Blockchain technologies – incorruptible digital registers that can record anything – are used to address a growing number of humanitarian problems, particularly those related to the concept of human rights due diligence. The ability of the blockchain to promote social innovation by facilitating ethical production and the procurement of goods is just starting to be recognized. It should be of interest to all decision-makers in the supply chain, as they are increasingly required to respond for upstream activities that are beyond their control and competence
In the absence of blockchain solutions, activities occurring within a supply chain can be difficult to track beyond the first two levels of suppliers, making complete monitoring impractical. For example, in conflict mineral chains, there may be seven to eight layers between the mine and the consumer, and the gap can reach 50 levels for electronic components. As a result, companies themselves are often the last to learn about illicit activities in their supply chains, such as the use of conflict minerals or child labor, forced or contracted. Blockchains tackle these difficulties by making data easily verifiable, resistant to alterations and immediately available to anyone within the network.
What is Blockchain?
Blockchain is a decentralized database whose records are stored in "blocks" that are continually managed and validated by a computer network. Each computer in the network, or "node", contains a copy of the blockchain and performs real-time validation of blockchain changes.
Blockchains are essentially tamper-proof because they can only be changed by adding new blocks; pre-existing blocks can not be modified, modified or modified. This is because a unique hash code is calculated and stored in each new block and this hash is also encoded in the next block in the chain, creating a shared link between the blocks. Any change to the contents of a block creates a new hash in that block and breaks the link. The chain can then be recreated only if the hash codes are recalculated for all the blocks that follow the originally modified block, an operation that requires an enormous amount of computational power.
How Blockchain can improve the chain of custody
If doubts arise about a commercial good, the seller must trace the supply chain to identify possible problems with the chain of custody, which refers to the complete or uninterrupted path of a finished good, from the first phase of the supply chain to delivery to the customer.
Because each record created on the blockchain must be verified by every node in the network, unauthorized changes to a copy of the blockchain are identified in real time from the rest of the network, providing a level of security not guaranteed by typical centralized databases. Any attempt to modify a record will immediately interrupt the chain only in that specific node, alerting the entire blockchain of the aberrant version of the blockchain. And as soon as a transaction is accepted in the blockchain, an update is transmitted to all nodes in the network, allowing immediate detection of goods and record updates in multiple locations. Blockchains therefore provide companies with an immutable and self-regulating chain of custody for products that go through the supply chain, helping to identify prohibited activities and create effective supply chain governance.
Blockchain technologies also work well with Internet of Things (IoT) applications, allowing companies to digitally monitor goods in real time at any point in the supply chain.
Blockchain technologies also work well with Internet of Things (IoT) applications, allowing companies to digitally monitor goods in real time at any point in the supply chain. A blockchain system able to track products in this way is able to produce a complete report on the origin of any product in a few seconds, not days. Digital tags exploit the interoperability of blockchain technologies with IoT. By combining digital networks with hardware such as radio frequency identification tags, companies can authenticate the data entered into the blockchain and prevent corruption due to errors or fraud. These solutions can speed up the auditing of information uploaded to a blockchain to ensure that the "single truth" shared among blockchain participants is not, in fact, a shared forgery.
To illustrate the application of the blockchain in a real context, consider how it can be used in the cobalt mining industry, which has been the subject of major human rights concerns. Ethically extracted cobalt can be placed in a sealed envelope after extraction, and each envelope marked with a digital tag that the stakeholder loads on the blockchain with a mobile device. The blockchain records the date, time, position and other relevant information to verify the origin of the cobalt, creating a link between the physical good and its digital identity. If each node in the network validates the transaction as authentic (meets all the criteria required for storage on the blockchain), the record is stored in a block. The blockchain can repeat this process at each subsequent transaction: in the market where the cobalt is sold to a supplier, when the product reaches the foundry and during each phase of the production process until the cobalt is incorporated into a finished product. Each link in the supply chain thus becomes part of an immutable, visible and certifiable record from any party with access to the blockchain.
Who is using Blockchain?
Many organizations use the blockchain to accelerate the distribution of humanitarian aid and ensure that products are sustainably sustained and accountable:
- The Building Blocks program of the world food program, started in 2017, was one of the first implementations of the blockchain for humanitarian aid. Facilitates the distribution of food aid to Syrian refugees in Jordan by allowing them to pay for groceries with a scan of iris rather than cash or credit card.
- In 2017, De Beers announced its investment in a blockchain-based "diamond tracking platform". It will be the first digital platform to trace a diamond along the entire value chain.
- In 2017, Unilever, the Sainsbury supermarket chain and the Sappi packaging company collaborated with several technology startups, as well as with BNP Paribas, Barclays and Standard Chartered financial services companies, to develop a blockchain system to track and verify contracts for a maximum of 10,000 teas. farmers in Malawi. The initiative aims to provide preferential prices to farmers who, using sustainability-oriented methods, increase their crops without using more land.
- In 2018, Coca-Cola and the US State Department announced a global project to combat forced labor by creating a safe register for workers and their contracts using blockchain validation and digital notary capabilities.
- In 2018, Oxfam organized the official launch for its blockchain project, BlocRice. It promotes the use of smart contracts to increase the bargaining power of small-scale rice farmers in Cambodia and digitally connect everyone in the supply chain.
The implementation of blockchain technologies encounters unique obstacles. One is technical capacity, such as the availability of expert staff and decentralized record keeping. Furthermore, the capillary distribution of information via blockchain can in some cases have competitive implications for parties in a supply chain, so they may be reluctant to share certain data. Furthermore, the lack of standardization in documentation between supply chains can lead to higher administrative and governance costs and increased risk of incorrect data entry.
Finally, the effectiveness of supply chain compliance checks often increases the accuracy of certifications provided by suppliers and subcontractors, who may not be willing to provide a genuine account of the origin of the raw materials or unaware they should. They could also hesitate to estimate the likelihood that illicit activities have caused vulnerabilities in the supply chain. However, as long as the initial entry point of an asset in the blockchain is carefully checked and authenticated, for example, the cobalt was certified non-conflictual before being added to the blockchain – any subsequent attempt to fraudulently alter the blockchain would be an order of magnitude more difficult than tampering with a traditional database.
The power of a properly designed, transparent and immutable digital infrastructure based on blockchain should not be underestimated. With it, supply chains can become more ethical, humane and sustainable. Although the use of the blockchain remains embryonic, its potential is becoming clearer as it plays an increasingly important role in correcting human rights abuses and promoting philanthropic goals.