Unit 4.

Blockchain Application Development

4.1Enterprise application of Blockchain

An "enterprise blockchain" is a type of permissioned blockchain that can be used to

streamline business processes at scale, such as track supply chain goods or settle global
payments.

Corporations believe this type suits their needs better than a public blockchain network, such
as Bitcoin, because the visibility of their data can be restricted to a select group of people.

While there are different types of blockchains, they are all essentially digital records of
financial transactions and data that are shared among a group of entities. They also use
cryptography to make it difficult for malicious agents to manipulate the history of previous
transactions.

Facebook, IBM, JPMorgan, Walmart and Intel are just some of the big companies exploring
enterprise blockchains and how this modern technology can be leveraged to improve
transparency and optimize existing business operations.

Blockchain for Cross-Border Payments: The Essence

When used for cross-border payments, blockchain provides payment processing in seconds
rather than days, drives a 40–80% reduction in transaction processing costs, and ensures
topflight security and end-to-end traceability of payment-related data.

Cross-Border Payments on Blockchain: Market Info

Cross-border payments and settlements are considered the most prominent blockchain use
case. According to the IDC Worldwide Blockchain Spending Guide, it accounted
for 15.9% of the $4.67-billion blockchain market in 2021. With the expected growth of the
global blockchain market from $7.18 billion in 2022 to $163.83 billion by 2029, the segment
of blockchain-based cross-border payments is anticipated to show the corresponding increase.

Juniper Research estimates that B2B cross-border payments on blockchain will account
for 11% of the total B2B international payments by 2024. The main driver for the popularity
of blockchain payment solutions is their ability to provide fast, secure, transparent, and cost-
effective processing of cross-border payment transactions.

How Blockchain for Cross-Border Payments Works

Architecture

It is blockchain’s innovative architecture that drives the advantages of blockchain-based vs.

traditional cross-border payments.

Compared to international bank transfers, blockchain offers substantially lower transaction

processing costs due to eliminated intermediaries (e.g., commercial banks, clearing houses,
etc.). Plus, there are no cut-off times for payment processing, which results in drastically
increased processing speed.

Compared to the independent e-payment systems such as PayPal or MoneyGram, blockchain

provides much more robust security of sensitive data and eliminates the risk of data
leakage. Also, blockchain money transfer is fully transparent, which contributes to the
mutual trust between payers, payees, and cross-border payment service providers.

A sample architecture of blockchain-based cross-border payment solutions ScienceSoft

delivers looks as follows:
Cross-border payment transactions are submitted by the blockchain network members or
automatically enforced by smart contracts upon predefined events. The requested
transaction is transmitted to the peer-to-peer (P2P) network of nodes that validate the
transaction according to the selected consensus protocol. Traditional financial institutions
and large businesses dealing with high-value transfers mainly rely on permissioned
blockchains. In such networks, only known and trusted users with special rights can access
and validate payment events and transactions. Fintech companies and SMEs focused on
smaller-value B2B and C2B transactions usually opt for permissionless blockchains to
promote financial inclusion and ensure maximized payment transparency.

Upon validation, payment-related data is encrypted with a hash function and stored
in timestamped blocks linked chronologically. The blocks form an immutable ledger that
provides a single source of truth to trace payment activities. Individuals, businesses, and
financial services providers interact with a blockchain to make, receive, and monitor
payments using role-specific web and mobile applications. All the participants maintain
their own up-to-date copies of the distributed ledger.
A blockchain solution typically requires integration with financial data marketplaces and
accounting software. Additionally, the solution may be integrated with:

 Business-specific systems where payment initiation takes place, e.g., core banking
software or ecommerce platforms.

 A payment analytics system to share relevant data required to analyze cross-border

payment transactions and payers’ behavior.

4.2 Know Your Customer (KYC)

KYC is a process by which banks obtain information about the identity and address of the
purchasers. It’s a regulator governed process of performing due diligence for verifying the
identity of clients. This process helps to make sure that banks’ services aren’t misused. The
banks are responsible for completing the KYC procedure while opening accounts. Banks
also are required to periodically update their customers’ KYC details. KYC may be a
manual, time-consuming, and redundant across institutions. Sharing KYC information on
Blockchain would enable financial institutions to deliver better compliance outcomes,
increase efficiency, and improve customer experience.
Problems and Deficiencies
1. Work wiped out collecting KYC information unnecessarily replicated by multiple
institutions.
2. Isolated view of consumers and their transactions insufficient to detect concealment.
3. Uncertainty in knowing if implemented practices are sufficient.
Key Problem Areas and Solution Benefits
1. Redundancy: Most large files use similar data and processes to verify an equivalent
client. The solution benefit is to eliminate the redundancy documentations that got to
be verified only once before the approval information is shared.
2. Inefficiency: Manual and time-consuming process to collect and verify documentary
evidence. The solution benefit is to extend automation where documents and approvals
are digitized and may be verified without manual intervention.
3. Lack of specificity: Requirements for due-diligence are often fuzzy, creating
uncertainty on compliance to avoid legal sanctions.The solution benefit is to
standardize process i.e. standardized, automated KYC processes sanctioned by the
regulators.
The Idea Behind Blockchain and KYC
Each company has to verify your identity somehow, and it’s particularly important for
financial institutions. From this ‘know your customer,’ or KYC protocols was the rise to
assist companies to ensure they know who they’re doing business with. Typically, this
involves an extended, drawn-out practice where certain documents are shown, and a few
kinds of background checks or verification takes place.
KYC Blockchain Implementation
In the traditional KYC system, each bank will conduct its identity check i.e. each user is
checked individually by an individual organization or government structure. Hence, there is
a waste of time for checking each identity from scratch.
The blockchain architecture and the DLT allow us to collect information from various
service providers into one cryptographically secure and unchanging database that does not
need a third party to verify the authenticity of the knowledge. It makes it possible to form a
system where the user will only need to undergo the KYC procedure once to verify his/her
identity.
The process is as follows:
1. For KYC procedure a user submits documents to one of the banks where he wants to
take a loan or use another service.
2. Individual participants are responsible for collecting personal data(banks, government
agencies, companies, or users themselves) and stored in a decentralized network.
3. The bank checks and confirms the passage of KYC if everything is normal.
4. The bank is responsible for entering the data about the user into the blockchain
platform, to which other banks, organizations and state structures have access. All
parties can control and regulate the KYC process. The system will monitor changes and
updating of the user data, and if someone breaks the rules, it will become known to all
parties.
5. When a user wants to use the services of another bank, this second bank accesses the
system and thus confirms the user’s identity.
6. The access to user data will be based solely on its consent. The user must log in with
cryptocurrency transactions i.e. use the private key to initiate the information exchange
operation.

