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April 16, 2018

Global supply chains are often murky, but blockchain may bring them into the light

by John_A

Olive oil is perhaps the most common victim of food fraud. Several manufacturers have been caught thinning out their product, even deliberately mislabeling it for profit. Patrick Landmann/Getty Images

If one were to try and visualize the modern international economy, it might resemble the tangle of cables behind a computer or television.

The supply chains that carry goods from producers to consumers weave across and around each other, stretching over borders and oceans. A product may pass through several countries before it takes its place on a retail shelf, awaiting purchase. That holds true for the clothes we wear, the electronics we use, and even the food we put in our bodies.

This article is part of our series “Blockchain beyond Bitcoin“. Bitcoin is the beginning, but it’s far from the end. To help you wrap your head around why, we’re taking a deep dive into the world of blockchain. In this series, we’ll go beyond cryptocurrency and hone in on blockchain applications that could reshape medical records, voting machines, video games, and more.

Imagine ordering a cheeseburger at a restaurant: How much do you know about the ingredients? What dairy did the cheese come from? What farms the lettuce and onions? Which factory did the beef pass through to be ground up — and is it even entirely beef.

Globalization has benefits, both to developing economies and to international peace, but a consequence of global trade is that consumers often have little insight into where the goods they buy come from, or how they are made. The companies that sell those goods may not even know. These gray areas are a problem, because they provide opportunities for mishandling or even outright fraud.

There may be a technology that can solve this problem, however: Blockchain. Introduced to the mainstream as part of the cryptocurrency Bitcoin, blockchain has become synonymous with cryptocurrencies — and by extension, people getting rich quickly. Among blockchain’s key traits is the ability to render data transparent and nearly immutable, and this could make blockchain a great tool to make supply chains visible to the world and reduce opportunities for fraud, in the food industry and beyond.

Food fraud: A global problem

The food we eat travels a long distance from farms and factories to our plates, and in many cases the person eating it has no idea what winding path it took, or even what is really in it. Food fraud, in which agents somewhere along the supply chain adulterate or misrepresent their product, is a shockingly common occurrence.

A consequence of global trade is that consumers often have little insight into where the goods they buy come from.

In a paper for the Journal of Food Science, Dr. John Spink, who runs the Food Fraud Initiative at Michigan State University, defined food fraud as “a collective term used to encompass the deliberate and intentional substitution, addition, tampering, or misrepresentation of food, food ingredients, to food packaging; or false or misleading statements about a product, for economic gain.”

Food fraud is distinct from a food safety issue; while the latter can result from mere sloppiness or neglect, as in a salmonella outbreak, food fraud is intentional. “…the concern is there’s always an economic threat, but there’s not always a public health threat,” Spink told Digital Trends. As such, “it’s not that people don’t focus on it, but it’s not a priority compared to something like food safety where people are getting ill right away.” And while fraud doesn’t always lead to public health crises, when it does, it can be disastrous.

Dr. John Spink runs the Food Fraud Initiative at Michigan State University

Those incidents can range in severity. They could be innocuous, like olive oil that is falsely labeled as “extra virgin,” Spink explains. But they could also be something as scandalous as the discovery of horse meat in ground beef, as happened in Britain and Ireland in 2013. Or the 2008 incident in which Chinese dairy producers added melamine to infant formula in order to inflate its apparent protein content. Protein produces nitrogen, and as it is generally the only thing in food that produces nitrogen, agencies use nitrogen levels to determine if a product has sufficient protein. Melamine can cause kidney problems, however, and the result was more than 50,000 infants hospitalized for issues including kidney stones.

Current food safety systems respond quickly and thoroughly to food safety incidents, Spink adds. The problem is that these responses generally require a visible health threat; if people aren’t aware of adulteration in a product, there’s no cause to investigate.

Spink explains that traditional food testing is limited. “When we test for food safety, we don’t really test that the food is safe. We test that it doesn’t have the presence of about 30 to 50 bad bugs or chemicals. Because those are the ones that we really know are mostly out there. So we don’t really test for everything.” Government agencies in Europe may be on the lookout for horse meat in products after the last scandal, “but if you’re in Europe, you don’t also test for zebra.”

It’s hard to pin down exactly how common food fraud is, but Spink estimates that “for some products it could definitely be ten percent of the market, even in the U.S.”

In supply chains, criminals see opportunities

In order to better combat food fraud, authorities must shift their focus from responding to food fraud, to preventing it.

“And if we think crime prevention,” Spink says, “that’s social science — and these are human adversaries, so using social science is the right way to focus…That’s very different than food science, and food safety, where we’re chasing a microbe and we’re trying to cook it…” Spink’s work involves something called situational crime prevention. “It’s the space of crime, the physical space of crime,” he says. “And we look at vulnerabilities, to see what’s the state of being of a location — say, a building — that allows it to be a target for crime.”

