Traceability of components of products - from food to fashion - is central to the promise of using blockchain to organize and operationalize data from the web of supply chains. How would traceability bring value? How do blockchain and smart contracts work? And how would these foster traceability? What has been done so far in this regard? What issues and tensions affect adoption of traceability, whether by blockchain or other means? This webinar examines blockchain and the role it plays in supply chain by providing traceability.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/blockchain-and-supply-chain-2021/
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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.
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4. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Chris Cahill - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Leonardo Bonanni - SOURCEMAP
Joseph Koo - Armanino LLP
Matt Liotine- University of Illinois-Chicago
Dan Waterloo - Interface Technologies
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6. About This Webinar – Blockchain and Supply Chain
Traceability of components of products - from food to fashion - is central to the promise of
using blockchain to organize and operationalize data from the web of supply chains. How
would traceability bring value? How do blockchain and smart contracts work? And how would
these foster traceability? What has been done so far in this regard? What issues and tensions
affect adoption of traceability, whether by blockchain or other means? This webinar examines
blockchain and the role it plays in supply chain by providing traceability.
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7. About This Series – Blockchain Basics
In Dr. Strangelove, a party created a “doomsday machine” that would automatically destroy all life if the machine
detected a nuclear attack on that party. There was no override, and, well, let’s just say that the film is hilarious but
probably not a comedy in a conventional sense. There, if the “network” received certain information, the device would
activate. Like a smart contract on a blockchain, the problem in Dr. Strangelove was that the party that created the
doomsday machine activated it before telling its adversary (i.e., the other network participant). That “smart contract” was
critically not smart. Blockchain smart contracts (with much smaller but still meaningful stakes) are computer code
designed to adjust automatically the rights and obligations of network participants based upon the inputting of information
to the network, with such information visible to all and inputted per means and procedures agreed upon by all before the
contracts become effective. And thus paper-intensive, multi-step and multi-party transactions, like securities sales,
supply chain coordination, and supply chain finance, might proceed with greater ease and security. Costs could be
lowered, transactional speed quickened, and litigation simplified or evaded entirely. We will examine these areas of
promise.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: Blockchain and Smart Contracts
Premiere date: 7/22/21
#2: Blockchain and Supply Chain
Premiere date: 8/19/21
#3: Evolution of Trade Finance Technology
Premiere date: 9/23/21
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10. What is Blockchain?
• A ledger
• Not stored in any one place
• Composed of a decentralized network of nodes
• New data on the blockchain must be verified by a majority of nodes
• Verification occurs by executing energy-intensive cryptographic calculations
• Once validated, a block of data is added to the chain
• Blocks may never be removed or edited
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11. What is Blockchain?
• Decentralized – data on the blockchain is not stored in any single place but distributed
across many nodes
• Immutable – once data is added to the blockchain, it cannot be removed, edited or
backdated
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12. Types of Blockchains
• Public Blockchains (permission-less)
• Private Blockchains (permissioned)
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13. From Centralized Ledger to Decentralized
• Blockchain establishes a decentralized ledger, by contrast to the familiar centralized
ledger, with a custodian or administrator being trusted to process monetary transactions and
manage the transfer of property
• See the two diagram on the following pages, from David Sneyd, “Blockchain solutions to
ESG problems” (BMO Global Asset Management, Oct. 2018)
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15. How Does Blockchain Establish a Decentralized Ledger?
• Participant makes an entry, i.e., creates a new block
• Proposed transaction is broadcast to each participant on the network
• Validity of the new block is subject to pre-set criteria and a complex algorithm called
“proof of work”
• A majority of miners conclude that transaction is valid
• New block is created and time-stamped
• All are provided with an updated version of the ledger:
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17. Some Components of a Blockchain
• Each block contains:
✓ A “hash,” which is a digital fingerprint or unique identifier
✓ Time-stamped batches of recent valid transactions
✓ And the hash of the previous block
• The previous block hash links the blocks together and prevents the past form being
altered or rewritten
• Each subsequent block strengthens the verification of previous blocks (and the entire
blockchain)
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18. Some Components of a Blockchain, 2
• Proof of work requires high computational capacity, provided by “miners”
• Miners supply the network with computing power, to allow the updating of the database
• A majority of mining power must be able to confirm the new blocks by decrypting the data
• Once a “block” (a record of a purchases and sales created by miners by solving a
mathematical puzzle that validates the transactions) is added to the network ledger of
older transaction (the “chain”), such record on the blockchain can’t be changed or
reversed (i.e., the transaction is immutable)
• Thus a blockchain, to be non-falsifiable, must not have any operator holding at any time
more than half of the computational power of the chain
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19. According to Satoshi
• A coin can be defined as a chain of digital signatures
• The input to each transaction is the output of one or more other transactions
• The balance in your Bitcoin wallet is the sum of your unspent transactions
• The coins in your wallet can be traced all the way back to the miner that mined it
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20. So What is Gained by Going from a Centralized to a
Decentralized Ledger?