Blockchain and KYC: Current Challenges

The KYC practices vary by the institution as there are no global standards. This leads to
redundant work and limits the ability for different financial institutions to collaborate to
verify identity. Customers are subject to time-consuming and difficult-to-accomplish
onboarding processes when opening new accounts. There are changes in the regulations and
this is creating costly and effort-intensive obligations for companies to comply. Also, the
customer information is not being updated in material changes, which causes inaccurate
information in many bank systems.

4.3Food Security

Blockchain in Agriculture and Food Security

With global-scale food systems such as seafood, nearly 40 per cent of which is traded
globally, data transparency and traceability through technologies like blockchain are
important for socially and environmentally conscious decision making and to facilitate trust
among stakeholders.

Global food supply chains proved brittle during the COVID-19 pandemic, leading for calls to
boost the resilience of global food supply chains through improved efficiency in production,
distribution and consumption of nutritious food. How could technologies like blockchain that
provide data to producers, distributors and consumers be part of the solution? Big data
applications may present opportunities to address inefficiencies from farm to table and
improve global food security.

Blockchain, a linked decentralized database that stores auditable data throughout entire
supply chains, may change the game for food producers across the globe.

With global-scale food systems such as seafood, nearly 40 per cent of which is traded
globally, data transparency and traceability through technologies like blockchain are
important for socially and environmentally conscious decision making and to facilitate trust
among stakeholders.

Gathering information

Blockchain technologies can be used to consolidate information on the quality of the seed,
track how crops grow and record the journey once it leaves the farm. In Canada, for example,
Grain Discovery - an online blockchain marketplace - is an example of data being leveraged
by those involved in the foThe data could enhance transparency in supply chains by
providing immutable records from production to consumption. Such data have the potential
to facilitate information transfer throughout every step of the supply chain. And if
blockchains are implemented with proper validation, it can prevent illegal and unethical
production and distribution that undermines sustainability and community food security.

Tracking pathways

Currently, there is little evidence supporting the claim that blockchain and big data
technologies are contributing to global food security. Even though the average farm is
projected to generate 4.1 million data points by 2050, up from 190,000 data points in 2014,
increases in global food security have not been impressive.

Part of the challenge is how blockchains have been implemented until now. The corporate
control of blockchains and big data platforms could even undermine food security. old system
to grow and market globally competitive crops
Corporate-owned, centralized databases of information do not meet the traditional
definition of a blockchain, which is based on democracy and trust.

Traditional blockchains are decentralized and democratized in order to ensure trust between
users. Corporate control of supply chain information could also leave out small-scale farmers
that lack the required size, scale and technological know-how to participate. This division
between large and small food producers can contribute to global food insecurity, and many
researchers believe that small, as well as large farms, are required to feed the world’s
growing population.

Data and food futures

Before blockchain and other data technologies can help address food security, a number of
challenges need to be addressed.

The implementation of blockchains must be decentralized to include small farmers and rural
people. This will enable sustainable and equitable food systems and allow consumers to make
informed decisions.

However, as blockchains place additional responsibility on the end users, challenges such as
limited digital literacy among the world’s poor and infrastructure constraints may undermine
true decentralization.

Also, they must be integrated into broader food security promotion strategies to make them
sensitive to social and environmental values critical to tackling food insecurity among diverse
groups.

The untapped potential of harnessing big data through a transparent and decentralized food
distribution system may support sustainable food production and provide accountability for
food production.

This is crucial for efficient food systems and food security in the future. But it is important
that these innovations are deployed equitably so that all stakeholders along the value chain
may benefit.
4.3Working of Blockchain Mortgage

Let us try understanding a Blockchain mortgage using an example.

A person wants to buy a home and is already pre-qualified for it. They will complete the
application, which will become a block on the blockchain. Every party involved in the
process will have access to the block. This will allow them to easily and quickly verify the
information.

If and when the loan is approved, the buyer will receive an encrypted key in order to sign the
offer Their signature will be recorded as a new block to the chain. Then the funds will be
transferred on the blockchain as well, and hence become a block on the chain. This entire
process will take mere days, instead of a month.

After the mortgage is approved, mortgage servicers can use blockchain to track payments
from the borrowers. Furthermore, any refinancing or selling of the property can be managed
easily as blockchain can be used to verify property ownership.

How is Blockchain Being Used Today?

1. Lending: Several lending finance institutions are experimenting with blockchain

technology to improve the efficiency of the mortgage lending and closing processes. It is
used to record, share, and exchange data about the loan. With a loan file stored on
blockchain, institutions can now leverage blockchain as the custodian. They can also perform
validation checks on the loan file and store outputs of those checks to ensure transparency.
Blockchain adds a greater level of security by providing a record of the loan file that cannot
be tampered with or lost.
2. Title and closing: Several title insurance companies have adopted blockchain technology
to facilitate the exchange of prior insurance policies and support remote online notarization.
This helps to improve efficiency and reduce the risk. The transparent decentralised database
reduces the risk of data manipulation.
3. Mortgage-backed securities (MBS) training: There are several companies today that
trade cryptocurrencies, equities, and securities on blockchain. Primarily because this is a
method to increase liquidity and cut settlement times. It also helps to reduce risk and
expenses. Blockchain is being used for securities trading to record the trades and verify
underlying collateral on the shared digital ledger. This improves transparency, speed of
settlement, and reduces risk.
Areas Primed for Disruption through Blockchain

