprises that allows one single record of the goings on in the supply chain.

Tom Raftery: 4:00

Okay, so playing devils advocate here. Why not just use a database? Same kind of thing. You write records into the database and you just keep tracking them. There you have all your information.

Kieren James-Lubin: 4:13

Yes. So you can do this in certain cases. One, I would say probably there's too many parties, basically. So you have to ask who administers that database? Is it a company? And again, going back to the financial services example, it's a clearing house, which is often owned by the participants in the trades. They set it up. Capitalized it with equity and the seventies or eighties or something, and everyone delegates trust to that entity because there's some stake in it. And it's a pretty constrained set of business processes that are standard and understood the supply chain. There's many more parties. So who gets to write to that database? And how are the ties broken? The business processes may be a little more dynamic, so you want to be the option to be able to change how things are done on the fly. And if you're going through a single central counterparty, that tends to be slower. And I think there's just less of a desire to have lots of really critical commercial information on shipments volumes, all that sort of thing in the hands of one hopefully benevolent entity, even still people are worried about. Information leakage by accident and moreover that entity potentially using the data against them. So if we're going back to the blockchain example, it's more of a participatory system. The parties have. Sort of the equivalent of a stake in the system in terms of confirming transactions, et cetera with systems like ours also, you don't have to share all of the data with one central counterparty. You really share it with the parties that are relevant to you in the supply chain, so that you can create an overall traceability, but more at a say item level. Versus a public blockchain where all data is visible to all parties. There's actually a real granularity of the data sharing but you don't see with other systems, most of are sort of all or nothing.

Tom Raftery: 5:59

Okay. And again you mentioned public versus private blockchains in general, while blockchain as a consequence of Bitcoin has got a horrendous name for its environmental impact. Now yours is a private blockchain. So for people who might not be familiar, could you explain the difference and why private blockchains are less environmentally destructive than Bitcoin.

Kieren James-Lubin: 6:24

Certainly happy to. Bitcoin's brilliant. The way that the security assumptions work in Bitcoin is the creators of it wanted literally everyone in the world to be able to join it and run a full validating node. a node is just an instance of the software. Bitcoin has huge redundancy basically. So there are probably hundreds of thousands of people with a full copy of the Bitcoin. many more, I'm not quite, I haven't looked recently. And what that means is it's very secure, right? There's a tremendous replication of the history. So lots of people could look it up, compare against each other, et cetera. But you had to design it to be able to achieve consensus. And what that means basically is taking a bunch of transactions, just Kieren pays Tom five Bitcoin ordering them. And then being able to establish the current state of account. So like how many Bitcoin do you have at a given moment? So the way that Bitcoin designed it's the way it does that the consensus process is very energy intensive. In essence it decided to make it one CPU, one vote. You want there to be a cost to voting, so to speak because if there's no costs, then you could create a million computers and have them all vote. And one person could disrupts the consensus. This sort of is, yeah, there's a stake in the game kind of aspects. And so mining is basically you're burning CPU power to win the next. The right to decide what the next updates to the history is. There's a financial reward for that. And this has created a sort of arms race where, you know, the higher, the price of Bitcoin is the more energy people are willing to expend to win the next batch of Bitcoin. And that's why it's very environmentally unfriendly. Ethereum sort of similar though, it's transitioning away from this model over time to a model called proof of stake, but basically the sort of next wave of blockchains, both permissioned in some of them public are using a less energy intensive consensus algorithm of different types that looks more like voting basically. Instead of one CPU, one vote, you've got a more persistent identities that vote in some capacities for us. It's big businesses who are on the system and want to be validators to, to decide what the history is. They're identified so everyone in our systems can say, okay, that's you fair? There's a customer of ours. Bayer's on the system. In any of these big players, they're identified in a way that is traditional, whereas in the public blockchains, they're not identified. So you know that it's some group of people who are, have a lot of mining power, but you don't really know who they are in a situation where you can identify the parties. You can change the consensus algorithm to something that's, again, it looks more like voting and it's way less energy intensive, like on the order of just with. The hardware to validate the, to process the transactions would be, and not this huge, additional energy expenditure to win the next round of Bitcoin, so to speak.

Tom Raftery: 9:18

Okay. Okay. And are government's starting to take note of blockchains and do anything about it.

Kieren James-Lubin: 9:26

They certainly are. And in all different aspects we saw an enforcement action actually quite recently, where. There was a couple billion dollar theft of coins and the they were returns to their rightful owners. there's usage of the technology for government purposes. Many of the big agencies in the U S have used it in some capacity. So, Customs and border patrol has treasuries looked at um, the fed is not. So far as I can tell really deep into it, but the central bank, digital currency is going and you see this all over the world as well. In fact, other jurisdictions are moving very quickly on these use cases as well. But

Tom Raftery: 10:04

China has a digital coin, right?

