Sustainable Supply Chain

Ensuring Traceability And Sustainability In The Timber Supply Chain With Blockchain - A Chat With IOV42's David Coleman

June 17, 2022 Tom Raftery / David Coleman Season 1 Episode 234
Sustainable Supply Chain
Ensuring Traceability And Sustainability In The Timber Supply Chain With Blockchain - A Chat With IOV42's David Coleman
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Show Notes Transcript

Blockchain can get a bit of a bad rep because of the massive carbon footprint Bitcoin has, and more recently because of its huge losses! 

Enterprise blockchains though don't suffer either of those problems and so can be very elegant solutions to some quite challenging problems. In this episode of the Digital Supply Chain podcast, I spoke to IOV42's Chief Product Officer David Coleman to hear how their blockchain solution is helping prove the provenance of timber.

We had a great conversation spanning how IOV42's blockchain works in the timber supply chain, how their algorithm uses proof of authority, not proof of stake, and what other domains they intend to target next. 

I learned loads, I hope you do too...

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David Coleman:

I love exploring technology and all the places you can go with technology, but actually knowing your technology is helping solve a problem. That for me is the big objective. and so when you get sort of feedback like that, you've gone from months of a problem to a matter of seconds. I'm like, yeah, okay, we're we're doing a good thing here

Tom Raftery:

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. Hi everyone. 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 David. David, welcome to the podcast. Would you like to introduce yourself?

David Coleman:

Hi, Tom, thanks for having me. my name's David Coleman. I'm the chief product officer at a software company called IOV42.

Tom Raftery:

Okay. And what is IOV42?

David Coleman:

A very good question. It's an unusual name. We're not all entirely sure about the origins. we know the IOV stands for internet or value; and the 42 ranges from, was it someone's age at the time the company was founded or it does it actually refer to the hitchhiker guide, 42 being the answer to everything.

Tom Raftery:

Life the universe and everything, yeah?

David Coleman:

Yeah, it's exactly, Yeah. as I said, we're a software company, but we're a software company that is doing something quite ambitious, I think. So it's in the sort of blockchain DLT space. I joined the company about four years ago. My background is in software engineering and architecture. But being primarily in the financial industry, anything from startups or FinTech through to the big investment banks and hedge funds and the like. About four years ago, I managed to escape from the financial world, and joined IOV as a company I saw trying to do something very ambitious, and very interesting. So they said it's in the blockchain DLT space. It's in the space specifically targeting sort of enterprises and governments. We always look at what's going on in the public blockchain space with a lot of interest and that's, cuz there's a lot of innovation and ideas going on in that space. But we're also, a lot of us have come from sort of enterprise space. And so we're very aware of the sort of demands and needs for enterprise. And so we wanted to sort of take this great technology in blockchain, which has loads of potential. But we've seen go through all kinds of hype cycles. But we wanted to make it, how can we make it practical, pragmatic, and really answer some of the questions that enterprises are needing. So, in anything that involves the exchange of value, so I talked about IOV being the internet of values, the idea being we've got had this internet, which has been great for the exchange of information. But can technology help with the exchange of value and how you define value? It can be all kinds of things. There's the value we see in the crypto space where they're actually trying to build digital currencies. But then there's um, just information exchange, there's identity exchange, all these things are different exchanges that happening on the internet; and there's real value to them. So how do we improve them? How do we make them more trustworthy? and this is basically why IOV exists.

Tom Raftery:

Okay. And what kind of problems are you solving for who?

David Coleman:

