Blockchain technology is a distributed governance system through a peer to peer network that offers validation of transactions in a decentralised way. It builds upon information technology developments in data sharing and storage, innovations in algorithms and cryptography and understanding of behavioural and institutional economic arrangements.
Blockchain, the basics
Blockchain technology provides validation of data and transactions; meaning that it is no longer necessary for the participants of a transaction to trust each other as this is provided by the network. Every transaction entered into the Blockchain is checked by a large number of participants. If the transaction is incorrect, it is thrown of the network, and disappears. This feature offers interesting opportunities for combining digitalization of agricultural and environmental processes. In other words, introducing blockchain technology will be most impactful where systems for managing resources or transactions are absent, and when a combination with further digitization of sector, value chains and government processes is feasible.
Ownership of land can become a controversial topic in countries all over the world, leading to substantial conflicts sometimes running into the decades. Even registration through a certified authority does not always guarantee property rights. A title deed should be clear and secure and handed over from owner to owner. But this transaction could be hampered by flawed paperwork, forged signatures, and bribed politicians. Creating an infrastructure for land registry on the blockchain could fix these problems as transactions related to land ownership would become publicly available and verifiable. This would lower the transaction costs and would increase efficiency and reliability. BenBen Ghana is an example of a platform created to capture transactions and verify land ownership data, enabling smart contracts through the blockchain. Certainty in landownership could boost local economic development.
Tracking and tracing in value chains
Most commodities we find in our markets are sourced complex supply chains involving lots of transaction, all in different systems. Here blockchains offer the possibility for each chain actor to work on the same digital infrastructure that provides a distributed network for sharing data across the value chain. The data moves with the product through the value chain, too which each of the value chain players has access. This would also offer new possibilities to include certification or other labelling information with the product till the consumer, so that the consumer can see the steps the product has gone through till it reaches the shelf. Through the use of blockchain technology in the value chain, we can offer customers more information in the source and circumstances in which their goods were produced. This is a pilot done by WUR which provides more information on Blockchain in agrifood.
Payments for Ecosystem Services
One of the strong potentials for blockchain technology is to establish a cost effective reward system for services that might otherwise not be monetized. A combination can be made 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 (PES) 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 examples, 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 conditional on certain quality characteristics being 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.
Index based insurances and micro-finance
The blockchain can be used to verify data where the data itself is within the relevant databases of institutions, the government or the private sector. The insurance sector is specifically interesting as they are by definition involved in the verification of data. For example in the determination of pay out after a loss. With index insurances, weather data can be combined with remote sensing, but often human intervention is necessary in the verification part. With the blockchain, predefined requirements can be part of the application, for example through the use of tokens. In this case this also leads to benefits in efficiency, cost saving and reliability. Riskebiz is an organisation experienced in the setup of micro insurance schemes and tokens for remittances, which they have applied in Kenya in order to create access to health finance. Together with them, we work on other applications for the set-up of micro insurance schemes for smallholder farmers.
Blockchain is an interesting topic for innovation; many things are still to be discovered, piloted and applied. It still needs to move to maturity, which can only be done through partnerships with the right players, implementing and testing it. We believe blockchain technology offers potential for development if combined with a strategy for digitization, targeted capacity building of its users, and an impact driven approach.