Blockchain: the missing link

The technology behind cryptocurrencies could hold the key to managing complex networks of all kinds, writes Robbie Epsom, from supply chains and energy microgrids to the internet itself

December 2018

Words by Robbie Epsom

If a tree falls in a forest and the customer isn’t there to see it, how do we know that it’s the same timber that turns up at a factory or building site far away? Businesses pay a premium for a tonne of wood with an FSC certificate guaranteeing that it has been sourced in a sustainable manner, and consumers are increasingly prepared to pay more for sustainably sourced products. But in reality, they can’t go and watch that tree being cut down or be completely confident that fraud isn’t committed as it moves through the supply chain — that one tonne of genuinely accredited timber doesn’t become two tonnes somewhere along the line.

This is an everyday problem for transparency and sustainability throughout supply chains, and it’s just one example where blockchain technology may be the missing link. The blockchain is essentially the algorithm that underpins cryptocurrencies such as Bitcoin and Ethereum. But its applications are endless. At its core, it is a decentralized network of digital records (or “ledgers”) linked to a particular asset, whether that be a bitcoin, a tonne of timber or a tweet. Every transaction is stored within the blockchain, its accuracy guaranteed by the combined independent verification of the entire network. Information on the history of ownership, financial data and anything else that’s important is assigned to a unique signature (known as a “hash”). If someone alters that information, the unique code no longer works, and everyone knows that something is not right.

At a basic level, imagine you email a contract as a PDF containing your payment details, which the recipient then forwards to someone else. How does that third party know that the version they have is the original document? If it was sent via a blockchain-type platform, even the slightest change, to a single letter or decimal place, would change the digital signature of the document and with it the unique hash generated as part of the blockchain. The person at the end may not know what has changed, but they do know that it has been tampered with.

I believe blockchain will be particularly valuable for helping to meet sustainability goals, which require global cooperation, fast action, transparency, better management of resources, and trust — all things that blockchain can deliver. In the case of our FSC-certified timber, blockchain has the potential to ensure that the tonne of wood that was sourced sustainably is the same tonne that you ultimately purchase further down the value chain. It could underpin a tracking system that verifies a product’s source data as it moves across a supply chain, sending automated alerts about potential tampering or health and safety issues. An electronics company purchasing components from a supplier could verify that the raw materials were sourced in accordance with conflict mineral legislation, and at each step environmental data could be added to provide a transparent, accurate picture of the true impact.

illustration of an the inside cut of a tree

A practical early application of “blockchain for sustainability” could be to create trust in lifecycle assessments. The problem today is that people are sceptical of the data. But if all the environmental data about a product was reported alongside financial data in a digital ledger, they would be able to see exactly where it comes from. Suddenly it becomes valuable and — the ultimate aim — it can be used for decision-making. Businesses will be able to hold their supply chains to account, and in turn, be held to account by consumers.

This validation is the missing link for many applications that are otherwise possible today. We already have the technology to build a microgrid, for example, but until now, we didn’t have a way to administer lots of separate decentralized microgrids and get them all trading with one another. Siemens is collaborating with LO3 Energy, a New York-based start-up, to develop microgrids that use blockchain technology to enable local energy trading. This allows for transparent, trackable and tamper-proof trading of green energy, without the need for centralized monitoring of multiple participating systems, which risks slowing trading to the point where it becomes unfeasible. This could transform the market for localized energy generation, significantly reduce costs and catalyze the uptake of renewable energy and storage technology.

“With blockchain, data suddenly becomes valuable and — the ultimate aim — it can be used for decision-making. Businesses and customers will be able to hold supply chains to account”

As the technology that sits behind the cryptocurrencies, blockchain is designed to be unhackable. The combinations for the hash process are infinitely complicated, and because it’s validated by an entire network, it’s impossible to change something without everyone seeing. In principle, the only way to defraud the system is at the point where the real-world asset is converted into a digital one, because once it’s digital any change would be seen by everyone in the network. So I foresee an exciting new niche market for solutions to help transition real-world assets into digital assets within the blockchain.

One example we could learn from is the UN’s Kimberley Process, a real-world certificate scheme intended to stem the flow of conflict diamonds. A laser signature is inscribed on the diamond itself, with a unique code linked to the relevant certificate. It is now trialling the use of blockchain, so that as the diamond moves through the supply chain, there can be no change to the accompanying paperwork. The equivalent in the forestry example would be to tag each piece of wood. There are some incredible real-world technologies coming along, such as 3D-scanning materials at a molecular level to create a unique 3D code, which then becomes the digital asset.

From The Possible, issue 04

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There are many other ways that blockchain could empower new solutions. For example, augmented reality could help people with sensory impairments or reduced mobility to find their way through cities, using something like Google Glass or earphones describing what’s around you. But you need to be able to trust the information you’re being given, to know that it’s accurate. The internet has revolutionized so many industries and has been a huge enabler for so much. But arguably what it lacks is validation. Anything you see or read on the internet you have to assess with a critical eye, and there is no form of real-time validation unless everything is audited by a third party. That’s why I believe blockchain will be the next enabling technology: it validates the internet.  

Robbie Epsom is a sustainability consultant at WSP in London

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