Think Tank

Introducing a Cryptocurrency for the Food Supply Chain

And so the cryptocurrency mania continues, in yet another form.

This time, it’s designed for the food supply chain, with an emphasis on achieving transparency and security between partners.

The creator of the “token” is OriginTrail, a Slovenian I.T. company specializing in traceability and quality-control systems. But Trace, as it’s been dubbed, won’t function as a general currency and means of payment in the manner of Bitcoin or Ether. Its purpose is to serve as compensation for the multiple nodes within a network that are keeping copies of transactional data generated by supply chains. The tokens reward those who are “offering storage and processing power to the network,” says Tomaž Levak, co-founder and chief executive officer of OriginTrail. They will be used both to write and read data. In addition, token holders get voting rights for future pilot projects involving Trace and blockchain applications.

Trace joins a flurry of initial coin offerings in the wake of the success of Bitcoin, Ethereum, Ripple, BitcoinCash and many others. Critics of cryptocurrencies warn that they are creating a bubble that will end up in huge losses for investors when it inevitably bursts. But the tokens aren’t all being created for the same purpose. Some, as with Trace, are tied to specific purposes or industries that limit their appeal as all-purpose cash.

From OriginTrail’s perspective, Trace isn’t even the main event. It’s being created to support what the company calls “the first purpose-built protocol for supply chains based on blockchain.” The idea is to create a decentralized, peer-to-peer network that takes in supply-chain data from multiple I.T. systems. In its initial version, OriginTrail has focused on the movement of organic beef, poultry and vegetable products. The protocol “can bring together the best of both worlds, by connecting with any blockchain and any company I.T. system,” the company claims.

Levak says the technology was created to address the high cost and inefficiencies that result from attempting to record supply-chain data in a blockchain. Despite its touted advantages as a secure, distributed system of record for any number of transactions, blockchain isn’t well suited to operations generating large volumes of data.

“Storing just 1 kB of data on Ethereum blockchain can cost thousands of dollars,” the company notes, “and data queries are slow.” It can take days for a cryptocurrency transaction to complete – and that’s a relative simple set of data, when compared with the complexity of everyday supply-chain operations.

According to OriginTrail, its protocol can lower the barrier to adoption of blockchain technology. It will allow for the storage of “fingerprints” of data, without the need for full replication within all nodes of the system.

Levak describes OriginTrail as “off-chain” middleware that sits atop a blockchain. It creates a tamper-proof record of transactions by requiring more replications than the number of partners storing data. That can prove to be a valuable tool in the food supply chain, where product quality and a full record of provenance are essential.

OriginTrail believes blockchain technology has a “huge potential to decentralize trust in supply chain and bring enormous benefits.” The company is already implementing pilot projects for food supply chains in China, with an eye toward verifying the provenance, authenticity and movement of products in that region.

The Trace token sale reached its hard cap of $22.5m in January. (It took just 18 minutes to hit that target, the company says.) OriginTrail is limiting the total number of tokens to 500 million. The token’s value will be established through “market forces of supply and demand,” Levak says, although he describes Trace as a “utility” token. That means it isn’t subject to regulation as a security by the U.S. Securities and Exchange Commission. Trace was created to support the OriginTrail protocol, not to serve as an investment vehicle, Levak stresses.

Proponents of blockchain claim that it’s impervious to hackers and cyber thieves because transactional data exists on many computers and can’t be altered without permission from all relevant parties. Levak says OriginTrail similarly benefits from the concept of decentralized data. “It raises the bar for security. It allows for you to cryptographically protect the data you’re sharing.”

What’s more, he says, the system will allow partners to check the validity of data without disclosing the actual information. But the chief selling point of OriginTrail – and, indeed of blockchain in general – remains the notions of transparency and consensus. Says Levak: “It’s all about how to broker trust between businesses.”

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