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Blockchains and distributed ledgers work best when everything can be
recorded on the chain, i.e. when everything is digital. So blockchains are
great for cryptocurrencies or for tokens representing legal agreements
between entities, whether shares, bonds, debt, or even a future claim on
an entity. These tokens can be recorded digitally without any physical
object being present. But problems start emerging when you want to
track physical objects such as handbags, food, art, or elephants.
The interest in digital tokens for tracking ownership of physical objects
seems to have come from the fact that bitcoins are traceable. This is true
in a narrow sense. You can trace the provenance of any specific bitcoins
through all of the previous addresses that they belonged to, all the way
back to where they were first mined. This is possible because every
transaction is recorded on the Bitcoin blockchain, and anyone can
download the full blockchain and interrogate it. The provenance of
bitcoins is traceable because that is the way Bitcoin works. You can’t
make a Bitcoin transaction off the chain, because the very definition of a
Bitcoin transaction is that it is recorded on the chain, and the UTxO
model forces you to specify which bitcoins are moving where, resulting in
a complete chain of provenance on the chain.
Can we extend that concept easily to real world objects? According to an
article published online by Fortune in October 2016, ‘Walmart and IBM
Are Partnering to Put Chinese Pork on a Blockchain’195. Apparently,
blockchains may be used to track the provenance of pork and to stop
potentially dangerous food from getting to consumers.
But stop for a second and think. How on earth would this work? I don’t
know much about the pig supply chain but I suppose you have a bunch of
companies who do everything from breeding the piglets, feeding them,
companies who do everything from breeding the piglets, feeding them,
slaughtering them, cutting them up, shipping them, packing, and
delivering. Eventually, pork cutlets end up on the supermarket shelf for
people to buy or on a plate in a restaurant. So… all the participants in the
pig supply chain could have an address on a blockchain, with PigCoin
tokens, issued presumably by the farmer, that represent pigs. Movement
of PigCoin is recorded immutably on PigChain. When a farmer sells a pig
to another farmer, the seller says, ‘Hey, what’s your PigChain address?
Let me send you some PigCoins,’ and makes a corresponding PigCoin
transaction on PigChain to represent the movement of the pig. But then,
one fateful day, the buyer is a slaughterhouse who chops the pigs up into
small bits and sends those different bits to different parties. Ah! But of
course a PigCoin, like Bitcoin, is divisible, so the slaughterhouse splits up
a PigCoin and sends fractions to different buyers. But which fraction is
which part of the pig? Do we need a TrotterCoin and a
LeftRearFlankCoin? What happens if one party doesn’t have an account
on PigChain? What if a party loses their private key and all of their
SnoutCoins end up trapped in their account while the real underlying
snouts are being distributed? What if (horror of horrors), a bad person
swaps out, in real life, a high-quality pig for a low-quality pig, but then
still sends the PigCoin to the buyer, saying, ‘Oh look at the PigCoin’s
provenance on PigChain, the pig you are buying is definitely high quality,
you can download the PigChain and see for yourself?’ And when a pig
becomes part of a sausage, then how would that work? We will need
BreadcrumbCoin, HerbCoin, NastyBitsOfPigCoin and a market maker to
exchange those for a WienerCoin. And how does the restaurant or person
in the supermarket casually browsing the raw cutlets validate that the
sausage in front of them is the real deal? Do they take a photo of the
sausage and check it against PigChain? Do they scan a QR code that takes
them to a website that says in large letters, ‘This is definitely a real
sausage?’ Or do they pull out their handy DNA testing kit and track the
sausage?’ Or do they pull out their handy DNA testing kit and track the
sausage’s DNA on PigChain? How do you stop an enterprising chef from
swapping out the high-quality cutlet for a cheaper one? This is all absurd.
According to the Fortune article, ‘Information to be stored on the
blockchain, where fraud and inaccuracies are much harder to get away
with, includes details related to farm origins, factory data, expiration
dates, storage temperatures, and shipping’. That is good then. Of course
none of that can be faked before storing it on PigChain.
It is easy to make fun, but tracking real world items by using a digital
overlay is difficult. Blockchains are great for tracking unique digital items
that only exist on that blockchain, but not as good when digital and
physical worlds collide. Blockchains don’t tell the truth; they just record
what someone tells them. Perhaps blockchains could increase certain
aspects of transparency in a supply chain, but they are not foolproof and
should not be used just because the phrase ‘supply chain’ has the word
‘chain’ in it.
Having said that, I can imagine a few cases which are interesting and,
while not absolutely requiring blockchains, could use some of the same
concepts. High value designer handbags could have tamper-resistant
chips inserted; a buyer could then scan a bag to make sure that it is not a
fake before buying it. The chip would contain a private key that would
produce a digital signature when scanned. The digital signature could be
validated against a list of public keys issued by the manufacturer. The
chip would be embedded in the handbag such that it is obvious if it is
removed or tampered with.
This system uses public and private keys but doesn’t need blockchains.
The system would solve the issue of a bad actor passing off a fake
handbag as real. However, many people buy fake designer handbags
knowing that they are fake…they buy them because they look like the real
knowing that they are fake…they buy them because they look like the real
thing but are cheap. So the system would only go so far. It is important to
deeply understand the fundamental problem being solved.

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