Supply Chain

Sustainable Value Chains & Blockchain:
Practical Applications

Blockchain, the technology behind cryptocurrencies such as Bitcoin, has certainly earned its space as one of the most talked-about topics of 2017. Regardless of whether one views these new 'currencies' as an investment opportunity or bubble waiting to burst, the underlying technology has already demonstrated the ability to rapidly and dramatically alter markets, and many in the sustainability sector are asking — and experimenting with — what will come next.

By Dan Davies | Published 6 years ago | About a 4 minute read

Blockchain, the technology behind cryptocurrencies such as Bitcoin, has certainly earned its space as one of the most talked-about topics of 2017.

Regardless of whether one views these new 'currencies' as an investment opportunity or bubble waiting to burst, the underlying technology has already demonstrated the ability to rapidly and dramatically alter markets, and many in the sustainability sector are asking — and experimenting with — what will come next.

For many organisations, the question is not whether blockchain will become relevant to their business (it will), but what the impacts will be on their day-to-day operations, sourcing practices and, for some, even business models.

Block-what?

The concept of a blockchain is quite simple: An electronic ledger, with a list of entries (blocks), linked together and secured by encryption. Blocks are added by users of the ledger, which includes a pointer to the previous block (a hash), a time-stamp and transaction data.

Blockchain technology is inherently resistant to tampering and modification. Once an entry is made, including transaction data and a time stamp, it cannot be modified unless all subsequent blocks are also modified, which would signal the collusion of the majority of the users in the network.

Right now, the largest blockchain is that of Bitcoin, which to date has never been hacked. This is in no small part due to the large number of users and the financial incentive (in the form of the currency itself) to keep the chain immutable.

Supply chain traceability

One of the clearest development applications of blockchain is tracing goods through the supply chain. At the time of writing, Unilever has already begun a one-year pilot using blockchain technology to trace tea from Malawi to the UK and reward farmers with finance via major banks for those that adopt and maintain sustainable practices.

Validated and reliable data from farms have traditionally been hard to secure, making it difficult to provide finance aimed at supporting on-farm sustainable practices over the long term. Blockchain technology offers an opportunity to facilitate the flow of data while offering brands and retailers the opportunity to track and trace commodity goods through their supply chain.

Burden-free certification?

Supply-chain certification services have brought many advantages and benefits to producers, manufacturers, retailers and customers. Easier automation of processes could facilitate a switch to larger scale and more efficient adoption of certification initiatives - ultimately freeing up time and resources where they are needed most.

Everledger uses blockchain technology to combat the flow of conflict diamonds by verifying their provenance. The process is essentially a digital expression of the Kimberley Process, except it replaces traditional record-keeping with the blockchain.

Certification data travels with the diamonds and is easily combined with existing labelling methods. This is all good news, not only in the diamond industry, as this technology also makes it easier for emerging markets to participate in ethical and legitimate ways.

Aside from the clear and urgent need to curb the flow of conflict diamonds, initiatives such as that run by Everledger have a clear economic benefit — $45 billion is lost annually to insurance fraud while 65 percent of fraudulent insurance claims go undetected. Ultimately, these costs are passed on to end users — businesses and the public.

For wider applications, some obstacles need to be overcome, such as agreeing on terms of transactions or contracts. However, once blockchain practices are fairly standard, we could see the automation and efficient running of many processes sustainability professionals currently manage manually.

Renewable energy

Energy distribution is a strong candidate for blockchain technology, which has the power to help the industry move from complex, cumbersome trading and clearing systems to a lean and efficient marketplace.

This is especially true for renewable energy systems. Once on the grid, renewable electricity is indistinguishable from electricity from conventional sources. Existing mechanisms, such as renewables certificates that are traded between parties, needlessly take up time, energy and resources. These certificates could be replaced by a system that monitors renewable electricity generated onsite, feeding data into a blockchain. As production thresholds are achieved, this would result in the automatic creation and distribution of certificates.

Another example includes micro-generation. Given the prevalence of smart meters and other IoT (Internet of Things) devices, we could easily see owners of distributed grids efficiently and legitimately selling excess power to anyone within an open market.

These examples scrape the surface — there are many other applications for blockchain. There are still barriers to hurdle, but the technology is already ingrained into markets to the point that it is here to stay. The question is not whether it will be adopted into sustainable business practices, but how it can be used to most effectively tackle the world's most pressing social and environmental challenges.

This post first appeared on LinkedIn on December 15, 2017.