Written by Alley Zhu
Blockchain has received much media coverage initially due to its application – bitcoins, as a cryptocurrency by Satoshi Nakamoto who proposed a decentralized approach to transactions in theBitcoin white paper. It started to catch on even widely during COVID when people came to enter into the field of blockchain-based cryptocurrency from its diversified and flexible applications such as the NFTs(None Fungible Tokens) that have been applied to the creation of pixilated digital artwork, trading cards of video games, NFTs video clips stored on the blockchain, just to name a few. The bloom of NFTs in 2020 signifies not only the trend of mainstreaming blockchain in art collecting but also its potential in terms of its wide-ranging applications. This article is devoted to exploring applications of blockchain beyond cryptocurrency. It discusses the current challenges facing traditional philanthropy and supply chain patterns and explores the blockchain’s potential to address them in two use cases in the BRI.
But what is blockchain anyway and why did it take off?
Blockchain, as the name suggests, can be thought of as a network of data blocks linked by chains. In a technical definition, blockchain is a type of decentralized data structure that consists of cryptographically linked blocks of data across a widely distributed network of computers.
In an application-specific definition in the field of cryptocurrency, blockchain is understood as a public ledger that contains a history of every transaction lodged in the system in a decentralized and secure way. Blockchain is considered groundbreaking as it changed the way we traditionally think of keeping records and verifications through trusted, central parties, which seems to be suffering public distrust in contemporary society. Also, the traditional way of keeping records in a centralized structure is way too slow and inefficient to keep up with the burgeoning demand for digitalization.
In the world of blockchain, we can imagine a world in which
“contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision… Every agreement, every process, would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary.”
In a sense very similar to the adoption of the TCP/IP and the later commercial internet and how those turned the traditional telecommunication model on its head. Blockchain is like the next generation of the Internet.
Key characteristics of blockchain:
Traditional transaction models (such as those in the banking system) rely on central authorities to act as a trusted third party to grant trust to other entities in the transactions, which might be associated with a relative long transaction process (e.g., international transaction) and run the risks of manipulation and hacking. The blockchain model disseminates records to all parties involved in the system; each participant (nodes) maintains their transaction records and can add verified changes to the system. Blockchain organizes data into blocks and then links those blocks of data cryptographically forming a chain of blocks.
- Immutable or Tamper-proof
Blockchain stores permanent records of transactions. Once a block is added, it cannot be altered. Any manipulation of the data can be decerned and detected in the network.
- Consensus Driven
For each block of data to be added onto the blockchain, it needs to be verified independently via consensus models which provide rules for validating a block.
In other words, every message transmitted between the nodes has to be approved by a majority of participants of the network through a consensus-based agreement. Robust consensus algorithms are crucial to ensure that 1) all participants simultaneously maintain an identical chain of blocks 2) the open and distributed network is protected from malicious attacks without relying on central authorities.
- Transparent and traceable
Blockchain is an open and public file; any party or individual in the system can access data stored on the blockchain and audit transactions.
Applications of Blockchain technology in BRI countries
The “Digital Silk Road” (DSR) was introduced in 2015 by an official Chinese government white paper, as a component of Beijing’s Belt and Road Initiative (BRI)
China is among one of the first major countries to acknowledge the potential of blockchain technology and embrace it in the BRI.
The DSR aims to improve digital connectivity through the development of the digital service sector, and accelerates technological progress including ‘computing, big data, Internet of Things, artificial intelligence, blockchain, and quantum computing.’ While widespread adoptions of the technology are yet to flourish, there has been a few emerging fields observed in the BRI.
Blockchain and Philanthropy
Traditional philanthropy and international aid tend to operate on a cash-based assistance (CBA) or cash voucher assistance (CVA) modality for providing humanitarian assistance. While this modality has the major advantage of providing households with flexibility in meeting their priority needs, evidence has shown that this modality of philanthropy is prone to insecurity and interventions during the transfers and deliveries of donations. In recent years, crypto-philanthropy has been taken up by some high-profile charitable organizations such as Fidelity Charitable and GiveDirectly. Crypto-philanthropy as an alternative to traditional CBA promises some potential benefits including total transparency of every crypto-donations, decentralization(cutting out middlemen), and reduced overheads.
