White Paper Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability April 2020 In Collaboration with DeloitteWorld Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel. 41 022 869 1212 Fax 41 022 786 2744 Email contactweforum.org www.weforum.org 2020 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any or by any means, including photocopying and recording, or by any ination storage and retri system. This white paper has been published by the World Economic Forum as a contribution to a project, insight area or interaction. The findings, interpretations and conclusions expressed herein are a re- sult of a collaborative process facilitated and endorsed by the World Economic Forum, but whose results do not necessarily represent the views of the World Economic Forum, nor the entirety of its Members, Partners or other stakeholders.3 Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability Preface cutive summary 1. Blockchain interoperability – context and definition 2. Three layers of the blockchain interoperability model 3. Interoperability approaches 4. Picking the right approach 5. Current state of interoperability solutions 6. Interoperability case studies 7. Checklist for interoperability requirements Glossary Contributors Endnotes 4 5 6 10 13 16 18 20 21 22 23 24 Contents4 Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability Preface Public and permissioned blockchains are now widely used for consumer-to-consumer C2C and business-to-business B2B data exchanges. In public blockchains, interoperability has been in development for many years – for instance, cross-chain, sidechains, proxy tokens, etc. However, a bigger challenge and, at the same time, a much bigger opportunity exists given interoperability among enterprise-grade permissioned blockchains. While still evolving, some solutions, such as trade finance plats built under one jurisdiction, fail to realize the expected value, because trade and supply chains are global by nature. The value will come once different trade finance plats in different countries can interoperate. Similarly, a traceability network is useless if data cannot be exchanged across industries, including manufacturers, logistics, wholesalers and retailers. Contrary to common belief, this specific challenge is not only a technology problem, but also a problem in terms of governance, data ownership and commercial business models that incentivize ecosystem stakeholders to collaborate with each other. The 2020 coronavirus pandemic exposed weaknesses in supply-chain systems. Organizations globally in both the public and private sectors showed varying degrees of ability to respond. This revealed a breakdown in the collaboration required to track, trace, authenticate, finance and clear medical goods, supplies, etc. through trade channels in a trusted, verifiable and efficient manner. Such global events highlight the need for an interconnected and interoperable supply chain in a world after COVID-19. Contrary to common belief, this specific challenge is not only a technology problem, but also a problem in governance, data ownership and commercial business models in terms of how they incentivize ecosystem stakeholders to collaborate with each other. Interoperability is the capacity of computer systems to exchange and make use of ination. It is the capacity of systems to collaborate with each other, where collaborating in this sense entails the ability to transfer ination or an asset between two or more systems while keeping the state and uniqueness of that entity consistent. The distributed nature of blockchain makes this ordinarily straightforward concept quite complex. In addition, interoperability for blockchain plats implies that transactions involving parties or assets that belong to different blockchain plats can be cuted as if they belonged to the same blockchain plat. Successful interoperability enables the user to trust that “I know what I see is what you see” within a single plat as well as across plats. Linda Pawczuk, Global Consulting Blockchain and Digital Assets Leader, Deloitte, United States Nadia Hewett, Project Lead, Blockchain and Digital Currency, World Economic Forum Centre for the Fourth Industrial Revolution, United States Interoperability enables the user to trust that ‘I know what I see is what you see’ within a single plat as well as across plats. Blockchain interoperability emerged as a topic of much debate at World Economic Forum events and meetings. Typical questions included – Can blockchains speak to each other – Will the industry get to one global blockchain to rule them all – What blockchain plat should we use – Why don’t we simply enhance our communication protocols to application programming interfaces Margi van Gogh, Head of Supply Chain and Transport, Shaping the Future of Mobility, World Economic Forum, Switzerland Continuing the series, 1 this white paper looks at one of the critical success factors of deployment interoperability. This is the seventh white paper in a series and part of a broader project focused on the co-creation of a toolkit to shape the deployment of distributed ledger technology in supply chains towards interoperability, integrity and inclusivity. 2 This paper aims to articulate, in simple terms, important blockchain and distributed ledger technology concepts as they relate to interoperability considerations.5 Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability cutive summary In Section 1, the paper introduces the reader to blockchain interoperability and puts it in context Blockchain solutions have been ed around existing smaller ecosystems, but global trade supply chains intersect with multiple ecosystems. However, the time is not yet right for convergence on a single plat due to, for example, commercial sensitivities, distinct views on technology choices, different perspectives on governance and as-yet still-developing nature of the blockchains, which is ultimately what makes interoperability critical. In section 2, the paper elaborates on three blockchain interoperability layers business model, plat, infrastructure to structure how the reader thinks about interoperability requirements when analysing compatibility between blockchain plats. In section 3, the paper outlines three approaches to achieving interoperability to help the reader conceptually understand what needs to be done to proceed. In section 4, the paper introduces a framework for selecting the right approach for blockchain interoperability. It combines the tools introduced in earlier sections and guides choice of approach depending on the context of the consortium and the level of compatibility between the plats in question. In section 5, the paper portrays the current state of interoperability solutions and their ability to connect the most common blockchain plats. In section 6, the paper presents two real-world use cases to give the reader an idea about where to learn more and to illustrate how the tools presented in the white paper can be applied in choosing an approach for blockchain interoperability. In section 7, the paper lists several vital questions structured according to the interoperability layers from section 2 to give the reader a starting point and accelerate the collection of interoperability requirements. While this paper can be read alone, blockchain concepts and features are covered in the first World Economic Forum white paper in this series – for further reference see Inclusive Deployment of Blockchain for Supply Chains Part 1 – Introduction April 2019. 