The blockchain technology may not be understood by the majority of users, but that hasn’t stopped it from grabbing media headlines all around the world. Suddenly, decentralized computing is on everyone’s radar, with new, non-financial uses cases popping up on a daily basis.
Today’s story is about one such novel use case for blockchain — to rely on it for nuclear export controls. In other words, we are talking about a blockchain application that could be used to prevent the illicit procurement of weapons of mass destruction-related goods and technologies.
Blockchain kills the middlemen
In theory, a blockchain-based distributed system lets all parties easily verify transactions at each step of the process; it stores all information in a public or permissioned ledger, making the data available to all interested (and/or approved) parties. And while the identity of parties may be hidden in any given transaction, the nature of the transaction itself is immediately transparent on the entire blockchain so it’s available for all to see.
On the other hand, blockchain transactions — while placed in a public ledger — are encrypted and “timestamped” to ensure that the ledger cannot be altered “after the fact.”
Supply-side controls
Supply-side controls are the cornerstone of global nonproliferation efforts that aim to stop the spread of nuclear weapons technology. These efforts include a diverse overlapping and fragmented systems of international agreements, informal arrangements, and national legislations. They range from export licensing and targeted sanctions, to corporate compliance and due diligence programs.
As a result of differences in national implementation and enforcement coupled with the sheer volume of global trade, gaps have appeared that may have — for instance — helped North Korea advance its nuclear program. In fact, according to an August 2017 UN Panel of Experts, Pyongyang has managed to evade both sectoral and targeted financial sanctions by using networks of shell companies and partners.
Blockchain could help control the spread of WMDs by bringing together the WMD-related products and services, payments and contracts. Something like that, though within a different industry, may soon be tested by Walmart, which is planning to store shipping and food distribution data to track quality of products it procures from China.
Another related use case involves Wells Fargo, Commonwealth Bank of Australia and Bingham Cotton which have announced the first trade transaction to use blockchain technology in October 2016. That system tracks the shipment of cotton from Texas to China, with smart contract ensuring automatic payment once the geographic location of the cotton was confirmed. Now, if we would replace cotton with some product required for building WMDs and instead of the three companies put major part/technology makers, we could in theory get a supply side control of WMD procurement.
Falsification issues
Export licensing and end-user verification still, in part, rely on a paper-based system that is vulnerable to fraud. For example, the 2016 case of Sihai “Alex” Cheng, has found the Chinese intermediary guilty of falsifying import and export documents to transship controlled items with nuclear applications to Iran.
With a blockchain-based system, a network of approved parties can rely on smart contracts to promote transparency and prevent export fraud. Once on the blockchain, ownership of an asset, like a contract, is immutable and cannot be changed unless the owner verifies the change. Also, key information for controlled goods can be stored in the blockchain, as well.
In theory, this could make it difficult for unauthorized parties to fraudulently obtain and transship export-controlled goods. For instance, if a good is prohibited from re-export to a third-country, the shipper would not be able to receive payment if any leg of the transaction was altered.
Implementation won’t be easy…
While there are no doubts that blockchain will revolutionize the global trade, making it work for WMD supply-side controls won’t be that easy. Any such system would face an uphill battle when it comes to anti-money laundering legislation, know-your-customer rules, and due diligence programs — all critical to effective WMD supply-side controls.
We don’t think blockchain will be used for WMD controls in the near future, but at some point, say in 5 years — who knows? If more and more industries start to embrace decentralized computing, we may see the UN and perhaps a few permanent members of the Security Council proposing such decentralized solution, which would also keep them accountable in terms of with whom to trade and what to trade.
After all, if major corporations can pull it off with their supply chains, why wouldn’t the world’s most powerful countries with WMD-related technologies? There is so much at stake, and if blockchain could improve the situation — let’s start putting it to good use. We only have this one planet, after all.