Shipping Blockchain Applications and ICOs

Shipping Blockchain Applications and ICOs: Is this the next big thing or just a big bubble? The first projects in shipping are already here.

You may remember that in one of our articles, about 1 year ago, we had analyzed some initial thoughts of how shipping could take advantage of the blockchain technology. At that time, the concept of blockchain applications had just appeared in our everyday lives and it was still premature. However, once again, we realize that technology is moving much faster than what we can imagine and within such a short period of time, hundreds of blockchain projects have appeared, a few of which related with shipping. But what is this about? How it works and what are the applications in shipping? Is it the next big thing in our daily routine or nothing more than just another big bubble?

Everything starts when someone believes that the blockchain technology can be utilized so as to solve an existing problem. For example, a known problem is that a lot of containers are lost each year and don’t arrive to their destination. How can this problem could be solved? A startup can build a “waterproof” system, a “smart contract” based on blockchain which will track the containers and the human errors will be eliminated. Not only this, but blockchain technology can also improve current workflow processes which are re-invented through blockchain in order to become decentralized. It sounds interesting, however, here another problem arises: How such a big technological investment will be funded? Traditional financing options cannot be used since these blockchain applications are part of a decentralized and un-regulated market. To overcome this problem, a self-sustained crowdfunding structure was invented which runs entirely on blockchain. Curious to know how it works? Diving deeper.

From a whitepaper to Initial Coin Offering

Entrepreneurs who wish to invest in a blockchain application should start their venture by presenting a whitepaper which describes the scope of the project and its technical specifications along with a timeline for the project. It also outlines the estimated required investment with an analysis on how it will be utilized on future funds spending for R&D, marketing and other expenses. The whitepaper includes the major details that someone wants to know for such a blockchain application at such an early stage. To fund their venture, entrepreneurs create a specific token which is linked to their project. Tokens are tradeable assets, same to cryptocurrencies with the only difference that they do not have their own protocol-blockchain but they operate on the top of an existing blockchain (e.g. Ethereum) with the use of “smart contracts” (self-executing computer codes). The total supply of tokens (which is also described in the whitepaper) is mainly used for:

  • - Raising funds

  • - Marketing purposes (e.g. airdrops)

  • - Remuneration of the management team and other stakeholders.

  • - A proportion of the total supply may be retained out of circulation for future purposes and for this reason the circulating supply may be less than the total supply.

Raising of funds takes place through a so-called Initial Coin Offering (ICO) which is the public sale of tokens in order to raise funds for the project’s development and expansion. During the Initial Coin Offering, tokens are released to investors at pre-determined price and they can purchase same against already established cryptocurrencies like Bitcoin and Ethereum. The big boom of the blockchain applications is apparent from the explosion of the Initial Coin Offerings during 2017 when the proceeds from ICOs were multiplied, from almost zero in 2014 and 2015 or a few millions during 2016 to more than 4 billion USD within one year. This is apparently a massive growth.

Total ICO funding by year

In order to get a better understanding of the token market, the readers may refer to where all the ready tokens are listed. There, we can see more than 600 existing tokens with a total market capitalization of more than 31 billion while this list is expected to experience a massive growth since a big number of tokens is currently in the pipeline. But why people are investing their money in these projects? There are mainly two categories of token investors:

  • - Those who believe in this specific project and they invest in order to become stakeholders and even use this application when it becomes fully operative.

  • - Those who just speculate on the price of a specific token and they purchase during the ICO waiting to sell at higher price. Those investors usually have a larger and more diversified portfolio of tokens as compared with the investors of the first category and they are mainly influenced by the high jump in the price of bitcoin.

ICOs, in principal, work like Initial Public Offerings (IPOs). In IPOs the companies offer their shares to raise funds, while in ICOs they offer their tokens. Though, while acquiring of shares give investors an ownership stake on the company and its future earnings, it is not necessarily the case with tokens, where the utility of its holders will depend on the token characteristics and structure, with the most successful projects expected to have a token with higher adoption and thus higher price increase. On the other hand, unlike IPOs which have a comprehensive regulatory frame, in ICOs it is, generally, still non-existing while the background of the companies who participate in ICOs is not really known or tested before. Therefore, it is not easy for investors to evaluate before they invest.