• If a bank or credit card company keeping a centralized ledger is hacked, then other
participants lose access to their data
• With a decentralized ledger, all participants keep a copy of the data
• With a decentralized ledger, there is no extra cost of (or litigation from) efforts to
synchronize records kept by counterparties to a transaction
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21. Smart Contracts
• Smart contracts are “self-executing contracts with the terms of the agreement between [a]
buyer and seller being directly written into lines of code. Once a smart contract has been
created, computer transaction protocols will execute the terms of a contract automatically
based on a set of conditions.” Rensel v. Centra Tech, Inc., 2018 WL 4410110 at *10 (S.D.
Fla. June 14, 2018). The promise re smart contracts:
✓ Self-executing
✓ Additional parties not needed to monitor the transactions
✓ Greater cost efficiency and faster transaction speed
• To determine whether contractual conditions are met, smart contracts use “oracles,”
which are agreed-upon real-time data providers which confirm triggering events
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22. According to the CDC
• Each year, 48 Million Americans are sickened by a Food Bourne Illness.
• Globally, over 600 Million People are affected.
• The problem causes $55 Billion to $90 Billion in economic loss Each year.
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23. Blockchain Solution
• Food Traceability is a series of inputs & outputs.
• Blockchain stores data in terms of inputs and outputs.
• Blockchain transfers assets across identities.
• Blockchain nodes are public, protected, and easy to implement.
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25. A Proposed GS1 Numbering System that Works with
Blockchain
• PTI label is the GS1 formatted label that goes on around 60% of all produce sold in the
US. GS1 is a worldwide organization: its website for the US is https://www.gs1us.org/
✓ All companies that sell in a store are members of GS1: the UPC barcode is managed by
GS1
✓ The GTIN (Global Trade Identification Number) uniquely identifies items worldwide
✓ Items can be identified on the blockchain by address, GTIN, and lot number
✓ GLN is global location number representing each factory or shipping location
✓ Companies that sell at retail and need UPC codes for their products must join GS1
✓ Others on the supply chain join because a party requires it (adoption rate declines earlier
in the supply chain)
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26. Supply Chain, End to End
• Hundreds of shipping links
• Thousands of vendors, manufacturers, distributors, customers
• Data validation, chain-of-custody reporting, supplier
benchmarking, risk heat maps and alerts, emergency response
• The above parties and factors interact dynamically
• A dashboard display might be needed for “visibility” of a simple supply chain, with data
shifting in real-time
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27. Supply Chain Desiderata
• Provenance of goods (quality, safety, compliance with norms and regulations re:
environmental and labor and other factors)
• More accurate forecasts and product adjustments
• More efficient allocation of talent and capital assets
• More accurate and efficient inputs for financing supply and insuring credit
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28. Blockchain-Managed Supply Chain: A Few Key
Components
• Purchase Orders
• Ocean Bill of Lading
• Automated Manifest System (required to be field for goods entering the US)
• Importer Security Filing (same)
• Customs Clearance (same)
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29. Blockchain-Managed Purchase Orders on Blockchain
• Create indelible record of each step (block)
• Execute encrypted actions (identification of parties, authentication of transaction, time-
stamping blocks)
• Digitization upon the ledger of aspects of the contractual agreements, i.e., smart contracts
• Purchase Orders embed within them many business rules (cover price, currency,
quantities, ship date, Incoterms Rules – which may change over the course of the
movement of goods and components (e.g., production capacity of supplier, changes in
raw material costs)
• As each step in the process is verified, invoices can be triggered by smart contracts upon
proof of delivery, the ID of goods can be verified (or not)
Per “Blockchain for Supply Chain: Smart Contracts & Purchase Order Management” (Amber Road White Paper)
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30. Smart Contract: Smart Invoices
• Euler Hermes has provided trade credit insurance for over 100 years, and is looking at blockchain-
based “smart invoices” (to help manage transaction for which it provides insurance)
• It experimented with having companies upload their invoices onto the Ethereum “Smart Contract”
blockchain
• When a supplier’s invoice is uploaded, the smart contract “reads” it to learn payment due date,
amount, and the purchaser’s identity
• Smart contract then identifies the network of suppliers for that purchaser
• If the supplier is not paid timely, the smart contract can “decide” (based upon rules coded into it),
whether to send an alert (and what kind of alert) to the other suppliers in the network
• PURPOSE: to forestall other payment defaults, lessen trading with insolvent purchaser, and lower
risk of insurable events
• Pierre Sein, “Invoices on Blockchain at EHDA” (Medium, July 27, 2017) at
https://medium.com/@pierresein/invoices-on-blockchain-at-ehda-85d03a929062 (visited Aug. 21, 2019)
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31. Blockchain 50: Billion Dollar Babies (Forbes, April
