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by Emily Vaughn, Mar 03, 2016

A Blueprint for Use Cases in the Evolving Blockchain Services Market


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Emerging technologies have a long history of initial aversion followed by experimentation and cautious adoption before exploding into mainstream markets. Blockchain technology is no exception, a fact made evident by the resilience of Bitcoin and substantial institutional buy-in from the world’s largest banks and financial exchanges.

As of January 2016, 42 major banking institutions—including Barclays, RBS and Goldman Sachs—have joined an initiative led by financial innovation firm R3 to standardize the use of distributed ledger technologies. The goal of this partnership is to establish an industry-wide protocol consistency, marking the first significant commitment by the banks to collaboratively evaluate and apply emerging blockchain technology to the global financial system.

The move is convincing evidence that data integrity will be one of the most pressing concerns for business over the next decade. Because blockchains allow data to be shared securely with full integrity across every industry, the opportunities are staggering not only for increasing profitability but for streamlining efficiency and achieving irrefutable security.

Identifying the right blockchain solution for a business can be tricky. Blockchain technology is new and still somewhat unrefined, whereas database technology (to which blockchain is often compared without really being comparable) has been tested, trusted and proven over the past 50 years. An important difference between the two is that blockchains aren’t designed to store vast amounts of data. In fact, currently, they are better outfitted to be transactional logs that reference databases.

Why is a log so important? One word: chronology. When it comes to reconciling transactions, for example in a double-spend scenario, order matters. Chronology is important not only to financial transactions, but also in making business decisions. When it comes to acting on the information in hand, users want to know that the information is irrefutably sound. Blockchains not only deliver irrefutable logs, they allow multiple parties to share that history so they all act on the same information at the same time.

How and where does a business start looking for blockchain use cases? Blockchain technology has gained significant momentum in a relatively short period of time, leaving many businesses and institutions without the expertise needed to sift through competing claims. Change should be approached methodically.

Look for any manual reconciliation of data workflow requiring human intervention and processes, or delays due to data reconciliation. Look for the intersection of identity and authorization, assets and value or preconditions and action. Look for areas where there is not necessarily a great deal of trust between parties, where it would be desirable to build a system that multiple parties can trust automatically.

In a solutions provider, seek out people who have the expertise but are not trying to push any particular product or platform; thoroughly vet your options before deciding who to work with, and then again when selecting products. Take an agnostic attitude when considering different platforms, and look for advice from a professional who has sufficient depth of background in the space to distinguish fact from speculation.

As a general rule, while waiting to see which movers in the space are proven winners, businesses should start the process of adoption in-house with test products—remembering that entrenched aspects of a company’s culture will have to be nurtured toward change before adoption can happen. Company acceptance of blockchain integration will require vision from the top, and this will need to be clearly communicated.

Here’s how the process might look in the real world in three potential use cases.

Insurance

A private blockchain could be used to enforce a contract, like an insurance policy. The insurance company, the bank and the policyholder are all participants in the network with different user types, access controls and capabilities. The policy itself is programmed on the blockchain, and claims can be automated under a certain set of criteria. This policyholder has earthquake detection devices in their home, and when the ground begins to shake, the monitoring devices relay the incident to the policyholder and the insurance company. The policyholder authorizes the release of funds with his or her digital signature. The rules of the contract require that the insurance company also authorize - a multisignature transaction - and when they do, the bank is notified in real-time to deposit funds into the policyholder’s account. These “if this, then that” protocols allow the parties to create intricate automation rules and controls. The blockchain connects all three entities to a network they trust, and now they are able to reduce resource expenditures such as time and paperwork, and improve disaster responsiveness.

Luxury goods

Proof of origin and legitimacy is the principal instrument of value in the trade of luxury goods. A blockchain could help track the purchase and distribution of fine jewelry. Today, the purchase of a Rolex comes with a certificate of authenticity. But once the Rolex is sold on the Internet, that piece of paper becomes suspect, and the origin of the watch becomes unclear. On a blockchain, the paper is replaced with a digital certificate and its record of ownership is recorded as it changes hands over the years. Now there is a log that represents every Rolex out there, and every time ownership is transferred, there’s a record of it. When the watch becomes separated from its digital token, through theft or simply being lost, there is a record of its last legitimate owner. Proof of ownership and immutable record keeping are central concepts to blockchain technology, which makes it an interesting application for provenance and supply chain management.

Debt sales

Blockchains enable multiple entities to view and write to the same data store. This could reduce reconciliation processes, redundancies and other costly operational inefficiencies. If banks, hospitals and debt collectors used a blockchain to manage the lifecycle of a patient’s medical bill, instances of debt collectors calling on bills that have already been paid would be reduced. Many patients will pay an overdue bill directly to the hospital, rather than giving out their payment information to debt collectors. But when that happens, the databases of debt collectors are not automatically updated. The debt collector in this instance has not collected the debt, and when the bank “buys back” that account, they sell it to another collection agency. The cycle continues, creating a regulatory nightmare and frustration for the patient and the hospital. Using a blockchain to relay the status of a bill, where each party can submit updates, would allow these businesses to make decisions based on the correct information and reduce costly redundancies.

These examples assume that the requisite technical complexity and stakeholder buy-in are present to make new blockchain applications work. Getting to that point is going to be very challenging for blockchain service providers, but the interest is there. Innovative industry leaders from finance, healthcare, supply chain and IT are already experimenting with blockchain solutions. The current problems this technology can solve may afford a narrow window of possibilities, but they will ultimately impact the way all businesses share and secure value.