According to this theory, crimes often happen because criminals see opportunities. By anticipating those opportunities and adding deterrents, authorities can prevent crime. Spink considers a bank to be an apt analogy. If your bank is simply a building with a big pile of money in it, someone might see an opportunity to stroll in and take the cash. Add an armed guard, however, and suddenly there’s an extra factor the would-be robber must consider.

Some of the more popular targets of food fraud include olive oil, milk, honey, coffee, and ground pepper.

Of course, the robber might see the armed guard and decide they can deal with them, maybe by bringing arms of their own. That big pile of cash is once again ripe for the picking, so you add security features to make the cash even harder to steal. Put the money in a vault, now they have to think about how to open it. If they would force a teller to open the vault, make it time-locked, so that “even if they had a gun to their head, literally, they couldn’t open it.” It’s almost like a chess game between the criminal and the crime fighter; one looks for vulnerabilities, the other anticipates those vulnerabilities and closes them off, trying to stay moves ahead.

Though more abstract than banks, supply chains have vulnerabilities too, and fraudsters are always looking for ways to save or make money. For authorities, the goal with supply chains is to make fraud more difficult.

“…we’re looking at the food supply chain, to look at where are all these vulnerabilities, and what can we do to prevent them,” Spink says. Being able to trace products is key. “And then we start to look at when we have known incidents…we try to figure out ‘Well, why did someone put melamine in there? How were they able to put melamine in there?’ And then we start to look at what might we have been able to do that would have led…an intelligent adversary to say ‘You know what, let’s not even try to attack this product.’”

In order to dissuade potential criminals from committing food fraud, making supply chains transparent and ensuring data is honest are crucial; blockchain might be just the tool to do both.

On blockchain, data is shared, and nearly incorruptible

Blockchain can be a confusing concept, lying as it does at the intersection of cryptography and finance, two fields known for being impenetrable. Put simply, a blockchain is an example of a distributed ledger, a record of transactions of which a copy is given to anyone who wants one, and every copy stays current.

In a typical, cashless transaction where one party is giving money to another — such as cashing a check or buying something online — no physical exchange of currency happens. A third party, such as a bank or credit card company, makes a note that one party has less money in their account, while the other has more.

Any cash-free exchange of money requires such a go-between. To some people, this is a flaw. As Adam Greenfield explains in his book Radical Technologies, “The critical vulnerability of all pre-Bitcoin digital cash schemes was that they required parties to a transaction to repose their trust in an intermediary institution, who they’d rely upon to maintain the ledger and update it every time value was passed across the network…As a consequence, there is tremendous fear that whoever controls the mint [the institution] would have the power to prevent some transactions from taking place entirely…”

With blockchain, everyone has an identical copy of the ledger. Whenever a transaction occurs via blockchain, other computers on that network verify that the transaction is valid and add it to the ever growing log that is the blockchain itself.

Imagine two people: Alice and Bob. Alice wants to give Bob some money, and they want to do so using Bitcoin. Every person on a blockchain has a unique ID called a digital signature. When Alice gives Bob Bitcoin, the transaction involves several variables: Alice’s digital signature, Bob’s digital signature, the Bitcoin leaving Alice’s account, the Bitcoin entering Bob’s account, the time and date of the transaction. These variables are plugged into a formula, which produces a string of digits called a “hash.” Each specific hash can only be produced by the specific values entered; if Bob were to try and modify the record to say that Alice gave him more Bitcoin then she actually did, the resulting hash would be different.

When the transaction occurs, it is grouped together with others in a block, and members of the network (called nodes) run through the entire record of the blockchain, verifying that the hashes in the new block line up with the already existing blocks in the chain. Once a node establishes a block is valid, it submits it to the chain.

Because everyone on the network has a copy of the ledger, everyone can see every transaction that has occurred, from first to last. If one were to try and modify data on a blockchain, the other nodes would note that the data doesn’t align with theirs, and disregard it.

Blockchain is thus decentralized, transparent, and secure. For Tomaz Levak, CEO of OriginTrail, these traits make it perfect for supply chains, where obscurity and fraud are problems, and he and his team of collaborators have developed a protocol specifically for supply chains.

A protocol “tailor-made” for supply chains

The founders of OriginTrail got their start in 2011, working with food companies to show where the ingredients in their products came from. By 2013, the company that would become OriginTrail was taking shape.

“And then two things started happening,” Levak explains. “One was that one of the most common questions that we got was about data integrity — how can we vouch for the data…” The second was their desire to unite entire supply chains on one platform. “And both of those things are connected to trust.”

Levak and his team gravitated toward blockchain, a technology built to be transparent and incorruptible. They used a blockchain platform called Ethereum, securing important data with cryptographic hashes that couldn’t be forged or manipulated.

“However, we couldn’t go much further beyond that, because it can very quickly get very expensive to play around with decentralized networks,” he says.

Despite the drawbacks, the team still believed in the potential of blockchain for brokering trust and the sharing of data. They identified three key issues that their protocol would need to address: Standardizing data between companies on a supply chain, curbing the costs to store data, and protecting company secrets on a platform intended to be transparent.

