Cryptocurrency and Blockchain In Agriculture
The way we work, communicate, and purchase goods have changed over time due to technological advancement. Furthermore, payment trends have also changed from cash to cashless systems. However, this goes without saying that some consumers and companies still accept cash as a means of payment.
Cashless payments or contactless payments are on the rise with companies like Google and Apple backing up this approach.
However, companies and individuals have started adopting the use of cryptocurrency as a form of payment. Bitcoin is the most popular cryptocurrency and others include Ethereum, Ripple, and now Agrocoin (launching soon).
Agrocoin aims to support the purchase and sales of agricultural commodities such as chicken, rice, soybean, and sugar.
So what is Cryptocurrency?
A cryptocurrency is a form of digital currency that utilizes cryptography for security, and it cannot be counterfeited. Furthermore, the digital asset is based on a certain network spread across multiple computers.
The name cryptocurrency was derived because it utilizes encryption processes for all transactions.
In addition to its encryption approach, cryptocurrencies do not need to be carried around like physical cash. On the contrary, they exist as digital entries to a database and are individually different for every transaction.
Cryptocurrency is known for its unique decentralization feature which means it’s not controlled by any government or financial institution. Many cryptocurrencies are decentralized due to blockchain technology.
Blockchain technology is an organizational method incorporated into transactional data for integrity. Additionally, blockchain technology is a major factor when operating a cryptocurrency business.
How does cryptocurrency work?
Cryptocurrency works similar to payment platforms like PayPal and credit cards. But the difference is that cryptocurrencies are digital assets used to purchase goods and/or services. In addition, these digital assets are stored in what is known as a cryptocurrency wallet or crypto wallet. The wallet acts as a bank or even a physical wallet.
However, when performing cryptocurrency transactions, the individual performing the transaction needs to have a private key (password). The private key is like a bank account but in this case, the receiver of the crypto funds is not privileged to know the source of the cryptocurrency fund because of the encryption process.
To ensure the success of each transaction, a verification process known as “cryptocurrency mining” needs to occur. In addition, cryptocurrency mining consists of massive amounts of computing power and algorithms.
Differences between Cryptocurrency and Traditional Bank Notes
As mentioned previously, cryptocurrency is a virtual or digital asset that is used to perform various transactions ranging from online shopping to payment of tuition.
But the question is – how do cryptocurrencies differ from the traditional banknotes?
Here’s how:
1. Blockchain Technology
Contrary to the traditional currency controlled by authorities, cryptocurrency is not controlled by authorities. However, this is not to say that governments have not tried to control it. Furthermore, blockchain is a database of cryptocurrency transactions and totals.
2. Cryptography
Simply put, cryptography is the process of making blockchain secure using cryptographic codes know as “Hashes”. Hashes are similar to passwords but are almost impossible to decipher by a second party.
Besides explaining what cryptocurrencies are and how they work, it is also important to consider the types of cryptocurrencies available.
Types of Cryptocurrencies
1. Payment Cryptocurrencies
Payment cryptocurrencies can be described as digital funds spread across various computer networks with a common blockchain software.
The first cryptocurrency, Bitcoin is believed to serve as a means of payment for many companies and individuals. However, even with the introduction of other coins, Bitcoin remains a top option for many people.
2. Infrastructure Cryptocurrencies
The purpose of this group of cryptocurrencies is to pay for computers that enable programs to run on a shared network of blockchain software.
A typical example is the crypto asset that aids the running of Ethereum – Ether, which may be considered as an infrastructure cryptocurrency.
3. Service Cryptocurrencies
The service cryptocurrencies provide useful tools for the management of personal and enterprise data on the blockchain. Service cryptocurrencies create online identities for their users while connecting individual records to the blockchain platform.
Service cryptocurrencies have many use cases ranging from healthcare e.g Dentacoin to agricultural cryptocurrencies like agrocoin.
Application of Blockchain Technology in Agriculture
With the absence of authorities and banks in the operation of blockchain transactions, the challenge of trusting authorities or banks is eliminated. Thus, this leaves the user (in this case – the farmer) to trust the cryptography process.
The decentralization of cryptocurrencies reduces transactional cost and restores trust between producer (farmer) and consumer. Additionally, blockchain technology
aids in tracking transactions between anonymous users. Hence, fraudulent activities are quickly and easily detected.
Blockchain technology provides transparency and also aids the collection of reliable data from its users. Furthermore, blockchain can record each step in a product’s lifecycle. The reliable data acquired from farmers are highly valuable and can be used for providing data-driven facilities such as agricultural insurance and hence, makes farming risk-free and smart.
Below are a few applications of blockchain technology in 3 different agricultural sectors.
1. Agricultural Insurance
Farmers pay a premium price for insurance before the beginning of a farming cycle. This ensures the farmer does not experience any financial hardship during weather disasters as the agricultural insurance company pays for the damages or losses. A typical form of insurance that’s based on weather is “index insurance”.
Index insurance is becoming increasingly popular in the agricultural sector. Index insurance is simply insurance provided by the insurer using predetermined indexes e.g. rainfall.
However, blockchain improves index insurance through the following:
- • Payments are promptly made and are automated due to weather data.
- • A combination of weather factors and other factors such as plant growth records can easily be integrated into the smart system while making automation and payouts more efficient.
2. Smart Agriculture
Smart agriculture is mostly beneficial for large-scale farmers as there is more data or information which is necessary for infrastructure.
Blockchain technology provides the means to store data and information generated by various stakeholders within the lifecycle of the agricultural product. The data stored within the blockchain systems are immutable.
Furthermore, blockchain is used to improve farming processes and increase productivity.
3. Food Chain Supply
Over time, food chains have become bigger and more complex as a result of globalization. Therefore, some challenges are experienced during the supply process. These challenges involve food quality and safety, food traceability, and transparency.
To tackle some of these challenges, blockchain technology helps to establish trust between the producers and their customers as the product information is provided at every stage of the process. Furthermore, the use of blockchain guarantees customers or consumers the validity of the process, store, and distribution.
Benefits of Blockchain Technology
It is clear that blockchain technology greatly impacts agriculture in positive ways. However, in this section, we will be highlighting the benefits of blockchain technology:
- • The use of blockchain technology in agriculture provides users with a high level of transparency.
- • Blockchain agriculture does not require an intermediary or middleman in the process e.g a bank
- • Because blockchain agriculture is a peer-to-peer process, it eliminates the control of the authority.
- • It helps to decrease transaction costs and builds trust between all stakeholders such as farmers and consumers.
- • Thanks to blockchain technology, we now have access to a reliable method of conducting transactions between anonymous members
- • Instances of malfunctions or frauds can easily be reported and resolved. Additionally, the use of smart contracts enables reporting critical issues in real-time.
- • Product tracking during the supply process is made easier using blockchain technology. Hence, customers are assured of the quality and safety of the food.
- • Because blockchain was developed to capture user data, they are reliable and traceable. Furthermore, it aids in developing data-driven strategies in terms of insurance options and facilities.
The Cons of Blockchain Agriculture
Though the benefits of blockchain agriculture outweigh the disadvantages, it is always a good idea to also consider the disadvantages of blockchain agriculture.
- • The reasons each user provides accurate information needs to be studied further as it is necessary for both small and large scale farmers.
- • The process of data upload to a blockchain database could be expensive especially for smallscale farmers.