Blockchain : hype or reality?

Everybody is talking about Blockchain. Experts claim Blockchain is a technology that will transform our lives and the way we do business in profound ways. But what exactly is Blockchain ?

Before we answer that question, let's get one thing straight. Blockchain and Bitcoin are two separate things. Bitcoin is the cryptocurrency that has gained notoriety in recent times. Blockchain is the technology that makes bitcoin happen. A close analogy will be that of Android and the applications that are available on Google Store. Blockchain is the platform and Bitcoin is one of several applications that are built on top of the platform.

What is Blockchain?

As the name suggests, Blockchain is a series of blocks strung together by a chain. Each block is directly linked to only the one preceding it. All data that is stored in the block is read-only and can’t be changed making it tamper proof. Following are the key characteristics of a blockchain:

1. Public (accessible to everyone)
2. Immutable (secured by cryptography so that one cannot make changes)
3. Decentralized ( it does not reside on one server but on numerous computers)

Usually in a transaction there is a middleman such as a bank or a clearinghouse. Blockchain cuts out the need for a “trusted middleman”. The decentralized or distributed nature of the blockchain ensures that no one entity is in control of the data. The blockchain data is accessible to all the participants in the network.

Where can one use Blockchain?

Blockchain is still in the early days of adoption. However, a range of companies across sectors have started building solutions based on Blockchain technology. According to a recent survey conducted by IBM, 14% of financial services companies expect blockchain solutions in commercial production and more importantly at scale by the end of 2017. 

For the remainder of the article, we will see how a wide range of industries (Financial Services , Entertainment and Music, Transport, Logistics/Supply chain and Healthcare) and companies (Walmart, Walt Disney, Wells Fargo, Capital One and Alibaba) have embarked on the journey of launching commercial solutions that leverage the power of blockchain technology.

Financial Services

Ant Financial, is a subsidiary of the Alibaba Group and operates the Alipay payment platform. Blockchain technology is being added to Alipay’s donation platform to increase transparency. Each donation and its spending will be recorded on the blockchain. This way charitable institutions and donors will be able to verify and observe all funds being donated.

Xinyuan Real Estate is a Chinese real estate company listed on the NYSE stock exchange. The company has launched an online platform in association with IBM that is built with blockchain and smart contracts. The platform will connect home owners with a wide range of financing opportunities. 

Overstock is an American internet retailer listed on the Nasdaq stock exchange. It will be issuing a special rights offering for preferred shares on Overstock’s transparent Blockchain platform t? that will start trading from December. Given the transparent nature of the system, a blockchain based platform holds a lot of promise as an “unborrowed” short can easily be identified making naked shorting impossible. 

ICICI Bank in partnership with Emirates NBD has successfully executed international trade finance transactions and overseas remittances. With Blockchain, all the parties in the deal can view the data in real time. The system helps track documents, digitally authenticate ownership of assets and execute transactions through secure and encrypted digital contracts.

Two major banks - Wells Fargo and Commonwealth Bank of Australia - have used Blockchain to process a shipment of cotton from US to China bought by Australia’s Brighann Cotton Marketing. Typically the process will involve large amounts of paperwork, and back and forth communication to ensure everyone’s records are up to date. But thanks to the “smart contracts” of Blockchain technology, the process is simplified. When the bales of cotton arrive at a port and are scanned, the action triggers smart contracts that trigger transfer of ownership of goods and also authorize payment.

Leading banks such as HSBC, Scotiabank, Societe Generale and UBS have come together to successfully trade US treasury bonds using a blockchain platform powered by Intel Technology. The smart contract technology of the platform was used for trading, matching, settlement of bonds as well as automated coupon payment and redemption.

Zhong An is the first and only company in China to have been granted an internet insurance license. Backed by titans such as Ping An, Tencent and Alibaba, the company is working on reshaping traditional insurance. True to its DNA, Zhong An is betting big on blockchain. It is working with partners to implement blockchain applications on its online insurance platform. The smart contract technology offered by blockchain could be useful for claim verification, preventing fraud aside from lowering handling costs.

Depository Trust & Clearing Corporation (DTCC), a large American clearinghouse, keeps track of transactions for Wall Street banks. Earlier in the year, it successfully helped four top banks (JP Morgan, BoAML, Citi and Credit Suisse) trade Credit Default Swaps (CDS) on the blockchain. Smart contracts were used which held information such as individual trade details and counterparty risk metrics providing a new level of transparency for partners and regulators. CDS are complex instruments and are widely blamed for contributing to the 2008 financial crisis. Blockchain technology could make these complex securities easier to monitor.DTCC is also working with industry startup Digital Asset Holdings to develop blockchain solutions for the $2.6 trillion repo market. A repurchase agreement (repo) is a form of short term borrowing for dealers in securities.

