Oranges and Blockchains
Jonathan Sesso, IBM's Blockchain Business Development Executive
Bitcoin’s pseudo-anonymous creator, Satoshi Nakamoto, sought to create a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution. His primary motivations for building this “decentralized” network centered on the captivity of global economics, which are constricted by centuries-old central banking hierarchies. Bitcoin was created not as a means to replace banks; rather, it was meant to facilitate a transactional economy which exists outside of banking systems.
This mind-blowing black swan event ultimately gave way to the rise of DLT, or distributed ledger technology. This movement perhaps can be summarized in just two words: Shared Truth.
The concept is very simple: multiple parties can view the same source of truth (the ledger), and the reason it is in fact the ‘truth’ is because of this thing called ‘consensus’. Essentially, the network serves as a means to prevent anyone from changing the ledger, for any reason whatsoever. Once a transaction or an asset is placed onto the ledger, the consensus algorithm, which is used by the network administrators (the people putting things on the ledger), serves as a medium for validating that transaction.
But while this concept is simple in nature, its sound execution is… well, not.
Many POCs (proof of concept), having been launched both by startups and larger well-known enterprises haven’t exactly screamed success yet, despite numerous press releases and hype.
At IBM, we view our initial failed network attempts as building blocks (pun unintended) towards future, thriving DLT-based networks. Thus, it is failure that drives innovation, not hype.
Here’s a question my fellow suburban dads will sometimes ask me at weekend play dates, “Aside from bitcoins, what else can you put on blockchains?”
Before answering the question, I first ask them, what can you put on a database? Taking this question seriously is a good primer for considering why blockchain is a good thing to think about in the years ahead.
Oranges, coffee beans, diamonds, bond offerings, letters of credit, bank guarantees, gold-backed tokens, dollar-backed tokens (i.e. stablecoins like those of Tether, JPM Coin, stock certificates, IBM World Wire, etc.), and just about anything else you can think of that needs to be tracked, managed, and/or verified by multiple parties.
Take oranges for instance. In 2016, the US produced over 5.1 million tons of oranges.
That’s a lot of oranges.
Consider this: roughly half of those oranges were wasted. There are many reasons for this, and usually they have more to do with global trade and supply chain issues than they do with little Timmy refusing to drink his orange juice (actually in our house it’s the peas and carrots that get shafted – my kids love vitamin C).
Sometimes oranges get shipped to the wrong destination, perhaps the incorrect port terminal, or the wrong grocery warehouse. When this happens, often the food must be thrown out because this kind of discrepancy can take weeks to resolve.
To drill down a bit further, let’s explore a very easy to understand use case for this particular line item.
One mandate of a successful grocery store is that all shelved consumables must have ‘recall insurance’. Recall insurance serves as protection against, say, a salmonella outbreak which gets linked to a single orange sold from Walmart. If this happens, regulators often have no choice but to have Walmart recall all oranges across their ecosystem of over 11,000 stores (they may highlight a particular geographic area, but the point is that this process is costly). The reason is simple: no one knows where the salmonella oranges originated from because there exists no efficient food supply chain provenance (yet, of course).
But what if you could know where each orange originates? What if every time a crate of oranges moves to a new entity in the supply chain, that entity could be required to scan the oranges with optical A.I. technology, certifying its freshness, and then store that information on the blockchain? This would allow companies like Walmart to reduce their overhead liability (at least when it comes to recall insurance), knowing that should an outbreak occur and they are able to trace the affected oranges back to the farm from which they were grown, they’ll only have to pull those particular oranges (and leave all the rest).
This would also benefit the consumer and the regulators, and it would help farmers become more vigilant of diseases threatening their assets.
At IBM, we’ve built an optical device that allows participants to observe food at a microscopic level. To be more precise, we can measure data in the form of microns (the width of one strand of human hair is ~75 microns). The information obtained from such a device at every intersection of an orange’s lifecycle is what can be stored on the blockchain.
But enough about oranges.
The main point of this article is to establish that the number of applications or use cases for distributed ledger technology is, for all intents and purposes, big. Very, very big.
According to a July 2018 study published by IDC, worldwide spending on blockchain projects is projected to reach $11.7 Billion by 2022. Other reports have stated that global ROI will reach north of $1 Trillion by 2030.
If you ever meet me, I welcome you to ask me what coin you should buy or how blockchain is going to completely turn the world on its head. In order to give you the best possible answer to your question, I’ll take a long pause and tap into the well of all those long hours I’ve spent eating, sleeping, and breathing DLT, and then I’ll very likely, and confidently, conclude that I haven’t the slightest idea.
No one really knows what this magical internet coinage movement will mean for generations to come. Perhaps someday you’ll be able to buy coffee with your tokenized shares of IBM.
Note: when this fateful day arrives and you’re standing in line at Starbucks, remember that coffee is a commodity and it does not pay dividends. Your JPM coins might make more sense (google ‘JPM coin’).
The world is changing at an exponential rate. Techie things like blockchain and A.I., when combined with human nature, ambition and innovation, create a powerful futuristic unknown. I am pretty excited (and a little terrified) to see what’s on the other side of all this. Are you?