Really, really good question as well. When I came into the blockchain space so much was a technology looking for a problem, and we didn't want to fall into the same trap or at least try and avoid some of the same trap, shall I say? So we knew that in the technology itself, that there were issues we were trying to address. So there's not been all kinds of issues around sustainability, around scalability, these kind of, sort of infrastructure sort of questions. But then there's like, well, what are actually the problems that the businesses are trying to solve? And we kind of distilled that down into these five questions. And we see these five questions applied across all kinds of use cases, but the first one, and it's really important for us is "When I'm doing this value exchange, do I know Who am I exchanging the value with?" So identity for us is central. It's really, really important. So unlike some of the public chains where identity is definitely secondary, we put it first and foremost, It's right at the heart and center of what we've built. The second thing, especially in when you're doing businesses is, do I know what I'm exchanging? How do I trust that this digital asset that I'm exchanging really represents what I'm being told it represents and how can we help build the trust around what's being exchanged. Then we talk about, " Do I have a record of the exchange?"" If I'm making this exchange, how do I come back and have proof that the exchange is actually valid?" And the fourth one is "How do I consent to this exchange?" I don't want an exchange of my assets happening without my understanding control and approval that it should happen. And then finally really important in the business world and we see with increasing regulation and what have you, "Am I sure this exchange is even allowed?" so how can I make sure that I'm trading with the right person, I'm trading with the right asset and I'm allowed to do this. So these are sort of five real key pillars of questions that we want to be able to answer with our technology. So we've built this technology. We looked at the technical side of things which is about making it scalable, making it energy efficient, make it fit in with the regulations as well. But we wanted to provide people with a model so they could start to answer these sort of questions. And it's very easy for us to sit there as technologists and build this platform and build this model and say, look, you need to use this. It's great. But really we need to be able to prove that it does actually do what we say it does. And so we've applied this technology in the area of supply chain, and more specifically, in sustainable supply and even more specifically in the timber supply chain. So timber suffers quite badly from illegal timber. In the climate awareness and things like Cop 26 recently, the whole deforestation has got a lot of focus at the moment. And the illegal timber trade plays a big part in the issues around it. So how can we take this technology and apply it to the sustainable timber supply? So we can help combat some of the illegal timber trade. And when I say it's big, I mean, estimates as high as 150 billion a year of illegal timber trade. So it's not a small amount of illegal timber trade. So there's the regulation coming in the EU that is called the EUTR and the UK has a similar one called the UKTR, which is all about increasing the regulatory demands on importers both into the EU and into the UK. And that's increasing the burden on importers to make sure they've done the proper due diligence. There's a loss in confidence around most of us will be familiar with FSC certification. You can go down to your um, wood supplier and you'll see wood stamped with FSC. that's meant to give some confidence as to its source and its origin, it's legitimacy. But there's some been some real challenges around that as well. And people are starting to say that certification is not enough. So we're exploring how we can help throughout the supply chain of timber. So it's been really exciting to take our technology and apply it to supply chain and to try and make a difference in the negative parts of supply chain.

Tom Raftery:

And how do you apply blockchain in the forestry industry? I mean, do you have people out there wielding an ax with a blockchain app in their pocket or from a practical perspective, how does that work?

David Coleman:

So tackling anything in supply chain, the absolute ideal is, you could just come with a solution and go end to end in your supply chain. We all know that's not ever gonna happen. Firstly, because supply chains are much more complex. We talk about supply chains and that implies this sort of linear, from one end to the other end, but we all know it's more complex. It's more of a supply network. So that's one of the challenges. The other challenges is just you've got very, very different participants throughout the supply chain. So all the way from like really big organizations who are very digital all the way through to, like you say, someone wielding an ax, who may not even have a phone, let alone, you know, be able to participate in a blockchain solution. So the way we've we targeted it. So we started through a certifier, so an organization, so they do certification and auditing an organization that goes in and looks at forest, looks at the mills, looks at exporters and audits, their processes and issues certificates. they heard about what we were doing just more generally in blockchain, their and their thinking was, oh, maybe this blockchain can help with some of the problems. So they came and spoke to us. We started to chat with them, exchange ideas. They were thinking, right, this actually has some legs, so they introduced us to an exporter out of Malaysia. We started talking to the exporter. Okay, what sort of solution would help you as an exporter? So we just focused on one party at first. And for them, there was the process of digitization which was part of the solution. It wasn't just blockchain is the solution. It's like, hang on a sec. How do we take all these paper records and everything going on and digitize it? And then how do we share it in a trustworthy way? Not only with our clients the importers, but also with the certifier and then have the certify stamp, their approval of the documentation of process and what have you. So that's where we started and then they started sharing it with their exporters and then the exporters are going, oh, wow, look, we've got all the information. We know that this certifier has been involved because it's all crypto graphically signed. We know that it has come from that certifier. This is great. This is gonna save us so much time. And then they're like, oh, I want to get my other importers, exporters rather. and my other suppliers on board as well. so we've got that sort of going on around the importers and exporters with certainly from the importer perspective, a lot of excitement about the potential of what this solution could offer. For us, in terms of the solution we offer it talked about identity would be really important. That accountability in supply chain and in sustainable supply chain is absolutely critical. So anyone who is involved at any part there's these assets coming through, which in this case is timber, there's data, which is being collected around those assets. And by the time it gets presented to the importer, cuz that's where a lot of the onus is on right now, they need to know that the data's reliable, they need to know where it's come from. They know need to know what it relates to all these kind of things. And then the blockchain technologies is exactly what it enables. It enables that accountability of identities, the integrity of the data that's come through. And then the assets themselves that representing the real world assets. So this is sort where we started and we're seeing a lot of the, the growth happening here. And now what we're interested in doing is how do we extend that back to the forest? How do we extend it forward ultimately to the retailer? And so that's the area that, where we're also focusing on at the moment to try and extend it up and downstream if you like.