In 2019, Blockchain Charity Foundation (BCF) issued the Pink Care Token, a blockchain-powered stablecoin pegged to one year’s supply of sanitary pads, empowering women in underdeveloped countries like Uganda in need of better menstrual hygiene.
The way Pink Care Token works is as the following:
- Donors donate to BCF with cryptocurrency, which then is used to issue an equivalent amount of Pink Care Token on the blockchain developed by the BCF. The price of the Pink Care Token is determined by the winning supplier who can provide high-quality products with the most affordable price in the formal bidding.
- After that, BCF will collect the amount of cryptocurrency the BCF received and lock the price to calculate and activate the equivalent amount of Pink Care Token according to the market price and publish the amounts on the BCF’s website.
- Token transfers and redemption happen next. The end-beneficiaries redeem each token they received in their crypto-wallet for a year’s supply of feminine care products from the partner supplier located locally. The suppliers can only redeem Pink Care Token for Uganda Shillings at Binance Uganda Exchange.
Empowered by blockchain technology, the donation, transfers, and redemption of Pink Care Token are made transparent and decentralized with enhanced aid efficiency and low liquidity cost. The process of each step is traceable on the blockchain with specific timestamps attached. The traceability and transparency of blockchain in the system are what encouraged donors to be onboard with trust in the system while giving evidence-based outcomes to the charity as well as a reputation to the project.
Up to date, the Pink Care Token Project has received a donation record of 155, with 11,601 end-beneficiaries receiving around 2,035 thousand USD in total for period pads in underdeveloped countries.
Blockchain and Supply Chains
With consumers nowadays wanting to know more about what goes into the products, the provenance, authenticity, sustainability, and many others, brands are increasingly challenged not only to manage their performance but to link their efforts and investments to communicate with consumers with their true story behind in a more effective way. The solution that blockchain technology as a service platform provides is to allow brands to get across stories through the product itself right at the moment while consumers are making their purchasing decisions. My Story™, a blockchain-powered digital assurance solution (a dApps with blockchain as a service) developed by VeChain, launched by DNV-GL, has been used to document the journey of goods of prominent Italian wines from farming, packing, all the way to distributions, with DNV GL-Business Assurance Certificates of each step shared and stored on the blockchain. My Story™ gives each product a unique ID linked with the verified data gathered by sensors used to measure various indicators related to products in the value chain of wine production. All of those verified information collected in the supply chains are then attributed to products through NFC chips, RFID tag incorporated into the product packaging. All information can be easily disclosed in just a snap of figures – scanning the QR code or the NFC chips built on the product or the packaging and dive into the dApp to search for the product characteristics of concerns. This empowers savvy consumers to verify the company’s claims themselves, ranging from the authenticity of the products to sustainability-related claims. Through blockchain-based trackability of goods, effective communication and conscious purchasing are enhanced, which can ultimately build up brand reputations amongst consumers.
Other than that, the platform can also become a solution of anti-counterfeiting and traceability in the food and beverage industry. VeChain ToolChain launched in 2019, a toolkit containing a bunch of software and hardware that allow any business to upload any verified product information onto the VeChainThor Blockchain and embed it onto their products with no technical knowledge on the blockchain.
In February 2020, the Australian government announced the National Blockchain Roadmap, which highlighted the significance of blockchain technology in agriculture and supply chains. VeChain partnered with the APAC Provenance Council shortly after (headquartered in Brisbane, a not-for-profit consortium that includes standard agencies, food industry bodies, and companies in the blockchain, finance, and packaging sectors), and announced that its new product – VeChain ToolChain– would help its partners and clients in the consortium to integrate blockchains to ensure an efficient, safe, and secure food supply chain by giving tracking data related to shipping, vehicle, carrier license, and temperature, and other logistical updates recorded on the blockchain.
