A combination of technology is enabling new data to be created and shared in a way that, only a few years ago, was almost confined to science fiction. For example, Internet of Things  (IoT), AI, Cloud computing and Blockchain technology are now facilitating the tracking of  ships, planes, trucks (and the commodities they carry) in real-time. This greater  transparency and the capacity to be able to offer provenance for the end user  subsequentially can lead to more ESG-compliant business practices. For instance, cobalt is a  key commodity needed to make electric car batteries, with Ford and IBM now using a Blockchain-powered platform to ensure that child labour is not being used in the production  of cobalt. Another example of how Blockchain technology is being used in the commodity  sector exists in Africa where the Nigerian commodities exchange AFEX has created an app,  Warehouse Receipt Checks. AFEX is looking to reduce fraudulent receipts being created in warehouses by encrypting the data and storing it on a Blockchain-powered platform, enabling banks and other lenders to verify if a warehouse receipt has been previously  financed. This process ought to mean it will be easier, especially for smaller farmers to be  granted loans and access credit since there is greater transparency (and thus more trust) as  to what commodity is where, at any one time.  

However, AFEX is no stranger to engaging with Blockchain technology as, in 2018, Sterling  Bank and a company called Binkabi, an Africa-focused blockchain start-up, also launched a  Blockchain-powered commodity finance service. Furthermore, in the Caribbean, Blockchain  technology has been harnessed by Agriledger to increase by 750% the amount of money  farmers in Haiti receives for their mangos. To further and guarantee the market viability and  access of the Fresh Fruit Value Chain in Haiti, the government has opened a tender for  Mobile Units that can be used for all the processing. The units will be owned by the farmers  and create greater opportunities for commerce.  

Likewise, producers of other soft commodities such as sugar, coffee and wheat, to name  just a few, are also using Blockchain technology to weed out inefficient practices. Without  doubt this news is encouraging since, according to the publication, Packaging News, “food  waste is evident across the entire supply chain with 1.6 billion tonnes of food being lost or  wasted worth a staggering $1.2 trillion”. Therefore, with the use of Blockchain technology, once produce can be tracked along its supply chains inefficiencies can be more easily  identified and action taken to cut waste.. 

However, Blockchain technology is not only being adopted for soft commodities. Vakt is an  organisation which has investors such as ARAMCO, BP, Chevron, Shell and Total and Vakt and has been used successfully in the North Sea to improve the logistics, financing and  trading of oil. The creation of one data base with the ability to be shared by those parties using the Vakt platform (whilst maintaining privacy of each transaction) has allowed the removal of a central data base, whereby reducing the risk of cyber security attacks, offering  greater transparency therefore creating greater trust among these petrochemical firms who  are usually fierce competitors. 

Ways in which Vakt uses Blockchain technology 

Source: Vakt 

Vakt uses JP Morgan’s Quorum Blockchain platform, aiming to digitise the way commodities  are traded globally. However, it is not only Vakt that shares this vision. Another firm in the  commodity sector is Norlisk (the massive Russian producer of palladium, nickel, platinum  and copper) who announced in January 2021 that it had joined the Responsible Sourcing  Blockchain Network. An organisation that use Blockchain technology to be able to verify  responsible practices and sourcing. Also Norlisk has been given Russian central bank  approval to digitise commodities on Norlisk’s tokenisation platform, thus enabling commodities to be traded 24/7. Potentially leading to an increase the liquidity of the commodities that Norlisk turn in to Digital Assets. Thus enabling investors to access the  Norlisk platform and allow traditional commodity users to buy more or offload their excess  exposure to the commodities that have been tokenised rather than taking physical delivery. 

Whether the commodities be hard or soft they often rely on the need for financing and it  was for this reason that the digital network, Komgo, was established. Komgo now has 20  banks, 140 firms and 1,000 users sending over 3,000 messages a month using its Blockchain  platform. Komgo also utilises JP Morgan’s Quorum Blockchain technology to help make  trade financing more efficient by reducing many of the existing paper-based manual  processes. But why is this so relevant? According to ConsensYs (which acquired the Quorum blockchain from JP Morgan), “Komgo offers a 30-40% increase in cash-flow gains ..and is expected to facilitate a 20-50% reduction in operational cost.” Unsurprisingly, with  savings like these in the huge commodity sector it is easy to see why more and more  those organisations involved in the mining, transporting, financing and consumption of  commodities are engaging with Blockchain technology.

