b_verify: a blockchain protocol designed for emerging markets

From land title to agricultural supply chains, an open-source approach to low-cost verification of public records at scale

b_verify is an open-source protocol for issuing and updating verifiable records using a public blockchain. The protocol was inspired by the challenges of land title and agricultural finance in emerging markets. We have built a proof-of-concept and demonstration of how b_verify can be used in the digitization of warehouse receipts to improve agricultural supply chain finance. We developed b_verify as graduate student researchers at the MIT Media Lab’s Digital Currency Initiative and MIT Sloan, with support from the Inter-American Development Bank and the Legatum Center for Development & Entrepreneurship. We conducted field research in Mexico and Ukraine in coordination with the Mexican government and the World Bank respectively. b_verify is a not a startup, but an open-source contribution to governments, development banks, and companies interested in using it to improve systems for public records.

The b_verify pilot kit

  • Code: open-source on Github. Includes proof-of-concept implementation of a warehouse receipt inventory transaction registry, complete with mobile / desktop applications and Internet-of-Things (IoT) integration. Corresponds with the paper described next.

  • Computer science paper introducing the b_verify protocol: b_verify: Scalable Non-Equivocation for Verifiable Management of Data. This is the masters thesis of Henry Aspegren addressing the problem of equivocation, which allows attackers to present inconsistent data to users. The global economy relies heavily on verifiable and transferable records of property, liens, and financial securities. Equivocation involving such records has been central in multi-billion-dollar commodities frauds and systemic collapses in asset-backed securities markets. b_verify addresses this problem by providing the abstraction of multiple independent logs of statements in which each log is controlled by a cryptographic keypair and makes equivocating about the log as hard as double spending Bitcoin. Clients in b_verify can add a statement to multiple logs atomically, even if clients do not trust each other. This abstraction can be used to build applications without requiring a central trusted party. b_verify can implement a publicly verifiable registry and, under the assumption that no participant can double spend Bitcoin, guarantees the security of the registry. Unlike prior work, b_verify can scale to one million application logs and commit 1,112 new log statements per second. b_verify accomplishes this by using an untrusted server to commit one hundred thousand new log statements with a single Bitcoin transaction which dramatically reduces the cost per statement. Users in b_verify maintain proofs of non-equivocation which are comparable in size to a Bitcoin SPV proof and require them to download only kilobytes of data per day. We implemented a prototype of b_verify in Java to demonstrate its ability to scale. We then built a registry application proof-of-concept for tradeable commodity receipts on top of our prototype. The client application runs on a mobile phone and can scale to one million users and ten million receipts.

  • Operations finance paper on using b_verify to signal creditworthiness: Blockchain and the Value of Operational Transparency (TIMES finalist for best working paper in the Journal of Management Science and featured in Knowledge@Wharton: “How a New Technology Can Disrupt the Global Supply Chain”). In this paper, we develop a new theory that shows signaling a firm’s fundamental quality (e.g., its operational capabilities) to lenders through inventory transactions to be more efficient— it leads to less costly operational distortions—than signaling through loan requests, and we characterize how the efficiency gains depend on firm operational characteristics such as operating costs, market size, inventory salvage value and failure probability. Signaling through inventory being only tenable when inventory transactions are verifiable at low enough cost, we then turn our attention to how this verifiability can be achieved in practice and argue that blockchain technology has the potential to enable it more efficiently than traditional monitoring mechanisms. We introduce b verify to demonstrate how this can be implemented in agricultural supply chains in a cost effective way. Our paper identifies an important benefit of blockchain adoption—by opening a window of transparency into a firm’s operations, blockchain technology furnishes the ability to secure favorable financing terms at lower signaling costs. Furthermore, our analysis of the preferred signaling mode sheds light on what types of firms or supply chains would stand to benefit the most from this use of blockchains.

  • Working paper on warehouse receipts including field research in Ukraine: “A stakeholder analysis of agricultural finance in Ukraine: Prospects for blockchain-based warehouse receipts.” We introduce the warehouse receipt as a bearer financial instrument asserting the ownership of goods held in a storage facility. In the agricultural sector, especially in emerging markets, warehouse receipts have been found to improve access to credit and pricing power for farmers. But these benefits are stifled by high profile frauds, high transaction costs, and questionable custodianship. In this paper, we describe our primary and secondary research on Ukraine and evaluate the country as a prospective pilot location for b_verify. We describe the process of depositing goods and the issuance of a warehouse receipt, as observed in a full system walkthrough of a major Ukrainian storage facility, and highlight vulnerabilities. We synthesize insights into the agricultural commodities trade based on stakeholder interviews. We conclude by recommending Ukraine as a strong prospect for a pilot of the b_verify protocol.