Blockchain is so hyped right now. Everyone is talking about it and no one wants to be left off of the blockchain bandwagon. Potential applications span across different industries, from agriculture to financial services to energy. Solving supply-chain problems, expediting cross-border payments, and enabling peer-to-peer energy trading are some of the popularly used cases of blockchain technology.
However, with all the hype around blockchain technology, its flip side has not yet been widely discussed. To be realistic, blockchain is not a better solution for everything.
Even worse, there have been many instances in which blockchain technology is being misused or even abused. Companies in fields as varied as iced tea, imaging products, and e-cigarettes rebrand themselves as “blockchain” companies to boost share prices or raise funds.
So what’s all the hype about? Let us first understand what blockchain really is and what its benefits are.
Simply put, blockchain is a database of transactions distributed among multiple computers. With the distributed network, all participants hold the same copy of the ledger, which gets updated regularly as new data is entered. Every piece of information is mathematically encrypted, time stamped, and stored in a “block”. Member nodes use consensus protocols to validate the new block before it can be added to the chain that is linked to the previous one, hence the name “blockchain”.
As a distributed, shared, and tamperproof ledger, blockchain brings significant operational benefits. These include, but are not limited to, transacting without the need of a trusted central authority, creating a secure, transparent and auditable ledger system that is available to all participants, preventing fraud or double spending, and making sure those transactions cannot later be erased or changed.
Given its unique characteristics, blockchain is appealing to many industries.
For agriculture, the technology is coming in a big way. Both the Thai government and international NGOs see the potential of applying blockchain to the rice supply chain. It holds promises to improve traceability and transparency, which are critical for high-quality agricultural products such as premium organic rice. With blockchain technology, consumers, vendors and suppliers can track and trace the product they purchased from their origin to the point of sale. During contamination incidents, regulators can quickly identify the source of the contaminant and food companies can respond accordingly in a timely manner.
In the energy sector, blockchain technology makes it possible for users to trade their surplus electricity in real time within a peerto-peer network, in a secure and transparent manner. The T77 project, through a partnership between property developer Sansiri and Bangchak, will implement the first ever blockchain based, peer-to-peer energy trading platform in Thailand.
While all these uses for blockchain could fundamentally alter the business landscape, it masks a lot of hype. The technology is still immature, has its practical limitations and thus is easily misused.
Firstly, blockchain only works with assets that can be represented in a digital format. Unlike the rice certificate that can be digitised and made tamper-proof by blockchain, physical rice can easily be tampered with.
For example, low-quality rice may mix in at any point along the supply chain, unless there are strong physical safeguards, which are independent of the blockchain technology. When this kind of physical tampering occurs, blockchain can ensure neither authenticity nor trust.
Secondly, data entered into the system is subject to human error. By all means, you still have to trust humans. If we put garbage on a blockchain, all we can expect is distributed and encrypted garbage.
Thirdly, a distributed database requires a consensus mechanism. This inevitably slows down the system performance. As of now, blockchain-based payment gateways are still significantly slower than Visa and unable to handle millisecond transaction speeds effectively.
Don’t get me wrong. Despite these limitations, blockchain is still a major invention that has the potential to upend various industries. However, we should not be tempted by the hype and should instead rely on our careful judgement whether using blockchain is a wise decision.
In other words, we should concentrate on solving the real pain points, not with blockchain as a solution and try to match it to those problems, and not the other way around.
At the same time, we must fully understand the risks associated with this nascent technology and reduce them accordingly. In case of the rice supply chain, appropriate safeguards such as measures to prevent tampering must be put in place for blockchain to work well.
For such an overhyped technology, we have to be doubly careful to distinguish good uses from misuses and outright abuses.
Aphinya Siranart is a researcher at the Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.
First Publish: Bangkok Post on Wednesday, November 14, 2018