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Blockchain

A German GovTech solution which is being used is TruBudget: TruBudget is a software for transparently, securely and simply processing development projects. It uses blockchain technology, which can help reliably document each and every step for procurement, contract drafting, tender issue and payment processes during the execution of a project, for example. This documentation is transparent and cannot be manipulated subsequently.

At a glance

Blockchain technology is a new form of data storage. Transactions are processed, verified, and stored in a growing list through a distributed network of computers. This ensures a high level of data security and transparency. Transactions can be any type of information, such as financial transactions, contracts, shares or land register entries. Compared to conventional databases, blockchain has three major advantages:

  1. The database entries are not located on a single server, such as from a bank or authority, but are distributed simultaneously and completely to many computers. This makes the data in the database more secure against manipulation and attacks, since hackers would have to attack all computers running the blockchain.
  2. All entries are cryptographically encrypted and cannot be changed. New information is added to the existing data block, but old information is never overwritten. The result is a chain of blocks – a blockchain. The result: Changes remain traceable and transparent. Subsequent manipulations are not possible.
  3. Despite its transparency, blockchain protects the identities of the users – instead of names, there are only codes for each transaction. The traceability and transparency of the entries ensures trust between users and enables transactions between strangers without the need for a central control authority, such as a bank or notary.

Thanks to these advantages, blockchain technology is suitable for use in a wide range of cases for the 2030 agenda. This is feasible, for example, for forgery-proof education certificates, smart power grids, parametric climate risk insurance and supply chains with greater transparency.

 

Challenges of blockchain – the first mile problem

In addition to the potential of blockchain technology for development cooperation, challenges also arise from its application. A blockchain is only as good as the data fed into it. What is stored on a blockchain is safe from manipulation, but blockchain technology cannot check the quality or correctness of the data originally fed into it. For example, a university can award a degree to a graduate and store it in a forgery-proof manner using blockchains. However, if the person in charge makes a typing error when entering the data and the degree is therefore saved incorrectly, the graduate will, in the worst case, be left with no degree or the wrong degree. This example demonstrates that blockchains can lead to the creation of trust in educational certificates by making them impossible to forge. However, incorrectly stored data can also have negative effects on users. To solve the problem, analogue controls, which still carry a risk of manipulation, or automated data generation (e.g. by sensors or interfaces) are necessary.

Special challenges in supply chains

Due to international trade processes, the individual production steps are distributed worldwide. As a result, supply chains are often difficult to trace and there is often no precise knowledge about the origin of a product. A typical application of blockchain technology is therefore the creation of a traceable supply chain, as the respective production and processing steps can be made visible in the form of transactions of the respective goods. Through blockchains, the individual parties can be identified and must assume greater liability for their misconduct. Nevertheless, in addition to this technical solution, cooperative behaviour of the parties is also necessary in order to really provide more transparent and reliable supply chains. This is because products registered on blockchain technology can be exchanged in the real process without being noticed by the system (i.e. the virtual representation of the process). For example, two virtually distinct water bottles are not distinguishable from a particular manufacturer’s brand in real terms. Although some companies label packaging with a product-specific QR code to precisely identify each individual water bottle, this method can also be manipulated: the affixed QR codes or the contents of the bottle can be exchanged in the manufacturing process along the supply chain. Controls are therefore also necessary here

Blockchain Partnerships

Blockchain-based applications have the potential to address existing challenges in development cooperation and to contribute to the achievement of the Sustainable Development Goals. For example, blockchain technology can help to make supply chains and administrative processes more transparent, reduce corruption and trace back the use of financial resources.

With the Blockchain Partnerships initiative, The Federal Ministry of Economic Cooperation and Development (BMZ) promotes a strategic network of actors in the blockchain ecosystem. Partnering up with the private sector, civil society and the political sector, it aims at further developing the use of blockchain technology in German development cooperation. To this end, innovative methods and formats (including BMZ digilab) are used to scale up new and existing projects that create added value.

Current situation

Blockchain applications are currently being developed in several target areas of the BMZ digitalisation strategy. These are still in the initiation or start-up phase. If they prove themselves and are scalable, the projects will be continued.