#AgBlockchain: values and fallacies

By: Emma Clapp

17, July, 2018

Categories:

Blockchain -

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During 2017, The Fork developed, reviewed and commented on about 20 applications of blockchain in agriculture. The conclusion: start experimenting now to understand what this next generation of technology can mean to accelerate your ambitions in agriculture. We will summarize (1) what it basically is, (2) its value for agriculture, different to what is often communicated, and its limitations, and (3) how you can start experimenting with it.

  1. What is blockchain

Blockchain basically is a dataset of transactions, a ledger. It is the combination of “a database” with ‘the network’, and then the advancement on cloud computing. There are at least 4 new characteristics to this database, that jointly explain the big fuzz about blockchain.

First, it commonly is open, and public. Everybody that is authorized can read and write to the database. Second, it is auto-synchronized. All copies of the database are exactly 100% the same and are synchronized immediately, simultaneously. Third, it is immutable. This is one characteristic that really required some time to sink in. It is permanent. Once information is entered, it can never-ever be deleted, changed or tempered. This, for supply chains in general but agriculture in specific, is of immense value. Fourth, it is distributed across the network. For this reason, increasingly so, blockchain is referred to as a Distributed Ledger Technology, DLT. Although this term is older than blockchain, it emphasizes the distributed character of blockchain. The picture below show how we moved from centralized, to decentralized, to now distributed models.

 

The fact that it is a distributed technology, indicates it is part of our next industrial revolution. We live in a society in which most business models are decentralized, like Uber, Airbnb and Facebook. Technologies, like blockchain, potentially disrupt these now closed silos into open distributed business models.

One important elaboration on the open character: there are public and private blockchains. Knowing the difference is key. Bitcoin is a public one and the most open ledger. Hyperledger is a private one. They do different things very well. Before you assume that everything is open and transparent to everybody on a blockchain, be sure about the specifics of the blockchain and its governance structure. Who has access to what? As shown in the image below, there are broadly 3 categories: public, hybrids and private. Acquire an idea whether it is on the right or the left side of the picture below.

A final key point about blockchain that everybody should know, is that is only a part of a set of technologies. Blockchain on its own is nothing. Blockchain exists with old-school databases like excel sheets and ERP systems, with APIs (application programming interfaces, that allow exchange between different systems) and most importantly, user interfaces or apps, or decentralized apps. The last three refer to the apps as you find them on your devices. The functionality of these, make or break the impact underlying technologies as they make it possible for you and me to use technology properly.

  1. The value for agrifood

Why blockchain

Blockchain indicates a new generation of technology. It is not so much about blockchain, really, it is much more about decades of research and breakthroughs in security that have culminated in the next level of database technology. It entails a different approach to storing information. Whereas we previously could only transfer information over the internet, we can now safely transfer value from one user to the other. This implies a completely different dimension of databases.

There are 3 technical reasons why you should start experimenting with blockchain:

  1. The truth: Blockchain encrypts information into code. This encryption cannot be removed, altered or omitted. This is essentially what establishes the truth, and hence trust between parties. It is this trait that makes it so vital for agriculture.
  2. Blockchain in our ex perience solves the data ownership problem, a key limitation to digitization in agriculture. It gives data ownership back to users, as users have full ownership, control and transparency over their data. Data is replicated across several unrelated points, no single point can act as gatekeeper and blur ownership issues. Users who store information on the blockchain, retain access to it through encryption keys that they alone own, independent of the service or application that generated it.
  3. Scalable track and trace: Blockchain is a distributed system. It is about rules with no ruler. Read that again. Rules with no ruler. There is no central party in control. Everybody is in control. The rules are embedded in the system itself, into the code. This makes it very robust and scalable. Track and trace was already very doable, but becomes much more scalable and reliable.

There are also 3 business reasons why it is just a matter of when you start, rather than if:

  1. Risk management: because everybody in the network has the same information, at the same time, and because you have accurate information, rather than information in hindsight, risk management will record unseen improvements.
  2. Operational efficiency: only partially due to auto-synced information, efficiency gains have recorded a staggering 80% improvement (in finance, where implementations are most mature). It is also attributed to smart contracts: pieces of code that automate if-then causalities.
  3. Integrity or sustainability: with more decentralized structures, information travels faster, becomes more accessible to more people, ideally everybody, and transparency increases. It becomes much more visible who does what against which renumeration. Ownership is better organized, and its far more difficult to hijack a system for individual purposes.

Blockchain has one of the strongest, if not the strongest, value proposition to supply chain and more so to agricultural supply chains. Supply chains overall have low levels of trust. The more complex, the lesser trust between parties, the more expensive transactions. Agricultural supply chains are one of the most complex supply chain domains and suffer from very low levels of trust. Blockchain will impact this drastically in the next 5 years.

Why not blockchain

Of course, there are many concerns and limits to this new technology. Blockchain is very emerging. It is indeed what the internet was 20 years ago, meaning there is more that we don’t know, than that we do know. There are many misconceptions, unclarities in definitions, mixing up of concepts and certainly many scams. Three disclaimers for now:

  1. Do not implement it at scale. You will have to re-do and transport to other, newer, better technologies in the near future.
  2. Do not use blockchain for tracking and tracing only. We have better, more efficient solutions for that.
  3. Do not start if you cannot combine proven blockchain- with business experience. Don’t be misled by so-called experts, there are many scammers. Certainly do not let technology dominate or blind common business sense.

3. How to start with blockchain

There are 3 tastes currently. Either start with an existing product like Steemit, buy and tweak a ready-made solution like AgUnity, or start experimenting with the technology from scratch. There are different costs and benefits to these 3 options. Assess all 3, before you endeavor on one of those.

Independent of which of the 3 approached you take, choose your first experiment wisely. We see 4, yes 4 and not 3, criteria that are critical here:

  1. Complexity: how complex is your business case? The more complex, the more value you can expect from blockchain.
  2. High costs: how high are transaction costs? Focus on real, visible costs. The higher the costs, the more value you can expect from blockchain.
  3. Information asymmetry: how well is information distributed across the different chain partners? The more concentrated or locked information is, the more value you can expect from blockchain.
  4. Trust issues: to what extent is trust, the lack thereof, inhibiting transactions and businesses to thrive? The lower trust levels, the more value you can expect from blockchain

This table is an example of how you can score these criteria for example on different product categories, A and B. We advise to keep it simple. Use a scale of 3, where 1 is less than average, 2 is average, and 3 is more than average. The 3 final columns indicate the expected impact on risk management, operational efficiency and sustainability per criteria. The infinity image indicates that we think the impact is potentially very strong. A question mark indicated that it is not clear to us yet, what sort of impact it will render.

We hope these tools are useful to understand how and where you should an experiment. More so, we hope you start gaining first-hand experience to start shaping your own informed understanding of the potential of this new generation of technologies that will reshape the business in which you are today.

By Marieke de Ruyter de Wildt, Founder at The Fork