1. Mortgage Closing

 Mortgage closings today take about 30-90 days for contingencies such as financing,
appraisals, and securing title. Closings have also been in-person, involving a lot of
documents and multiple re-verification steps, needing time and expense to the process.
Steps included :
 Document Verification: Increasing numbers of lenders will conduct validation checks
and certify information with blockchain.All privileged entities are then made aware of
the information securely, reliably, and instantaneously.
 Title Transfer: Title companies will increasingly use blockchain technology to identify
and validate titles. By doing this, accuracy and efficiency will be improved, and title
insurance may be eliminated entirely.
 Notarization: The next generation of e-notarization and e-mortgages will use blockchain
to ensure information accuracy, while preventing tampering and fraud.
2. Mortgage Servicing

Blockchains and DLTs can save a lot of time and money for mortgage servicing. It can also
reduce the operational burden of meeting regulatory requirements. This is by eliminating
document tracking and information reconciliation, and digitising payments.

 Smart Contracts: By the use of smart contracts, with embedded Al and security,
blockchain can digitise and automate the entire loan application process.
 Payments: Blockchain allows digital payments that could be exchanged across the
platform in a synchronised fashion without intervention.
 Regulatory Compliance: Compliance with regulatory standards is constantly monitored
by service providers, who are required to provide proof of proper servicing procedures.
Blockchain’s immutable record eliminates manual errors, increases regulatory audit
efficiency, and reduces regulatory violations.
 Mortgage Servicing Rights: By using blockchain technology to allow for greater
transferability of Mortgage Servicing Rights, you could see greater liquidity in this
market.
3. MBS Settlement

Blockchain can challenge the long standing control exerted by Some organisations over the
MBS clearing and settlement process. Blockchain technology continues to prove its ability to
provide safety and soundness in this market and allows the market to grow.

 Speed: Blockchain could execute settlement in hours rather than days, thereby reducing
the transaction expenses and margin volatility exposure.
 Posting Collateral: By reducing the transaction time, blockchain can effectively remove
the need to post margin to protect against the risk of a trade collapsing

Benefits of Blockchain Mortgages

1. Precise database management: Traditional mortgage methods involve a lot of paperwork.

Buyers need to verify income, assets and employment history. Blockchain collects all the
necessary documents and information into digitised records, which are easily accessible.
2. Lower costs: Blockchain technology eliminates intermediaries during the settlement
process, which will help reduce closing costs.
3. Easy verification: Usually, to protect themselves against liens on the property, buyers
need to buy title insurance. Title insurance can be eliminated due to the ease of verifying the
chain of title thanks to blockchain.
4. Smart contracts: Smart contracts are coded sets of rules that trigger when a specific event
occurs. For example, if a buyer purchases homeowner’s insurance, the mortgage can move to
the next step in the process automatically.
Legal Issues Concerning Blockchain

Blockchain technology is a revolutionary but relatively novice innovation. This is a reason

why a lot of effort is being given into researching the pros and cons of it. Mortgage
processing is a rather important field that must be handled with care and utmost importance.
Thus, there are some concerns and potential issues that must be tackled before revamping the
existing system.

Blockchain is largely an unregulated technology. It also offers no defined standard method to

process mortgages. NOw this might sound exciting to a few, one could argue that this lacks
the strength to address some major issues.

Added to this, while very secure, blockchain is not 100% impermeable. Granted, it is safer
than our existing methods, but there is also denying that savvy hackers have broken into
blockchain security protocols as well.

Also, for blockchain to work properly and effectively, everyone involved in the process has
to be on board. If the buyer and the seller cannot agree upon the blockchain without the
lender.
Actions to Consider

Several areas are ripe for disruption through the implementation of blockchain technology in
the mortgage industry. The property ownership and mortgage finance industries will be
transformed rapidly by blockchain, distributed ledgers, and smart contracts. Consequently, it
may be a good idea to assess how these technologies will impact your organisation and how
to exploit emerging solutions to benefit your company, stakeholders, employees, and
customers.

Property Records in Blockchain Mortgage

Property records can be stored on a blockchain, and therefore anyone can access the public
ledger to track the owner. Anyone can also read liens against the property in written account
order. For instance, few lenders can finance a property with an associate existing lien. As a
result, if the house finally ends up in a very proceedings sale, the lien pays off first. Providing
enough funds for the Blockchain mortgage investor to repay.

How Can Blockchain Transform the Ecosystem?

Blockchain can transform the ecosystem in two major ways :

1. Automating MI certifications and pricing via smart contracts

PMIs use smart contracts thus when every party must agree with the loan specifics, insurance
type, and supreme premium rating. For instance, each party would possibly conform to the
loan’s LTV, FICO score, loan quantity, loan type, and premium sort (month, semi-annual,
single premium, etc.).

This ultimately drives the following MI rating in agreement by each party, even as it will
nowadays, however a blockchain system may permit all parties to certify and conform to
conditions in a very clear and verifiable manner.

2. Tracking the MI certificate and claim filing

Once the loan insures, associate degree MI certificate allots by associate degree MI merchant.
To extend transparency, that certificate can hash inside a blockchain and everyone parties
may track the performance of recent insurance written (NIW). If a recipient fails to repay the
mortgage, blockchain would track the loan’s delinquency, default, and later proceed.

4.5Blockchain enabled Trade

What are the Benefits of Blockchain in Global Trade and Commerce?

International Trade

International trade is a $16 trillion market that accounts for the exchange of capital, goods,
and services across international borders or territories. It is broadly split into two
categories:
  75% various goods typically shipped by shipping containers or ground
transportation
 25% commodities

From a shipping and transportation viewpoint, the trade and financing industry primarily
suffers from a lack of trust and coordination between exporters and importers, particularly
within emerging to developed markets. Additionally, the industry maintains various
operational inefficiencies due to the complex nature of operational processes in the
international trade of goods and commodities. For instance, shipping and trading still
heavily rely on human resources and are affected by manual and paper-based processes
which are very costly, slow and error-prone.

