An Overview Of Blockchain Benefits And Risks

Blockchain Benefits: Blockchain is a technology for transactions between actors that transparently records every change. The individual blocks – for example, in the supply chain – consist of data records that are encrypted using technical processes and linked together (cryptographic functions). These blocks are continuously expandable. A data record consists, for example, of digital documents such as a purchase contract, a financial transaction, or an analysis result. Through the blockchain, the various data sets are inextricably linked.

Each new transaction builds on an existing transaction. The system or network confirms the authenticity of the stored information block by block and shares the result with all participants in the network. Any change to the data requires the consent of most of the computers or participants involved. This prevents counterfeiting and enables complete documentation.

Development And Supply

The system was first introduced in 2009 to record Bitcoin transactions. More and more system providers offer solutions for the food sector. If a company wants to map its supply chain via a blockchain, it should contact one of the system providers to find the ideal solution for its internal needs.

Fraud Is Made More Difficult

A food company can use blockchain for several reasons. The main blockchain benefits lies in the secured traceability and, thus, the reduced risk of fraud. Information on origin, lot numbers, production dates, best-before dates, analysis values ​​- all of this data can be stored in the blockchain, and most of the time, it must be entered correctly. If there is more incorrect information than correct information, something is wrong. Which statement is to be stored in a block is defined in advance. Each new block, i.e., the data from each new participant in the retail chain, is based on an old, closed block. In the future, a questionable company can be identified very quickly based on an existing partnership,

The risk of goods that have already been rejected being offered again by another company would thus be reduced to a minimum. As the demand for organic products increases, but the supply of raw materials does not always keep pace with this growth, the industry has become more vulnerable to fraud. Different technical or analog systems are often used for documentation in the supply chain, from agriculture to the food trade. This makes traceability difficult. If the entire production chain used blockchain, the data access would not require such complex communication. Blockchain could therefore play an essential role for companies in securing and tracing their raw materials.

Blockchain Benefits: Make Traceability Visible To Consumers

In addition to securing the purchase of raw materials, the blockchain also offers the possibility of presenting consumers with a transparent supply chain. In England, for example, the ecological certification body and standard-setter Soil Association, together with a trading company, has allowed consumers to trace organic ham from the store shelf to the farm. The ecological certification step could be outlined at each level. There was great approval from customers. However, this option will probably only be of interest to companies that offer mono-products or products with few ingredients since the longer the supply chain, the greater the complexity of the product.

Transparency As A Trade Barrier?

However, companies that participate in the system also take risks. A mistake would be publicized immediately and could harm the company and damage its reputation. There are also topics where transparency is desired, but communication towards the receiving hand is also required. For example, an egg producer could state that no male chicks were shredded in their egg production due to prior sex determination. This is the case, for instance, with the “Respect” project applied to conventional eggs. In this project, traceability and transparency from the breeding farm to the store shelf are secured using blockchain. However, this can result in retailers delisting on egg manufacturers who do not offer clarity.

Concrete Challenges

Whether blockchain is necessary for better transparency and traceability is still in question. Because other systems are less energy-intensive and therefore more environmentally friendly. In addition, it is unclear how high the costs for the system participants will be. There is a risk that only larger companies can afford to participate in the system, thereby exacerbating the existing unequal power relations in the food chain.

The partial lack of internet capacity in rural regions could also pose a problem for exchanging the data required for the blockchain. Answers to all these questions still need to be found.

Also Read: How does Blockchain work & How To Implement It Correctly