Tom Raftery:

Okay. And I got to ask this question because its blockchain and it's sustainability. I presume everyone is aware of the horrendous carbon footprint that Bitcoin has, for example, Ethereum as well to a lesser extent. But I'm assuming you're using a private blockchain which doesn't have similar issues, right?

David Coleman:

Correct. Correct. So it's a private blockchain. It's the first benefit in terms of from a sustainability perspective. You haven't got thousands and thousands of nodes across the world, all using compute power to control the ledger or to maintain the ledger rather. The other thing we've done is rather than using an algorithm, like proof of work. So proof of work is the real problem when it comes to energy usage. So the whole cost that's been built into the model is to use compute. By definition it's meant to be using energy, to help maintain the state of the ledger and that's been the big challenge, with its growth and the number of nodes involved you start getting into ridiculous amount energy being used. There are other, consensus algorithms was one called proof of stake, which is where someone puts up value. And they put that on the line, to make sure to be held accountable for the voting that goes on. There's another model, which is the one we've used and that's kind of known as proof of authority. what does that actually mean? Well, rather than putting value at stake. Well, when I say value rather than putting like crypto or some monetary value at stake, the organizations actually put their identity at stake so they can participate in the network. And keep the distributed ledger, consistent between them all. Because they're now known actors, so it means their identity now is a state. So if they do the wrong thing, then their reputation is damaged. They're asked to leave the network, or they're kicked outta the network rather I put it too politely. And now their reputation is damaged and it's kind of a recognition that over years organizations trade on the trust in their identity. There are organizations that have for decades have built trust around their identity. So our view was like, well, why can't they leverage that trust? And if they're known as the node operator, they're actually staking their identity and they should be able to leverage the trust that they have in their identity. Obviously it has to have consequences if they then do the wrong thing. But the idea is you've now got a network of nodes that are maintaining this distributed ledger. All of them are known not only to each other, but also to the wider network participant. And then, their identity is at stake. So that's the approach we've taken. It means you can have, you don't need as many nodes. The nodes are known if solves a lot of the issues that blockchain faces around. How do you stop? What are known as civil attacks, which is fake identities. And we just think that that approach is far more appropriate in the context of enterprises and governments and those kind of use cases. The other thing we wanted to do with it as well is that geography's really important for businesses as well. So where the data is maintained and held and kept. So knowing your participants, knowing where they're hosting their node is a really important aspect for enterprise and blockchain.

Tom Raftery:

Okay. And is it just in sustainable forestry that you are, or is this something that you are also using in other domains?

David Coleman:

So forestry has been our primary one and the one with the most traction so far. We're also looking I mean, deforestation, it's not just timber that causes deforestation. So there's all kinds of other agricultural processes, biofuels, palm oil, all these things that also contribute to deforestation and these things are also coming under the regulatory radar as these things need to be controlled as well from a sustainability perspective. Cotton is another one. and cotton is an interesting one, not only does it affect, potentially affect from a from a agricultural perspective but obviously it's been in the news a lot around. human rights and modern slavery, these kind of aspects. And so, although we're not there yet, we're looking and exploring how our blockchain can help with some of those things as well. So with this model of identity and something we call claims and endorsements can also be applied to these kind of problems. So you can have an increased level in trust as to what's actually going on. So we want to apply it there. The other thing we're looking in is the area of steel, funnily enough. But there's a whole area, again, it's around supply and sustainable supply. So, technology metals is another area we've been looking at as well. So how do you again apply to the supply chain, but actually beyond just the supply? So a lot of where governments are looking at now is the circular economy. We've been so wasteful in the past and now it's becoming more and more important that actually we need to develop, our circular economies. and so having a product that can help trace your goods through not just through to consumption rather, but post consumption. So how do things go um, be disposed of properly, how they recycled properly, how they reused properly, is an area of high interest for governments and organizations. So we're looking at how our traceability can help there as well from a blockchain perspective.

Tom Raftery:

Okay. Very good. Very good. And where to from here? What's next for you guys?

David Coleman:

