The Blockchain of Caring

Tóth Bálint
16 min readFeb 25, 2021
Distributed networks (Source: Pixabay)

Why?

One of the greatest problems our generation has to face is that we seldom know the truth about the origin of the products we use or consume. We can rarely be 100% certain about the source of ingredients, the circumstances products were assembled under and the transportation used. We usually make purchasing decisions every day without being provided with adequate information about the social and environmental aspects of the commodities we buy. It could seem like an invisible curtain wants to separate us from making fully conscious choices at the point of purchase. We might have a gut feeling or some information about a company’s social and environmental impact, but most of the time this information is incomplete. The myriad of steps, layers, borders, jurisdictions, processes that raw materials, components, or energy has to go through makes it almost impossible to track the total environmental and social contribution products have. Putting the blame on corporations would be the obvious and most natural response, but even the most committed companies can struggle to obtain comprehensive information about the social and environmental features of materials and services they source.

The reason for this are manifold:

  • Companies are willing to share information only to a certain extent, because of the fear of becoming too exposed to competitors, to authorities or to the general public (This is to avoid paying penalties, facing lawsuits or to be the target of smear campaigns)
  • Also the fear of losing reputation can lead to communication practices that only highlight positive factors, while masking or hiding negative ones.
  • Collecting information from 2nd or further tier suppliers is difficult, as there is no contractual relationship between these companies. So even if the identity of these suppliers are known, they have no contractual obligation to share more information than the legally expected minimum.
  • Companies often use different naming conventions, software, technologies that require translation from one system to the other, slowing down the data transfer while increasing the possibility of error.
  • Each country has its own set of laws and regulations a company, operating on their soil, has to adhere to. There are international treaties and standards to fight social injustice or pollution, but it can be quite difficult to verify the claims a company is making in a country, where entrance is inconvenient and accessing truthful data is also restricted.

All in all, information can rarely travel freely across supply chains. However, if we strive for a sustainable future, this has to change somehow. Since the product “remembers” everything it had to go through, human ignorance and negligence should not be an acceptable excuse. Although today — mainly due to the lack of a widely accepted and sound solution — nobody can be expected to be aware of all the either intentionally or unintentionally hidden aspects of products and services.

Nonetheless, if we want to identify ourselves as socially and environmentally conscious individuals or society, we have to find a solution to trace back products and services all the way to their sources and to have access to basic information on their true compositions and impacts.

This is why supply chain is one of the most promising areas where blockchain technology (supported by legislation, standards, voluntary self-regulatory schemes and different type of certifications) could provide an operable solution: to tackle universal problems such as the exploitation of our natural resources, injustices in labor practices or the incomplete knowledge on the composition of items we purchase as companies or users.

Globalized logistics (Pixabay)

What?

The goal is to have a solution where authorities, companies and users can have access to a set of authentic information when it comes to certain aspects of products and services.

A few example for such information that could greatly improve the public’s awareness:

  • Social aspects of products and services: the circumstances of production or service support (basic human rights, labor environment, working conditions) — social metrics
  • Environmental aspects and impacts: what are the local, regional and global impacts on the environment of the production of products, energy or services. (energy consumption, carbon emission, Life Cycle Assessment, hazardous material content, recycled material content) — environmental metrics
  • Source and content of the assemblies (for example in the IT or the car industry) or the ingredients (in the food or cosmetic industry) — quality metrics

How?

A technical solution can only be widely accepted if it’s simple in design and can be understood by the users. For this purpose on the customer facing side a QR code on the product and a smartphone could easily do the trick: The user scans the QR code and receives all necessary information for making a conscious decision that can take into account all the above mentioned aspects besides the obvious, that is of course the price.

Scanning QR code for product information (Source: Pixabay)

The underlying structure should take into consideration the following aspects:

  • Governance: Establishing the founding principles, the rules of participation and operation, the common vision, mission, strategy
  • Architecture: The technological solution to be used across supply chains including methodology, processes, measurement, recording and reporting
  • Verification: With auditing, the authenticity and validity of data, as well as compliance with the governance rules and with the architecture can be ensured.

Governance

For the underlying structure a so called Voluntary Scheme could be an ideal solution. A voluntary scheme is basically a self-organized group of companies that want to achieve certain goals in collaboration with each other either to reach far beyond the current requirements, or to prevent/postpone the obligatory legislation. A voluntary scheme works best if both the idea and the technology is new, and if it is not yet regulated by legislation. Removing the fear of facing fines or other serious consequences from the equation. The worst that could happen to a company that would violate the rules of such cooperation is a recommendation or a decision to leave the scheme.