Exporters and importers face challenges to finance or guarantee their transactions, which
stymies growth and limits the benefits from globalization. Historically this space has been
very resistant to advances in technology and digitization although some technologies like
Commodities Trading & Risk Management (CTRM) solutions have proved useful.

Over the past 10-15 years, many start-ups and technology companies have attempted to
develop products with mixed success— until the emergence of blockchain technology for
which international trade is identified as a primary use case. The potential impact of
blockchain technology on international trade finance has spurred many companies and
consortiums to update their outdated technology. Beyond ushering in the era of
digitization, blockchain enables the tokenization of existing documents, letters of credit,
and more. Smart contracts will improve coordination between exporters and importers
through the automation of agreements, business events, and other manually intensive
processes. The global adoption of blockchain technology will create even greater benefits
for cross-border coordination, trade settlement, and standardization.

Commodities Trade

Commodities trading represents 25% of international trade and is comprised of

 40% energy
 30% base and industrial metals
 30% agriculture and soft commodities

More than half of commodities trading is financed by banks and other financial institutions
or funds. Software and new technologies have emerged to serve this industry over the past
2 decades with varied successes, particularly CTRM.

But like the international trade of container goods, commodities markets remain affected
by operational inefficiencies and costs including:

 Fraud: The widespread use of paper documents increases opportunities for

malicious behavior (double financing, etc.).
 Delays: It takes 90-120 days to book the shipping of a commodity, request trade
financing, collect documents, provision the documents to buyers, and facilitate
payments.
  Loss of income and opportunity: These fractured processes and high operational
costs hinder innovation for the entire industry and cause billions of dollars worth of
annual losses in income and opportunity.

Blockchain technology provides the capability to reduce fraud through a distributed and
immutable ledger where information cannot be manipulated without notifying all parties
involved. The entire history of transactions is easily accessible utilizing the inherent
properties of distributed ledger technology.

Additionally, blockchains native ability to create and transfer digital assets enhances
various existing commodities trading processes outlined above. The real-time data and
transactions enabled by smart contracts has the potential to reduce delays and automate
manual processes. The inefficiencies throughout the commodities trade industry result in a
loss of income and opportunities for businesses. As blockchain technology grows in
adoption, it will help firms, investors, and the other parties involved in commodities
trading realize greater gains and increased profitability.

Trade Finance

Based on estimates from $4.4 trillion commodities markets, approximately 30% of the
benefit from trade financing is claimed by banks, financial institutions, institutional
investors, or funds. The Asian Development Bank highlighted the potential for growth of
the global trade finance market by identifying a $1.6 trillion gap between supply and
demand for trade finance, particularly for trade flows to and from emerging markets. This
gap stems from know-your-customer (KYC) and compliance issues as well as poor
profitability due to labor-intensive costs (operational, KYC, due diligence).

Blockchain technology, such as Ethereum can be implemented to overcome the various

issues that occur throughout the KYC and regulatory compliance process. The historical
record and transparent ledger provided by blockchain networks provide near real-time
monitoring of transactions for multiple parties involved. Regulatory agencies can gain
access to permissioned blockchain consortiums improving AML or auditing. Finally,
blockchain has the potential to facilitate greater access to trade finance on both the supply
(alternative investors) and demand side (SMEs from emerging markets)

How will blockchain impact business processes and supply chain management?

Blockchain can digitize, secure, streamline, and ultimately accelerate operational

processes and supply chains across global markets. Transactions in international trade can
take up to 120 days to complete. Moving away from paper-based processes towards
digitally verifiable and legally enforceable documentation means more rapid industry
operations and the reduction of fraud.

For gas & power, where problems center around reliable data sharing— blockchain will
enable information alignment, quicker imbalance resolution and settlement processes, and
also more efficient delivery practices.
For renewable energy, where problems center around reliable reporting of industrial
carbon emissions or energy produced through renewable assets — blockchain offers
increased trust through network transparency and governance systems that connect all
stakeholders.

How will blockchain impact bulk commodities logistics?

The movement of huge volumes of basic materials that are needed to fuel and feed the
world is complex. It requires multiple counterparties that lack effective coordination
because many producers are found in remote locations and emerging economies. As
markets become more efficient, commodity trading is evolving into a low-margin service
business. Increasingly, traders make their living by providing a solidly reliable logistics
service between producers and consumers. These facets inherently raise the risk of
transactions, contributing to the limited access for new or growing companies.
Blockchain’s cost-reducing capabilities will increase margins while its deterministic trust
structure will drive accessibility within the market.

How will blockchain impact trade finance?

As an extension of international trade, trade finance undergoes the same cumbersome

operations processes. Most rejections of trade finance requests submitted by SMEs in
emerging markets to financial institutions stem from compliance problems, lack of trust,
and low profitability. Blockchain solves many of these issues by authenticating
documentation, streamlining operational processes, and facilitating coordination between
multiple stakeholders. In addition, blockchain simplifies access to alternative investors
through marketplaces, thereby increasing sources of funds for smaller players.

How will blockchain impact post-trade settlement?

Current practices around trading are commonly viewed as inefficient for having too many
intermediaries involved (security trade brokers, custodians, and payment agents), for being
prone to settlement risks, and for having settlement cycles that are unpredictable and time-
consuming. Blockchain technology has the potential to dramatically simplify the chain of
post-trade operations, guaranteeing and facilitating the consolidation of securities
registers, all while enabling a higher speed of execution, reducing transaction costs, and
enabling real-time settlement at T+0.

How will blockchain impact marketplaces and asset tokenization?

Across the above three categories – supply chain management, commodities logistics, and
post-trade settlement – there is significant long-term potential to develop trade and
finance-focused marketplaces in order to simplify access for both supply and demand
parties, increase liquidity, stimulate competition, and heighten efficiency.

