NFTs Can Bring Immutability and Transparency to the Halal Supply Chain

The concept of halal goes beyond identifying the sources of food and beverages; rather, halal is about the processes and standards that are related to cleanliness, safety, and quality assurance. The halal certification process is the method to certify that products have met specific Islamic dietary guidelines. Halal certificates are issued by and accredited by an international halal organization.

Under the current halal ecosystem framework, consumers trust halal-specific labeling, which heavily depends on local suppliers and religious leaders. Despite the efforts of leading halal organizations such as Indonesia’s Ulema Council and the Gulf Cooperation Council, many certifying organizations continue to remain unregulated, thus contributing to decreasing consumer confidence of what adheres to Islamic guidelines and what does not.

This is particularly concerning given the projected compound annual growth rate of the worldwide halal food industry being at 10.83% from 2020-2027.

This opens a significant opportunity for blockchain-enabled non-fungible tokens (NFTs) within the halal supply chain. By integrating immutable technology within the halal supply chain, consumers can investigate and ensure increased confidence in halal foods, providing security, traceability, and responsibility for the entire halal food ecosystem.

NFTs, more commonly known in popular culture for their applicability in collectible items like art and video game objects, have a further use case in halal supply chains.

NFTs function as immutable digital signatures, providing authentication and verification to users without a need for a third-party organization for certification.

For example, a halal product might derive its authentic nature from either its consumer-facing retailer or from a specific type of labeling, both of which lend credibility to that specific good. However, both sources of purportedly true information are susceptible to corruption.

By pairing a physical asset with a digital twin, a consumer could utilize a QR code to verify an item’s transaction origin by examining the signing address, providing the consumer the ability to trace the entire item’s production process through the blockchain.

NFTs are also present a potential avenue for introducing cryptocurrencies’ underlying technologies to demonstrate clear benefits for Muslims through halal supply chain use. This is particularly important due to the November 2021 ruling by Indonesia’s Ulema Council banning cryptocurrencies due to elements of uncertainty and wagering.

NFT usage within the halal supply chain could also help to increase utilization of tools like smart contracts to adhere to Islamic principles, with two examples being zakat and ushr, Islamic taxes on savings and land, respectively.

Tokenizing the supply chain utilizing NFTs to provide trust and security can help to eliminate counterfeit goods and deceptive marketing practices, with the use of NFTs in the halal supply chain providing additional security, traceability, and responsibility within the halal food marketplace.

In terms of security, the transfer of information between supply chain actors would be made immutable, with NFT data being stored in the blockchain network through a smart contract preventing information from being altered without authorization. With everything being recorded in each of the nodes, the compromise of an entire network would be nearly impossible.

Traceability for the end consumer is another promise of NFTs within the halal supply chain. NFTs offer this traceability through distributed applications, also known as dApps, which track products throughout the supply chain to ensure data integrity. The addition of Internet-of-Things devices and 5G networks would make this entire process increasingly transparent, automated, and error-free.

With NFTs, consumers can also determine who oversees a specific product at any given time. Additionally, to issue an NFT, both parties must enter into a liability agreement, thus providing irreputable proof that both parties agreed upon a specific amount of goods to be sent and received.

This further verifies a halal good’s origins and who must be held accountable should anything happen to a specific good.

Halal supply chains are just one way where NFTs can make an impact on the overall supply chain market. Tokenization of supply chains can be applied at a large scale, from TextileGenesis’ February 2021 utilization of digital tokens to track clothing from fabric to finish, to Starbucks’ August 2020 move to ensure ethical sourcing of coffee beans.

While this may require significant amounts of technology investment and education, the use-cases and benefits to newfound supply chain transparency are simply irreplaceable.

In the same vein, this is not to say that NFTs are the end-all-be-all for a true halal supply chain solution. Risks such as inaccurate inventory data due to errors in data entry, scanning, and tagging remain issues, as well as a counterfeit product introduced to the supply chain at its origin. Therefore, consumers and companies alike must remain vigilant in safeguarding what the “halal” label means for products.

The current global Muslim population sits around 2 billion people, corresponding with the ever-rising demand for halal products increasingly growing among Muslims and non-Muslims alike. The current state of halal certifying organizations leaves much to be desired, with blockchain-based NFTs offering a transparent, secure, and efficient solution for ensuring that halal-marked products are what they claim to be.

Ensuring consumer confidence in the halal supply chain will only benefit manufacturers, retailers, consumers, and all other ecosystem participants alike, ensuring continued growth and profitability for all within the halal supply chain and beyond.