Argentina, one of the world’s leading food producers, is pioneering the creation of cryptocurrencies backed by agricultural assets.
The phenomenon is possible thanks to a process called tokenisation, which is the ‘transformation’ and representation of a real object in the digital world through blockchain networks.
Blockchain is the key to each of these initiatives. The technology is designed to manage a shared online record of data that is verified, secure and unchangeable. It is a shared, immutable ledger that may revolutionise the global economy.
The use of this technology also enables other innovations in agriculture, including making the production chain more transparent and traceable.
The first step towards the issuance of cryptocurrencies in the Argentine agricultural sector was taken in 2020 by BitCow, a firm that launched its own digital currency representing heads of cattle. This year came Agrotoken, proposed for the main agricultural commodities, such as soybeans, corn and wheat.
The main difference between these types of cryptocurrency and other well-known and popular forms – such as Bitcoin and Ethereum – is that they are backed by real-world assets. The latter operate without a real asset behind them, so their price can be very volatile, depending on the changing moods in the market.
“Cryptocurrencies arising from projects such as BitCow or Agrotoken are ‘stablecoins’, whose value is linked to another asset through a parity relationship,” said Federico Orsi, head of corporate finance at the FinEco consultancy firm.
For Orsi, this type of initiative is “here to stay”, as it is just one of the potential applications of the “blockchain revolution” in agriculture.
“What is recorded on the blockchain is never altered again. This changes the landscape of many industries and, sooner rather than later, it will end up being adopted by all,” said Lisandro Lapunzina, director of innovation at Grupo América, a business association based in the city of Rosario.
BitCow, its website promises, allows anyone to “become a livestock producer without leaving their home”.
“Our aim is to democratise investment,” described Guillermo Villagra, one of the cryptocurrency’s founders. “There are many people who would like to participate in the farming business, but because it is a business of scale, they are left out. We open up the game, giving the possibility of participating in up to a tenth of a real asset, which in this case are heads of cattle.”
To date, the venture has already tokenised 2,000 cows – a marginal amount of Argentina’s total herd, which is estimated at 52 million head.
Each animal represents one BitCow, as the cryptocurrency has been playfully christened. The company functions as an intermediary, guaranteeing the connection between the investor and the real-world holder of the asset. Therefore, it requires agreements with agricultural producers, which are executed through smart contracts established under blockchain technology.
This changes the landscape of many industries and, sooner rather than later, it will end up being adopted by all
For now, the service is only available in Argentina, but their business plan details their intention to soon reach other leading livestock countries, including Brazil, Uruguay, Australia and New Zealand. “In the time we’ve been operating, we have already reached 10,000 people who have gone through our platform,” Villagra added.
The cryptocurrency’s price is based on an index that takes into account the same variables that apply to the traditional market, from the price of live cattle to maintenance costs. At the time of writing, one BitCow was worth 180,000 Argentine pesos, around US$1,770.
Grains and oilseeds
Agrotoken is the first tokenisation platform for agri-commodities. It currently has two cryptocurrencies – SOYA and CORA, backed by soybeans and corn, respectively – and is about to launch a third, linked to wheat.
“Each token represents one tonne of the same grain,” explained Patricio Greco, the company’s COO.
When delivering their produce to a collection centre, producers can choose to receive SOYA (in the case of those who work with the oilseed) in a virtual wallet, which will be used when making a transaction with any of the businesses that use the system. These include, for example, fertiliser manufacturer Rizobacter and fuel supplier Puma Energy.
tonnes of tokenised grain has so far been processed by Agrotoken
At the current stage, participation in the platform is restricted to domestic agricultural actors: producers, stockpilers and suppliers. “To date, transactions have been made for the purchase of vehicles, energy charges, seeds and practically all services associated with the sector,” said Greco, who explained that they have already accumulated some 10,000 tonnes of tokenised grain. And there is much potential for growth: according to projections by the Rosario Stock Exchange, the 2021–2022 growing season could see a total of 140 million tonnes of grain produced in the country.
“In the Argentinean countryside, the concept of grain swaps is very common,” reflected Lisandro Lapunzina from Grupo América. “It is hard to see it from the outside, but producers often think of their inputs or purchases in terms of a certain number of truckloads of grain. At the end of the day, the currency is the grain. Technology allows us to perfect that.”
The value of the cryptocurrency is associated with indices published by the Matba Rofex group, which is in charge of calculating and publishing financial and agricultural indices. They follow, in real time, the price of grains on the Rosario exchange, the main commodities trading market in Argentina.
Like BitCow, Agrotoken expects to expand its frontiers in the short term. Plans include not only expanding beyond borders – Brazil and the United States are the first places targeted – but also with respect to the type of assets tokenised: “We are already talking to several strategic players in the minerals and energy sector,” Greco said.
For Juan Pablo Aguado, CBO of Bitex, which specialises in providing financial services that operate under blockchain technology, the cryptocurrency phenomenon is just the tip of the iceberg, in terms of what is to come in the agricultural sector. “With blockchain, you can certify the quality of food, to extreme levels,” he said.
This new technology is a large, decentralised database, which generates greater trust between all parties as it is inalterable.
Food companies are starting to adopt blockchain in their production processes, to account for the origin of their goods. Its use is increasing due to new requirements that could be established by countries faced with increasing threats of deforestation.
According to the Food and Agriculture Organization of the United Nations, between 1990 and 2020, the world lost 420 million hectares of forest due to the expansion of the agricultural frontier. As a consequence of this alarming figure, the European Commission recently proposed a regulation to require certain commodities to be deforestation-free.
“The blockchain is the vehicle that could make it possible to show the traceability of production,” said Diego Heinrich, founder of Carnes Validadas, a technology platform aimed at actors in the meat chain, which is already used by more than 200 livestock producers in Argentina. In 2022, the venture plans to land in Uruguay, Mexico, Bolivia and Paraguay.
Though the world is yet to get fully onboard with the bitcoin phenomenon, it continues to produce disruptions that, some suggest, herald a fourth industrial revolution, and all as the result of the impact of the blockchain network. And even the agricultural sector – one of the most important sectors to the Argentine economy – is beginning to feel its effects.