How will blockchain impact track & trace?

Blockchain technology offers greater transparency and a single source of truth for
participants using supply chain networks. Intelligent track and trace of orders, goods, and
delays via blockchain could expedite the sending and receipt of goods.
In particular, blockchain provides the following benefits:

 Digitization. Most non integrated supply-chains still rely on insecure and

inefficient physical processes. By using blockchain, stakeholders digitize physical
processes with smart contracts to address these issues and enhance productivity.
 Authenticity. Producers, manufactures, retailers and customers all face difficulties
in verifying product’ authenticity. This boosts counterfeiting. With blockchain,
products may be linked with non-fungible tokens at the moment of creation. These
tokens may then be used as digital certificates.
 Distribution Control. Most brands and retailers cannot control distribution outside
of their own channels. With blockchain, they can use smart contracts to define
specific rules to manage distribution across multiple channels.
 Post-Sale Services. Many retailers are not able to provide comprehensive after-
sales services— including recall, warranties, and maintenance— because they lack
information about a product’s provenance. With blockchain, they can use product
life-cycle information secured in smart contracts to develop additional after sales
services.
 Transparency. Customers expect to have transparent information about products’
raw materials and manufacturing processes. With blockchain each stakeholder
across the supply chain can provide verified information.
 Verified Ownership. Customers face difficulties in proving product ownership.
This boosts theft and counterfeiting. With blockchain, customers can collect and
manage non-fongible tokens, associated with physical products, and use these
tokens to prove product authenticity and ownership, enabling safe secondary
markets.

How can blockchain help trade finance?

Trade finance is often required when importing and exporting goods between countries, and
requires the importer to pre-pay for goods to cover the costs associated with shipping and
taxes. The process involves banks providing credit based on documents proving funds are
available and that the goods have arrived at their destination. However, banks after often
reluctant to provide this service to small businesses. A World Trade Organisation report says
up to 60% of trade finance requests from SMEs are rejected by banks.

Proponents say blockchain’s distributed nature could make it easier to perform checks which
would enable more trade finance requests to be granted, speeding up transactions and opening
new markets for businesses. Barclays claims to have carried out the first such transaction
using a blockchain system in 2016, working with tech start-up Wave.

What is we.trade?

Founded by 12 major European banks including Deutsche Bank, HSBC and Santander,
we.trade was set up as a platform to facilitate such deals and started operation in 2019. Built
by IBM on the Hyperledger Fabric blockchain, it is licensed by 16 banks across 15 countries,
but has been battling financial difficulties since 2020, when it laid off half its workforce. A
funding round of €5m from backers including IBM, which took a 7% stake in the business,
was secured later that year, but it appears the cash has now run out.

Digitising trade finance is a priority for banks, with 54% of those surveyed by the
International Chamber of Commerce’s International Trade Finance survey saying they see
digital platforms as a priority area for growth.

But despite this, uptake among banks has been slow, with only two of the we.trade founders –
Spain’s CaixaBank and Finland’s Nordea – fully deploying the system, alongside several
other smaller banks. The failure of we.trade could also be a blow to IBM’s financial
blockchain ambitions. The company provides a range of distributed ledger consulting and
technology services, including products directly designed for trade finance.

4.6 Supply Chain Financing

Supply Chain Finance (SCF) is an integral segment of the Supply Chain sector, which is a
key driver of any economy. Supply chain finance is utilized by corporations to link buyers &
sellers with financial institutions, helping to clear and unlock working capital that’s locked up
in the supply chain. Supply chain finance (SCF) is a big and rapidly developing industry.
SCF is recognized as a highly significant zone for development and strategic focus over the
years. In simple terms, it is the financing of goods and services as they move through the
supply chain.

Overview of Supply chain finance

Supply chain financing (SCF) refers to the methods and techniques employed by banks and
other financial businesses to manage the capital invested into the supply chain and mitigate
risk for the parties involved. Supply chain financing allows companies to improve their cash
flow through various means, including factoring, invoice discounting, and supplier
financing. Undoubtedly SCF is a relevant point of discussion for businesses involved in
trade and trade finance to be acquainted with. Supply chain finance is an efficient strategy
that is agreeable to buyers, suppliers and their clientele to help the financial and operational
flow in the business. Supply chain financiers provide a wide variety of remedies for their
clients, providing those solutions in an effort to buy their manufacturers enough time to
receive and make due payments. Supply chain finance companies help suppliers get
payments early from buyers and also extend their payment terms. In this way, suppliers can
get enough cash and buyers can get help in optimizing their working capital.

Despite its advantages, supply chain finance doesn’t solve everything. For instance, it is
usually restricted to the largest suppliers. Small businesses and start-ups suffer, which is
unfair because they are able to take advantage of early payments. Some stakeholders are
aware of the problems and have developed a number of supplementary solutions to improve
supply chains. Numerous proposals have been put forth, but nothing looks ideal while some
have opted to use blockchain to enhance supply chains. There are numerous use cases of
blockchain and in this blog piece, we would attempt to explore how decentralized, distributed
ledger technology can solve some of the key challenges impacting the world of supply chain
finance.

Supply chain finance and blockchain technology are leading businesses to drastically change
their commercial environment. As companies continue to expand, they make new domestic
and global ties in order to enhance their procurement process and find ways to acquire less
expensive alternatives. This has very positive effects on accounting books, but it can cause
short-term working capital problems as well. Valuable financial resources may end up being
locked into supply-chain requirements.

How can blockchain improve supply chain finance?

People initially think of digital coins when they hear about blockchain, but blockchain isn’t
just digital money. It’s a sophisticated ledger system that’s valuable for many industries. Any
transaction activity on the ledger is distributed across all decentralized systems that
participate within it. The transparency of the blockchain ledger makes every transaction
obvious to everyone in the network.

The blockchain can supply businesses a platform to streamline and automate supply chain
finance processes. This can help other businesses save money on operations and enhance
efficiency. The blockchain also facilitates trust and continuity between parties in transactions.

