Impactech doesn’t Have to be a Game of Whack-A-Mole

Breaking out of the general-purpose toolbox to create an impact-specific blockchain

April 23, 2020

ImpacTech in Practice

The Fourth Industrial Revolution (4IR) — marked by a fusion of the physical, digital and biological worlds — has brought fresh, technological innovation to a vast number of sectors. This revolution has been defined by the rapid growth and development of emerging and converging technologies such as artificial intelligence, robotics, the Internet of things, cloud computing, quantum and blockchain, which disrupt and moderate how we interact with the world around us. These technologies have had major impacts on governments and in civil society but have found especially profound embrace in business.

This technological revolution has incited an evolution of three sectors, in particular: the financial, health and impact sectors. The synergy between these sectors and 4IR technologies has sprouted entire industries bearing portmanteaus like fintech, healthtech, and most recently, impactech. These industries are empowering fundamental changes to the ways in which society interacts with information and services delivered by these sectors.

While the financial and health sectors are both well-established, the impact sector has only recently begun to gain traction and grow roots in our social consciousness. The impact sector, characterized by the pursuit of social and environmental impact alongside financial gains, has come to fruition as a result of consumer recognition that many systems of commerce are deeply damaging, especially to the Global South. Businesses have responded virtually en masse to this shift in consumer demand, hawking products and making claims in line with the ideals reflected in these new priorities. Like the fintech and healthtech industries before it, the impactech industry has grown out of consumer demand for new ways to engage with this sector, arising as a response to calls for better transparency, traceability and verifiability of impact claims.

One technology, in particular, has risen to the fore as especially well-suited to the specific challenges that the impact sector faces: blockchain. In the simplest terms, blockchain technology acts as a digital ledger; a decentralized, record-keeping system that allows any information to be captured and stored. A process of distributed consensus allows companies and communities to make verifiable claims by recording data to an immutable ledger, eliminating the need for a middleman and unlocking exciting new possibilities for certification systems. This has deep significance when we consider some of the most insidious challenges concerning consumers and investors in the impact sector today; including transparency in ethical supply chains, traceability of funds slated to achieve development objectives, and verifiability of impact claims, to name a few.

Recognizing the vast potential for such a disruptive technology in the impact sector, the impactech industry has taken blockchain as its hammer, suddenly finding nails everywhere.[1] However, while the use-value for blockchain technology is wide-reaching, it is endemically over-hyped and employed gratuitously to problems that do not require a blockchain solution. Still, a number of blockchains have been built over the last decade, providing a diversity of specific features for unique, sectoral applications.

Although most blockchains have been built for the needs of the finance sector (where the technology’s canonical application lies), popular, programmable blockchains like Ethereum are widely used as technological infrastructure by many impactech companies. While impactech solutions built on general-purpose blockchains like Ethereum still hold value, they cannot masquerade as the precise tool to confront impact-specific challenges.

The problem is this: many challenges in the impact sector may look just like ordinary ‘nails’ from a top-down perspective. However, once you get a more intimate look, it is easy to see that these nails have a unique shape. Sure, these nails can probably be bashed in with a standard hammer — but a purpose-built tool would achieve a far more precise and lasting result. This analogy describes the case of blockchains and impactech. Though general-purpose blockchains have a level of purchase in confronting impact-sectoral challenges, a purpose-built blockchain with impact sector-specific adaptations can deliver key, contextual advantages.

Topl’s Impact Blockchain

In 2017, Topl was formed in order to fill this fundamental gap in the impactech space, resulting in the world’s first impact-specific blockchain — a blockchain built with the unique needs of the impact sector from the ground, up. Within the broad impact sector, Topl sought to create a blockchain tool that could help companies and communities to prove and monetize their social and environmental impact.

Given that there were no existing blockchain infrastructures that could provide the level of flexibility and specificity that Topl understood was required, we decided to build our own. Combining years of on-the-ground experience in the development sector with advanced blockchain research and development, the Topl team has designed a protocol with a number of unique impact-specific features and functionalities.

Any blockchain technology is the sum of many parts. With this in mind, Topl’s blockchain protocol introduces four, predominant impact-specific features: Modular chain programs (MCPs), unspent transaction output (UTXO) model, proof of stake (PoS) consensus, and incentivized sharding. These features, described in full below, have been independently researched and developed in order to fit together cohesively, creating a uniquely curated impactech.