Late last year, Nasdaq allowed an issuer to successfully complete a private securities transaction on its Nasdaq Linq blockchain shortening settlement times and removing the need for paper certificates.

Healthcare

The Estonian e-Health Authority has tied up with Guardtime, a cyber security provider to secure over a million healthcare records using Blockchain. In Estonia, all citizens carry a unique identity credential which links back to their healthcare record. The Blockchain will provide a clear picture of what the various entities such as doctors, hospitals and ambulance service providers are doing with the healthcare record.

Capital One is working on bringing the power of Blockchain to the healthcare sector. It is working with partners to build a new service that will track claims for medical clients. It is also building a system that will estimate the out of pocket healthcare expenses of patients. The hope is that blockchain will make tracking of medical claims more efficient and transparent.

Du, a UAE based telecom provider is building a Blockchain based system for sharing and verifying electronic health records between hospitals and clinics.

Government

The Federal Anti-Monopoly Service (FAS) of the Russian Government has teamed up with the largest financial institution in the country, Sberbank, to build a Blockchain based system for managing sensitive documents. The system allows for documents to be transferred and stored in encrypted format. It also allows for signing of documents using electronic signatures.

A defense agency of the US Government - Defense Advanced Research Projects Agency (DARPA) – is working on building a secure messaging platform based on Blockchain technology. Troops on the ground can communicate back to HQ using the platform in a secure manner.

The UK government has rolled out a pilot program using Blockchain technology in which welfare payments and spending are being monitored. The hope is that the system will cut down on fraud as well as act as a deterrent against purchase of non-essential items such as alcohol.

Countries such as Georgia and Sweden are working on putting their land registry on the blockchain. Once a buyer and seller agree on a contract, the transaction gets recorded on the blockchain. The blockchain can shorten the transaction process. Secondly, digital documentation of property transfers allows all parties to confirm a transaction with the highest security level.

Voting

Government owned Australia Post has outlined plans to implement a Blockchain based voting system. The postal service wants to begin with small local elections before moving on to handling a parliamentary election. The manipulation free system will ensure traceability, yet allowing anonymity for the voters.

National Settlement Depository (NSD), Russia’s central securities depository has successfully tested a Blockchain based system for e-proxy voting. Shareholders who are not able to participate because of distance will benefit from the system. NSD is also working with South Africa’s Central Securities Depository to launch a similar e-voting system in South Africa.

Estonia is using its e-Residency platform to roll out e-voting service to shareholders of companies listed on the country’s stock exchange. The service uses Blockchain technology and has been developed in collaboration with Nasdaq.

Abu Dhabi Stock Exchange has launched a Blockchain enabled voting service that will enable stakeholders to participate in and observe votes held during Annual General Meetings.

Supply Chain / Logistics

Sydney based startup, Yojee, has launched a logistics platform using Blockchain technology that will allow businesses to make use of space capacity on existing vehicles and warehouses. In Singapore, the company has tied up with two companies – SH Road Network and DishDash – for a pilot program of its end-to-end logistics solution.

Marine Transport International, a freight forwarder based in the UK and US has become the first user of Blockchain technology in the global shipping industry. The technology will help enable secure and open dissemination of shipping container information that will be visible to port officials, shippers and cargo owners.

China has had a history of food safety issues. Now Walmart is working with IBM to put Chinese pork on a Blockchain. Walmart hopes to win the trust of Chinese consumers by storing information such as farm origins, expiration dates and shipping thus making fraud that much more difficult.

Mining giant, BHP Billiton, intends to leverage the power of Blockchain to manage its supply chain. BHP relies on vendors at every stage of the mining process. It enters into contracts with geologists and shipping companies to collect samples and conduct analysis. BHP will use the blockchain to record movements of well bore rock and fluid samples. Currently everything is tracked through spreadsheets. 

UAE has launched a pilot project to use Blockchain technology to prevent trade of “conflict diamonds” by establishing a tamper proof system that will record the provenance of diamonds.

Music and Entertainment

UjoMusic, a Blockchain startup, is trying to shake up the US$15bn recorded music industry. In 2015, it collaborated with singer-songwriter Imogen Heap to release her song Tiny Human on the Ethereum Blockchain. The prototype gave users the ability to purchase licenses to download the song and then stream, remix or sync the song. Each payment was distributed by the Blockchain and was sent directly to the artist and each of her collaborators.