Each stop in the supply chain confirms that its data matches that of the stops before and after it.

Blockchains aren’t a cost-effective way of storing data; because it is very hard to delete data on a blockchain, nodes will need to process ever increasing amounts of data when validating, using larger amounts of energy, and thus money. To get around this, the team needed to go beyond blockchain, and built the OriginTrail network in layers. While a blockchain layer handles things like “immutably storing data fingerprints and handling transactions between users and nodes in the network,” the bulk of the data is stored on an off-chain “data layer,” trimming the fat on the blockchain itself.

To verify data on the network, OriginTrail requires a “consensus check,” wherein each stakeholder in the supply chain “has to be approved by the previous and the following supply chain stakeholder,” according to the company’s white paper. This means that each stop in the supply chain confirms that its data matches that of the stops before and after it.

Although blockchains create transparency, businesses need to feel that important data isn’t on display for the entire world; companies often have data they don’t want out in the open, since it could reveal too much about their operations. Levak uses the mass of a shipment as an example. It’s important for parties to see that the mass of a shipment hasn’t changed from one stop to the next, but you might not want the mass itself to be visible to everyone.

To guarantee that businesses can feel safe putting their sensitive data on the network, OriginTrail employs a zero knowledge proof; in this process, Levak explains, “one party (the prover) can prove to another party (the verifier) that a given statement is true, without conveying any information apart from the fact that the statement is indeed true.”

A famous example of a zero knowledge proof involves two colored balls. Imagine Diana has two balls, one green and one red, and wants to prove to her color-blind friend Charles that they are different. She places one in each of his hands, then he puts them behind his back, holds them back out, and asks if he switched them. Diana can tell if they have been switched based on the color, so even though Charles will never have that particular information, he can verify that she is correct.

Will companies get on board with blockchain?

While the OriginTrail network may enforce transparency, the question arises of how it will compel the industry’s bad actors to get onboard. Why join a network that could expose your crimes?

Levak is aware of the conundrum. “…if you’re a good actor,” he says, “then there is a clear motivation for you to be able to prove something like that using a decentralized technology.” Bad actors will naturally be resistant, so the early adopters will be businesses that value the efficiency OriginTrail can bring to their operations, and those who recognize the bragging rights that come from embracing transparency.

Data security is failing and there has to be a better system. Blockchain creates a secure, unalterable public record and is poised to dramatically improve the world around you, from voting systems to rental contracts.

Companies certainly have incentive to look into blockchain. Although many a post on Reddit has proclaimed that blockchain will liberate mankind from the control of banks and even governments, big organizations are actually intrigued by the technology. “Such complex organizations,” Greenfield says, “are currently compelled to make enormous outlays on systems that improve data quality, they are often exposed to significant liability for data errors they fail to prevent, and above all they bear the impact of these circumstances directly on the bottom line. As a ‘trusted framework for identity and data sharing,’ the blockchain promises to solve these problems all at once.”

Spink’s research echoes this; aside from the people eating the food, the most concerned parties about food fraud are the big businesses. “…one minute of production at a major food company could be a million pounds,” Spink says. “And if they just had the wrong pepper in there — they said it was a lemon pepper and it was really a szechuan pepper — then they have a million pounds that they have to destroy.”

The decentralized nature of blockchain leads to fervent support — perhaps because its users feel empowered — and Levak sees in OriginTrail’s early adopters a community eager to spread the word, describing them as “a little network of ambassadors all around the world.”

While blockchain’s potential is astonishing, it remains to be seen how effective it will actually be with supply chains. As Spink puts it, “For that horse meat incident, how would blockchain have helped? And where would it help? And what would we need to do to allow it to help reduce fraud?”

No matter how secure your walls seem, there will always be someone, somewhere looking for gaps.

If blockchain really can help, it can’t come too soon. The problems with supply chains go beyond food adulteration, to issues of labor and environmental destruction. Take consumer electronics, for example: The lithium-ion batteries found in smartphones, for example, contain cobalt. According to a report by Amnesty International, more than half of the cobalt in the world comes from the Democratic Republic of Congo, and 20 percent of that comes from miners who “mine by hand using the most basic tools to dig out rocks from tunnels deep underground…miners operating outside of authorized mining zones typically lack basic protective or safety equipment, such as respirators, gloves or face protection, and do not enjoy legal protections nominally provided by the state.” Even more alarming, “Researchers found children as young as seven who scavenged for rocks containing cobalt.”

The Amnesty report lists numerous corporations whose cobalt supplies run through a particular smelter in China. “Alarmingly,” the report continues,” the majority were unable to answer basic questions about where the cobalt in their products came from and whether there were any risks of the kind observed by researchers.”

The knowledge that blockchain can provide may empower consumer to make more informed decisions about the products they buy, and companies to make better decisions about who they do business with.

However wide blockchain spreads, it may not root out corruption entirely. Technology can’t change the hearts of men, and no matter how secure your walls seem, there will always be someone, somewhere looking for gaps.

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