There are immediate and tangible advantages of being part of such voluntary scheme:

  • To collaborate with like minded companies and people who also highly consider social, environmental and quality aspects of their operations, products and services
  • To be the forerunner of real change — being among the first companies to adopt, understand and utilize groundbreaking technology and long lasting fundamentals
  • To gain invaluable experiences of techniques and practices in a sandbox mode before they would eventually become obligatory
  • To have influence on future legislation by sharing experiences gained setting up and actively taking part in such system

Since a clear set of rules is the foundation of a well functioning voluntary scheme, it has to be perfectly clear from the beginning, what are the principles, the scheme is built on. Also a clear understanding is necessary on the standards and principles participants have to adhere to. For such scheme the following is required as a minimum (that are also in line with the Supply Chain Due Diligence Regulation on conflict minerals):

  1. Consensus on the Policy, Vision, Mission, Strategy, Goals, Rules
  2. Consensus on the standards, technology, measurements applied
  3. Consensus on the Governance, Leadership, Roles & Responsibilities, Communication, Auditing, Corrective/Preventive Actions
  4. Consensus on Grievance mechanism
  5. Incorporating consensus mechanisms into smart contracts

Constructing the rules and basic principles of such system should take the most amount of time and effort, as any later change will be difficult to implement. It is therefore recommended to reach full consensus before the go-live. As any later change to the founding principles and rules should require 100% consensus among the participants. Agreement should also be reached on an internal and external communication strategy, which accepts and emphasizes that human and machine errors / mistakes can and will always happen.

Consensus with the use of Smart Contracts (Source: Pixabay)

In case of a voluntary scheme (we could call it Block Label), where participants agree on both the rules (data recording, data storage, data sharing) and their enforcement, the authenticity of data could be verified by 3rd party auditors. These auditors would be financed from a central budget, maintained by the participants, and only auditors would have access to all the data.

Architecture

Blockchains are like History Books, containing only verified and truthful information about past events. And a constantly updated copy is kept at the stakeholders.

For our potential use case of tracing materials back to their sources, the system could be setup using different layers of blockchains based on the level of cooperation among the participants and the sensitivity of the information:

  • Level 1: Company / Organizational / Most sensitive level — In case it’s a privately operated blockchain within the organization, it should help the company to have distributed databases of records on certain operations (sourcing, logistics, manufacturing, quality inspections, etc.) where data is generated (generating Part Numbers; measuring any property during manufacturing, transportation, such as weight, size, temperature) distributed across company devices / servers — but it doesn’t necessarily have to be on a blockchain, since a well structured and distributed database that is regularly updated and maintained on more than 2 company devices at more than 2 locations could also work. Beneficial: For the company to have a secure way of storing important data — and to support internal audits, as these information would not be visible for external, or even to some internal parties — only specified people, auditors, or authorities could have access. But it’s important to seal the data with a hash — that is recorded on the Level 2 blockchain — at each predefined checkpoint, for later verification. Recommendation: Distributed databases
  • Level 2: Consortium / Association / Supply Chain / Agreed minimum level of trust level — This privately operated blockchain will be operated by the members of the consortium where each member operates one active node. The role of this blockchain is to have a distributed ledger of transactions among all the participating members in the project or collaboration. In case of a supply chain each supplier will operate one node, thus maintaining the validity of the transactions that are recorded on the blockchain. — Beneficial: it provides the members of the consortium with better and quicker quality control across the whole supply chain. It can also speed up the recovery or recall process in case of a non-compliance with certain regulations, standards or internal procedures. Recommendation: Private Blockchain
  • Level 3: Backbone / ultimate verification layer — Recording the hash of the last block that is created in the Level 2 blockchain onto the Bitcoin or Ethereum blockchain — which would function as a stamp on each set of records — making the content of the blocks unchangeable — Beneficial: For external auditors or authorities to check the authenticity of internally kept data. Recommendation: Public Blockchain

These different layers containing various types of information would be interconnected by a chain of hashes. Information itself doesn’t have to be shared outside of the specific layer, only the hashes of the data. More on hashing can be found in this article. But you can also try out the hashing function here: https://emn178.github.io/online-tools/sha256.html and see if you also receive this hash, when typing in “Block Label”: 08b1701bb47025776fc9dab91fc0ec68e52f351c91dce8f90a06bb2e07f582d0

Connecting the dots with the use of technology (Source: Pixabay)

To achieve traceability on an average supply chain every transaction should be recorded at least on two occasions: Once a product/service/component/information/etc. is dispatched by the provider (upon sending), and once the product/service/component/information/etc. is received by the recipient (upon receipt) — with an agreed upon set of minimum required information, such as this example of a Material/Product Passport template:

