Blockchain Technology's Proliferating Uses February 2018
Subscribe to Insights in Brief to be notified about new Featured Content as it becomes available!
Blockchains are distributed, secure databases that no single user controls, and they frequently see use to track digital transactions. Indeed, one of the earliest applications of blockchain technology was to enable the creation of the Bitcoin (http://bitcoin.org) cryptocurrency in 2009. Since then, blockchain technology has seen use to create several other cryptocurrencies such as Ether (Ethereum Foundation; Baar, Switzerland), which has received a substantial amount of media attention in recent months. But in theory, blockchain technology has a wide range of applications beyond enabling cryptocurrencies, and several companies and governments are exploring potentially transformative applications for the technology. The diverse range of applications for blockchain technology could affect many industries in very impactful ways.
The blockchain combines three preexisting technologies into a single platform. First, the blockchain uses asymmetric encryption—an encryption system wherein multiple encryption keys encrypt and decrypt data. This approach enables users to secure data using one key (a public key) that is then readable by only a specific user with his or her private encryption key. This method forms the basis of so-called digital signatures, which enable users to demonstrate their identity by using their private key to encrypt or decrypt or both. Second, the blockchain uses a distributed ledger. Unlike systems that capture and log transactions and ownership changes to a central database, a distributed ledger comprises multiple copies of a database on multiple servers in multiple locations and establishes changes via common consensus. Third, the blockchain contains the actual program that a particular blockchain performs. For example, Bitcoin users can place conditions on transactions, turning them into so-called smart contracts. The use of smart contracts in cryptocurrencies enables, for instance, the creation of multisignature accounts or time locks on individual payments, but smart contracts could encompass a huge variety of other operations.
Employing distributed ledgers can be an important enabler for transactions that involve multiple interested parties. For example, Air France-KLM (Tremblay-en-France, France), which owns Air France and KLM airlines, is looking into using blockchain technology for recording aircraft-maintenance logs. The blockchain is robust against information tampering, records deletion, and other revisions of legally relevant data, which makes its use extremely beneficial for demonstrating compliance with maintenance and safety regulations. For example, individual engineers can digitally sign to confirm the completion of particular pieces of maintenance work. Individual aircraft, airlines, airports, and aviation authorities can then hold copies of the distributed ledger. Blockchain technology could also find use in tracking individual aircraft components through their working life to aid in addressing various component-life-cycle issues.
Because of its use of digital signatures, blockchain technology enables the tying of blockchain transactions to an individual user; therefore, individuals can use digital signatures as a form of identification. For example, immigration services in Finland are using a form of blockchain technology to provide refugees with financial resources. Unlike a prior system in which refugees received cash, the new system provides refugees with a blockchain-based smart card they can use to make purchases, pay bills, and receive payment for employment. The card acts as a substitute for bank accounts, which many refugees struggle to obtain because they lack sufficient documentation to prove their identity and prior financial conduct. The ledger of transactions also enables authorities to track individuals' spending, for instance, to prevent illegal use of funds or to gain an understanding of individuals' needs and financial challenges.
Several aspects of blockchain technology make it well suited for use by financial institutions. The peer-to-peer distributed ledger eliminates the need for a central authority such as a bank to carry out and record transactions, and it also gives blockchain systems robustness against attempted fraud (for example, a person's trying to spend the same digital tokens twice). Because blockchains sequentially add to the ledger, altering previous entries is almost impossible. In addition, blockchain transactions are effectively irreversible in most cases (Ethereum underwent so-called hard forks in 2016 to rectify the outcome of digital attacks that misappropriated tens of millions of dollars' worth of digital tokens, but this procedure was an extreme measure and effectively split the currency into two rival blockchains). These qualities also make blockchain technology well suited for a range of bureaucratic applications. In 2017, the government of Dubai, United Arab Emirates, announced its intention to become the world's first blockchain-powered government by 2020. This transition will make many of the government's paper-based transactions purely digital. Smart Dubai—an entity of the Dubai government that aims to employ smart technologies in efforts to enable, deliver, and promote "an efficient, seamless, safe and impactful city experience for residents and visitors" (www.smartdubai.ae/about.php)—claims that the use of blockchain technology could save the government 25.1 million person-hours per year (equivalent to approximately $1.5 billion) by improving the speed and efficiency of various operations.
Developers are proposing an extremely diverse range of applications for blockchain technology (the above examples illustrate only some of its use cases), suggesting that its flexibility to see use in a wide range of applications could prove impactful across many industries. At this stage, many proposed applications have not yet found real-world implementation, and many organizations may eventually discover that blockchain technology offers few, if any, improvements over existing approaches. For example, many companies may see little benefit in creating a distributed ledger for purely internal interactions. In addition, because some of the blockchain's component technologies, such as asymmetric cryptography, have been in wide use for decades, the blockchain's contributions might be limited.
The implementation and use of blockchains are still at an early stage, and developers have not yet proved the true extent of blockchain technology's potential benefits. Nevertheless, the potential exists for blockchain-related procedures to serve as a powerful enabler for many transaction-based and transaction-relevant applications, including smart contracts and lending applications for use in situations in which trust issues can hinder multiple parties that do not know one another from engaging in negotiations and entering into contracts.