A Houston company is building a blockchain network to verify that products marketed as fair trade or sustainable are actually sourced from companies paying their workers living wages or using environmentally friendly practices.
“How are we tracking a diamond moving from mine to marriage?” asked Topl co-founder Kim Raath. “How are we tracking coffee moving all the way from the bean to the brew? How do we really know that the claims all of these certification bodies are making are really provable and they have not tampered or manipulated the information?”
The Topl founders think the transparency and security of blockchain technology, where each transaction and individual person using the technology are recorded on a secure public ledger, can provide answers to these questions and others, helping companies to prove and monetize their ethical and sustainable practices.
It’s tapping into both an increasing number of companies developing or using blockchain technologies for purposes other than cryptocurrencies, such as Bitcoin, and an increasing interest in social and environmental consciousness, especially among younger people. According to Fairtrade, a nonprofit that certifies products with ingredients meeting its standards for providing better pay to farmers and workers, global sales of products with its Fairtrade certified label rose by 8 percent to nearly $9.2 billion in 2017.
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The company was launched in 2017 by Raath, James Aman and Chris Georgen, Rice University doctoral and undergraduate students. It recently raised $850,000 to grow its 12-person team and further develop its technology. Think of Topl’s blockchain as railroad infrastructure, and think of other organizations as train stations that use the railroad to conduct business.
One of these stations, for instance, is used by a Dutch spice company that’s tracking nutmeg.
This tracking starts with a farmer who brings nutmeg to a processor. A digital version of that nutmeg is created on the blockchain system and given a unique ID, which is a string of letters and numbers. The processor inputs how many pounds of nutmeg were delivered, and then a text message is sent to the farmer asking for verification that he or she was paid. That digital nutmeg then receives a checkmark indicating payment.
The digital nutmeg is consulted, and additional information such as quality inspection is added, as the physical nutmeg moves from processor to exporter to company warehouse to grocery store. It is verified to be the same batch of nutmeg based on its unique blockchain ID and weight. If an originally 20-pound bag of nutmeg arrives at the exporter as a 40-pound bag of nutmeg, it could raise red flags that someone in the supply chain mixed in cheaper nutmeg purchased from farmers who weren’t paid fair wages, Raath said.
Companies can conduct audits to check for such cases of fraud, but Raath said this in-person process is more expensive and occurs every few years, as opposed to Topl’s real-time technology.
“Blockchain is good at proving and validating,” she said.
Topl’s technology isn’t limited to physical products. Raath said it could also be used to verify that monetary donations or financing are used as intended. For instance, a contract could be written into the blockchain technology that would only distribute money to projects after certain milestones were met.
The Texas Coastal Exchange uses Topl’s blockchain for its carbon storage program. The Houston nonprofit asks individuals and small corporations to make donations to offset their carbon footprint. These donations are turned into grants given to farmers who protect the grasslands or marshlands that better store carbon.
Jim Blackburn, a Rice University professor, environmental lawyer and founder of the Texas Coastal Exchange, said blockchain is a transparent way to keep track of farmers offering up land for carbon storage, the overall acreage of land available and how much of that land is already spoken for by people or corporations that paid to offset their carbon footprint.
He said Topl could be an especially useful tool when it comes to corporations buying carbon storage. The blockchain could ensure bad actors don’t sell their land’s carbon storage capabilities to multiple companies seeking to offset their footprint, meaning those companies would create more carbon than that one plot of land could absorb.
“Once you start talking to major oil companies, major chemical companies about sequestering their carbon footprint, you’re going to have to be able to show the outside world that this is a legitimate transaction,” Blackburn said.
Topl, named for the founders’ studies in mathematics, specifically the field of network topology on how communication networks are arranged, charges a fee each time that nutmeg is moved or each time a money movement is tracked. To raise the $850,000, Raath approached people on the sidelines of Houston’s tech ecosystem: wealthy individuals who have money to invest but don’t typically stray from energy, real estate or the stock market.
Many Houston investors and startup assistance organizations believe tapping these individuals could open a new funding stream. Raath was successful in this approach by working with Rice University faculty and alumni to hold networking events aimed at educating investors. She also approached mentors who would later become investors.
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“They come in as a mentor and become an ambassador because they also now understand the technology,” Raath said, “and they come from either the clean energy space or they come from the social impact space or they come from industries that we can expand in. So through this we’ve actually gained a lot of different customers.”
Investor Gerald Smith, previously chief financial officer at a different Houston blockchain company, introduced Topl to the Maroon Group, which consists of 11 people with experience in the energy sector who primarily invest in energy deals, real estate and small businesses.
He said Topl became many of the individuals’ first investment in a tech startup. They were impressed by Topl’s humble attitude, realistic fundraising target and team of employees and advisers.
“Now that they have invested, we need Topl to win,” he said. “If Topl is successful, that will create the flywheel to make investors that typically don’t invest in this space to take a second look.”