Blockchain: A solution to ensure efficient trading of cattle

Natural delays in the supply chain have long led to trust issues between producers and buyers of cattle. Concerns about timelines are one thing, but cyber security and counterfeiting threats are another. Often the system is set up in such a way that neither party can really feel confident about how goods are traded.

This turmoil is disrupting many other commodity markets, but is particularly damaging to the digital trade of livestock. For example, traditional exchanges will offer options contracts on live cattle futures and contracts for differences (CFDs), to allow traders to speculate on the price of live cattle. And while these systems are stable for what they are, investors, producers and buyers are always looking for even more secure platforms to exchange goods on.

A platform that ensures security and ease of use provides security for both buyers and sellers. One way this is done today is through blockchain technology. It can help companies digitize their supply chains, while instantly locking down transaction data so the contract can’t be changed without a clear audit trail.

That said, parties seeking a digital means of trading cattle face three major obstacles: uncertainty about new technology, a critical lack of information related to the livestock itself, and a lack of general traceability tools. All three aspects need to be addressed to pave the way for a fairer livestock market and a better functioning supply chain.

Hesitation towards digitalisation

Just as traditional exchanges moved from an open scrying system to electronic transactions in 2010, other aspects of commodity trading are likely to see positive change in the form of new technological advances. A digital, transactional ecosystem with the right protocols in place will make it nearly impossible to alter or falsify documentation of laboratory results, quality, quantity or other characteristics. It will also improve the chain of custody, effectively eliminating the possibility of one’s property being tampered with or stolen.

Part of the struggle to convince people of the security of a blockchain ecosystem is realizing that blockchain and cryptocurrency are completely different. Many people mistakenly assume that these are interchangeable terms, or are somehow dependent on each other to function. While cryptocurrency is a digitized payment alternative to government printed money, blockchain is the foundation upon which crypto can exist as an asset class. This digital environment can be used to trade much more than cryptocurrencies – specifically as a network to trade goods in a more stable and efficient way.

Traditional exchanges have been reliable in many ways for buyers and sellers. However, there are certain characteristics of goods that are unknown to both parties – including the cattle’s country of origin, its general health and genetic history – which can sometimes lead to a lack of trust.

The disclosure of the country of origin educates the end consumer. This could come in the form of scannable QR codes on packaged beef. Sharing data with all levels of the supply chain will lead to a more transparent system overall.

Lack of traceability

Traceability is a natural result of using smart contracts, which standardize and automate work processes, on the blockchain. The growing use of smart contracts plays a crucial role in improving supply chains by creating a “verify then trust” mentality for both buyers and sellers. Buyers know what they are paying for through visual documentation of the supply, and sellers know they are getting the right and fair amount.

As market transparency becomes a priority for merchants, buyers and sellers, technology for orchestrating higher levels of trust and security will come to the fore. In the process, regionalized tracking and tracing of commodity trade, especially for livestock, will become the norm.

Robert Alberghine is CEO of Global Smart Commodity Group (GSCG).