Blockchain Case Studies
Capstone Product 3
As the development of blockchain systems evolves, their applications become unlimited. They are the basis of nearly all decentralized data systems in the world due to their versatility, efficiency in facilitating transactions, and record verifiability. This article focuses on how blockchain has been integrated into two unique systems in China. Blockchain has played a critical role in improving the operations of a government-run poverty alleviation program by helping to find and interact with potential participants easily. In the second case, a rice farmer creates a blockchain network to connect sensors and machinery directly to customers and the supply chain.
In these types of applications, blockchain systems are software whose security is verified by something external to any of the involved parties. They use a variety of cryptographic algorithms to ensure that all changes to information stored on the blockchain are permanent and well-documented. One of the main benefits to service-oriented blockchains is that they share information between parties efficiently. Everyone who is given access can see the same data as others. Blockchains like these make use of many security, private, public, and other types of “layers.” Parties can be given access to some or all of these, which is crucial to developing complex systems with several governments, businesses, regulators, individuals, and other entities involved. Code can also be stored on blockchains, most commonly triggering transactions when certain criteria are met, or executing other instructions.
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Case 1 - Poverty Alleviation
National programs to reduce extreme poverty are inherently difficult, especially in countries as diverse as China. Existing efforts have been plagued with corruption, opacity, and overall inefficiency. Three-quarters of a million local officials were involved in previous poverty alleviation programs, often implementing a slew of significantly unique methods in each region. This proved to be a challenge when locating participants and executing waves of financial assistance. The central organizers of this network of small programs rarely received accurate and thorough progress reports. However, manually processing the data they did collect was costly. Some areas could not afford to run this program due to these operational expenses.
Aware of these issues, the Chinese government provisioned a revised system as part of the thirteenth five-year plan (2016-2020). It decided to create an experimental blockchain-based solution. Headquartered in Guiyang, largely due to the prevalence of blockchain innovation there, the program hoped to streamline each step of the process. However, it was aware of the challenges of scopes beyond software development. Adopting drastically new code-bases would require lots of training and may require an “adjustment period” for administrators where they are unable to complete the desired amount of work or commit errors at a higher rate than expected. Blockchain systems tend to require less computational power, internet bandwidth, and electricity than traditional databases, but cannot be used in areas without modern computer infrastructure regardless.
With these constraints in mind, the blockchain system was developed. The goal was to find and assist as many people as possible earning less than approximately 10,000 USD annually. A staggering 128,000 villages and 832 counties would need to be considered, forcing a dynamic approach to be used. Therefore, the primary functions of the system would be data, funds, and information transference, while allowing certain strategic discretion to local officials. Targeting was handled mostly by the blockchain too. Its access to extensive government documents and its capability to efficiently organize and attribute data to individuals allowed the blockchain solution to locate and make recommendations about many eligible citizens.
To fulfill all of these roles, the blockchain included a combination of private and public chains, connections to external databases, and a security layer to ensure that each party could be given access to some chains and not others. Everybody who interacted with this system was given a unique key that allowed them to switch between the layers to which they were permitted access. For example, a local town government might be able to publish reporting data and share information with other towns, but not be able to see other towns’ figures. Due to the limitations of how much data can be stored on a blockchain, certain larger files such as images are stored in the “off-chain” database layer, which still relies on the blockchain for security but does not record all data directly in blocks.
Hosting all processes on the blockchain promotes efficiency, scalability, and the integrity of data. Once something is added to the blockchain, no user can permanently remove it. The data will be associated with a timestamp and sometimes a geographical marker, eliminating common problems in other systems where information is misplaced or misattributed. This also prevents many forms of fraud, although corruption is still possible in data reporting before it is added to the blockchain. Other forms of error are reduced, such as manual data input errors and issues resulting from the interpretation of handwritten documents. These improvements also reduce logistical and communication costs, especially for the primary operation in Guiyang.
After about three years, this program was deemed largely successful. More than 3,000 of the 200,000 identified low-income individuals were moved to better housing or were given aid to improve their houses. About 17,000 students received assistance. These figures will be impactful in adjusting this program in the future. Similar programs that are unable to produce comparably accurate data may struggle to adapt to changing trends over time or improve their fundamental operations. Due to the substantial reduction in transaction costs, increase in targeting efficiency, and insight into future improvements, this program is likely to expand in the future.
Case 2 - Agricultural Supply Chain
As beneficial as blockchain systems can be for streamlining massive government programs, they can be equally impactful in private business applications. The Beidahuang Group integrated blockchain into every part of its operations. It found blockchain to be well suited for contract negotiation and transactions, connecting Internet of Things (IoT) devices such as sensors and farm machinery with the supply chain, and efficiently allocating materials. Combining these traditionally separate systems into one centralized system revolutionized the logistics of their company Shan Liang Taste. The status and needs of individual rice crops were automatically monitored and could be easily shared with customers. This data was also studied and shared with other farmers to determine methods to maximize crop yield.
