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How Blockchain Might Revolutionize the Global Trade in Raw Materials

By Jannis Riesz

Blockchain – everybody is talking about this technology, but did you know it is about to revolutionize global trade in raw materials? Blockchain can actually help make trade more sustainable, improve the lives of raw material suppliers and even reduce the environmental impact of production.

We recently shared this video introducing Wirecard’s new blockchain-based use case in a nutshell:

To go deeper, we spoke with Jannis Riesz, Vice President of Wirecard’s Innovation Labs, about his group’s project, how blockchain technology can improve the global supply chain – and how it can benefit both small producers and consumers all over the world.

Wirecard: Today Wirecard’s Innovation Lab presented a supply chain platform based on blockchain technology. What is the goal behind this?

Jannis Riesz: We’ve been observing the crypto economy very closely for the past few years. And today we are very proud to be able to present a real use case that truly creates value and enhances our existing services with blockchain technology. So we developed a prototype for trade applications that can increase trust, automation and provenance while reducing risk. This ultimately leads to more efficient processes and lower costs.

Traditional raw-material supply chains have been in place for decades. Are we changing for the sake of change?

The present supply chains are bureaucratic, quite slow and expensive. Commodity trade today still largely depends on e-mails, faxes and very much paperwork. In times of digitalization this simply is no longer up to date.

This is why we prototyped a private blockchain platform that combines the transactional, financial and banking expertise of Wirecard with an ecosystem that aims to bring more balance and transparency to global supply chains. The result is a much more efficient system.

So what might change now?

Blockchain is a powerful key enabling technology. With its help you can record, track, monitor and exchange assets, both physical and digital, in a cost-efficient and transparent manner and without the need of an intermediary. So it’s a logical – and, I believe, a nearly perfect – solution to the many logistical and cost-related issues that plague global value chains, including transparency and efficiency.

Can you illustrate?

Just think about a small coffee farmer in Brazil named João – with our platform, he'll be able to interact directly with the fictional coffee company MeinKaffee in Germany. Typically, the coffee trade involved many middlemen, which slows down production, drives up costs all the way through the supply chain. Those on either end of the chain – farmers and consumers – end up getting the short end of the stick.

But now João can enjoy direct negotiation with MeinKaffee – he is not forced any more to sell his harvest to a regional intermediary or wholesale dealer.

How do end consumers benefit?

Not only can we reduce retail prices for the consumer, but we can also deliver higher quality. Everybody can name a recent food scandal, like horse meat in what was sold as beef. This was possible because the supply and production chain lacked. But with our system, everything is traceable and identities can be authenticated digitally, so users of the technology can assure a much higher quality is assured.

But I would even go further – as we see it, the whole world would benefit. With a global population set to reach 9.8 billion people by 2050, one thing is certain: the current way of producing, trading and consuming food is not sustainable.

Source: World Economic Forum, "5 technologies that will forever change global trade"

Source: World Economic Forum, "5 technologies that will forever change global trade"

What is the technology behind that private block chain?

As mentioned, a private blockchain is the basis, acting as a secure and transparent bookkeeping and reporting tool with added functionality. This will be programmed into smart contracts, deciding the business logic for the interactions and transactions in the system.

Smart contracts will automatically execute the business logic that the participants agree upon – so when, for example, the coffee farmer receives payment, shipping is initiated. The smart contract’s program code represents the terms and conditions and cannot be changed. This provides the high level of trust that traditionally would come from control and audit processes.

The blockchain is based on the popular and reliable cryptocurreny Ethereum, which provides a good platform thanks to its wide adoption rate, active development support and growing ecosystem of distributed applications.

Source: Simply Explained / Nick Szabo

Why do we now engage in supply chain management – isn’t this completely new territory for Wirecard?

Yes, this industry actually is a new market for us. At Wirecard, part of our mission is to discover new technologies to digitalize payments and this is one of the most dynamic sectors to date, which makes it so interesting – we see tremendous business opportunities here.

We are in a very good position to engage successfully here because we have a global presence and an agile company structure. We are technology, finance and retail experts – so this is a valuable addition to our portfolio. Plus, the technology is transferrable to other industries, as this decentralized and blockchain-based supply chain is adaptable for any B2B and B2C processes.

What economic potential do you see in your model?

We see the greatest potential for blockchain technology in the agriculture sector. With roughly 40 percent of the global workforce in farming, agriculture is one of the leading job providers worldwide, and a critical market for boosting economic growth in developing economies. Blockchain as a way to benefit developing economies worldwide and foster real financial inclusion.

Thank you Jannis, and the best of success!

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