Bitcoin risks

Except of the raising of funds, tokens will be used for fueling each application. For example, those who buy a service they will have to pay with a specific token. While they are also traded in exchange markets against major cryptocurrencies like bitcoin and Ethereum which can be subsequently exchanged against fiat money (dollars, euros etc). The higher the usage of any token in the currency market or the usage of application, the higher the demand will be and the price will go higher. However, this also depends on the supply side which is decided from the application/token creators. The total supply may vary from a few millions up to billions of tokens. The decision about the number of tokens that will be offered is taken depending on factors such as:

  • - The estimated usage of the token in the operation of the application

  • - The funds that the team wants to raise and the target group of investors

  • - The price of the ICO and the value potential that they want to give to their token

Low supply means that the token may not have a massive usage or probably the application to refer to a small dedicated audience, while in this case the raising of funds may be low or the starting price will be high, in which case no many investors will participate in the ICO. On the other hand, higher supply gives the option to more people to invest in the project and it gives the chance to initially raise more funds from people who can invest less money. However, if the outcome is not very attractive in order for the demand to cover the circulating supply then the value of the token may decline and stakeholders lose their interest/enthusiasm in the project.

Blockchain bubble

Examples of blockchain applications in shipping & logistics

A number of shipping projects have appeared during the last months, most of which are still at very early stage. Let’s see what they are about in order to get a better understanding of these applications in shipping:

  • - ShipChain (token: SHIP): This project plans to create a totally integrated system across the entire supply chain, from the time that a shipment leaves the producer’s site, to its final destination on the customer's door; federated in trustless, based on transparent blockchain contracts. In the beginning of this venture, it is mainly focused in the containership sector while it will try to create (a) end-to-end track and trace which will replace the poor tracking, (b) improved responsibility through the reward of efficient transportations, (c) higher transparency through the direct contact between operators/carriers and charterers, (d) higher visibility through the full documentation in the blockchain network.

  • - CargoX (token: COX): CargoX plans to become an independent supplier of Bills of Lading which are based on blockchain. The blockchain-based B/Ls can re-invent and highly improve the international trade and shipping industries since it will not take several days or even weeks for the B/Ls to pass through the banking system and reach the receiver but everyone may have access to them with a single cryptographic key. This will also add safety, cost-efficiency, reliability and will reduce fraudulent activities.

  • - IMMLA (token: IML): IMMLA focuses on multimodal transportation as a logistics application based on Ethereum blockchain. The venture intents to bring direct interaction between the cargo owner and the carrier at each stage of the multimodal transportation. In a few words, IMMLA will play the role of a freight forwarder/freight manager who utilizes all the chain of the carriage. Needless to say, that this approach is going to be much more efficient and cost effective for cargo owners.

  • - iXledger (token: IXT): iXledger is not a strictly shipping application, however it is the first blockchain based marketplace where you can trade and manage insurance products (including marine). Such an application will give direct access into insurance and reinsurance markets which will give shipping companies more insurance options in a quicker manner. IXT tokens will be used for paying the services and the transaction fees offered by the iXledger platform.

  • - (token: SHIP): is going to be the first blockchain platform for financing assets in the shipping industry and focuses on reversing the current consolidation by giving access to the owning of shipping assets to a wider group of people. Access to the platform will be via the SHIP token and investments in ships can take place from as low as a few dollars in a transparent way. This can also be a new source for capital/funding for the shipowners who want to tokenize their vessels in the platform, through a sale or maybe a sale and lease back or other agreement.

  • - Fr8 (token: FR8): Fr8 is a decentralized marketplace which connects shippers and carriers to coordinate freight through smart contracts. This way, Fr8 will try to solve the inefficiencies in the freight market since we see demand to exceed supply while at the same time a lot of empty truck around the road. Furthermore, Fr8 system claims to improve tracking, provide proof of delivery in a decentralized ledger (blockchain) which cannot manipulated and settlement services (either in FR8 tokens or in fiat currencies) which can reduce the credit risks of the carrier.

We see that a lot of interesting projects have already appeared and much more will follow. Surely, blockchain can offer useful solutions for the better utilization of current processes and a few of these projects seem to have a high potential to become the next big thing in the shipping business. On the other hand, the use of tokens/ICO in order for people to raise funds that will not be utilized in a real project or the use of tokens in order for investors to speculate may create a big bubble which will drift the whole market into the mess.

However, we believe that open minded professionals from the maritime transportations should at least be aware of all the differences in the token classification and be able to understand - is there a real value inside “another blockchain project”? If you are one of such sharp minds, sign up to our blog or send us an email and say hello ;)

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