Modular Chain Programs (MCPs)

Topl’s MCPs can be understood as adjustable, component smart contracts.[2] Functionally, smart contracts are programs embedded in a blockchain that digitally facilitate, verify and execute the movement of any asset (such as money, property, or shares) transparently, eliminating the need for an intermediary. Like smart contracts, MCPs are verifiable and self-executing, providing a digital repository of rules applied to multiple variables in a conditional arrangement. Unlike smart contracts, MCPs are designed to be modular. This modularity allows for both rules and variables to exist as separate components which can be re-arranged and combined to broaden applicability across a wider range of functions, while also allowing each unique segment to be smaller and therefore more succinct and secure.

Let us consider a simplified, illustrative example of the value of MCPs in a sustainable supply chain. The point of transformation in sustainable supply chains is often a major point of weakness, where non-sustainable inputs can be added in during processing. For example, with little oversight, non-sustainably grown coffee beans may be added to the product as it moves from harvest to roast, in order to add bulk to the end product. MCPs allow us to put transformation rules in place, which can constrain and make this process more transparent, a key use value of Topl’s impactech. As such, a production rule could be established at this point of transformation to ensure production is capped at a certain amount, and thus avoid fraudulent claims.

Now, what happens when we want to apply the same or similar rule to another production line — say organic cotton or ethical diamonds? While it would be possible to begin with a template and substitute variables (names of inputs and outputs, numbers, etc), we encounter a problem if our supply chains are not exactly identical in process and require logically different rules.

Dealing with templates is somewhat of an “all or nothing” proposition. You can either use a smart contract template as it comes to you, or you can begin editing and lose the provided guarantees of security and correctness. In contrast, Topl’s modular MCPs allow users to mix and match different, smaller “rule boxes” to piece together the functionality they need from blocks of logic. This provides users with the safety of reliable templates embodying the community best-practices, whilst remaining sufficiently flexible and extensible to cover the wide range of applications that Topl seeks to support.

Unspent Transaction Output (UTXO) Model

UTXO is a record-keeping protocol that organizes a blockchain’s ledger to ensure that funds are not spent twice. Applying a UTXO model provides a level of traceability that enables the tracking of an asset itself, rather than balances (as is done in account-based models, such as the one used by Ethereum). While both models provide track and trace visibility, UTXO models allow for a higher level of privacy and scalability.

A UTXO model naturally enables the reconstruction of the history of an asset, providing straightforward tracking of the asset itself, due to its input-output association model. This provides natural visibility of both the source of input as well as the destination of output for any asset, creating a digital trail of that asset’s journey. In an impact context, the ease of this feature is especially valuable for traceability applications, where access to a historical thread can demonstrate a product’s provenance and its journey along a supply chain. This feature allows Topl to bring simplified traceability to the movement of funds, goods, and impact outcomes.

While transparent traceability of funds and goods are common applications of any blockchain technology, Topl is one of the first to apply it to the concept of tracing impact itself. A UTXO model is critical to this novel application, enabling the use of what Topl calls Impact Credits (ICs). An IC is a tokenized unit of impact, similar to a carbon credit, which enables impact outputs to be transformed into an asset class. As described above, the UTXO model provides a clear history of an IC, creating a clean record of the instantiation and movement of each token. At the same time, a UTXO model is vital to the second stage of an IC’s life cycle, when it can be purchased or traded. Without knowing the entire length of history of an IC, it is impossible to understand how many times it has been traded, and thus how “stale” it is, which has a direct impact on its valuation.

Topl built our blockchain to function as a true impactech, with the aim of curating a technology that can facilitate the creation of impact. ICs are a digital manifestation of this goal, and a UTXO model underpins their ability to incentivize impact creation compared to simply claiming and re-claiming impact that has long ago been produced.

Knowing the complete history of an IC, as captured by a UTXO model, enables the devaluation of an IC as it travels further away from the point of impact creation, allowing its value to deteriorate naturally each time it is traded. This incentivizes the purchase of ICs at the source, as a direct investment in impact creation, while still allowing ICs to be bought and sold more than once, creating more opportunity and flexibility in how they can be used at a micro, local, national, and global scale. This model has been informed by carbon credits, which incentivize investment in sustainability projects by enabling the purchase and trade of associated credits at market value, which can be used to offset greenhouse emissions.

Proof of Stake (PoS) Consensus

The consensus protocol is a key feature of a blockchain. It is an algorithm that is used to ensure that the entire network collectively agrees with the contents of the ledger, thus validating transactions and providing the verifiability for which blockchains are relied upon. While the field is ever-expanding, there are currently three families of consensus protocols available to blockchain designers: Proof of Work (PoW), Proof of Stake (PoS) and Practical Byzantine Fault Tolerance (pBFT). Each type of protocol presents both strengths and weaknesses.

