One of our key blockchain applications is provenance. A blockchain provenance solution helps producers, retailers and customers to get an undisputable and transparent trace of products. From their origin or production towards consumption and even recycling. In this blog we explain how our blockchain based provenance solution works. We developed a first implementation to support the renewable energy market. The technical solution is however generic and can be tuned for all kinds of provenance solutions.
From provenance-by-default towards provenance-by-exception
Not so long ago we bought food produced by farmers in our own region. The local carpenter created our furniture and the fuel to heat our house was collected from our own woods. We knew by default the source of origin of our products and services. We knew their provenance.
Today, that’s entirely different. The chain from a producer towards consumer is in most cases very opaque. If we make a cup of coffee in our kitchen – let alone if we order a cup at a coffee corner – it will be extremely difficult to figure out where in the world our coffee beans were grown, whether they are produced in a sustainable way, how the beans are processed into coffee and if all parties got a fair share of the revenues. Only in exceptional cases when a provider does ‘the extra mile’ we have a guarantee about the full supply chain from the coffee plantation to our cup of coffee.
Making complex supply chains transparent and safe
Similar questions are legitimate in any complex supply chain. And certainly not just from a sustainability or environmental point of view like the coffee example. Also for quality and safety purposes it is essential that each step from the original source to the customer is registered and transparent.
Food safety is just one example here. Again and again, countries or entire regions are confronted with the dramatic consequences of mistakes, errors or pure fraud in their food value chain. An example is the 2013 ‘Horsegate’ scandal, where multiple food trading companies in different EU countries mixed horsemeat with beef and labeled it as 100% beef for international distribution. Once detected, tracing the distribution appeared to be extremely difficult. While the impact on consumer trust and economic results were dramatic. A short reconstruction on Wikipedia of one of the fraud trails illustrates this:
“The horse meat that was found in Company D products originated at company A, a Romanian-based slaughterhouse. An inquiry by the French government showed that “the meat had left Romania clearly and correctly labelled as horse. It was afterwards that it was relabeled as beef.” company A supplied the horse meat under a contract to Cyprus-based Company B, a meat trader which operates in the Netherlands (and is owned by a British Virgin Islands holding company). After having the horse meat delivered to a cold storage company in Breda, Company B then sold the frozen meat to Company C, who insist that it arrived at their Castelnaudary plant labelled as “Beef – originating in EU”. After some processing, Company C then sent it to Company D, where the end products for sale were made. According to French media reports, Company C falsified documents regarding the meat.” (based on https://en.wikipedia.org/wiki/2013_horse_meat_scandal, august 2018)
Quality control throughout the value chain
Public and authorities were shocked and as a direct consequence, many improvements were suggested to improve quality control throughout the value chain. For example, the Dutch Minister of Agriculture and Minister of Health together with the private sector of the (meat) food production chain initiated a taskforce Food Trust (Taskforce Voedselvertrouwen). The taskforce forced the sector to take responsibility and guarantee the food safety and food integrity. Important aspects are adequate surveillance and enforcement (with clear sanctions) and transparency of the food production chain. Private Quality Control Systems and communication and exchange of information throughout the food chain are focus points.
It is just an example. Nowadays, in every sector with complex supply chains, people are searching for solutions that make these chains more transparent and trustworthy for all parties involved. From food to chemicals and from artwork to electronic components. It is all about enabling all parties in the supply chain to have a full and transparent view on their products as well as the components used within those products. From the original producers to the final consumer and every reseller, distributer and storage provider in between. Every party should be able to check data about the product(s) being handled, and also add data which are important for the other parties.
Why do you need blockchain for provenance?
But do you need blockchain technology for this? Let’s face it, quality and inspection systems have been around for centuries without blockchain technology. As a matter of fact, scientists already found proof of a quality system being used during the construction of the Great Pyramid of Giza. In the Middle Ages, the work of craftsman was inspected to guard the guilds against claims of shoddy work. And Total Quality Management (TQM) can be traced back to early ‘20s of last century.
Nevertheless, nowadays the problem of inspection and quality control is in their practical implementation and use in fully global and decentralized markets, as well as in their cost level and lack of market transparency. It is just not an option to distribute every box of eggs with a full set of documents. And using centralized database solutions – managed by intermediate ‘trusted’ parties – to register and trace products is expensive and triggers discussions about the funding and real independence of such central entities. While we also don’t want a system in which any party can just alter data without any 3rd party verification.
What is lacking, is a distributed ledger
So, what is lacking, is a real distributed ledger in which entered data are immutable. A system to which all players in the chain can contribute and which is transparent for all participants. And where every change means a new entry which is automatically verified by all market players. Without the need for a costly and questionable centralized entity. Indeed, what is missing is a blockchain provenance solution.
A blockchain provenance solution offers a strong digital and encrypted combination of a product passport and audit trail. Every event in a product’s lifecycle will immediately – and often automatically – be documented at the place where it occurs. Every registration will be verified by other parties in the value chain, while the full lifecycle is available for inspection. By consumers if they want to know more about their purchase, but also as part of a formal inspection process.
