Blockchain in Brazil

Brazil Responds to the Demands of the 21st Century with Blockchain Technologies

In an effort to integrate its economy and clean up its bureaucracy, Brazil is eager to implement blockchain strategies. Unique among all Latin American countries, and in the world, Brazil is bounded by 4,650 miles of Atlantic coastline to the east, and the impenetrable Amazon basin and Andes Mountains to the north and west. It is unique linguistically, geographically and culturally. Its large, disparate population makes it well suited to cutting edge projects using distributed ledger technologies (DLT), called blockchain.

The Grinding Brazilian Political and Economic Machine is Ripe for Technology

Blessed with rich natural resources and a varied economy, Brazil is the 9th largest economy by GDP in the world. Burdened with a large and entitled governing class, it has long suffered from a massive government bureaucracy.

Brazilian economists have reframed economic disparity as a tremendous opportunity to bring its 30%-of-GDP shadow economy on line by offering bank credit cards to small consumers, and convert its agricultural and industrial workers into a consumer class.

A Commitment to Reforms

As of 2019, 86.82% of the Brazilian population lived in urban areas, 51% had completed primary school and 15% had achieved higher education. Following the tribulations of hyperinflation and a military junta throughout the ‘80s, economic reforms in Brazil began in earnest in the ‘90s. The monetary system has been skillfully controlled since then, but Brazil is still working to overcome corruption, runaway government spending, and banking inefficiencies. It has invited foreign investment by privatizing government enterprises and shoring up national infrastructure like highways, rail and the mobile telecommunications system.  They’ve provided stimulus to exports, internal trade and consumerism.

Recognizing the burden of a bloated bureaucracy, the federal government continues to streamline laws and regulations in an effort to promote business and encourage foreign investment.

A Good Fit

Brazil is taking the opportunity to leapfrog over 20th century digital solutions, directly to the highly cost effective blockchain strategies of the 21st century.

Brazil’s outsized bureaucracy is useful in politics; the party in power distributes government positions to its supporters.  But the high cost of doing business, the time wasted, the ongoing paperwork, etc. ranks it 138th of all nations for ease of doing business and making foreign investment.

All this means that Brazil is ripe for pilot projects designed to streamline red tape. The amount of paperwork and time consumed is no longer acceptable in today’s climate, but the mire has been intractable.

Distributed ledger technology, DLT or “blockchain,” has the potential to eliminate the lingering traces of corruption in the economy, and Brazil is a great testing ground for its many potential uses.
 
Leading the Way into the 21st Century

The mention of “crypto currency” brings to mind images of shady deals involving contraband and money laundering. But bitcoin transactions, which are made possible by the blockchain architecture, have ultimately been transparent. Some of the bad actors have been traced and apprehended thanks to the transparency of blockchain ledgers. This transparency is key to the success of all virtual, or crypto, currencies.

Far from being cryptic, crypto currencies are so transparent that distributed ledger technology is set to be adopted by the international banking industry. Today, 78% of logistics companies are considering blockchain tech, but most are still waiting for consensus with their partners on the global stage.

"Blockchain and distributed ledgers may eventually be the method for integrating the entire commercial world's record keeping," said Saurabh Gupta, vice president of strategy at the IT services company, Genpact.

Many banks are turning to the technology, including J.P. Morgan, which created a blockchain network to reduce the number of participants needed to respond to compliance and other data-related inquiries that were delaying payments in its equities swap contracts.

Blockchain architecture was most famously implemented to create crypto-currencies to take the place of hard currency, but it has many other possible applications, including monitoring the supply chain of critical or certified produce like lettuce or beef, or counting votes in an election.

Time Lost is Money Lost
In the international banking system many, many transactions take place. In 2017, 123.5 billion card-based transactions transpired in the US alone.  It can take days, and sometimes weeks, to verify each transaction.

Before DLT if one person wants to send money to another, it must go through a financial proxy, such as a bank or online payment system like PayPal. That proxy acts as a trusted third party to facilitate the transaction.

Banks are motivated to improve the speed that money moves within the global banking system. If a transaction takes a week or two to process, each organization involved in the transaction must maintain its own database and communicate with the others throughout the process and each financial institution must set aside pending money that could be invested more productively.

According to Forbes.com, financial giants like Citibank and Goldman Sachs employ small armies to constantly check—and cross-check—every step of inter-bank transactions.

Enter Blockchain Technology

Blockchain, or distributed ledger technology, is not a specific technology. It is a way of organizing data to be highly secure and transparent.

Quite literally, a block chain is a series of individual transactions or other information called blocks, arranged in a chain.  Each block has a unique identity and contains all information pertinent to a transaction. When all the information in a complex trade or banking relationship is kept in one blockchain, all parties can see and agree about what is going on. It eliminates the need for all the checking and verifying because all parties are on the same ledger. For example, that ledger does not reside with any one of the entities in the chain of possession of organic tomatoes from Mexico but resides in the form of an identical copy of the blockchain ledger with each participant: the grower, distributor and retailer.

In the process of recording a transaction into a block, various nodes on the peer to peer blockchain network must reach a consensus that the transaction is valid. After examining the existing chain of transactions and confirming the configuration of the previously existing chain, the new block is added by the distributed network.

Once verified, the new block is added to the chain, and the resulting new chain is broadcast to every node in the network.  Because every node has a copy of the entire distributed ledger, no attempt to fraudulently change the existing ledger could added to the chain, essentially keeping every node on the network honest.

Compared to current banking practices, blockchain technology is much faster, creating a record of all transactions in real time. Like words in a sentence, if one block becomes corrupted, the sentence no longer makes sense. 

Pilot Projects in Brazil

According to Carlos Rischioto, interviewed on the “Brazilian Report” podcast in November 2019, there are several blockchain based pilot projects currently being sponsored by the Brazilian government.
He assures us that “Even if someone could find a way to change or hack the information, it has been duplicated to every member of the network, making it easy to discover when my version has been corrupted. There is a constant checking mechanism carried out by multiple nodes with each transaction.  The entire chain is verified.”

In Brazil some worry that blockchain tech could endanger the large Brazilian notary class, which includes five kinds of notaries. The researchers hope to use distributed digital technology to take the burden of record keeping off the notaries and allow them to do their jobs faster. Each notarization becomes a block in a chain of records, reducing the possibility of error because the chain of transaction records is true and incorruptible. In addition, the entire chain of records is visible to all users of the ledger.

By removing the editability of the ledger, the possibility of corruption is practically eliminated. And it saves time which, in business, is money.

A couple of successful projects are using blockchain to verify land ownership and building ownership in Brazil. They have reduced the time needed to perform the check from 45 days to a mere 20 minutes! This kind of reform brings hope for a new, streamlined and agile Brazil for the 21st century.

Mostra tua força, Brazil!
Show us your strength, Brazil!