Due to China’s incredible growth in agriculture output (Nearly 8% per year) over the past decade- largely driven by globalization- many farms have been consolidated into larger entities. Independent farmers have found themselves unable to compete with the reputation and output of these entities, and thus often struggle to produce profitable contracts. In each season, the extreme variability of crop yields, market supply, and demand, and the financial capabilities of buyers cause great difficulty to small farming operations. It is common for large rice purchasers to find it more profitable to default on contracts rather than honor them when these three factors change. Farmers make the same decision to default in many cases too if offered more money by other buyers. This highly speculative industry incentivizes risky premature deals, often at the expense of farmers’ security.
This problem of contract security has been challenging to solve. Some growers have preferred signing season-long contracts where deliveries occur at predetermined intervals over the course of several months. These types of agreements help farmers plan for and receive continuous payment but still face the risk of buyers defaulting. This approach increases the stability for both the sellers and buyers but makes it difficult for either party to adjust to a more profitable arrangement. Hence, large buyers tend to avoid seasonal contracts. Small farms, which sometimes risk going out of business if just one contract defaults, must find a way to maintain more control of the negotiation and delivery processes.
Hosting contracts on a blockchain network significantly improves the accountability of contracts. In traditional agreements the only thing at stake when defaulting is one’s reputation, which can be easily sacrificed to increase profit. The blockchain created by The Beidahuang Group enforces long-term contracts to make it more difficult to default. It holds and transfers payment corresponding with delivery, and protects the initial terms of the contract from later changes. Buyers often “bully” small farmers to alter contracts by threatening to default. The burden of trust between parties is instead placed on the security of the blockchain itself, mitigating the differences in reputation between small and large farmers.
Similar to the blockchain network in the poverty alleviation program case, this system includes private, public, and database layers. Some transaction information is private to those directly involved in a contract, but other information is shown to potential future trade partners to demonstrate reputation. The private chain allows each company to manage, process, and organize data related to transactions. Regulators are given access to specific chains, with permission to easily access contract terms without interfering with other private business information. The application layer supports secure financial transactions. Each layer can communicate with other layers at the discretion of the buyer and seller. While the types of rigid rules that are enforceable by software are not always ideal for real business agreements, the blockchain system is flexible, as parties can agree on whether or not to use each of its features. The largest barrier to using this blockchain network, however, is the cost. Its development is expensive, and training businesses to use it is often difficult. It is not yet clear if the reduction of operation costs after these overhead expenses will fully compensate for this, but it is likely that its aforementioned benefits will be worth the investment.
The Beidahuang Group’s transaction blockchain also interfaces with another private blockchain-powered system that integrates its actual farming processes. Its Internet of Things network allows all types of harvesting equipment, sensors, and more to share information to grow rice as efficiently as possible. The blockchain allows information from several sources to interact with other equipment’s data, with no risk of losing context or accuracy. It is nearly fully automatic, but occasional human intervention is transparently noted on the blockchain ledger. They used precise tools to track each rice plot individually, so customers can be confident in the quality of the product they will receive. By allowing buyers to view some of this data, the farms can prove their ability to deliver on contracts, greatly increasing trust.
Access to so much guaranteed-accurate data lends itself to many learning opportunities. The organization of such information makes it compatible with big data projects which identify major trends in farm output. Combined with data about buyers and transactions, predictive artificial intelligence models can assist the farm to adjust pricing, contract terms, and logistics. Traditional databases require an immense amount of cleaning and processing by professionals to do these tasks. Blockchain also makes it easier to dynamically update machine learning and big data models that run off-chain because it centrally stores well-labeled and attributed data that it can share with numerous systems at once.
Having already begun experiencing the various benefits of employing blockchain-based infrastructure in the areas of production and supply chain, the Beidahuang Group expects strong results in the future. Distributing parts of its software to other farmers may have drastic impacts within the field. Small farmers will be able to safely enter into business with large buyers, and further grow their operations. The insights drawn from blockchain-hosted data will substantially improve local rice farmers’ yields and planning abilities. As this impacts more farmers and more data is collected, the state of China’s rice industry will improve.
Ning, Xue, et al. “Blockchain-Enabled Government Efficiency and Impartiality: Using Blockchain for Targeted Poverty Alleviation in a City in China.” Information Technology for Development, vol. 27, no. 3, July 2021, pp. 599–616. EBSCOhost, doi.org/10.1080/02681102.2021.1925619
Wei Guo, Kai Yao, "Supply Chain Governance of Agricultural Products under Big Data Platform Based on Blockchain Technology", Scientific Programming, vol. 2022, Jan 2022. doi.org/10.1155/2022/4456150