3 The very nature of the topic requires some level of technical proficiency. This paper does not examine the multitude of technical layers, complexities, hypotheticals and exceptions that exist within the blockchain space, especially related to significant differences between public and private chains, though the authors recognize their existence and importance.6 Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability 1. Blockchain interoperability – context and definition Context Blockchain technology offers promising results, but overcoming the obstacles to widespread adoption remains a challenge, with the technology yet to reach enterprise maturity. Moreover, many existing solutions within supply chains are using blockchain for relatively simple use cases, while realizing that there are numerous possible opportunities both within and adjacent to the supply chain, as blockchain is relevant in finance, food safety, insurance and multiple other industries. Industry analysts expect at least a handful of blockchain plats to exist in the market, on top of which entire ecosystems of applications may flourish. The time is not yet right for a single plat due to, for example, commercial sensitivities, distinct views on technology choices, different perspectives on governance of blockchain networks and the still-developing nature of the technologies. Consequently, “inter-blockchain communication”, “an internet of blockchains” and “a blockchain of blockchains” e.g. blockchain interoperability have become hot topics to help ensure that various supply-chain stakeholders are less locked in to the design choices made. In short, this expresses the need to solve the challenge of interoperability, enabling the user to trust that “I know what I see is what you see” both within a single plat as well as across plats. This white paper addresses the challenges of achieving blockchain-to-blockchain interoperability as well as between “regular applications” and blockchains. As the er is more challenging than the latter, the primary weight of this white paper is towards addressing blockchain-to-blockchain interoperability. As such, this white paper is of a technical character in order to shed light on the above-mentioned challenges. However, it will highlight both technical and non- technical requirements for interoperability. To take the next leaps with blockchain technology, the interoperability between the chains and the integrity of data should be a top priority. Jan Scheele, Chief cutive Officer, BitCanna Essentially, with multiple ecosystems within and adjacent to supply chains developing competing blockchain-based solutions, the potential benefits of shared ledgers and tokenization could be diluted if interoperability between the solutions or the underlying blockchain plats is not ensured. What would incentivize vendors and users to work more intensely towards finding ways to enable interoperability The challenge is that one consortium designs and implements what is best for them given the use cases they are looking to address. Any incentives to ensure interoperability will always be secondary to that. Essentially, you prioritize short-term incentives build something to prove the use case for long-term initiatives build something that will work with new or existing use cases on other complementing plats. Non-technical readers should take from the white paper that blockchain interoperability currently is possible; that it depends just as much on governance, legal and data standards as it does on, for example, technical requirements; that it is easiest to achieve if you are willing to compromise on decentralization; and that technological development continues at breakneck speed. Definition of interoperability Put simply, interoperability is a the capacity of computer systems to exchange and make use of ination; and b the capacity to transfer an asset between two or more systems while keeping the state and uniqueness of the asset consistent. The latter part is what makes an otherwise straightforward concept complex in the context of blockchain. Ideally, blockchain interoperability should allow knowledge to be shared without sending copies of data, and provide fairness in the ordering of transactions and accessibility to data and codification of and adherence to common rules.7 Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability Figure 1 Blockchain solutions have been ed around existing smaller ecosystems Node operator Networkp articipants Legend Retailer Regulators Wholesaler Wholesaler Processing plant 2 Bank Regulators can have access to network to gain insight into transactions Customersg aind irect insight into theirp roductsa nd their authenticity Wholesalers that might use ingredientsi no ther products can both trace and addd ata to thee cosystem Customers Distribution centres Distribution centres, freight forwarders ando ther shipping or logisticsp layers canp rovide trustedi nation about shipmentsi nto then etwork Banksc ould providei nation about payment verication and cution Processers andf arms can providei nsight andi nation about origin, qualityc hecks andu se of products Processing plant 1 Customers Customers Suppliers Suppliers Suppliers Minimum viable ecosystem Figure 2 but global trade supply chains intersect multiple ecosystems Participant Participant Participant Participant Ecosystem 2 Participant Participant Participant Participant Participant Participant Ecosystem 3 Participant Participant Participant Participant Participant Participant Ecosystem1 Participant Participant8 Inclusive Deployment of Blockchain for Supply Chains Part 6 – A Framework for Blockchain Interoperability Two types of interoperability Blockchain-to-blockchain interoperability comes in two types beyond that of regular, non-distributed systems digital asset exchange and arbitrary data exchange. Most supply- chain use cases will likely require arbitrary data exchange. Digital asset exchange Put simply, digital asset exchange is the ability to transfer and exchange assets originating from different blockchains, such as cryptocurrencies, without trusted intermediaries e.g. centralized exchanges. From a technical perspective, this functionality can be constructed atop blockchains that have fairly simple programming capabilities, as users on both sides can easily produce publicly verifiable signatures for actions that enable atomic swaps or transfers that complete only if both sides do their part. An example is making bitcoin spendable in Ethereum decentralized applications dApps see Figure 3. Atomic swaps are smart contracts that give you the ability to exchange digital assets on-chain or off-chain seamlessly and securely without the involvement of a third-party. Figure 3 Illustration of a digital asset exchange, where a Bitcoin is spent thro