Material Passport template
  • Header hash is the hash of all information of the entry below the double dash line (this is the last process step)
  • Product ID is a predefined unique identifier of the product type (naming convention can be the same across the whole supply chain or even the whole consortium)
  • Serial number is the unique identifier of the specific part, component, product, that can also be a bar code or a unique QR code
  • Hash(es) of previous transaction(s) will provide the linkage between transaction steps to form the chain of transactions
  • Location of transaction is the location identifier where the transaction has taken place and the entry was recorded
  • Hashes of Certificates is the hashed any related and relevant product or system certificate the product has — hashed if confidential
  • Transaction ID is a unique identifier of the transaction when a product or component is processed, transformed or transported
  • Reference to smart contracts is a place where all relevant smart contract can be listed that are associated with the product or the transaction
  • Value of the transaction is the fiat denominated value of the transaction
  • Token value is the tokenized representation of the value of the product/component (1 BLT can represent a wide variety of properties, however in our use-case we can consider 1 USD = 1 BLT, where money doesn’t have to be exchanged, only tokens. Which can be aggregated and payed in a predefined time in a predetermined manner)

If the product is not measured in units, then a virtual representation (token) can be created for the weight, volume, size (100 kg of gold), as well.

If the products are shipped in bundles the same process should be done in-house just as if the bundle product would be on the recipient side of the transaction and the individual products/components would be on the sender side.

A Material Passport is a document consisting all the materials that are included in a product.

There is also a dedicated Wikipedia Article to Produce Traceability where blockchain is also specifically mentioned as a potential candidate for solving the traceability question.

Verification

Auditing is the 3rd key pillar besides governance and technology, as it is vital to check if data is being produced and uploaded to the system in the correct manner.

According to a study written by Jeroen Merk and Ineke Zeldenrust the 5 biggest challenges when it comes to social auditing are:

  1. Quality — Traditional social audits often struggle to reveal underlying failures of compliance in areas like anti-union discrimination, freedom for association, non-harassment
  2. Business interests — Since the auditor industry is also not free of competition, keeping or gaining customers can easily lead to excessive leniency when it comes to presenting more serious violations of employee rights
  3. Lack of trust by workers — Due to a general mistrust of the workers towards social auditors, uncovering social issues during worker interviews can encounter insurmountable obstacles.
  4. Lack of knowledge about local circumstances — Understanding the full context of a situation is the prerequisite of proposing truly effective corrective actions, which is often difficult to carry out without the adequate support of industry and local experts.
  5. Sharing of costs related to social audits — Auditing is often viewed as a burden by companies and the management, since almost all audits result in a number of corrective actions, that require a variety of resources, but on top of that, the audit itself also costs money to the company.

In a voluntary scheme, where rules are set by the members, auditing could be subject to a totally different judgement:

  1. The audit’s main purpose is to reveal discrepancies and propose best practices. If it’s in the member’s best interest to achieve or even exceed the required level of conformity to the rules, then auditing could become an exciting and inspiring exercise, where auditors could share best available techniques and give guidance on correcting non-compliances. In addition to the invaluable contribution it brings to maintaining and preserving the system’s integrity.
  2. Minimum expected requirements towards 3rd party auditors should be formulated by the members of the voluntary scheme, which should be followed by a rigorous tendering procedure, overseen by a group of area experts (can be internal, or external). The goal is to have a trusted partner, who has both the skills and the expertise, while being fully independent from the members of the voluntary scheme.
  3. For employees to be fully transparent during audits it is recommended for the management to promote the healer’s image of auditors rather than that of the inspector’s.
  4. Building a network of reliable and competent industry and local experts is also an important element for long time success. This network could provide feedback from an external point of view, while also giving access to vital knowledge.
  5. The voluntary nature of such scheme has a number of advantages over compulsory compliance requirements: all rules can be freely set by the members at the beginning, rules can also be changed with 100% of the votes later on, there is no time pressure, as constructing the foundations correctly is more important than the launch date, there would be no expectations of sharing audit results externally before internal agreement and auditors would be perceived more as friends rather than enemies.
Auditing can be a fun activity for all parties :) (Source: Pixabay)

How will different stakeholders benefit from the participation of such scheme:

  • Owners, stakeholders: By creating the supply for an inherent demand of people, an ever growing new market and customer base will be formed, who values trust and honesty over other factors. Thus generating new revenue flows from the socially and environmentally more conscious individuals and businesses.
  • Management: By using common sets of rules and standards, management will have a clear vision on expectations and business ethics that should be followed by all members. They would also gain access to a wide network of area experts across and even outside of the voluntary scheme.
  • Employees: On one hand, by applying rigorous social and environmental standards, employees will be the recipients of fair and green working conditions. On the other hand, they can also take pride in working at companies that truly go the extra mile when it comes to social and environmental responsibilities.
  • Suppliers: Suppliers will also benefit from the clear expectations of companies that are part of this scheme, however the most difficult exercise will be keeping & transforming, or changing existing suppliers to adhere to the newly set guidelines. However over time a strong supplier base will be formed either by selecting suppliers with a shared vision or transforming existing suppliers to adhere to the new requirements — obviously with the full support of the consortium (trainings, knowledge base, consulting, internal audits, software/hardware support)
  • Society: The greatest beneficiary will be of course society. On one side, by having access to verified information on the composition, the social and the environmental contribution of products and services. On the other side by having a positive effect on people’s working conditions and also on the environment.

