Blockchain is enabling quicker, less costly transactions that offer enhanced transparency, traceability, and security. Its applications are virtually limitless, and its use is increasing across a wide variety of functions as diverse as cryptocurrency, supply chain management, and identity verification.
Cobus de Bruyn, head of client value propositions for agriculture at Nedbank Commercial Banking, and Adele Jones, lead architect for information security and blockchain at Nedbank, discuss why blockchain and smart contracts are an exciting development for the agricultural finance sector.
“‘Very simply, blockchain technology creates a network with memory. Everybody in the network has a unique address and, from an audit trail perspective, all interactions on the network are covered automatically with the latest innovations in cryptography,” says Jones.
“There are 2 types of configurations of these networks: one where the network is a public blockchain that anyone can join, for example the Bitcoin network. The other is a permissioned blockchain, where the network is locked down for specific participants. Once the network has been established, every participant in the network has a unique address and can implement a vast and versatile array of transactions.”
Jones adds that smart contracts are code that can execute on the network ecosystem and automate interactions between participants in the network. “By codifying agreements and improving the traceability of data on the network, trust is increased, as well as security and transparency among member organisations.”
How does this technology add value to the agricultural sector?
Agriculture is an early adopter of technology, which is one of the drivers behind its success. In agriculture, there are many processes and procedures to follow, such as managing finances, accounting and production processes, imports and exports, and interacting with stakeholders – including your bank and suppliers.
Because smart contracts are self-executing digital agreements, they automatically execute when predetermined conditions are met, streamlining financial transactions by automating processes that would traditionally require human intervention.
This automation reduces operational expenses, minimises errors, and enhances trust among parties.
“There are so many examples in agriculture where smart contracts and blockchain can be gamechangers, so I’ll just touch on three,” says De Bruyn. “The first is import and export, which involves negotiation, administrative work, and processes and verifications that are cumbersome and, to some extent, expensive.
“Smart contracts allow these processes and procedures to be automated, shortening the time of the process, while also making it more secure.”
Another example is trade, which is streamlined by smart contracts that automate and facilitate payment solutions. And, with the surge in agricultural trade platforms the use of smart contracts means that new innovations are constantly being brought to the table.
De Bruyn adds that, from the bank’s perspective, smart contracts can expedite and streamline the process between getting credit approval from a commercial bank and receiving the finance. This means that the whole process – from sending facility letters, giving instructions and registering securities – is automated, reducing the time and administrative tasks usually associated with it.
This technology is new, but the opportunities are massive, so it’s a very exciting development for organisations like Nedbank.
“Reducing or eliminating manual processes for our clients is what we’re seeking to achieve, but we’re also using the technology to enhance our own systems and processes so that we can truly provide next-level service to the agriculture sector,” says De Bruyn.
“We are at the next revolution of money, and we can build smart contracts that can give instructions to smart money. Web 3.0, which includes blockchain smart contracts, the metaverse, tokenisation and more, will replace the existing Web 2.0 as we know it, which hosts the www dot websites that we’re all familiar with.
“Everything will change with Web 3.0, and it’s important that we, as a commercial bank, are ready. Our agricultural clients want fast processes. They want frictionless, cost-effective solutions. They embrace technology, and we want to provide it to the agricultural community.”
Let’s talk about sustainability
With Nedbank being a purpose-driven organisation that champions sustainability, Jones feels it is important to explain the sustainability implications of blockchain.
“There is a perception that blockchain technology consumes a great deal of electricity, which is not strictly true. The Bitcoin network does use a significant amount of power, but it’s important to remember that there are different blockchain solutions. The one that Nedbank is exploring has modest electricity requirements. Depending on the underlying consensus algorithm, it’s possible to achieve a 99% energy reduction in your deployment solution. This is supported by industry research done by the World Economic Forum that was published in 2021.”
Jones adds that blockchain solutions provide a simple way to manage carbon credits, which can also be leveraged for tax deduction purposes. “For example, farmers can map out their land and use formal carbon credit standard bodies like the Verra Registry – the world’s largest carbon credit registry – to certify the carbon credits under their control. The farmers can then capture that information in a smart contract to effectively tokenise the carbon credits under their management.”
Smart contract technology is already being deployed internationally and in South Africa. However, De Bruyn says that it’s not being used to the extent that Nedbank is planning. “We have the technology available and we’re working round the clock to make this available as soon as possible. Within the next 6 to 12 months, we should have a running example of a smart contract.”