Claudia Díaz Paz
Acercar, Lima
claudia.diaz@acercar.pe

Introduction

The word ‘blockchain’ is commonly associated with its financial and speculative aspects. From this perspective, blockchain is often equated with Bitcoin, the most well-known cryptocurrency. Based on this idea, the word ‘blockchain’ also evokes memories of speculative behaviours and scandals arising from financial losses and fraud related to cryptocurrencies. Nevertheless, it is important to recognise that blockchain technology extends beyond its use in financial services. Its use can also play a significant role in the development of sustainable practices and can be used to enhance compliance. Specifically, in the context of supply chains, blockchain can optimise the flow of information and connect different stakeholders, saving time and effort, while making processes more efficient.

Blockchain and smart contracts: concept and main features

Blockchains are decentralised ledgers enhanced by cryptographic features, which provide security, transparency, immutability and traceability for transactions. Because they are decentralised, they eliminate the risks associated with a single point of failure. Consider a company that stores its records on its own systems and servers. If these systems and servers are destroyed, the information is lost. Now, imagine a different scenario: transaction information is registered or replicated, either fully or partially, on each node in a network. Destroying a single node does not erase the information.

Blockchain technology has also been called a trustless system. This means that participants in the blockchain do not need to personally trust each other. This concept requires clarification, as there are different types of blockchains, including public, private and consortium or federated blockchains (private blockchains without a single owner). Despite this distinction, it is important to note that, since blockchains are information systems, they can only store records of stakeholders’ and participants’ digital identities.

In addition, smart contracts, which are code embedded in an algorithm, automate key aspects of transactions and enhance the adaptability of the blockchain by introducing customisable business logic. Moreover, the combined use of other technologies, such as off-chain storage options, primarily the InterPlanetary File System (IPFS), and cloud computing, offers additional advantages. There are also proposals aimed at addressing the scalability and interoperability issues related to this technology.

Alternative uses of blockchain

Two examples from healthcare can be used to illustrate alternative uses of blockchain for improving sustainable practices. The first is related to drug traceability,^[1] and the second pertains to clinical research.^[2]

Firstly, drug traceability aims to reduce the presence of counterfeit drugs, which are not only illegal, but also pose health risks. A private permissioned blockchain can securely store records on relevant manufacturers, batch numbers, storage, handling (including international transport) and other data, while also executing transactions (in the sense of changes in processing states). Furthermore, records on international regulatory compliance have also been proposed. This solution benefits not only manufacturers, but also society at large.

Secondly, clinical research requires large amounts of data, while ensuring the preservation of patients’ privacy. Blockchain allows institutions to access this data in a federated manner for analysis, while also satisfying privacy requirements. In the healthcare supply chain, the issue of trust and how it related to the blockchain can be viewed through three questions: What is trusted (referring to the topics addressed)? Who is being asked to trust the system (involving stakeholders)? And how is trust supported (referring to the technical requirements^[3])? By answering these questions, the potential contributions of this technology to sustainable practices can be identified.

Another example worth mentioning is the LACChain project involving the Inter-American Development Bank.^[4] This initiative has supported various projects that foster the adoption of blockchain in multiple sectors, including non-financial applications for sustainable practices.

Issues to be addressed

Blockchain and smart contracts offer several advantages. Nonetheless, there are challenges that remain from a public policy perspective regarding the characteristics of this technology. Firstly, algorithms are still considered difficult to understand or are considered to be opaque. Secondly, blockchains can still be subject to technological attack. Thirdly, the issue of how to address the right to be forgotten has not yet been resolved.

Blockchains are transformative technologies, and their use involves uncertainty and risk. Intuitively, one might suggest avoiding risk and restricting the use of new technology through regulations or, alternatively, the adoption of a risk tolerant approach, as well as their promotion though public policies. Nevertheless, adopting a technical perspective goes beyond these intuitive approaches. Additional concepts, for eg, a stage of innovation–adoption curve, optimal adoption and equilibrium adoption, etc, can be included in the discussion and can provide useful insights to both evaluate the challenges and avoid diminishing the advantages this technology offers.

Conclusion

Blockchains and smart contracts are sophisticated technologies with features that can support sustainable business practices. Notwithstanding, some issues remain unsolved. The adoption of a technical perspective can avoid the enaction of public policies that lead to the loss of the benefits that innovation provides.