Supply chain finance, also referred to as reverse factoring, is a funding alternative used by
companies that have made purchases (buyers) to send their suppliers an advance on their
invoices. Unlike traditional factoring, in supply chain financing, funding comes from the
buyer’s bank at a rate based on the buyer’s credit rating. As a result, suppliers tend to get
funding at a cheaper cost than what they could have attracted by themselves.

As in supply chain finance, the advantages of blockchain may be more obscure than in trade
finance, which has been historically associated with cumbersome paper-based processes. But
there’s been a lot of talk on how the technology could play a role in supply chain financing
solutions. The intersection of supply chain finance and blockchain technology has remarkable
benefits for the relevant stakeholders. Some of these include:

It increases authenticity in the supply chain

Supply chain finance is a large network with many stakeholders. From buyers to suppliers,
middlemen, and so on, there are thousands or millions of players in the game, and the
exchange of information is not always transparent. Each interest group can choose their
loyalty over others, which can result in protracted supply chain processes.

Blockchain may eliminate this issue. A copy of the same ledger that displays information
shared in the district is distributed among the participants, who all have access through the
network. The unalterability of blockchains prevents misinformation and guarantees
truthfulness and credibility within the network. It can help streamline survival strategies and
streamline the supply chain. Blockchain’s ability to make an immutable chain of transactions
helps build trust and confidence between the parties. Blockchain may be used by companies
to verify receipt of invoices and approve payments that are due.

Brings inclusivity to the ecosystem

The supply chain financier system today has numerous deficits, particularly when it comes to
providing financial help to SMEs. Sometimes, the leading suppliers are often asked to fund
the top 10 to 50 companies, whereas small and medium-sized businesses get left behind. This
is unfair, because smaller businesses may gain by being offered early payments through
supplier-led supply chain finance more than larger companies.

Financial institutions are generally the financers in buyer-led supply chain finance. They are
the ones that make the invoice payments to the suppliers. Buyers pay them back through a
repayment plan consisting of the borrowed sum along with a small fee and interest.

Blockchain technology can assist in this issue by leveling the playing field and encouraging
access to banking funds of any type. The decentralized design of blockchain
networks enables financing sources to finance any type of invoice, and records each
transaction on every of the network’s ledgers. Each transaction and information exchange is
recorded on the ledger, so finance providers do not have the option of denying access to
financing to only the largest carriers.

Redefines financiers in the supply chain

Financial institutions are the suppliers in the financing market of buyer-supplier supply chain
financing. They make payments to suppliers on their behalf and send them a repayment
schedule that includes the amount borrowed along with an additional fee and interest.

While financial institutions will play an important role in buyer-led supply chain finance,
blockchain could open the door to various stakeholders in the system. Corporate foundations
and individual investors may also participate in supply chain finance and earn returns on their
investment. Platforms such as CredSCF are already using blockchain to allow different
financiers to loan money.

Enhances the functioning of the supply chain

It’s often difficult to make sense of economic data when there are multiple parties involved.
Supply chain finance has suffered in a similar way to this one. Information inaccuracy is, in
fact, one of the biggest contributing factors to why supply chain finance has struggled to
solve long-standing supply chain issues.

In contrast, supply chain finance that incorporates blockchain technology may help make the
supply chain more efficient. The immutable and transparent ledger can maintain information
about moves and expenses in real time, streamline financial resources, and facilitate more
effective and smooth business operations.
Smart contracts can be automated through smart contracts or blockchain can be leveraged to
facilitate pre-shipment trade finance.

Blockchain and trade

The objectives of blockchain in the context of international exchange and trade financing
have been examined quite widely. Blockchain enables exchange of data between participants
in a transaction activity without the need for paper records. A key concept where blockchain
is concerned is the use of self-executing contracts , in other words, algorithms based on
computer code that is stored on a blockchain. Other benefits include privacy safeguards, an
unparalleled level of security and transfer of funds, plus 24-hour accessibility.

Blockchain may have a useful role to play in reducing the trade finance gap between the
demand for this technology and the proven capacity to supply it.

The Asian Development Bank evaluated in a 2019 news article how blockchain technology
could be utilized to ease Asia’s trade finance gap, estimated to be $1.5 trillion although the
board noted high prices and a lack of international standardization as obstacles where
adoption is concerned.

We understand that hype is a common feature of talks with regard to blockchain, but there is
also a great deal of experimentation happening in the domain of real world trade. Some of the
most recent advancements concerning blockchain-based trade finance have been outlined in
recent years, upwards of which consist of digitizing trade archives and simplifying paper-
based finance tools for example letters of credit.

Limitations of blockchain in supply chain finance

Blockchain might become a useful tool in the world of commerce sometime in the future, but
it is unlikely that we’ll see this kind of innovation happen in the field of financing until the
technology develops further. Experts foresee blockchain playing a role in the global flow of
finance in the immediate future. For now, however, this is unlikely to be accomplished due to
difficulties relating to utilizing blockchain, as well as the technology’s maturity.

Blockchain technology in decentralized finance supply chain solutions would require

intensive collaboration between participants, including an agreement to build and use the
same protocol. The benefits of implementation would most effectively be realized with a
critical mass of participants, meaning that a system of adoption must be established in which
everyone has interest without the option for opting out.

Possible challenges to the distribution of the vendor-wide program will be the differing needs
for improved transparency and protection, particularly in sharing information. And the
arrangements would need to be put in place if a particular approach were to transform the
industrial landscapes.

One of many
Keeping in mind blockchain (offshoot of potential energy technology) is not the sole
technology that will shape the future of supply chains, it is also crucial to recognize
breakthroughs in areas such as RPA, AI, and machine learning that have relevance to the
distribution of capital in the future.

Artificial Intelligence (AI), for example, can develop knowledge concerning supplier plan
habits, leading to more accurate forecasts about what suppliers will do in different situations.
We’ll explore some of these topics in future articles.

In continuation of the thought, blockchain may not have much to do with supply chain
finance for the time being. But it could be considered as one of many technologies that could
help shape this area in the long term.

