Working Groups 2017-2018

Abstract

We develop a theory that shows signaling a rm's fundamental quality (e.g., its operational capabilities) to lenders through inventory transactions to be more ecient|it leads to less costly operational distortions|than signaling through loan requests, and we characterize how the eciency gains depend on rm operational characteristics such as operating costs, market size, and inventory salvage value. Signaling through inventory being only tenable when inventory transactions are veriable at low enough cost, we then turn our attention to how this veriability can be achieved in practice and argue that blockchain technology could enable it more eciently than traditional monitoring mechanisms. To demonstrate, we develop b verify, an open-source blockchain protocol that leverages Bitcoin to provide supply chain transparency at scale and in a cost eective way. The paper identies an important benet of blockchain adoption|by opening a window of transparency into a rm's supply chain, blockchain technology furnishes the ability to secure favorable nancing terms at lower signaling costs. Furthermore, the analysis of the preferred signaling mode sheds light on what types of rms or supply chains would stand to benet the most from this use of blockchain technology.

Published in Management Science - Forthcoming

Abstract

A warehouse receipt is a bearer financial instrument asserting the ownership of goods held in a storage facility. In the agricultural sector, especially in emerging markets, warehouse receipts have been found to improve access to credit and pricing power for farmers. But these benefits are stifled by high profile frauds, high transaction costs, and questionable custodianship. We have developed an experimental software protocol called b_verify . Its purpose is to provide an improved technical foundation and open-source standard for the issuance, verification, and transaction of warehouse receipts, and eventually other financial instruments and tradable securities. In this paper, we describe our primary and secondary research on Ukraine and evaluate the country as a prospective pilot location for b_verify . We describe the process of depositing goods and the issuance of a warehouse receipt, as observed in a full system walkthrough of a major Ukrainian storage facility, and highlight vulnerabilities. We synthesize insights into the agricultural commodities trade based on stakeholder interviews. We conclude by recommending Ukraine as a strong prospect for a pilot of the b_verify protocol.

Abstract

Equivocation allows attackers to present inconsistent data to users. This is not just a problem for Internet applications: the global economy relies heavily on verifiable and transferable records of property, liens, and financial securities. Equivocation involving such records has been central to multi-billion-dollar commodities frauds and systemic collapses in asset-backed securities markets. In this work we present b_verify, a new protocol for scalable and efficient non-equivocation using Bitcoin. b_verify provides the abstraction of multiple independent logs of statements in which each log is controlled by a cryptographic keypair and makes equivocating about the log as hard as double spending Bitcoin. Clients in b_verify can add a statement to multiple logs atomically, even if clients do not trust each other. This abstraction can be used to build applications without requiring a central trusted party. b_verify can implement a publicly verifiable registry and, under the assumption that no participant can double spend Bitcoin, guarantees the security of the registry. Unlike prior work, b_verify can scale to one million application logs and commit 1,112 new log statements per second. b_verify accomplishes this by using an untrusted server to commit one hundred thousand new log statements with a single Bitcoin transaction which dramatically reduces the cost per statement. Users in b_verify maintain proofs of non-equivocation which are comparable in size to a Bitcoin SPV proof and require them to download only kilobytes of data per day. We implemented a prototype of b_verify in Java to demonstrate its ability to scale. We then built a registry application proof-of-concept for tradeable commodity receipts on top of our prototype. The client application runs on a mobile phone and can scale to one million users and ten million receipts.