While PoW is the most developed in the blockchain space — due largely to its application in Bitcoin — it is incredibly energy-intensive, as the “work” that network miners must do in order to compete with each other expends vast amount of computational power. According to the Bitcoin Energy Consumption Index, the annual carbon footprint of Bitcoin mining is comparable to the carbon footprint of Denmark, and consumes as much energy as Austria. These numbers, owing to Bitcoin’s PoW protocol, are deeply troubling. Employing a consensus protocol that produces such a heavy detriment to the environment is not in line with Topl’s values.

Further, the development of highly specialized, cryptocurrency mining equipment since has pushed PoW-powered networks to stray far from the original, decentralized and democratic vision of Bitcoin. This has caused PoW systems to become increasingly centralized, where large-scale operations maintain a significant advantage for gaining control over the network.

In an effort to remain transparent and open in everything we do, Topl chose to make our blockchain permissionless. This precludes the incorporation of a pBFT consensus protocol, a more energy-efficient system than PoW but one dictated by a voting-based system, which designates specific validator nodes in an effort to regulate malicious behaviour. The tiered validator system inherent to pBFT algorithms promotes exclusivity rather than inclusivity, effectively controlling which actors engage with the consensus protocol and thus participate on the blockchain at any given time. As a pBFT model is aligned with a permission network approach, it may be a good fit for large centralised companies such as Google; however, it lacks the value of inclusivity that Topl believes is necessary for our technology to align with our values.

Fortunately, newly developed PoS systems offer a promising alternative for both energy-efficiency and inclusivity. Topl is currently performing significant research and development in order to be one of the first to implement a provably secure PoS consensus protocol, Ouroboros Genesis. As a result of this near-future implementation, Topl’s blockchain will consume three orders of magnitude less energy than the leading blockchains today and forgo the centralized trust required in pBFT implementations. Topl is building our blockchain confidently with this emergent PoS algorithm, as our research team is engaged in simulating and testing the security limitations of Ouroboros. Topl’s blockchain will thus incorporate a consensus protocol that is more secure, energy-efficient, and inclusive than other general-purpose blockchain options.

Incentivized Sharding

A big hurdle keeping blockchains from achieving their full potential is scaling: the challenge of growing exponentially while keeping the network fast, secure and computationally light-weight. As networks scale, they become less efficient and heavier due to the increasing amount of data that must be processed by each node. The emergent concept of sharding, a solution traditionally used in database management, relates to the separation of information carried through the network into ‘shards’, or segments containing their own piece of state and set of transactions.

Topl’s incentivized sharding mechanism will enable the blockchain to be split across select nodes that choose to maintain different components of the blockchain’s global state and history, in exchange for charging what is known as “rent”. In this way, Topl’s blockchain can remain light-weight for our users and therefore more accessible, even to those with less than perfect internet connectivity and older or lower-tier mobile devices.

While sharding is still only an emergent concept in the world of blockchain, Topl has already designed the core of its infrastructure specifically to facilitate its eventual inclusion. In order to facilitate this, Topl’s transactions and smart contracts (MCPs) follow an extended UTXO model. In addition to the advantages described previously, this fundamental design choice simplifies the process of creating shards, as it can be more logically segmented, with separate chains of related transactions and MCPs forming natural shards.

The Sum Of All Its Parts

By engaging in emergent technological methodology and application, Topl is able to offer an innovative, purpose-built blockchain that combines the most promising, cutting-edge features available to the technology. Better yet, not only is the resulting product industry-specific, but these innovations have also created a better blockchain, making it more flexible, secure, energy-efficient, inclusive, lightweight and accessible than any other on the market today.

While the 4IR has resulted in a new wave of emerging technologies sweeping across industries, many impactech companies have only engaged at a surface level. Applying existing technological infrastructures, like general-purpose blockchains, to confront sectoral challenges can certainly add value, but it can also be a missed opportunity. Seeing the gaps and embracing the space to construct a purpose-built technology provides an opportunity to incorporate the newest advances in the field in a holistic and targeted way. The results may not only produce a better tool for the context but a better tool in general. Afterall, impactech doesn’t have to be a game of Whack-A-Mole, does it?

[1] As Abraham Maslow wrote in 1966, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

[2] Topl does not use the language of smart contracts, as it is widely understood this name is not representative of these program’s features; given that they are neither smart nor are they contracts.

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Image via Shelbi Ragsdale

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