Connecting the Links: Blockchain to the Rescue of Value Chains
Written for +SocialGood by Connector Gabriel Cecchini
Blockchain technology promises to unleash a revolution in corporate sustainability (and beyond, too). The numerous and innovative pilot projects currently being developed at startup companies — many of them, in advanced stages — have also attracted the attention and collaboration of large multinational corporations. These projects show the potential this technology has to help mitigate and even find definite solutions to sustainability’s risks and challenges, particularly with regard to global value chains. Blockchain technology has been showcased as one of this year’s most important trends in corporate sustainability, including in The 2017 State of Green Business report published by GreenBiz, many articles at Harvard Business Review and in the specialized press elsewhere.
In general terms, this technology has been associated with its most widely known application: bitcoin. This virtual cryptocurrency had its “birth” in 2008 when Satoshi Nakamoto wrote a paper devoted to it. Since then, many stories have been told about the pros and cons of this e-currency, including its potential to exchange virtual money peer-to-peer as well as its (mis)use by criminal groups and hackers. But bitcoin is just one of many applications based on the blockchain technology.
What exactly is blockchain? It can best be described as a digital ledger of records that functions as a distributed database in which participants take part in transactions of any kind and carry out the application of conditions (smart contracts) with respect to those transactions in an automatic manner. The complete transaction history is available to all participants through a chain of blocks arranged chronologically, each of which is a transaction record that remains unchanged, maintaining its unity (and identity). The system’s distribution and encryption processes make it difficult to forge or hack because in order to modify one of the blocks, one would have to do so simultaneously in all the participants’ computers.
In order to describe blockchain, many experts, such as Don Tapscott, use the metaphor of a giant and global spreadsheet that works on millions of computers at the same time and in which all participants who have access to it can perform transactions of all kinds of goods and services, such as buying a property, registering a personal identity, sending money remittances, etc. This “spreadsheet” can be public or private, that is, it can be accessible to all in general or be restricted to specific participants.
Blockchain’s main advantage? The whole process does not require intermediary actors to authenticate, validate, and trace transactions: it is the participants themselves who carry out the transactions and can at any time see and check them. This process avoids multiple intermediaries that— often monopolistic and therefore costly — can slow down processes and also centralize and “capture” information. Also, since intermediaries all enact transactions using different systems and formats, there can be duplication problems, errors, and potential fraud regarding the content and reliability of the recorded information.
In blockchain, on the contrary, the information about registered transactions doesn’t rest on a single, central location but is shared by all participants who have an interest in that information or transaction. In the words of expert Jessi Baker, blockchain’s information belongs to all participants and none in particular. The transactions then do not obtain their value as such from the intermediaries that channel them, but it is generated by the participants themselves, which makes blockchain a platform based on shared trust.
Companies have long sought ways to create trust, decentralization, and unalterable transaction logs available to multiple participants in order to be able to provide transparency and traceability to their global value chains. Therefore, several companies have already seen the potential of blockchain in this regard and have begun to work in this line:
- U.S. retail giant Walmart is testing a service developed jointly with IBM to monitor its value chain with respect to certain products: for example, in China, Walmart monitors pork with the aim of improving food safety. Blockchain enables them to act more proactively in case an item is potentially contaminated or if its source is contaminated. Each actors registers which farm the product comes from; the farm’s track record; how the specific product was distributed; etc. It is then possible to identify the specific compromised item and remove it without including the whole series of related products. This, in turn, allows for increased efficiency and speed when it comes to dealing with a crisis.
- British startup Provenance uses blockchain technology to help retailers, producers, and restaurants in the fishing industry to find out if fishing was done legally, sustainably and without human and/or labor rights violations, common in this industry. In a pilot project being carried out in Indonesia with tuna fishing, fishermen send text messages to record fishing on a blockchain platform. These products can then be verified by final consumers in supermarkets or restaurants using their smartphones. This system has begun to replace the usual labels and other paper-based documents used to trace and / or validate the origin of the products.
- Through the assignment of an anonymous token, forest service certification company Catenaut tracks each tree trunk that is sent to a sawmill using GPS information. This information is then combined with certification information from a forest compliance system. The token identifier is followed and validated using blockchain. Different NGOs and companies have shown interest in replicating this application.
- Startup Everledger has developed its own blockchain version of the Kimberley standard certification process to prevent the commercialization of diamonds from conflict zones in Africa. In addition, Australian company BHP Billiton is planning to launch a pilot project for mining using blockchain as platform. The key idea here is to completely automate certification processes.
Between 2014 and 2016, more than $1 billion of venture capital was channeled to startups at the center of creating innovative blockchain solutions (a figure 10 times higher than that of the previous four years combined). However, the technology still has a long way to go if it wants to become mainstream. That is the vision of experts such as Tapscott, Vint Cerf, and others. Among the biggest challenges: blockchain platforms consume a lot of energy; they are difficult to scale due to jurisdictional problems and various regulatory and certifying authorities; and they can potentially lead to the displacement of people from their jobs since the technology removes the need for the positions occupied by intermediaries.
However, there is one biggest problem: blockchain lacks a sophisticated governance ecosystem, reminiscent of the first days of the Internet. In this regard, the Linux-sponsored Hyperledger initiative, which involves 150 organizations, seeks to create new standards to provide blockchain with the necessary governance framework and mechanisms that will offer the needed security and scalability. Therefore, the ongoing growth and development of blockchain will be contingent on the agreement around these governance standards. One can only hope that the latter can be achieved in a fast way so as to further develop blockchain’s full potential with regard to these very promising first pilot projects designed to tackle sustainability challenges.