Kieren James-Lubin: 10:06

They appear to. Yeah. So I, I don't know a lot of the details. I don't know that they're all published, et cetera, but they seem to be moving fairly quickly and they'd sort of central bank digital currency question, and we may see some of the new currency wars play out on involving blockchain technology. Basically, as we see Different actors struggling for geopolitical influence, having control of the underlying technology system. Managing all that is probably a big, an important differentiation point for countries as they, they manage their overall global strategy. We've seen the dollar as the reserve currency for so long. I think that will continue quite honestly, but we should be aware of the potential convenience benefits of. Getting everyone on one system. I want to come back to cross border as a use case. The U S government has put out a few RFPs around streamlining imports, for instance with a sort of preregistration process, say for commodity shippers on the Canadian side et cetera all of those systems work better with a central bank, digital currency sort of embedded. Dollar backed blockchain coin, but not none of them in the U S really government sponsored at this time.

Tom Raftery: 11:19

And I was just going to ask is what should the us government be doing to improve its stake in the game?

Kieren James-Lubin: 11:25

Yeah. Good question for first. Thing is and think about end use, like what are some problems that the U S government itself has that could be solved by the technology? So the government um, to, you know, more, uh, civilian public sector. And I don't know if that's a real term to defense has really complicated operational supply chains and given how much pressure, again, going back to the inflation point right now, a lot of the goods we buy are from overseas to the extent that. That part of that cost is like getting it into the country from an import perspective. Having a really good system to track. Okay. What is it, where does it come from? Is it from a reputable supplier? Can we fast track it? That will take some of the costs out of trade, which would lower costs for US consumers, for instance. There's also military logistics, very complicated very high stakes. We really want to know. Okay. Where did our semiconductors come from? Has. Tampered with and flight maintenance of our extremely valuable, expensive equipment that we use. Very important sort of area that, I think the government should look to just streamline our, highly complicated operations, but the main point being look to first as an end user, that will help companies like mine and others hone the offerings for competitiveness. And then I think secondarily start to push to help American companies. Or any company in any particular jurisdiction compete on the international scene? This is something our commerce department does for instance because they're global systems really like you don't want a world where you've got one blockchain per country. You just want one or a handful total and for trade to move smoothly across the different national boundaries. Possibly recorded by the blockchain as well. Again, if you're a kind of international policy person, you should think you know, it's probably better for the country that you're operating on behalf of to have the companies domiciled there that ended up providing the technology to the.

Tom Raftery: 13:28

And how do we scale these blockchains when they start to be cross border? Because we've already said that supply chains are incredibly complex. So we're just the complexity alone will require a scaling upwards. And then if we're talking cross border and international transactions, surely that'll imply several orders of magnitude of scaling. Again how do we.

Kieren James-Lubin: 13:51

Yeah so there's a technical there's technological question. And then there's a business and policy and legal question. I think the hard thing is probably. Creating some level of standardization and it's really hard to impose standards. As a commercial company, we've always been hesitant to wait. Creation of standards to emerge. we're not gonna end up with one, like the data standard for cross border trade, for instance. But what we. can expect to happen as blockchains, they're actually a little more flexible than other systems as far as allowing people to get sort of work done now, but allowing standards to emerge over time, basically because they collapse the. It's not like there need to be millions of databases anymore. There can be to your point earlier watching acts as one shared, appropriately shared between parties. So not all the data available to everyone database sorta for the planet. And what that means is you can define the data model set up business workflows that fit your situation and then allow others to leverage it. So there can be a sort of standardization by default that starts to let people solve the system and reuse work so that if the policy is different than country a and country B people can self service code that up and meet the requirements that are unique by country, on a rolling basis. That will just accelerate the speed of course, you hear that blockchains are not as fast as databases and that's certainly true in a certain sense. There's a pure technical question there they'll what our technology and some others have achieved is that not since not all of the parties need to be, have full visibility to all the transactions, you can start dividing the work appropriately geographically in my kind of trading counterparty, so that the system scales fairly linearly. As you bring a new nodes on board, there's still a kind of confirmation. You still have to order all the transactions, but that part can be really fast relative to if, especially if the data gets really big processing them, adding them to a ledger where they're searchable

Tom Raftery: 15:52

Okay. And do blockchains make organizations more economically competitive?