Where?

There is two major global topic where this solution could provide value, beside transparency and traceability of components and products:

Alleviating poverty

According to a very comprehensive study on alleviating poverty through the supply chain, the best strategy is a combination of government-led and market-oriented initiative. It has been presented in this study, that companies’ Corporate Social Responsibility (CSR: the extra effort a company puts in on top of the operational activities to help social, environmental and other goals the company supports) efforts are often not productive enough because they strategically set businesses against social responsibility, while they are actually interdependent. A producer can both earn profit and help poor suppliers by alleviating poverty and bringing about new opportunities by involving them into their CSR efforts.

The supporting factors are the following when it comes to effects that lead to the reduction of poverty:

  • Greater sensitivity of consumers to social and environmental topics: If people consider CSR metrics as key decision making factors at the point of purchase.
  • Lower cost of improving social and environmental metrics
  • Improved total social welfare in case of cost sharing between the producer and the supplier

Governments can best help alleviate supplier poverty by utilizing a set of policies, subsidies to a certain extent, but letting the market play the leading role.

Suppliers can also actively contribute to reducing the level of poverty by taking some part in the CSR efforts of the producer, by improving production capacity with trainings and learning new technologies and changing the mindset from “wanting me to eliminate poverty” to “I want to eliminate poverty”.

One of the ways a producer can inspire suppliers to share some of the costs and efforts of the CSR activities is by also sharing some of the revenues with the supplier. Building out long-term and co-operative relationships with suppliers, procurement costs can also be reduced, while achieving better reputation, gaining competitive advantage and attaining sustainable development.

With a blockchain solution a company’s CSR expenditures could also be tokenized in the voluntary scheme, where a token would represent a certain amount of money invested into the CSR activities. Tokens could then be purchased by the suppliers, taking part in the overall CSR effort of the flag-ship / customer facing company. These tokens could later on be redeemed based on predefined conditions and rules coded into a smart contract, to share in the profit the end-producer realizes. This way another bond would be formed between producers and suppliers that would bring social welfare improvement and profit growth together.

Building bridges between suppliers and producers through common CSR goals (Source: Pixabay)

Fighting Climate Change

According to Article 4, 13 of the Paris Agreement “Parties shall promote environmental integrity, transparency, accuracy, completeness, comparability and consistency, and ensure the avoidance of double counting” — where an appropriate blockchain solution could help with meeting all these requirements.

It has been also investigated in a study (Blockchain Application for the Paris Agreement Carbon Market Mechanism — A Decision Framework and Architectur) done by Marco Schletz, Laura A. Franke and Søren Salomo whether blockchain technology could support achieving the goals of the Paris Agreement by introducing previously unavailable solutions.

They have gone through the decision tree step-by-step assessing whether a blockchain based solution would be a good fit for tracking and recording NDC-s (Nationally Determined Contributions) and ITMO (Internationally Transferred Mitigation Outputs). They have concluded that it’s worth investigating blockchain technology to be a potential candidate for a global climate accounting and reporting system.

Image from the future (Source: Pixabay)

Who?

It can be often overlooked, but as it’s been written in this article, the Who is sometimes the most important of all the questions, since every change starts with the desire in people for a change.

Since our world is heading towards a state where all non-value-added activities will mostly be carried out by machines, robots, computers and AI. Humans will be able to focus more on art, self-expression, hobbies, games, because basic human needs (shelter, water, food, energy) hopefully will be provided by for everyone by modern technologies. The desire to record everything on an immutable ledger stems from the desire to know what we consume, wear and use. And if we truly want to become free from misleading or incorrect information, implementing such voluntary schemes might provide us a solution.

The number of people that truly believe in this future will determine the level and speed of acceptance and quality of the new infrastructure. Therefore everything comes down to what we want and how many of us want the same thing.

I, for one, would like to know — if possible — whether the product I’m consuming or using were made by people who enjoyed making that product, with controlled quality of ingredients, while generating the least amount of negative impact on the environment.

Because people forget, products never. And blockchains could help us remember.

Modern times require modern solutions (Source: Pixabay)

I’m an independent environmental engineer and economist with a special interest in blockchain technology.

Please feel free to comment on or share this article.

Bálint Tóth

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Tóth Bálint

Blockchain enthusiast, environmental engineer and ISO auditor