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Understanding Blockchain

Nearly two years ago, the great Bitcoin bubble burst, and the rampant media hype went with it. This was probably a good thing. Now that the market has stabilized about as much as Bitcoin can (and at prices above what they were at the start of the bubble, which is saying something), we can start to examine the underlying technology and assess its prospective impact on wider applications, including in the agricultural community. At the beginning of 2018, Commodities trader Louis Dreyfus sold 60,000 tons of soybeans to China – including all USDA documentation – using a blockchain transaction, completing the sale in one-fifth of the time of traditional trades. More recently, Walmart has incorporated blockchain into its produce traceability program as a method to speed up the process of identifying the origin food-borne illness outbreaks in a product recall. This is huge, but outside of cypherpunk, econ nerd, and multinational agricultural behemoth circles it went widely unnoticed. There are probably a few reasons for this. For starters, agriculture doesn’t often make the news unless there’s a listeria outbreak. Also, blockchain tends to get lost in the mix as it’s most successful application, Bitcoin, hogs the news cycle (for better or worse). Whether or not bitcoin succeeds, the underlying technology has the potential to completely reshape the economic landscape.

So what is blockchain? I like anecdotes, so: Imagine you and your spouse need to buy groceries. To simplify things, your spouse stands in front of the fridge and calls out what you need while you sit at the kitchen table and write it all down. For purposes of this example, lets assume that whatever is on that list will be purchased. This is a basic ledger system, a list of items to be purchased. Now, lets say you are supposed to be on a diet, but you really want some Reeses. It would be incredibly simple to just write down “Reeses” between the eggs and the milk, so you do (you dastardly villain). The list is given to your teenager who makes the grocery run. That evening, the offending Reeses wrapper is discovered all too late.

It is a week later and time for another grocery run (yay, more Reeses!), but this time when you enter the kitchen you discover 9 other people sitting at the table with pens and paper of their own. This time, when your spouse calls out an item, everyone writes it down on their list. When the lists are completed, everyone stands up and looks at each other’s copy of the list. Most are identical, with two exceptions: one seems to have been ruined by an unfortunate coffee spill, and the other contains Reeses. The most popular version of the list, the one corresponding to the items actually called out, is accepted and this is the version that goes with your teen to the store. Your list is discarded by the community, who have all photocopied and kept the consensus list. You can keep yours if you want, but it’s worthless.

A few important things have happened here. Instead of having sole control of the ledger (shopping list), the ledger has instead been distributed to multiple people. When your spouse called out items, those orders were received by every person in the room and they were all able to write them down. This is an example of a distributed ledger. No one person controls the information. Furthermore, before going to the store, the group had to come to a consensus as to which list should be considered legitimate. This consensus is why you aren’t getting any Reeses tonight. Something else has happened though that is just as important. Remember the list that was ruined by a coffee spill? That lost list didn’t matter because those other lists serve not only as validators but as backups. The person with the ruined list just needs to get a photocopy of the consensus list.

The next week, the same event happens. The week after, and the week after, and the week after, and so on and so forth. Every time a grocery list needs to be made, the group members convene, write down the items on their own ledgers, come to a consensus on the best list, adopt it, send it to the store with your kid, and the order is filled. Something else is happening though, something unique: nobody is throwing away these lists. After leaving your house, they keep the grocery list in a scrapbook and bring that scrapbook with them to every list-writing session. If you were to lay out all the grocery lists – these individual blocks of items to be purchased – in the scrapbook end to end, you would form a chain representing a complete record of all the groceries ever purchased going back all the way to the beginning. That is a blockchain.

A blockchain is a distributed ledger system where blocks are added to a chain of all previous blocks by a process of consensus, and it is unalterable. You could go back and edit your copy of the chain, try to add Reeses to the grocery list from two weeks ago and pass off the candy you bought at the gas station today, but it would be a round island in a sea of square blockchains, and it would never become the consensus list. You could try to go back to the first list and delete the Reeses off it and say that you’ve always perfectly followed your diet, and the results would be the same. The community would simply pass you by.

Not only is blockchain unalterable, but it is also trustless. What we mean by this is that there is no central authority overseeing and verifying these transactions, not because they were mistakenly forgotten, but because they are unnecessary. When the only person writing the grocery list was you, your spouse was forced to trust that you were accurately writing down what was called out. When the task was given to a group, your self-interest was negated by the self-interest of the other group members who each sought to have their list be the one added to the blockchain, a list that by definition must also be a consensus of the majority of the group. Thus, your spouse doesn’t need to worry about any rogue Reeses. Even if you were to convince a majority of the group to go along with you and change the blockchain so that Reeses were a must-buy, and Reeses were added to all the previous lists, this obviously wouldn’t be the same blockchain as before. This would be a forking of the blockchains, with the original list continuing as usual with those who supported it and your new blockchain going in a completely different direction (probably the couch).

Photo Credit: Tyler Jones, UF/IFAS

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