Oh, yeah. Good question. it's been going in about timber for about a year and a half now. And whenever you try to break into this kind of market, it's a challenge just to start getting that traction. You've got organizations that are fearful of visibility. Not necessarily because they want to do the wrong thing. And we always talk about trying to make it easier for the good actors and harder for the bad actors. But there's definitely been a, over the past 10 years it's been shifting, but there's definitely been a real hesitancy to give up information that might be perceived as commercially sensitive. So that's been a real challenge. But now we have a solution in place people are using it. It's now about taking it to the wider market and saying, you've got these perceived negatives, but look at the benefits. But it is such a long way to go. There's a lot of importers, for example, who still think just certification is fine, even though they know there are issues with it, but then there are traders who won't buy from them now. So the whole market is being a bit shaken up, so we're positioning ourself to be the solution to what is emerging as, a real problem. And we want to extend further, the further upstream we can go, the more trust we capture in the supply chain. So trying to take it all the way back to the forest. Now we understand that in some places that's gonna be a real challenge, in terms of whether their digital capabilities. but for us, it's about trying to make it as simple as c an I take a picture on my mobile phone. I take a picture at the same time of that stack of logs in the forest. And then that captures my GPS location gets uploads the blockchain and then flows that so we want to come up with real pragmatic, simple solutions. Then, where they don't even necessarily have to be online all the time. And it's kind of this recognition as well is that you can't, global distributed ledgers, you have to be connected. so you gotta think of where solutions that can I connect later to the blockchain and still trust the data being added at that point. So, these are some of the challenges that we're looking to expand into.

Tom Raftery:

And any outcomes you can speak to?

David Coleman:

Mainly anecdotal in terms of what we're being told by like importers, for example. So when you've got an importer saying, oh my goodness, this used to take weeks or months, and it's just there now, it's a matter of seconds, I can confirm everything. I can do my due diligence on a shipment in a matter of seconds, as opposed to through several weeks or months. That's great to hear because I mean, as a technologist for me, my passion is taking technology and actually solving a problem with it. Yes. I love exploring technology and all the places you can go with technology, but actually knowing your technology is helping solve a problem. That for me is the big objective. and so when you get sort of feedback like that, you've gone from months of a problem to a matter of seconds. I'm like, yeah, okay, we're we're doing a good thing here. Like I said it's relatively early days. We are starting to get traction. We're getting a lot of interest, and people very, very interested in what we're doing. I had another comment the other day from someone saying. Oh man, we needed this system 10 to 15 years so again, these are really good indicators for us. And I think as a company, I would say this as a company. It aligns very nicely with us as a company. Blockchain has had a lot of bad press with the hype cycle, with the accusations of what it's used for. Some of the more nefarious things that people have used cryptocurrency and what have you. That's not who we are as a company, we're trying to avoid the hype. We're trying to create a real solution to real problems. And so that sort of feedback is very validating for us as a company and who we are as individuals.

Tom Raftery:

Nice. So we're coming to the end of the podcast now, David. Is there any question I haven't asked that you wish I had, or any aspect to this we've not touched on that you think it's important for people to think about?

David Coleman:

Really such a good question. I think one of the, challenges that is often missed when in the blockchain world is around cryptography. Cryptography has had this problem since forever, really, but even more so in the computing space. That it's not a very accessible technology. It's the place of cryptographers and mathematicians and computer scientists. And trying to cross that over into the let's call it the real world, where, as you said before, you've got forest workers who know how to wield an axe. They don't necessarily know anything about cryptography. I think this is actually one of the biggest challenges blockchain faces is how do you cross that over to make it usable? And that's challenges we can try and help as a company with that, but it's also an area where the cryptographers need to really have be thinking about actually, how do we make it more accessible to everyone. and so that's probably a real big challenge in the blockchain space. It's not insurmountable. It just needs some good thinking about how do you make the user experience better? The other big challenge with it is. The security is great, but if you lose your key, what do you then do? As soon as people find out, that I work in this sort of space, one of the first questions I get is, oh, I've got a friend who has lost their private key for their Bitcoin, can you help 'em get it back. And, you know, and having to explain I'm really, really sorry. But no I can't is a challenge. So I guess the approach we've taken as well is to not have that completely. If you're, lose your private key, you're not completely locked out. There is a route back. So you don't lose your assets. We that's another reason for taking the approach we've taken. But yeah, I would say that, people considering blockchain, the promises is great. What it can do is great. But you have to tread carefully. and we're trying as a company, that's one of the reasons we exist is to try and help make these things more accessible to companies. You don't want a mill having to hire a cryptographer; mainly cuz there aren't enough cryptographers to go around and so that's why we can add a lot of values because we're trying to take that complex things and make them more simple, but definitely something for people to consider.

Tom Raftery:

Very good. Super. David, we're coming to the end of the podcast now. If people want to know more about yourself or about IOV42 or any of the things we talked about in the podcast today, would you have me direct them?

David Coleman:

Yeah. So, I'm not gonna read out a link but I'll send you a link definitely. You can also find us on LinkedIn or you can just do a search for IOV42 and you should be able to find us.

Tom Raftery:

Cool. Super. been really interesting. Thanks a million for coming on the podcast today.

David Coleman:

Thank you for having me, Tom. Thank you.

Tom Raftery:

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/digitalsupplychain or simply drop me an email to Tom.Raftery@sap.com. If you like the show, please, don't forget to subscribe to it in your podcast application at 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.

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