It is not simply within financial services that regulating tech is being discussed. In Europe there has been considerable discussion about how to regulate Artificial Intelligence (AI) as  the Europeans look to take a lead on regulating this wide-ranging branch of computer  science and address the challenges around protection, liability and discrimination.  Unsurprisingly, this inevitably leads to the question of ‘algorithmic accountability’ - i.e should companies which operate AI platforms be held liable for the results of their  algorithms? Furthermore, another challenge arising is that even some of the brightest  ‘techies’ cannot foresee the potential consequences of what they have created. A prime example of this occurred when Facebook was required to shut down its project AI on its  smart speakers when its internet bots (computer software applications) were discovered to  be ‘talking to each other’ in a language not understood by the programmers. Interestingly, Musk, who is a massive fan of new technology and innovation is very circumspect about AI, claiming: “AI is a rare case where we need to be proactive in regulation instead of reactive  because if we’re reactive in AI regulation it’s too late,” adding that, ‘AI is the biggest risk we  face as a civilisation”. 

When it comes to Blockchain and Digital Assets there are clearly some challenges and  questions that have emerged which will need addressing, such as: 

• Data security and access 

A public Blockchain, such as Bitcoin: once a record has been created it is not possible  to amend or delete that data, therefore potentially directly contravening the General  Data Protection Regulations (GDPR) which became law across Europe on 25th May  2018. GDPR states that one has a “right to be forgotten”, but how can your  information be removed from a Blockchain that is immutable? 

• DeFi 

Software developers, such as Andre Cronje, are creating products and services that  are available on DeFi platforms, and then accessible globally. Only in December 2020  Cronje released his ‘yCredit’ protocol, having already created various other DeFi  applications - Deriswap, Keep3r Network, StableCredit, and yInsure.Finance. These  various software tools have been released but the users will have no redress to Cronje as he is not regulated. Often the buyers of these DeFi tokens will reside in jurisdictions far away from wherever Cronje inhabits.  

• Cryptos - unregulated assets 

To date, many cryptocurrencies have not been regulated so how do you regulate the  likes of Bitcoin which, allegedly, was invented by someone called Satoshi Nakamoto  whose whereabouts is unknown. But how long Bitcoin will remain unregulated is up  

for debate as the head of the European Bank, Christine Lagarde, is now “calling for  Bitcoin’s ‘funny business’ to be regulated”? 

The need for regulations in other areas that are likely to use this Blockchain technology will also need to be considered - such as driverless cars. A ‘heady cocktail’ of technology including AI, Big Data, Blockchain, Internet of Things (IoT), Machine Learning, to name  just a few, are likely to be the backbone of driverless cars. Indeed, Google’s driverless  vehicles have already covered over 20 million miles and, while it took Google 10 years to  drive the initial 10 million miles, it has only taken one year to complete the other 10  million. So, how long will it be before driverless cars are for sale in the public domain? Furthermore, how will they be regulated and who will be liable for any insurance claims as, since they are being driven by computers, how can the owner of the car be  responsible in the event of an accident? Reassuringly in the UK, such questions are  already being addressed by the Law Commission, but the situation is far from certain. It  is not just a matter for the drivers of cars, but also the highway authorities and or local  councils who are responsible for the roads, traffic lights. Should the IoT devices or  algorithms that control them fail, who then is responsible for them - the local  authority/highway commission, the manufacturers, or the software developer? 

Such legal conundrums are already being addressed, with there now being a greater  deployment of smart contracts there was a need to have some legal certainty around smart  contracts. Many lawyers often derided smart contracts claiming they were not smart, nor  could they form part of a contract. Therefore in the UK The Law Commission launched a  consultation paper in December 2020 to look at this topic having previously asked the  Chancellor of the High Court, Sir Geoffrey Vos, look at smart contracts and he concluded  that: “Smart contracts are capable of satisfying the requirements of contracts in English law  and are thus enforceable by the courts”.