16, 2019)
Note: the article includes links to “full profile” of each enterprise described
• Bumble Bee Foods: transparency in the tuna supply chain form catch to grocery stores
• Cargill: using Intel’s Hyperledger Sawtooth to track turkeys through its supply chain;
worked with Intel and Bitwise to build Hyperledger Grid to sell to others
• Foxconn: pilot projects to use blockchain to streamline supply chains and provide working
capital to suppliers
• Golden State Foods: participating in IBM’s Food Trust (consortium of companies seeking
to track food across entire supply chain) and leading effort to track temperatures at which
beef is kept
• IBM: created “IBM Blockchain” and has filed for >100 patents
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32. Blockchain 50: Billion Dollar Babies (Forbes, April
16, 2019)
• Maersk: with IBM developed TradeLens platform, a global blockchain for shippers contra
paperwork – 100+ organizations have signed up to use TradeLens
• Nestle: testing use of IBM Food Trust to track provenance of food ingredients in baby food
and other products
• Seagate Technology: working with IBM on blockchain to track products through distribution
and life, to ensure that fake hard drives are not returned to its warehouses (and re-sold by
mistake)
• Walmart: has filed for 50 blockchain patents for tracking shipments, operating drones, and
other; focused on finding the culprit in food-safety scares; helped create the IBM Food
Trust; plans to require all lettuce and spinach suppliers to log shipments on blockchain
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34. About The Faculty
Chris Cahill - CCahill@sfgh.com
Mr. Cahill is partner at Sugar Felsenthal Grais & Helsinger LLP, in Chicago, Illinois. He guides
secured lenders, creditors, debtors, creditors’ committees, potential purchasers and others
through bankruptcy cases, out-of-court workouts, assignments for the benefit of creditors, and
receiverships. Mr. Cahill has substantial mega-case experience representing very large
debtors, and counsels and litigates on behalf of manufacturers and secured lenders in large
and middle-market cases. Mr. Cahill also publishes frequently and speaks regularly on
commercial insolvency issues. For example, he is an executive editor of Commercial
Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland & Christopher M. Cahill eds., 2021).
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35. About The Faculty
Leonardo Bonanni - leonardo.bonanni@gmail.com
Leonardo Bonanni is the founder and CEO of Sourcemap, the supply chain transparency
platform. Sourcemap helps manufacturers and brands trace products from raw materials to
end consumers, and in the process save money, reduce risk, and improve social and
environmental compliance. Leo has been named among the ‘Most Influential People in
Business Ethics’ by Ethisphere, and among ‘America’s Most Promising Social Entrepreneurs’
by Bloomberg Businessweek. He is a supply chain transparency advocate, a designer and
engineer. He developed Sourcemap as part of his PhD at the MIT Media Lab in 2006. He also
teaches at NYU is a visiting researcher at MIT.
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36. About The Faculty
Joseph Koo - Joseph.Koo@armaninoLLP.com
Senior Consultant – Digital Asset & Blockchain
Joseph is part of Armanino’s Digital Asset & Blockchain team, which is at the forefront of
developing innovative solutions and creating standards for the Digital Asset ecosystem.
Previously Joseph was at Deloitte, where he explored the blockchain technology and the use
cases for the technology in depth.
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38. About The Faculty
Dan Waterloo - dan@i-t.com
Dan is a native Chicagoan. He has a BS in Electrical Engineering from University of Illinois, Champaign-Urbana. He received an
MBA from Keller Graduate School of Business. He received a Masters of Project Management from Keller Graduate School of
Business in1991.
After college, Dan worked for Schlumberger Well Services, in the oil fields of West Texas. He moved back to Chicago in 1979,
selling test equipment to Electrical Engineers (EEs) (Tektronix). Then he sold electronics components to EEs as a Manufacturer's
Representative (Dolin Sales). In 1984, started selling Computer Aided Design (CAD) tools to Electrical Engineers (Cadence
Design Systems). In 1993, he became a VAR (Value added reseller) of CAD software (self employed). As an entrepreneur, Dan
had to learn marketing, developed a direct mail company, and email marketing company, as well as digital marketing service. In
the early 2000’s, Dan created a 'private cloud'... currently consisting of about 50 servers that provide digital marketing and
communication services. In 2017, Dan started teaching 'Entrepreneurship in Industry' INTM 477 at IIT. That same year, he started
co-chairing the Blockchain and Crypto currencies Special interest group at FinTank.org (Chicago fintech incubator/accelerator)
2020. He taught IBM Skills Academy Blockchain for Business class at IIT. In 2021, he is teaching MBA 534 (Blockchain) at Stuart
School of Business. Dan truly has a diverse background in technology and business. He is an E=entrepreneur, pivoting as
business conditions evolved. He has a personal interest in Blockchain and currency/cryptocurrency
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39. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
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the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
39
40. About Financial Poise
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