E-Agriculture in Action: Blockchain for Agriculture Opportunities and Challenges
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About this ebook
Recent developments such as the increase in the use of mobile-broadband access devices, the Internet of things (IoT), drones, smart networks, capacity for big data analytics, and artificial intelligence have provided agriculture stakeholders with some key tools and technologies to improve production and marketing processes, for example, in agriculture and allied fields.
One of the most discussed technologies of late is Distributed Ledger Technology (DLT); Blockchain is one implementation of DLTs. This publication aims to demystify the technology, provide some thoughts on the opportunities and challenges in implementing blockchain-based systems as well as document some case studies on the use of blockchain for agriculture.
Food and Agriculture Organization of the United Nations
An intergovernmental organization, the Food and Agriculture Organization of the United Nations (FAO) has 194 Member Nations, two associate members and one member organization, the European Union. Its employees come from various cultural backgrounds and are experts in the multiple fields of activity FAO engages in. FAO’s staff capacity allows it to support improved governance inter alia, generate, develop and adapt existing tools and guidelines and provide targeted governance support as a resource to country and regional level FAO offices. Headquartered in Rome, Italy, FAO is present in over 130 countries.Founded in 1945, the Food and Agriculture Organization (FAO) leads international efforts to defeat hunger. Serving both developed and developing countries, FAO provides a neutral forum where all nations meet as equals to negotiate agreements and debate policy. The Organization publishes authoritative publications on agriculture, fisheries, forestry and nutrition.
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E-Agriculture in Action - Food and Agriculture Organization of the United Nations
Blockchain demystified
Distributed ledger technology (DLT), the technology that started the various cryptocurrencies in circulation today, has created quite a buzz in many areas in the last few years. Putting it simply, a DLT is a decentralized system for recording transactions with mechanisms for processing, validating and authorizing transactions that are then recorded on an immutable ledger. Blockchain is one implementation of DLT. It is also referred to as an Internet of value
, meaning a secure way to store and transact value – anything from currency, stocks, contracts and even votes – from one entity to another. It is also the underlying technology powering cryptocurrencies such as Bitcoin and Ether.
According to PwC,¹ the financial sector stands to gain the most from blockchain-based service implementations, followed by industrial products and the manufacturing sector, energy and utilities and then the healthcare sector. Nevertheless, a PwC survey of about 600 blockchain-savvy executives revealed that the biggest barrier to blockchain adoption was regulatory uncertainty. Interoperability and the potential failure of different blockchains to work together were identified as major challenges.
The blockchain basis
In the simplest terms, a blockchain consists of a linked chain that stores auditable data in units called blocks. Many commentaries online start by explaining that a blockchain is similar to a Google document spreadsheet where multiple authors can contribute because of the mechanism of locking. Blockchain is a bit more complex than that example and has unique characteristics that make it an attractive technology for tagging, storing and tracking anything of value. Bitcoin was one of the first and most popular implementations of blockchain technology.
To begin, a blockchain consists of blocks, each block containing the data (anything of value), its own hash value (a unique cryptographic value containing characters and numbers generated through a complex computational algorithm) and a pointer to the hash of the previous block.
The consensus algorithm
The consensus algorithm forms one of the key mechanisms in the creation of new blocks and appending them to the blockchain. The most discussed algorithms are proof-of-work (PoW), proof-of-stake (PoS), and proof-of-authority (PoA). Blockchain uses a PoW consensus model, in which a node gets the right to publish the next block by solving a computationally intensive puzzle. The result of the computation is easy to verify and thus helps other nodes to validate and update the blockchain easily. The node that solves the computational puzzle wins the reward
and this process is called mining
. Because this is time and energy intensive, other alternative methods of verifying a block, such as proof-of-stake, have been developed and implemented in subsequent spin-offs.
Unlike in proof-of-work, the proof-of-stake takes away the energy and computational overheads and replaces it with a stake. The chances of a node to be the creator of the next block depends on the stake that the node is willing to lock up for a certain amount of time. However, the drawback of the PoS model is that rich
nodes can easily put more digital assets at stake thereby earning themselves the right to create the next node and earning more assets. Delegated PoS (DPoS), built on the PoS model takes a slightly different approach in that the nodes vote to elect delegates to do the validation on their behalf. Each algorithm has its own characteristics regarding incentive/reward, requirements as well as energy cost.
Types of blockchain
Three major types of blockchain networks, each having their own characteristics are consortium blockchain, private blockchain and public blockchain.
Consortium: A consortium formed by a group of members control this blockchain. Verifying and adding records to the blockchain is based on a consensus mechanism by a pre-selected set of nodes.
Example: In regulatory related decision-making.
Private: This is controlled by a centralized entity. Only people with specific authentication and permission can be part of this network and thereby can verify and add records to the blockchain. However, the blockchain could be publically viewable. Participants in this blockchain know and trust each other. Also known as a permissioned