Kieren James-Lubin: 16:00

Good question. They certainly can, I think are it's their new platform, right? So you have to use them the right way. And they're going to happen. And so if you are an organization you should investigate at least now not to start using the technology sooner as it's, it feels to me like. Almost like we're putting in a new fiber optic infrastructure or something like that. it's a new communication rail that also functions as a sort of data store for key record keeping like the business's financial records for instance. And if you think about that, that's pretty profound change. And so it's creating new opportunities. You see also going back to the public blockchain world, It's moving extremely quickly, a permission blockchain we're moving extremely quickly too. But there some of the public blockchain stuff is existing in a legal gray area, but you see, extremely intricate financial instruments being created. We've seen the NFT revolution in the last year and a half. And so it's something even as a person in the space, I couldn't have imagined that turning out this way five years ago. And so when you have an infrastructure for innovation lots of new business models can come into place in a relatively rapid period of time. So, it can certainly help companies with competitiveness. They've got to embrace the technology and try to understand it and plan for a world that is more automated, more digitized, less business models that involve Involving assurance to transactions will change. It's not that they'll go away, but again, they're going back to the cross to the international trade finance example. The minimums are very high for international trade finance because you got two banks on each side, freight forwarders and all that sort of thing costs are fairly high. So you've got to have probably pretty large shipments to justify it. If you have a more automated system where they trust role as taking out of the hands of people, and it's more in the hands of the system. And people don't entirely go away. Of course, that can lower the minimums on what it takes to do cross border, trade finance, and open up whole new markets. So from legacy businesses, detect distances, et cetera, it's a new playing field, and so you got to at least lean in and try to understand it at this time for competitiveness' sake

Tom Raftery: 18:44

Okay. And you mentioned NFTs. They have been quite polarizing, I think just in general, in the way they've been reported and there was a phishing attack on open sea recently where people lost a lot of their NFTs which are they real are, they're not, that's a whole other are things like that. Are what would seem to be trivial applications of blockchain technologies? Are they giving blockchain a bad name?.

Kieren James-Lubin: 19:09

Good question. So NFTs I'm somewhere between an NFT skeptic and an NFT supporter. I don't think that JPEGs are long run all that durable in value. We'll see I, I think it's very cool that artists have a new medium where they can make and monetize their art and potentially get residuals that they couldn't prior. And there's just a whole lot. New kind of capital that's willing to support these folks. So I think this is a good thing. I think it has not been tested really with the legal system. In fact there are copyright infringements going on. There are lawsuits going back and forth there. Yeah. To your point, there's this hacks still usually. So the public blockchain hacks tends to be compromise of individual keys within the keys for the private keys uh, manage ownership, interests. So it's usually. Not the whole protocol. That's the issue. It's that individual kind of data stores that have lots of private keys in them get compromised. And that's very valuable for the attacker, but it doesn't mean the protocol has anything wrong with it.

Tom Raftery: 20:12

Sure. It's like any password system.

Kieren James-Lubin: 20:15

Exactly. Yeah, that's right. I don't know if I'm long JPEG but what I think is very interesting about NFTs is that they function pretty close to like a title, like vehicle, title, home title, et cetera. And I think there's actually a really good story with adding liquidity to titles to real world. Assets objects, products, that sort of thing. That will look quite a lot like the NFT use case I've looked a little bit into buying a home. I do not own a home just yet. And just the whole process. It's like why do you do the title search after the offer has been made? It doesn't make any like in the blockchain based world. You can just see that it's a clean title because it's on this ledger that's authoritative you would, if there were a lien, you would see it on the same ledger too. And so in that sense the NFT use case just to me reflects real-world commerce. And I like that it's simple, compared to DeFi , which is the other sort of big hype area and public blockchains DeFi is financial. It's very complicated with this lots derivatives. Absurd yields and no, all that sort of thing. And some of the players or I guess maybe not in defy, but in the finance side of blockchain and fallen afoul of the SEC It's, It's certainly still the wild west. It's interesting for Sure There's a lot of innovation going on. But NFTs in the broad sense, I think are pretty durable, right? I think. At some point many, most, some large percentage of just ownership, interest in day-to-day things that may be mundane will be in some form an NFT. So as an example of an asset, that's NFTable, if you will. We can talk about corporate receivables. So we have a number of projects that are basically have a focus around construction project feeling. So there's a big owner of uh, some sort of large project and the vendors to that owner are provide them services usually on a mix of an hourly basis and a milestone basis. And. The they are, they're billing them. And so these are the, this is the receivables function of these organizations. And the underlying quality of those receivables is actually really important. So a lot of the time these companies see payments delays, basically because going back to previous example the ERP on the side of the vendor, doesn't exactly match what the ERP on the side of the buyer says. And no one knows exactly how many hours to bill for they call each other. They email each other spreadsheets exported from the ERP, et cetera. And they, they reconcile and they figure out what to pay and then payments delayed two weeks or three weeks, but on really big projects, that's an enormous time value of money. That can be a really big number. So what we've helped them do is both the ERP is, are still in play. we've shifted the source of truth to the blockchain it's. And so the, this reduces the disputes on sort of numbers of hours. It's more about one of them inputs, one of them approves sort of a flow than a manual kind of reconciliation. And this first and foremost speeds up payment As this makes the receivable itself, more of a tradable asset. Now this is a longer-term use case, but there are whole industries that run on the factory. And that factory basically is you get a company to buy your receivables. So once you've invoiced, it might take you 60 days to collect the company will buy the receivable advanced would you 80, 90% of the value. And there's a small. What are in effect, interest payments along the way. They may not call them that, but they're pretty much lenders. Although I think they're technically making an outright purchase of the receivable, having more data about the underlying quality of that receivable. I tokenizing it, making it more tradable should help companies that run on factory. Basically just get better financing rates. The more data is available. Who the buyer is, what the service was delivered, et cetera. The better that market sort of function. So that's something we're, working on.

