Between blocks and chains a way to a more efficient and sustainable trade

What is Blockchain?

In its broader and more encompassing form Blockchain can be defined as a technology to develop trusted processes and data transactions on an open and distributed network via decentralized consensus among computer systems.

In its more common, currently used form "a blockchain is essentially a distributed database of records or public ledger of all transactions or digital events that have been executed and shared among participating parties. Each transaction in the public ledger is verified by consensus of a majority of the participants in the system. And, once entered, information can never be erased. The blockchain contains a certain and verifiable record of every single transaction ever made." [1]

"A distributed network (Fig 1 - C) is a type of computer network that is spread over different networks. This provides a single data communication network, which can be managed jointly or separately by each network. Besides shared communication within the network, a distributed network often also distributes processing" [2]

Network types

Fig 1. Network types

In a distributed network the responsibilities for data transactions and computations do not collapse on any specific node, on the contrary they are spread across the network, which is responsible as a whole for the results of a given process. Like in some biological eco systems, such as an ant community, where the construction of an ants' nest is the result of independent and trusted contributions by each ant (i.e. Stigmergy), Blockchain technology guarantees that the overall behavior of the distributed network, programmed to execute a certain process, is trustworthy.

In centralized and decentralized network scenarios, there are always nodes which retain data or functions uniquely, becoming the only points of validation or manipulation for the information they own. These topologies make the implementation of processes that are naturally distributed in the real world (example: the exchange of a currency) more complex and difficult to adapt to continuous changes; moreover, they oblige the owner of such nodes to put in place complex data retention, data availability and information management policies to guarantee the necessary trust in their function.

In such context, Blockchain tries to answer to the complexity of the contemporary real world scenarios by offering a technology and a methodology to design distributed applications that operate with private data in an openly verifiable way.

What is the rationale behind this technology?

In order to fully understand how Blockchain and its existing, and future, applications work it is important to introduce five key building "blocks" that characterize the technology:

decentralized consensus (also emergent consensus): is a mechanism to determine if an operation in the distributed network is trustworthy: "...consensus is not achieved explicitly — there is no election or fixed moment when consensus occurs. Instead, consensus is an emergent artifact of the asynchronous interaction of thousands of independent nodes, all following simple rules. " [4]
the blockchain: is the data structure, a very long list of blocks (i,.e. a small data structure with a private and public part), in which data are stored across the network. Blocks are created by a physical device (i.e. computer system) that identifies them in a unique way in the network by generating a hash number, function of all the previous hashes in the existing blocks of the chain.The owner of the block is the owner of the private data (nobody else can access them) and the owner of the key to share a public version of those data in the network. "It’s a bit like your home address. You can publish your home address publicly, but that doesn’t give any information about what your home looks like on the inside. You’ll need your private key to enter your private home, and since you have claimed that address as yours, no one else can claim the same address as theirs." [3]
the smart contracts: are programs, short, embedding the regulatory aspects of the network. "The basic idea behind smart contracts is that a transaction’s contractual governance between two or more parties can be verified programmatically via the Blockchain, instead of via a central arbitrator, rule maker, or gatekeeper." [3]
trustless transactions: are transactions without the need for a trusted third party. Peer to peer applications implement the simplest form of trustless transaction in a distributed network.
the proof of work (also proof of stake): "at the heart of a Blockchain’s operations is the key concept of “proof-of-work,” an integral part of Satoshi Nakamoto’s original vision for the Blockchain’s role as the unequivocal authenticator of transactions. The “proof of work” is a “right” to participate in the Blockchainsystem. It is manifested as a “big enough hurdle” that prevents users from changing records on the Blockchain without re-doing the proof of work." [3] . Proof-of-work(s) are extremely computational demanding algorithms for reaching consensus in the Blockchain.

Those mechanisms, combined together, offer an information exchange environment that guarantee privacy for the sensitive data of each actor, redundancy of data, consistency and transparency of the transactions initiated by any party in the network, isolation of misbehaving nodes, scalability to theoretically infinite nodes, extremely high tampering tolerance [6]. All these characteristics are at the core of transactions in scenarios where the information exchanged between parties of a network is of financial nature or is associated with assets or goods in the real world. That is why the Blockchain technology could be so disruptive to the way international trade operates.

How Blockchain will transform International Trade

Fig 2. Blockchain current and future applications

As of today the only application of Blockchain technology, globally used and proven solid, is Bitcoin (i.e there are other community services based on Blockchain but none of them has yet the numbers - users and transactions - to be considered a global proof of concept).

Nevertheless (Fig 2) a certain amount of progressively sophisticated scenarios are expected to be addressed with this technology in the upcoming future, and among these scenarios, various will cope with international trade problems and will address specific processes such as the supply chain:

"Blockchain-based solutions to both physical and financial supply chain issues are being proposed by a number of startups." - http://www.nasdaq.com/article/how-blockchain-technology-is-reinventing-global-trade-efficiency-cm626503#ixzz4Fh4Jugej
"the Hyperledger Project is a collaborative effort created to advance blockchain technology by identifying and addressing important features for a cross-industry open standard for distributed ledgers that can transform the way business transactions are conducted globally" - https://www.hyperledger.org/
"Oris Valiente’s group – founded in 2015 and officially known as Rubix by Deloitte – is positioning itself to help build out the business applications that would underpin blockchain-based supply chains" - https://godistributed.com/ledger/32/ and http://rubixbydeloitte.com/
"Coming to international trade, blockchain could help to ensure that shipping transactions are auditable; chains of custody of goods can be verified; transportation records cannot be altered and malicious entities cannot dispute the authenticity of records." - http://www.econotimes.com/Blockchain-Technology-To-Transform-International-Trade-137855 and https://www.blocknotary.com/

Solutions that embrace into a single blockchain eco-system a variety of the above scenarios are already present:

Ethereum : "Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference." - https://www.ethereum.org/
Decentralized Autonomous Organization (“DAO”) : "The DAO is a Decentralized Autonomous Organization (“DAO”) - more specifically, it is a new breed of human organization never before attempted. The DAO is borne from immutable, unstoppable, and irrefutable computer code, operated entirely by its members, and fueled using ETH which Creates DAO tokens" - https://daohub.org/about.html

"Smart contracts may facilitate the execution of complex agreements with greater clarity, they also present a series of new challenges. They implement, by default, a zero-tolerance policy where parties have no choice but to execute the contract. In the current legal framework, the law establishes a series of rules that people must abide to. Nevertheless, everyone is free to infringe these rules (at the risk of being held liable for damages) because legal enforcement takes place ex post, after the act. As opposed to traditional contracts, where parties can decide whether or not to fulfill their obligations, smart contract cannot be breached. Once the contracting parties have agreed to be bound by a particular clause, the smart contract’s code immutably binds them to that clause without leaving them the possibility of a breach."