Closing thoughts

Blockchain, which is in its relative infancy, has already shown tremendous worth in diverse
applications. Entertainment, banking, and payments have benefited from blockchain’s
enormous potential, which will be further transformed in the coming years. Thus, it is only a
matter of time before supply chain finance and blockchain technology combine and
significantly improve supply chain finance.

Zeeve understands the importance of blockchain in supply chain finance. Our expert and
experienced team works to identify the challenges facing the key economic driver and
deliver best possible blockchain solutions and infrastructure management solutions in the
supply chain financing domain. Get in touch with our team to know more about our services
and learn how we can deploy, manage and share blockchain nodes for businesses in the
supply chain financing sector.

4.6 Identity on Blockchain

The Impact Of Blockchain On Digital Identity

The scale of the technological revolution has been surpassing many traditional margins with
the proliferation of Industry 4.0. Now, the whole world is preparing to familiarize with the
use of autonomous and intelligent systems based on machine learning and data. However,
one of the significant elements in the world of digital services points to digital identity.
Digital identity basically refers to the digital representation of information pertaining to a
particular individual, organization, or group. Is the digital identity blockchain technology
equation feasible? Blockchain is like the new kid on the block with all the tools to make
digital identity management more interesting, secure, and flexible.
At the same time, it is new in the market of digital identity technologies. Therefore, it is
important to learn more about the impact of blockchain technology on digital identity and
how transformative it can be. The following post offers a detailed outline of the impact of
blockchain on digital identity and helps you verify whether blockchain is a reliable bet when
it comes to digital identity.
What is Digital Identity, and Why is it Important?
Before reflecting on new approaches to digital identity using blockchain, it is important to
reflect on the significance of digital identity itself. Why should you worry about introducing
blockchain technology in the domain of digital identity? The notion of digital identity has
been generalized to assumptions that digital identity includes only the information about
personal data available online to all individuals. If you thought that your digital identity
includes only your social media profiles, your email addresses, and your physical address,
then you are wrong.
Your digital identity encompasses everything you have on the web, including images,
shopping preferences, website usage behavior, and bank account information. However, the
existing representation of digital identity varies across different platforms, including banking
systems, social media platforms, and telecom networks. Digital identity features the best
offline and online identity of an individual.
The answer to “what is digital identity in blockchain” would also develop on the foundations
of the importance of digital identity. It is essential for ensuring accuracy during the course of
speeding up the process for customer on-boarding. At the same time, digital identity is also
crucial for preventing any money laundering or fraudulent activity. Digital identity
management could help in streamlining and standardizing citizen services offered by nations.
The significance of digital identity is evident in the facility of social transformation projects
alongside ensuring economic improvements for different communities through citizen
welfare measures. One of the examples of such applications of digital identity refers to the
National Digital Identity or NDI system in the Smart Nation initiative in Singapore. The NDI
system would help citizens secure access to e-governance services.
Existing State of Digital Identity
The concept of digital identity works in different ways for companies, individuals, and IoT
devices. You must learn about the existing state of digital identity before reflecting on digital
identity blockchain projects and their performance. Here is an overview of how digital
identity works for different groups.
 Organizations
Organizations have to deal with formidable challenges in digital identity management as they
procure sensitive information regarding users. These companies store the user data along with
routine business data. At the same time, the organizations have to comply with privacy-
centric regulations. On the other hand, companies are barely able to use the data locked in
highly safeguarded data vaults. As a result, organizations could not make the most of the full
potential of their digital identity management capabilities.
 Individuals
The concept of digital identity using blockchain has gained momentum only after considering
the way individuals use digital identity today. Identity is one of the critical and mandatory
elements for ensuring functionalities of a society and its economy. With a proper method for
self-identification and ownership of assets, digital identity could foster growth in societies as
well as global markets.
On the other hand, physical forms of identification are not available to everyone. Almost 1.1
billion people all over the world do not have any way of claiming ownership over their
identity. Seems like a huge problem in a time when blockchain technology can transform
digital identity, isn’t it?
 IoT Devices
Identity is not a troublesome concept for companies and individuals but also for IoT devices.
The world will have more than 10 billion devices connected to the internet in 2020, and the
number might grow to 22 billion by 2025. How is digital identity blockchain relevant for IoT
devices? Majority of IoT technologies don’t employ suitable identity and access management
capabilities. At the same time, security takes one step back as a tradeoff for implementing
basic management capabilities in IoT devices.
Problems for Digital Identity
Why do you need blockchain for digital identity? The existing state of digital identity and the
concerns of companies, individuals, and IoT devices have been clearly evident. At the same
time, it is important to notice how digital identity blockchain projects can help in resolving
many existing identity issues.
The notable identity issues resolved by blockchain identity management systems include
inaccessibility and data security. Blockchain technology also helps in fighting against the
problem of fraudulent identities as an additional advantage. Here is an overview of the
problems for digital identity, which set the need for blockchain in digital identity.
 Data Security
One of the most common highlights in the identity information stored on centralized
government databases would point at the setbacks in security. The databases run on legacy
software and feature multiple single points of failure. Therefore, the massive centralized
systems featuring the personally identifiable information or PII of multiple user accounts are
notable highlights for hackers.
According to a recent survey, personally identifiable information accounted for a major share
of the targeted data in the case of breaches. As a matter of fact, compromises in consumer
data records resulted in an approximate cost of over $654 billion for businesses in 2018.
 Inaccessibility to Digital Identity
The need for digital identity blockchain solutions also draws profoundly on how digital
identity is still inaccessible to many. Around 1.1 billion people worldwide do not have any
proof of identity. Generally, traditional identification systems come with the burden of
complicated paperwork processes, limited access, and a lack of knowledge regarding
personal identity and expenses. Therefore, people are not able to have an identity of their
own.
Identity is a crucial necessity for accessing banking services and other social services such as
applying for jobs or accessing other government services. Blockchain-based identity can gain
momentum as majority of people without access to digital identity can access mobile phones.
As a result, it can help in promoting blockchain-based identity solutions on mobile phones
with better resolution of the needs of citizens.
 Identity Fraud
The digital identity landscape needs more blockchain digital identity companies to
revolutionize the way users can capitalize on digital identity. Users could juggle different
identities with the usernames and passwords for the websites. In such cases, users don’t have
a standardized approach for using the data generated on one platform in applications on
another platform.
On top of it, the limited association of digital and physical identities also enables better
flexibility for creating fake identities. However, blockchain digital identity projects could
leverage the technological advancements in cryptography to fight these issues. Blockchain
can help in developing new identity management systems with digital identity frameworks
featuring decentralized identifiers.
What is Digital Identity in Blockchain?

