When talking about technological innovations that could revolutionize agricultural value chains, one term comes up time and again: the blockchain. However, the term also creates a lot of confusion and questions in people’s minds: What is it? How is it different from Bitcoin? What can it be used for? And how far we are in implementing those ideas in reality?
Basic Blockchain principles
First, let’s start with the basics. What is a blockchain and what does it do? The definition I came across most is that it is a “distributed, decentralized, public ledger” of transactions that can make financial or other transactions more transparent, secure, or low-cost. It is the underlying technology that allows virtual currencies such as Bitcoin to be traded and ensures their value, given that there is no government oversight for such currencies – but the blockchain technology is not inherently linked to virtual currencies (though its full implementation might need to be… More on that below).
Image from Investopedia.com
The name itself gives a pretty good indication of what a blockchain is: it’s a chain of blocks of information about transactions (e.g. the date, time, participants, and dollar amount of the transaction). In practice, every block is made up by a few thousand transactions that are bundled together. Each block of information has a unique identifier code (called a “hash”, like a hashtag on Twitter). These codes allow the blocks to be linked in the chain, because each block’s code includes a reference to the previous block’s code.
This technique also supposedly makes the blockchain harder to hack or alter: imagine somebody wanted to change information on the transaction amount in block 10, which would also require changing its ID code or hash. However, then they would need to change the hash of every single block coming afterwards, since each block refers back to its predecessor.
A second defining feature of the blockchain as it was originally conceived is that it is decentralized and public. In the case of Bitcoin, you can look up its blockchain on the internet at any time. Copies of it are further synched (that is, regularly updated) on all computers (or “nodes”) participating in the validation of transactions. Bitcoin, for instance, has around 10’000 validation nodes (that is, computers that had installed a piece of “node software”). Here, again, tampering with the blockchain becomes very difficult since a hacker would need to tamper with every single copy of the distributed record in the network.
The decentralized validation process of transactions is the final unique feature of the blockchain concept. This is tied to the process of what you may know as “bitcoin mining”, and what has led to large controversies over the energy use of virtual currencies. Basically, each of the validation nodes mentioned above volunteers its computing power to check the transactions made through the network. This is not cheap: It is estimated that “Bitcoin Core, for example, needs around 150 GB of disk space, 2GB of RAM, and a fast and uncapped internet connection with at least 50 kb of constant upload speed available just to run. It’s not uncommon to need to upload over 200 GB of traffic per month when running a single node.“
Because of the cost of running the nodes, it is common in virtual currency mining to link the validation of transactions to the creation of additional ‘coins’ by engaging in a bidding process on validating an entire block. Remember that a block is made up by a few thousand transactions that are bundled. In order to be added to the chain, each block needs to be ‘sealed’ by validating and verifying all transactions within it. Mining node computers compete against each other in solving a complicated algorithm the fastest in order to “seal” the block that is then added to the chain. The winning node receives both a transaction fee, calculated per transaction included in the block, and a reward, both in the virtual currency itself. For instance, Bitcoin miners receive 12.5 Bitcoins when they win the race to add the next block. In this way, the validation of the transactions increases the virtual money supply itself. It should be noted that it is the energy use of mining, rather than the simple distribution of information, that is associated with most of the negative environmental consequences.
Enough already about currencies! How can blockchain be used for better supply chain traceability?
Since its rise to prominence thanks to Bitcoin, Ethereum, etc., the base technology of the blockchain has been recognized as having the potential to revolutionize supply chains more generally. Various start-ups, prominently including Provenance, have sprung up to help companies in this quest, and breathless stories abound that describe the revolutionary use of blockchain in the trade of anything from blood diamonds to pork to sustainable fashion, and by companies such as Walmart, Unilever, Nestle, Tyson and Dole. But how does this actually work, and what elements of the blockchain idea are generally maintained?
In order to use the blockchain technology in the “real world”, it is important to link the physical good in question to the transaction ledger. This, in my opinion, is where a second real innovation is happening. Radio-frequency identification (RFID) tags are becoming smaller, cheaper, and more flexible by the month, with tags that are sand-grain-sized and smaller (also nicknamed “powder” or “dust”) that can be used to inconspicuously mark jewelry, fish, or cotton, for instance, or can be embedded in paper and plastic. Such tags are read-only and can store a unique identifying number made up of 38 digits. Other ways to trace products include barcodes, printed QR codes, and genetic markers for agricultural products.
Hitachi’s “Powder” RFID chip, from The Future of Things
Once you have such unique identifiers, a product can be traced at each part of the supply chain, with transactions logged using the blockchain mechanism described above. It is possible to restrict access to uploading or editing transaction information to verified traders, and thus circumvent side-selling and other possibilities of fraud. This combination of better traceability technology with the immutable way in which blockchains are built (with its prevention of tampering) thus allows for a more complete record of where a product has travelled. It also allows for better story-telling for the interested consumer, which is the main selling point for companies such as Provenance which advertises that with their software, “businesses can easily gather and present information and stories about products and their supply chains, including verified data to support them.”
Provenance’s app allows consumers to access supply chain information about select products
Yet, if you have kept close track, we said that another main feature of blockchain was its distributed, public, decentralized aspect. This, for me, would constitute the real revolution regarding supply chain transparency: imagine that you as a consumer could track any product’s provenance on an openly accessible, non-curated website, seeing where it exchanged hands and at what price, and how much of the final consumer price was actually passed down to the initial producer?
Alas, most variations of blockchain adaptations that move beyond virtual currency applications that I have found do not appear to go that far. As a Guardian article noted, “in nearly all cases, big banks and financial institutions dabbling in blockchain have ditched the decentralised element and the mining mechanism, preferring – perhaps reasonably – to create a closed, private digital transaction record book.” This seems to be largely the same in the global supply chain/agri-food world. Walmart, for instance, is building “a private database co-developed by IBM, designed to provide the retailer with a way to indelibly record a list of transactions indicating how meat has flowed through a commercial network, from producers to processors to distributors to grocers—and finally, to consumers” (emphases added).
Thus, while the use of tracing technology and blockchain appears to have great potential to uncover the flow of goods in agri-food supply chains, at this point such information is still often centralized and proprietary to the large retailers that are already dominating value chains. While it can therefore help companies in a variety of ways by tracking their supply chains – e.g. avoid food poisoning outbreaks, avoid the trade of illegal goods, prevent negative publicity -, I am cautiously skeptical in the revolutionary potential of blockchain regarding real supply chain transparency. In my mind, it is likely that any information provided to consumers would be carefully curated, and that essential information needed for full transparency – such as the prices paid at each transaction point – will not be part of such efforts. But maybe I am being too pessimistic?