Building brands to trust with the blockchain
How a powerful new technology can help great product making businesses power customer confidence and loyalty in the information age.
Before reaching us, goods travel through an often vast network of retailers, distributors, transporters, storage facilities, and suppliers that participate in design, production, delivery, and sales, yet in almost every case these journeys remain an unseen dimension of our possessions.
The creation, exchange, and use of material things, however, has many potential negative consequences: environmental damage, exploitative extraction, unsafe work conditions, forgery, and the huge amounts of valuable material wasted at the end of product life.
There is a growing rallying call by customers and governments demanding more transparency from brands.
In the UK, 30% of consumers are concerned about issues regarding the origin of products but struggle to act on this through their purchasing decisions. The market for products of proven origin is growing. Regulations like the European directive on non-financial reporting or the UK Modern Slavery Act will require companies to transparently disclose reliable information about their business footprint.
Sustainability standards and certification (e.g. Fairtrade and FSC) have been an important tool to enable conscientious consumption, yet the outcome of certification is often just an image file or printed label on the packaging whose actual meaning is difficult to know and hard to verify. Guaranteeing the integrity of certificates is a costly process that, despite laborious audits, still struggles to assure the validity of the claims being made.
To connect the dots along a supply chain, nominally neutral, not-for-profit or governmental entities are commissioned with the task of creating a centralized data storage to enable a flow of trusted information.
Can one organization be trusted to broker all data about every product’s supply chain?
The truth is that no single organization can, and that relying on one party (or even a small collection of cooperating parties) creates an inherent bias and weakness in the system. If the party were the brand itself, or the most powerful actor in the supply chain, then it would be responsible ultimately for only its own bottom line; this could lead to selective disclosure or, worse, extortion. If the supply chain data were gathered by a third party, it would have to be both totally unbiased and properly incentivized to deliver the technical capability of running the system.
A new technology presents a whole new approach.
The blockchain is a recent development in the field of computer science, which uses a global peer-to-peer network to provide an open platform that can deliver neutrality, reliability and security. The basic mechanism was originally proposed as part of a solution for administering the shared accounting ledger underlying Bitcoin [“Bitcoin: A Peer-to-Peer Electronic Cash System”, Satoshi Nakamoto, 2008]. Beyond this initial financial application, blockchains can be generalized and used to implement an arbitrary set of rules that no one, neither the users nor the operators of the system, can break. They rely on a completely different system architecture , that makes them a unique platform for applications involving multiple parties with little trust in each other; for example, fragmented supply chains and their customers. The key differences between blockchains and previous data systems:
Decentralised
There is no single machine that governs the business logic or the data on which a blockchain operates. Instead, the data on a blockchain is determined by consensus, which is a defined convention for how to execute and administer the business logic (e.g., to update the stock of a certain good).
Secure
With the blockchain, security is different to traditional, hackable systems: it does not matter who or where the user is, because all information provided to the blockchain is accepted only if it is authenticated. This authentication is provided in the form of an unforgeable digital signature: a cryptographic mechanism that allows someone to prove their identity without enabling someone else to impersonate them in the future.
Auditable
A blockchain is by design perfectly auditable. Each individual operation or interaction, such as the provision of a new employee or the recording of outgoing stock, is perfectly recorded and archived. Auditing is thus as simple as joining the blockchain network, as this allows one to “replay” the operations of the past in order to build a correct model of the present.
By using blockchains, we can create a system that allows an incremental, piecemeal adoption model by businesses, gracefully building in utility as adoption increases, but without an inhibiting cost/benefit ratio in the initial stages of usage. Roughly speaking, the blockchain works much like any datasystem: it takes inputs (for example, the amount of material) and carries out actions based upon these inputs, changing the database in a manner determined according to its program. The outcome of these alterations may then be inspected and real-world decisions made accordingly.
At Provenance we have prototyped an alternative approach to the tracking of certifications in supply chains: a system to assign and verify certifications of certain properties of physical products; e.g. organic. Using blockchains as a shared and secure platform, we are able to see not only the final state, but crucially, we are able to overcome the weaknesses of current systems by allowing one to securely audit all transactions that brought this state of being into effect; i.e. to inspect the uninterrupted chain of custody from the raw materials to the end sale.
On Provenance users can create a “verified profile” accessible with a private key. It is this registration program that forms the fundamental trust relationship between the customer and the system as a whole. All other programs derive their “trustability” through their own reputation (which may be imported through their real-world name). Importantly, the system could allow participants to remain anonymous, at the cost of opacity at the stage of the supply chain at which that actor operates (although information about earlier stages can remain retrievable). The exception is certifiers, who need to register and identify themselves in order to make the system work.
Certifications that are shown at the point of sale, can be linked to their real meaning and information verifying their status on the blockchain. These programs represent the implementation of schemas for proper recognition of a standard. Through these programs, standards organizations provide for the creation of compliant production or manufacturing programs (see below), allowing instances or batches of goods and materials to be added to or processed on the blockchain. Successful verification via inspection results in the deployment of a production or manufacturing program that is both registered with the certification program and authenticated by an auditor, and allows a producer to create the digitally tradeable equivalent of a good (i.e., a token that shadows the real-world material or product), which acts as its blockchain-based avatar.
From cotton growers to gold miners the blockchain presents a method for securely documenting and transferring key information about a raw material using a “producer program”. Deployed following successful certification, these programs are used by producers to prove the creation of materials or primary goods. The program specifies and implements the parameters for each production facility, including production capacity, the description of the good and the amount with units.
Information from the producer is securely cascaded to the manufacturer on receipt. Manufacturer programs then implement the transformation of input goods from production into output goods. Much as with production programs, once deployed by the certifier the programs are operated by manufacturers, but with one additional constraint: input goods must be “used” for any output to be created, just as in the physical world. For example, the registration of a certain amount of organic cotton fabric requires as input the appropriate amount of raw organic cotton, and after this usage the raw organic cotton should no longer be usable.
Provenance facilitates the owner of the product to access the secure information about the product’s supply chain, without having access to identification details. By inspecting the blockchain, smartphone applications can aggregate and display information to customers in a real-time manner; furthermore, due to the strong integrity properties of the blockchain, this information can be genuinely trusted. Beyond the implementation of the fundamental business logic on the blockchain as described above, a method to link physical goods to their digital counterparts is also necessary, although if a certification adopted solely this digital route for a type of product and a premium was insured, then a simple printed ID system would suffice.
“Beyond the age of information, is the age of choices.”Charles Eames
The choices we make in the marketplace determine which business practices thrive. From a diamond in a mine to a tree in a forest, it is the deepest darkest ends of supply chains that damage so much of the planet and its livelihood. This new system could be a unanimous source of connected information, secure and incorruptible, to allow the purchasing decisions throughout supply chains and by end consumers to be smarter. The premium cost of ‘Fair trade labour’ and ‘sustainably farmed’, and other socially and environmentally beneficial product and business affordances, are intangible, but increase the value of goods: With Provenance, they can be understood, carried and trusted as they travel the most complex chain of custody.
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