Blockchain can resolve the pressing concerns for identity management with promising
improvements. However, many of you must have doubts regarding the role of blockchain in
digital identity. How does digital identity work on a blockchain? Let us assume the example
of the working of decentralized digital identities on Ethereum to find the answer.
The definition of digital identity using blockchain technology on Ethereum focuses on the
important components such as identity management, decentralized identifiers, and embedded
encryption. Users have to sign up for a self-sovereign identity and data platform for creating
and registering a decentralized identifier or DID. The process involves creation of a public-
private key pair, and users can store the public keys on-chain or rotate their storage to avoid
security risks.
The decentralized identifier or DID is an important concept in explaining the use of digital
identity blockchain solutions. It is actually a pseudo-anonymous identifier for a specific
object, person, or company, and a private key secures the DID. Individuals who own the
private key can prove ownership or control over a specific identity. One person could have
multiple DIDs, which can restrict the extent of tracking throughout multiple activities in
everyday life.
For example, you can have a DID for credit reporting app, and a DID for your gaming
account. Decentralized identifiers also feature a collection of attestations or verifiable
credentials which verify the specific traits of the DID. Generally, the issuers of the verifiable
credentials sign the credentials cryptographically. Owners of DIDs could store the credentials
on their own without depending on a single service provider.
Cryptography helps in securing decentralized identities, which is particularly easier with the
security offered by private-public key pairs. The public key can help in verification of
identity, while the private key helps in decrypting the message associated with the identity.
You can understand “what is digital identity in blockchain” by identifying how decentralized
identities are implemented in real use cases. Users could provide a QR code to the identifier
to prove their identity in order to access specific services. The identifier would verify the
proof of ownership of the credential and check whether it is related to the concerned DID.
Effectiveness of Blockchain for Digital Identity
The developments in technologies for safeguarding digital identities have brought in many
candidates, including robotic process automation and machine learning. At the same time,
new solutions turn out costly and less efficient when implemented in centralized digital
identity management systems.
Rather than assigning the control of identity data to centralized parties, blockchain digital
identity projects can provide an ideal answer to problems in digital identity management now.
How does blockchain serve as an effective answer to the problems in identity management?
The working of digital identity in a blockchain with decentralized identifiers reflected briefly
on the advantages posed by blockchain for digital identity. At the same time, you can find the
following value advantages of blockchain for digital identity management solutions.
 Security
Security is one of the foremost highlights for the growth of blockchain digital identity
companies in the future. Blockchain features the elements of maintaining data in an
immutable and encrypted manner. It also offers the benefit of security
through cryptography in maintaining digital identity data. As a result, blockchain can help in
ensuring that the digital identity is secure and easily traceable. Furthermore, blockchain-
based digital identity systems take away the problems of vulnerability due to password
protection.
 Privacy
The next important value benefit of blockchain-based digital identity refers to privacy, as
regulators are fuelling debates on safeguarding the personal and sensitive information of
citizens. The efficiency of blockchain encryption alongside the facility of digital signatures
ensures effective “Privacy and Design.” On top of it, digital signatures associated with all
transactions can help in making them immune to modifications.
 Integrity
The blockchain-based digital identity system would provide flexibility for maintaining
records of every identity throughout all the nodes across the network. Irrespective of the
distribution of data across peer-to-peer networks, the continuous verification of the identity
and updates make it trustworthy.
You can also learn about the importance of “what is digital identity in blockchain” by
identifying how blockchain network does not follow a single point of failure. Therefore,
hackers would have to go through difficult processes to compromise the integrity of digital
identity data.
 Trust
The advantages of blockchain-based digital identity systems also emphasize plausible
improvements in trust. Blockchain-based systems maintain the communication metadata in
a distributed ledger, and consensus mechanisms help in verifying data authenticity across
multiple nodes. Decentralization also offers another promising highlight for digital identities,
especially with usage of national identifiers throughout multiple agencies.
 Simplicity
The foremost benefit of digital identity blockchain solutions would also reflect on the
element of simplicity. Blockchain frameworks should have the capability of simplifying the
processes associated with each stakeholder. The blockchain-based identity management
frameworks can set clear roles for identity issuers, identity owners, and identity verifiers.
Examples of Blockchain-based Digital Identity
The examples of blockchain digital identity companies also serve as notable highlights in the
guides on blockchain-based digital identity. One of the popular examples of a decentralized
digital identity platform refers to BanQu, which focuses on Self-Sovereign digital identity.
The platform would help farmers in creating a unique digital profile for connecting with
peers, governments, payment companies, banks, and aid organizations. Other popular
examples of digital identity based on blockchain would also refer to ID2020, a global alliance
throughout public, non-government, private, and government organizations.
Final Words
Digital identity increasingly becomes a part of the social and economic well-being of people
all over the world. It is essential for an individual as it enables their right to vote, access
education, and participate in banking services. However, the problems in identity
management with existing systems show the need for reforms. Interestingly, blockchain
digital identity projects serve the ideal foundation for transforming digital identity
management for the future.
Blockchain can help in creating decentralized identifiers alongside the facility for associating
digital identity with verifiable credentials. Therefore, you can incorporate your digital
identities across different platforms into one digital identity under your control and
ownership. Learn more about blockchain-based digital identity and its practical implications.