TECHNOLOGY VIEW

Building a cleaner, safer world – one block(chain) at a time

Blockchain’s characteristics could make it a good fit for addressing sustainability as these examples demonstrate.

Blockchain, which is best known for underpinning cryptocurrencies, has dominated the headlines in recent years. But while the future of cryptocurrencies is far from certain, blockchain might have potential in the sustainability world. By facilitating multiple ledgers that reflect the same information at the same time, blockchain can improve transparency – one of the key requirements for achieving social, environmental and economic sustainability.

Transparency is a diamond’s best friend

Many of the minerals and gems used in the jewellery industry originate in the developing world and provide a vital source of revenue. However, because of their high value these raw materials sometimes fund militia groups or despotic regimes. While sanctions exist to prevent products such as so-called ‘blood diamonds’ entering the supply chain, proving provenance can be tricky. Moreover, younger customers such as millennials increasingly demand proof that products are ethical.

IBM and four gold and diamond industry companies (working with an independent laboratory) are developing a blockchain to trace the origin of pieces of jewellery from mine to store. TrustChain has completed its first proof-of-concept test involving a supply chain that includes a gold mine in South Dakota, a fabricator in Massachusetts, a manufacturer in India and a retailer in the US – the first pieces of fully-traceable jewellery should be in shops for Christmas. Bridget van Kralingen in global industries, platforms and blockchain at IBM says that 66% of consumers globally are willing to spend more to support sustainable brands. “TrustChain is an example of how blockchain is transforming industries through transparency and viable new business models that specifically benefit the consumer,” she notes.

There are also efforts underway to use blockchain to track cobalt from mines to lithium-ion batteries, which are used in everything from mobile phones to electric cars. Much of the world’s cobalt comes from Congo, which is plagued by conflict and mines where child labour is often used, and is mined on an artisanal scale. China, which uses much of Congo’s cobalt, has established the Responsible Cobalt Initiative (Apple and Samsung have also joined the scheme) and plans to use blockchain to improve sourcing visibility. Each sealed bag of cobalt will receive a digital tag which is entered on a blockchain using a mobile phone, along with details of the weight, date and time; this is then updated by a trader and at each successive stage in the supply chain. As a result, the circuitous route taken by the mineral should be tracked from beginning to end.

Traceability makes circularity easier

If the components of a product are clearly documented then it is much easier to recycle. That’s the thinking behind UK company Provenance, which helps brands to take steps towards greater transparency by tracing the origin and history of products using blockchain, mobile and open data. These digital histories comprise data and content shared by producers, retailers and consumers – accessible at the point of sale – and to the entire supply chain.

Provenance software stores key verified information on an open registry, making it secure, trustworthy and accessible. In 2017, London designer Martine Jarlgaard, in collaboration with Provenance, produced the first garments with smart labels that enable a consumer to see every step in the production process, from raw material to finished product, complete with timestamps and location mapping for every step – even identifying the source of a sweater’s alpaca yarn. Provenance is now collaborating with innovative sportswear brand Vollebak – its products include the world’s first graphene jacket – to develop a piece of blockchain outerwear that records its use and journey over an owner’s entire lifetime. By creating a chronicle of its digital history, Provenance gives technical materials a second life. The project aims to encourage the ownership of a single outerwear garment, as an alternative to a wasteful consumer need for multiple items. Provenance believes that access to information on material products' creation and life cycle is essential to recapturing material value and designing out waste.

Transforming commodities trade finance

Trade finance remains one of the last bastions of complex, paper-based processes because of the large number of parties involved in each trade, many of which are in emerging markets. Inefficient trade finance effectively acts as a barrier to trading and economic advancement for poor countries – overcoming such challenges is therefore critical to improve the economic prospects of some of the poorest people in the world.

In September, 15 of the world’s largest institutions, including banks (such as ING), trading companies, an inspection company, and an energy company announced a commodities trade finance blockchain platform called komgo. The platform will radically simplify and accelerate trustworthiness, auditability, and accessibility to trade financing across the industry. “We can now achieve a long-term ambition to improve security and operational efficiency in the commodity trade finance sector,” says Toon Leijtens, chief technology officer of komgo. Komgo will offer two products to service the energy, soft and metals commodity sectors and will reduce the time spent on processing documents and data by up to five times and, as a result of immutability, increase safety.

Cutting corruption and making elections fairer

Many developing countries have made huge leaps in recent decades in establishing stable democratic processes and reducing graft. Now blockchain could accelerate these changes. In March, Swiss company Agora trialled the use of blockchain as an unhackable way of transmitting electronic election results in Sierra Leone. The company was given observer status in two regions in the country for the experiment. “We recorded the votes on our blockchain where [they] are anonymised,” says Leonardo Gammar, CEO of Agora. “Our observers had a look at the ballots and they sent the results on our blockchain per polling station." The Agora e-voting system aims to provide a decentralised system that is transparent, verifiable and secure, according to Gammar.

Meanwhile, Georgia has become the first country to use blockchain to reform its land registry process, which was opaque, prone to delays, and susceptible to corruption. In April 2016, the government partnered with technology company BitFury to develop a system that uses unique ID codes uploaded to multiple public databases to ensure transparency. However, while Georgia’s achievement is historic, much of its land and property remains unregistered and registration remains a slow and relatively expensive process. Georgia is promoting its openness to blockchain-focused companies (as well as its cheap electricity, which is vital for creating blockchains).

Making companies work better

Blockchain technology could play an important role in improving corporate governance processes, such as annual general meetings, by enhancing trust and transparency. “The AGM plays an important theoretical role in shareholder monitoring and corporate bonding, but in practice, it is considered a dull mandatory ritual,” note Anne Lafarre and Christoph Van der Elst of Tilburg University in the Netherlands in a recent paper. “All three theoretical functions of the AGM – the information, forum and decision-making function[s] – are currently at least partially hollowed and strict procedural requirements hinder fast and flexible decision-making.” In particular, they highlight “substantial practical flaws” related to shares being held through complex chains of intermediaries, which increase costs and can reduce shareholder participation in decision making, reducing corporate accountability.

One solution is IBM’s Hyperledger, which allows both the company and shareholders that hold sufficient shares to make proposals. Smart contracting means that all relevant information including majority rules and access rights (contained in the articles of association and relevant laws) are taken into account. Once a certain proposal is placed in the blockchain, shareholders are immediately notified and can exercise their voting rights during a set period, with voting results instantly available after a cut-off point.

Blockchain can also help companies to protect their customers’ data – an important priority in the wake of GDPR. ING’s blockchain team has developed a new code, known as a zero-knowledge range proof (ZKRP), which is much more efficient than existing technologies at keeping information on a ledger private. ZKRP adds a layer of cryptography to blockchain technology so that information remains private while still meeting regulatory reporting requirements. “ZKRP has been proven to be 10 times more efficient while upholding the same three principles: completeness, soundness and zero-knowledge,” says Mariana Gomez de la Villa, global head of ING’s blockchain programme.

The View is the online magazine of ING Wholesale Banking