Notably, the benefits of blockchains can go beyond the consumer’s and companies’ side and extend into the supply chain ecosystem and the supply chain finance sector. In the non-blockchain world, assets and financial flows can be slow in the supply chains. This is challenging for many SMEs financially to provide information about creditworthiness. Creditors thus, find it difficult to make lending decisions as banks are less likely to lend money to companies with inconsistent or error-ridden invoices. Over time, a wide gap between supply and demand in trade finance is formed for many SMEs. This has been quite salient in cross-border supply chains such as those in the BRI. According to the Asian Development Bank (ADB), the global trade finance gap was US$1.5 trillion, or 10% of merchandise trade volume in 2018, and is expected to increase to US$2.4 trillion by 2025. The study from ABD shows that this huge trade finance gap could be reduced by 1 trillion with distributed ledger technologies (DLT) – of which blockchain is the best-known form – largely adopted.
Due to the complexity of supply chains, most firms find it hard to trace the products beyond their immediate suppliers. The distributed nature of blockchain is going to ease the complexity of transactions involved in cross-border trade. By logging transactions in a singular “data collaboration platform,” in an open and distributed manner, blockchain can break the information silo in the supply chains. In addition, smart contracts built on the blockchain (the automation of a set of promises that can be triggered once some conditions are satisfied) can mitigate credit risks and remove barriers to trade finance as every record needs to be authenticated before storing on the blockchain. With visibility of the supply chains, companies can seek improvement in their internal processes and enable numerous kinds of collaborative business models.
Okay, it sounds great so far, any concerns?
In general, while the future of blockchain technology seems promising, the development and applications of blockchain technology are yet to be mature. Security and privacy (confidentiality) of blockchain continue to be at the center of the global debate when deploying blockchain in different applications. In some cases, the consideration of privacy issues may make it difficult for companies to comply with regulations since addresses and identities of accounts in blockchain can be highly anonymous which made blockchain prone to abuse and money laundering. In other cases, public blockchain may require companies to publicly share sensitive information and there are regulatory risks (both national and provincial regulations) associated with cross-border businesses.
In terms of security, there is a theoretical trade-off between the way consensus is established on the blockchain and the system’s throughput, scalability, and latency in information propagation. The larger the number of nodes (participants in the network) that must receive information about a new transaction, the longer the time it takes to reach a consensus, the longer the distributed ledger remains in an inconsistent state. However, this might mean more availability is allowed in the network yet with increased risks of malicious attacks.
In addition, smart contracts require human inputs that exist outside blockchain to trigger executions of contracts. The biggest risk to a blockchain framework may lie within those data inputs as these could be subject to malicious attacks to corrupt the data being fed to the blockchain.
Overall, as the non-finance applications of blockchain start to gain traction and start to be incorporated into other technologies (NFC, IoT, AI, etc.,), it offers multiple opportunities to innovate business models. In its essence, blockchain technology transforms business models from human-based trust models to algorithm-based trust models (with trusts placed in the system rather than in any entities). The establishment of trust in the blockchain networks is crucial in any cross-border undertakings. While blockchain is an allegedly trust-less system, the establishment of trust in the system is now based on cryptography, distributed ledgers, and consensus models (protocols). This requires pre-established trust in the viability of the blockchain system before participants entering into it.
It is only when companies and industries start to put trust in the system that the trusted blockchain networks start to automate trust.
For trusted blockchain networks to be established, there should be an ongoing effort to develop effective consensus mechanisms and discourage malicious attacks in order to widen the business applications while managing other trade-offs in the architecture.
Smart contracts built upon blockchains will also require robust testing and adequate controls to mitigate potential risks to blockchain-based business processes. Moreover, in cross-border undertakings such as those occurring in the BRI, standardization processes and clarification of rules need to be instituted based on industry-wise and multi-lateral agreements. Last but not the least, it requires more curated content in blockchain education and public communications about blockchain technology to demystify and inform adopters and the majority.