You might have heard the term 'blockchain' thrown about. But what is it? How does it work? And what does it all mean for agriculture?
The technology world is going nuts about blockchain. It’s the technology which powers Bitcoin – the world’s most popular online currency. However blockchain is about more than online currency, and a whole industry has now emerged looking to apply it to everything from medical records to food traceability.
From an agricultural standpoint, blockchain is already changing the way some farmers buy and sell produce, and trace that produce through the supply chain.
The story begins with a mysterious internet figure with the pseudonym Satoshi Nakamoto, who first conceptualised blockchain in 2008.
Nakamoto worked anonymously with an online network of collaborators to refine the blockchain concept and apply it to the world’s first ‘crypto-currency’, Bitcoin in 2009.
As one of Bitcoin’s first participants, Nakamoto now holds around $US2.7 billion worth of the currency, however the identity of the Bitcoin billionaire remains unknown.
Nakamoto developed a way to safely transact peer-to-peer (without an intermediary) using what’s called a ‘distributed ledger’. This means transaction information is stored across a network of computers, rather than in a single, central location.
The ledger entry for each asset (whether that’s a Bitcoin or a tonne of wheat) is made up of a series of blocks, each containing information about the asset. Whenever that asset is transacted, a new block recording the transaction details is added. Because all blocks are stored in sequence, the blockchain provides full transparency about the asset’s chain of custody.
This concept of transacting peer-to-peer using a distributed ledger is exciting for two reasons.
First, it doesn’t rely on a central authority to validate transactions (and charge a fee accordingly). This cuts out traditional ‘middle men’ and drives down the cost of transacting.
Second, because the ledger isn’t held in a single location, it is almost impossible to fraudulently alter transaction records. This (plus more technical safety measures) makes it incredibly secure.
Legions of clever people are now looking at using blockchain to improve agricultural supply chains.
One example is ‘smart contracts’ which reduce risk by digitising settlement transactions. An Australian company, AgriDigital, chalked up a world first in this area least year – with the first live settlement of a commodity transaction. That transaction was between David Whillock, a farmer from Guerie NSW and Fletcher International Exports in Dubbo. Whillock used the AgriDigital blockchain system to sell 23 tonnes of wheat. The speed and security of these smart contracts means less waiting for payment and therefore better cashflow management for farmers.
The other obvious opportunity is traceability. With consumers’ expectations around provenance increasing, blockchain technology can be used to trace a product’s origins right back to the farm gate. Again, this is already happening. British firm Provenance is using blockchain to trace food from paddock to plate, to ensure certification labels can back up their claims.
There are obvious benefits here for Australian producers who currently comply with multiple certification and traceability systems to ease this red tape burden.
There are a plethora of other applications – from financing, to management of data from farm sensors and machinery… and no doubt many which haven’t yet been dreamt up!
This is not the stuff of theory or science fiction. It is being taken seriously not just by the startup community, but by major players like the Big Four accounting firms, and the banks here in Australia.
Increasingly, we are likely to see agricultural transaction and traceability systems move across to blockchain based platforms.
In the not-to-distant future, farmers may access blockchain-based finance to plant a crop; measure its growth using sensors storing data in blockchains; receive immediate payment on delivery using a smart contract; and have the end customer able to identify their farm as the source of what’s on their plate.
Charlie Thomas is the General Manager, Digital & Industry Partnerships with the National Farmers' Federation.
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