Another startup, BitTunes, has built a platform that is meant to curb digital music piracy. The company offers a bitcoin-based peer-to-peer file sharing platform which can be used by ordinary music lovers to earn money by sharing songs. Whenever a music sale takes place, the artists automatically receive royalties. A percentage of royalty is also shared with the fans who helped make the sale.

A music industry veteran has launched a service Bandnamevault.com that uses the Blockchain technology to help musicians protect their band, DJ or stage name. For $15, the service creates an immutable record of the name as well as all uses of the name including every performance, recording or appearance. The information is permanently linked to the Blockchain and can be independently verified in future.

SingularDTV is an entertainment studio that has created a smart contract on Ethereum blockchain to better manage creative rights for films and television. The contract gives the artists control of their content. Every time content is viewed, all players involved in the ecosystem such as actors, writers and investors get their fair share.

Walt Disney Company has released a blockchain-based platform called Dragonchain. Potential use cases include monitoring ride times and length of lines in its amusement parks in order to create a more efficient process.

An entire movie is being crowdfunded using blockchain technology. The Pitts Family Circus, is the movie in question that will be shot in Australia and the Swiss Alps starting early 2017. Investors are being sold shares using the smart contract technology of blockchain. Annual dividends will be paid out over the next twenty years from the profits generated by the film.

Other industries

Loyyal, a New York based startup has launched Dubai Points, a loyalty and rewards program. Loyyal is a platform built using blockchain and smart contract technology. Dubai points will be earned and redeemed dynamically at participating locations based on a number of data points such as time of day, past behavior of the tourist, location, age etc. Loyyal is also working with the Government of Norway to roll out a Blockchain based loyalty cum rewards program that is intended to promote retail and tourism in the Scandinavian market. IBM has worked with China UnionPay, a Chinese credit card company to develop a blockchain based platform for trading loyalty points.

RWE, a German power company has partnered with Blockchain startup Slock.it to develop a working prototype for an electric car charging station. It uses Blockchain based smart contracts to authenticate users and manage the billing process.

Alibaba has developed a Blockchain-based e-mail evidence repository through its computing branch, Ali Cloud. The repository will allow users to store critical data of critical e-mails to third parties. Users will be able to download these e-mails and send them to judicial departments.

Ericsson in collaboration with Guardtime, a data security startup, has built a Blockchain based system for ensuring data integrity. Take the example of software used in a car. The company supplying the software can keep track of where and when the software has been deployed. This will also help determine if the software has been tampered somewhere along the way.

US telecom giant, AT&T, has used Blockchain technology to boost the security of home subscription servers that are used for authentication and media delivery functions for AT&T subscribers, for example those who have a television subscription. This will be done by distributing the nodes that deliver the multimedia information. So even if a node is down or under attack, the distributed and decentralized nature of the blockchain server system will ensure robustness.

Arcade City, a driver-owned ride sharing startup has developed an open marketplace. Using Blockchain technology riders can connect directly with the drivers. Unlike Uber, drivers are free to set their own rates.

Babyghost, an independent fashion brand, has tied up VeChain, a product management company to bring blockchain solutions to the fashion industry. VeChain allows anyone with a smartphone to scan a new dress that has a VeChain chip and access all the information and history of the product. VeChain can be programmed with photos, videos, and personalized information such as the date the dress was purchased, for whom and why. Lucky customers might scan the chip and find that they have won a trip to an upcoming conference or even free clothing.

What are the challenges?

As we have seen in the use cases above, a wide variety of players across industries have launched solutions that can be commercially rolled out in the not too distant future. However, it is important to point out that certain challenges remain that need to be addressed before Blockchain solutions can gain widespread adoption. Being a nascent technology, governments and regulators need to put in a framework that lay down the ground rules. While the strong encryption inherent in the blockchain technology ensures security, cyber security concerns need to be addressed before the general public feels comfortable enough to entrust their personal data to a blockchain. There also is a cultural aspect that will mean moving away from the current centralized approach to a decentralized ecosystem that will need buy in from users and operators apart from the huge upfront investments needed.

Conclusion

So let’s revisit the question we asked upfront. Is blockchain just hype? From the evidence presented above, the answer seems to be an unqualified 'no'. Some of the most reputed names in the world of business have bought into the vision of a future where blockchain will play a very crucial role. Although we are still a few years away from widespread adoption, it is safe to say blockchain is well on its way to becoming a reality and an important part of the way we will do business. Companies can do a lot worse than trying to find out how blockchain will impact their industry and take concrete steps in planning for a future where blockchain will be an integral part of our daily lives.

Note : All views are personal.

Thanks for reading the article. You can also follow me on Medium or Twitter.