Sander Janssen and Jaclyn Bolt discuss the potential of blockchain technology for development by way of multiple examples, arguing that it needs to be combined with a strategy for digitisation, targeted capacity building of its users and an impact-driven approach.
Blockchain is a promising digital technology that offers new and interesting possibilities for agricultural development. It has several features that make it potentially useful for a range of interesting applications, especially in situations where no current digital information and data management solution for transactions exists. These particularly interesting features all focus on increasing trust: transparency of transactions, immutability and incorruptibility of transactions, distributed governance in a large network, possibilities for objective validation of achievements and low operating and transactional costs. Depending on the configuration of the blockchain and the type of applications, some of these features might be more relevant than others. We can think of several interesting applications for agriculture and social development for which we will highlight the most promising applications.
Blockchain and smart contracts
Blockchain, a relatively new technology, is a decentral governed data structure which could transform current structures for citizenship, authority and democracy. The first generation blockchains offered true immutability of recorded data in the digital realm for the first time – a feature that enables transactions to be settled without the need for intermediary parties such as banks or notaries. This makes it particularly interesting to employ the blockchain in situations where transactions are being hampered by distrust or unreliable governance. The second generation of the blockchain uses the immutable feature for the automated execution of business logic, using small programs called ‘smart contracts’, software which provides certainty on what exactly has transpired. A smart contract is an automated self-executing agreement between parties. Through these contracts it is possible to create requirements that a small program executes. With a smart contract parties to the transactions only execute when all conditions are met. This makes it impossible to conduct the transaction without meeting the set requirements. This offers what is called up-front compliance. In centrally governed systems this certainty would be provided only after the transaction is settled. For example by an auditor, notary or accountant. Thus, the blockchain can offer a solution where the governance poses trust issues.
Consumers have grown used to tracking and tracing through value chains with eco-labels and certification systems. But at the end of the chain, regardless of the involved labels, it is difficult for consumers or stakeholders to verify what has happened to a product along the way. Furthermore, certification processes in value chains are not always consistently reliable. What the blockchain could offer is more certainty about the integrity and correctness of the information accompanying goods. A nice example is the development of applying blockchain technology in the tuna value chain.
A consortium of the World Wildlife Fund (New Zealand, Fiji and Australia), ConsenSys, TraSeable and Sea Quest Fiji is setting up a provenance system based on blockchain technology for the value chain of whole tuna. The aim is to eradicate illegal fishing in order to prevent the depletion of the natural tuna population, but there is also a focus on eliminating the slave labour prevalent in the fishing industry.
Caught tuna is directly labelled on the vessel with a radio frequency identification (RFID) chip through which the fish can be traced to the processing company. To lower barriers for smaller players in the value chain, expensive RFID chips are substituted by cheaper QR codes that are also accessible to consumers.
This code is fixed to the tuna so consumers can use their phone in the (super)market where the tuna is sold, from which they can access relevant data connected to a particular fish. Since the stored data is accompanied by proofs on an immutable blockchain, the customer can be sure that the location and circumstances for which data has been stored, has not been tampered with as no actor along the chain is able to change the data.
In some developing countries proving who you are and what you own might be a challenging endeavour. For example, in India hundreds of thousands of civil cases take place every year concerning land ownership, and it is estimated that huge amounts of money are being paid in bribes at land registrars across India. The state government of Andhra Pradesh has partnered with Swedish start-up ChromaWay to apply the blockchain for a more transparent, resilient and secure registry.
In Ghana, BenBen Ghana has created a platform to capture transactions and verify land ownership data, enabling smart contracts through the blockchain to make sure land records are found or remain unchanged. Their aim for the future is to create smart mortgages. Factom (an American company) has piloted a project to document land ownership in the Honduras. This creates a safer environment for registration of land ownership, mortgages and contracts.
It should be noted that these developments usually attract a great deal of interest and they are greatly pushed by the desire for examples of applying this innovative technology. However, applying the blockchain for land registry is a process that might take years before true progress can be made and the abundance of attention for this innovation may be counter-productive in this respect. Nonetheless, it is worthwhile pursuing these developments because certainty in landownership is important for boosting local economic development.
Payments for ecosystem services
One of the areas in which blockchain technology has strong potential is establishing a cost-effective reward system for services that might otherwise not be monetised. Think, for example, of a combination of validation algorithms of performance and payments in the form of tokens. Tokens can be online monetary units that can be programmed for specific purposes. As they are online, they can be accessed from any device with internet access. This creates more direct payments where ‘payers’ could be assured that their spending is distributed to the right cause or person depending on the setup of the program.
Tokens can be used to pay, to reward or to create a new type of funding. Through the years we have seen examples where a payment for ecosystem services had been set up, but payers were not willing to contribute to the fund as this would be managed by entities that they deemed unreliable, not cost-effective or corrupt. Using tokens, we can create an infrastructure for direct payments specified to an assigned goal and validating the goal achievement against objectively verifiable criteria.
For example, citizens or visitors of natural areas could pay for specific tokens, associated with specific parks they like or appreciate and could make the pay-out of the tokens on the condition that certain quality characteristics are achieved. Or farmers could be motivated to invest in field borders with trees if nearby citizens can reward them in a cost-effective way through tokens.
Finding out exactly what has transpired is fundamental in the field of insurance. An insurance company wants to be sure of the true events and losses before pay-out can take place. At times this process can be tedious and long for the receiving parties, such as smallholder farmers. In recent years developments have focused on making this process more efficient, for example in index insurances where weather data can be combined with remote sensing. However, human intervention is still necessary for the verification of the data used. The blockchain makes it possible to establish predefined requirements, for example through smart contracts. This leads to advantages in efficiency, cost saving and reliability benefitting both farmers and the insurance company.
Several organisations are recognising the advantages of blockchain for insurance, for example Etherisc. Etherisc is building a platform for decentralised insurance applications, for example for crop insurance for smallholder farmers. Its aim is to develop a peer-to-peer risk platform that enables groups to build their own insurance risk pools and insurances on the platform. Smart contracts enable automated pay-outs (crop insurance) triggered by drought or flood events reported by government agencies.
Etherisc also wants to offer more affordable and accessible protection against the risk of death or serious illness of a community member offering more immediate emergency payment helping to get through critical times. The transparency of the used blockchain infrastructure allows all participants of the value chain to audit all of the data and the used technology autonomously. This creates trust among all participants.
Turning promise into reality
Until now, blockchain technology has mainly been a promising technology. Even though it has just passed the peak in the Gartner’s Hype Cycle (see ‘Related links’ below), which provides a graphic view of the maturity, adoption and business application of specific technologies in many application domains, it needs still to develop a great deal in agrifood.
We think its applications should not be technology driven. Producers should rather facilitate stakeholder engagement to understand how data and information relate to the value perceived by consumers. Developing successful applications not only means working on the blockchain technology itself, but especially on the governance and organisational structures for the collaboration, digitisation and standardisation of data and information – in combination with other technologies such as remote sensing and big data analytics.
The blockchain needs to mature, which can only be done through partnerships with the right players, and by implementing and testing it. We believe that blockchain technology offers potential for development if combined with a strategy for digitalisation, targeted capacity building of its users and an impact-driven approach.