Tom Raftery: 24:08

Okay interesting.

Kieren James-Lubin: 24:09

And again, it comes back to receipt. They're not the same, right? So they're non fungible.

Tom Raftery: 24:14

One of the interesting aspects of blockchains like Ethereum for example, is the ability to have smart contracts. Can you talk a little bit about that, how that works and what the potential of that is for people who might be unaware.

Kieren James-Lubin: 24:28

Ethereum is probably the most prominent, smart contract based system. And I'm the founder of Ethereum Vitaluk Buterin I think has been quoted as saying he see a little bit regrets popularizing the name, cause they're neither smart nor contracts. They sort of are in a limited sense. So what they are, they allow you to do is create rules around sort of complex transactive activity. An example we used to use years ago was basically like dividend payments where if you had a corporation there's the idea that corporations reside on the public. As you know, in and of themselves it could do it's you know, end-of-year s plit according to the beneficial owners in the corporation automatically as sort of payments go in and just sort of pays them out, does that split appropriately? And so that would be an example of a smart contract. Now, I think where people are sometimes imagined taking really complicated legal agreements that are long you know, some of ours are 30, 50 pages and And coding that all up and every if then else um, being in there, I, it says not to be realistic. I think you use smart contracts for the automated parks or the automateable part about repeated business transaction. Sometimes. Really they're just data. Sometimes they're just containers for what's happened. Sometimes they are enforcing some logic but basically it's a means of letting a programmable behavior span across enterprises, especially when they're doing repeated business with each other. You know, they're not that I think I would like in the use case to how EDI has been used in the past, for those who are familiar with EDI, if the supply chain people that probably are. EDIs tend to be set up messaging standards, where people are saying, okay, shipments coming, I've got a purchase order. Send me the invoice, all that sort of thing. It's like that, but much more kind of customizable. And again it's getting everyone on the same ledger. So we're usually an EDI system is attached to each enterprise. It's individual. They distort ERP, et cetera. It's just one system and all the parties can see the. The terms the data in real time et cetera, but it's closer to that than it is a general legal contracting vehicle. And there are still there's still some questions about whether the data on the blockchain can serve as having legal force. I don't see why it can't, but there are cases in which, you know, what the blockchain says, conflicts with some current real world legal contract. And I think our. Justice department and such would defer to the current legal contract. So there's, they're not exactly the same thing.

Tom Raftery: 27:02

Fair enough. Fair enough. Okay. Kieren, we're coming towards the end of the podcast. Now, is there any question I haven't asked that you wish I had, or any aspect of this that we haven't touched on, that you think it's important for people to be aware of.

Kieren James-Lubin: 27:16

Good question. So no, I don't think so. I think we covered some good rounds just as a final note. I think it's, hopefully it's been good for your podcast. Also that supply chains are just in focus at this point. And so thanks for all the good work you're doing. I just hope that. People get interested in blockchain for really international trade, from a good corporate who we're involved in it to policy makers, et cetera. And that can tell a little bit.

Tom Raftery: 27:41

Cool. Super, super Kieren. That's been great. If people want to know more about yourself or the block apps or any of the things we talked about today, where would you have me direct them?.

Kieren James-Lubin: 27:51

The website is block apps.net. So you can also find us on LinkedIn and some of the other social media channels. b l o c k a p p s block apps.

Tom Raftery: 27:59

Perfect. Kieren. That's been great. Thanks for coming on the podcast today.

Kieren James-Lubin: 28:03

Thank you. Appreciate your time.

Tom Raftery: 28:04

Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, head on over to sap.com/digital supply chain, or, or simply drop me an email to Tom dot Raftery at SAP.com. If you'd like to show, please, don't forget to subscribe to it in your podcast application of choice to get new episodes, as soon as they are published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks catch you all next time.