Of course, no digital solution can prevent someone from a malicious act (like mixing horsemeat and beef). However, if every step in a process will be immediately registered, verified and can also be inspected by al participants in the value chain, fraud will become significantly more difficult. While the impact is more easily to recover and mitigate once it is detected.
A showcase of our blockchain provenance solution: source of origin for green energy
A very specific areas where a blockchain based provenance solution soon will become indispensable, is the energy market. The current energy market is in a dramatic transition phase from traditional energy sources (like oil, coal) to renewable alternatives (solar, wind). Many producers of renewable energy enter the market, and many energy customers prefer renewable energy sources over ‘grey energy’.
Energy is however a commodity. One cannot differentiate the electricity from different sources once it is being distributed in the network. So, buying green electricity can only be done if there is a fully transparent registration and labelling of energy production and usage throughout the network, from source to destination. This labelling is done using so called GO’s, Guarantees of Origin. A party producing green energy may receive a Guarantee of Origin for every unit (e.g. a mWh) of energy that is produced in a sustainable way. And on the receiving side, such a GO proves to the customer that the energy he is paying for originates from a green source.
Split between technical delivery and administrative settlement
So, the technical production and distribution of energy are entirely separated from the administrative trading of energy. This is explained in detail in the report ‘Analysis of the trade in Guarantees of Origin’ (Oslo Economics, 2017). The figure below is from this report and clearly shows the basic concept.
Technically – following Kirchhoff’s Laws for current and voltage – we receive our energy from a power plant near to us in the electricity network. Which can either be green or grey. Administratively, we become a green energy customer by buying the energy from a provider who possesses GOs and sell (part of) a GO to us. A GO which that provider ‘produced’ himself by producing green energy. Or a GO which the provider bought on the open market and use to ‘greenwash’ his own grey energy.
To make it even more complex, there are different kinds of GOs. Some of them are very specific (they for example label the energy which is produced by a windmill in an area near you), which often makes them more expensive. But many energy providers buy basic and cheap renewable GO volumes to support their renewable claims. These “Bulk GOs” are made up of unspecified renewable GOs. They are not further differentiated in terms of country of origin or type of power plant. Bulk GO products are typically traded at relatively low prices due to large supply and low local demand. Well-known examples are European Wind and Nordic Hydro. Many Dutch energy customers for example buy green energy from providers who acquired Nordic Hydro GO’s to greenwash their coal-based energy production.
No Guarantee of Origin for rooftop solar energy
At the same time there is a substantial amount of locally generated renewable energy that doesn’t receive a GO. Due to the administrative burden, the current GO process is only used for large production volumes. Surplus electricity from household rooftop panels which is delivered to the grid, simply doesn’t receive a GO at the moment. Which means that a substantial – and growing – amount of locally generated solar energy is not traceable at all. It becomes ‘administrative grey’ once it enters the grid.
The result is that – specifically in end-user markets – this lack of transparency limits the possibilities for customers to make the right choices for the most sustainable energy sources at the best possible time and at a best possible price. Especially since a GO is not explicitly sold to the end-user. A GO is packaged and bundled with other attributes to a wide variety of products and services, all marketed as “renewable”. As the Oslo Economics report states:
Low transparency, imperfect knowledge and a substantial range of different products and pricing makes it difficult for consumers to make informative choices. Imperfect information implies that the average consumer does not know the precise differences between the various products, or what a fair price for them is. This increases the consumer’s information gathering and information processing costs. Product differentiation on quality and other attributes can make it difficult for consumers to know exactly what they pay for and whether the price they pay is fair.
Blockchain provenance to support Guarantee of Origin
With blockchain we finally are in the position to replace the existing administrative, offline bulk GO process by a near real-time, transparent and accurate alternative. An energy provenance solution where at the production side every kWh electricity (also from rooftop panels) is automatically and immediately fed into the system (including source and other characteristics). The blockchain facilitates the near real-time settlement of this production with the end-users who deliberately choose that specific type of energy. Customers can make clear choices for their energy preferences (e.g. 1. Own solar panels, 2. Selected local neighbourhood renewables, 3. Other green energy providers) and in the future even balance their energy usage with the actual energy availability.
The TOBLOCKCHAIN provenance application is designed to support this Guarantee of Origin process. We developed this application on top of the PowerToShare energy blockchain platform. Integration with energy production units (like solar panels) as well as smart energy meters have been tested. The blockchain provenance solution was first implemented as part of our live energy blockchain demonstration at the Green Village at the TU Delft.
More information about the TOBLOCKCHAIN Provenance application?
Our blockchain provenance solution has been deployed and tested in an energy trial but can also be used to power other provenance business cases in other markets. Feel free to contact us to discuss the possible business case for a provenance solution in your value chain. The technology is ready to be used in operational provenance projects, but it is also possible to define together a time-boxed trial in which your and our experts work together to create a first proof-of-concept of your blockchain provenance solution.