Authors:
Daniel Jones—CEO, Bext360
Tessa Thorburn—VP Product, Bext360

Over the last year, bitcoin burst into the mainstream due to its skyrocketing valuations. However, the true power of cryptocurrencies like Bitcoin, Ethereum, and Stellar is held by the underlying technology, called blockchain. Blockchain is touted as technology capable of global transformation, yet many familiar with Bitcoin – and perhaps even certain Bitcoin investors – do not understand how blockchain can be applied to overhaul industries and standard business practices.

In this article, I share a case study describing Bext360’s use of blockchain technology to improve all aspects of the coffee industry. Bext360 has completed pilots which have analyzed and tracked coffee from California (served at Blue Bottle), and Uganda (roasted by Coda Coffee in Denver, Colorado). Using these examples, I hope to demonstrate a tangible use case for blockchain’s many iterations.

Although coffee is the second-largest traded commodity in the world (a $150 billion market worldwide), its supply chain remains antiquated and opaque. While global demand for coffee continues to grow, farming communities in developing countries must accept low prices and delayed payments for their harvested goods. However, millennials and coffee connoisseurs are now demanding transparency for sourcing and origin – indicating a shift in consumer preference and their willingness to pay for supply chain transparency.

Bext360 is helping to eliminate many of the inefficiencies of the coffee supply chain while simultaneously providing transparency at each step of the process. Using machine vision, AI and IoT along with blockchain technology, we evaluate and sort coffee cherries and parchment (a phase of coffee been processing) based on quality. Farmers are then able to use a mobile app to view payments based on coffee quality, and may offer or reject the proposed payment. They are effectively increasing compensation for higher quality cherries. Powered by Stellar’s blockchain, the application immediately pays the farmer for her product upon acceptance of the offer. The application may also connect to the farmer’s other accounts for transactions such as loan repayments, local taxes and other financial commitments. Each evaluation and transaction relating to the coffee – including farmer identification, quality, purchasers and payouts – is recorded on the blockchain providing visibility to end consumers.

The certification process in supply chains is extremely costly. Currently, inspectors must physically examine each product at every point of the supply chain to verify that the product is what it purports to be. For coffee, every batch requires certification papers to move along the supply chain from one port to the next. Bext360 is moving this data to the blockchain, providing transparency and immutability, which eliminates today’s costly and sometimes unreliable paper trail.

Using blockchain technology, the Bext360 platform also creates crypto tokens based on the analyzed quality of the coffee to more accurately reflect the value of this commodity. As the commodity progresses through the supply chain, new tokens are automatically created to represent the increased value of the product until it becomes the roasted coffee we know and love.

For example, when a coffee cherry enters the supply chain, a token is created to represent its quality at the first level. As it continues through the supply chain and is processed to become “green coffee”, a new token will be created at this supply chain node and exchanged with the older token to represent the commodity in its new form. This tokenization technology can be used to represent other products, such as cocoa, nuts, spices, seafood products and pharmaceuticals.

The ability to create tokens representative of commodity value is groundbreaking in many ways. All stakeholders across the supply chain can own tokens, which hold real value for financial institutions. Banks, suppliers, business owners and the machines themselves can own, pay and collect from each other seamlessly. Commodity financing, plays a significant role in the portfolios of certain financial institutions. Rabobank has welcomed the use of tokens to reduce risk, while fundamentally changing how companies interface with the bank itself. Tokenization technology drastically reduces the transaction cost of global commodities and may also be applied to inventory valuation and the development of smart contracts.

Additionally, by providing the data recorded on the blockchain to banks and microfinancing institutions, it makes financials easier to audit and assess lending risk and therefore, reduces the risk to make individual loans. On the Bext360 platform record includes: how much each farmer has sold, the quality of her cherries, and how many coffee cherry trees she owns. Based on this information and her unique history, the bank may borrow against the value reflected on her blockchain record. It is an innovative solution to address ongoing limitations for the under-banked – something other startups like Tala are trying to address with alternative credit scores.

Blockchain technology can also bring consumers and farming communities together. Using the Bext360 platform, eventually, consumers may tip coffee farmers directly for coffee purchased at their neighborhood coffee shop. Payments to the farmer could be made instantaneously and tracked through the blockchain’s immutable ledger to assure consumers that tips were allocated appropriately.

This is just one of many examples of how blockchain technology can change the world beyond Bitcoin. As more companies across industries deploy teams to experiment on blockchain, I’m confident we will see more use cases for this technology throughout 2018.