Why is it proving to be such a hot topic and why is it getting so much media attention? Market research published via ReportBuyer expects that by 2022 the global blockchain business will be worth $7 billion, and there seems to be good reason to believe that this will be an accurate prediction.
Heavyweights like IBM have been quick to get involved – creating a blockchain platform capable of serving the banking, healthcare and logistics sectors, and even government operations. Facebook has appointed a top executive to oversee its blockchain activities.
What precisely is blockchain?
In simple terms, blockchain is a way to securely record transactions of digital assets that are distributed over the network without going through a centralised, authorised entity (see figure 1).
It was originally developed for Bitcoin cryptocurrency transactions, but is now be applied to many other market segments, including, for example, the insurance industry. Let us illustrate this with the use case of an insurance claim for a traffic accident. The process comprises filing in the claim, verification of the identity of the policy holder, the details of the accident from all parties concerned, approval of the claim and ultimately the settlement (including pay-out in a fair and timely manner).
Blockchain can easily streamline this process, thereby reducing the cost and length of time taken to deal with the claim. A blockchain-formatted insurance contract can be stored over the Internet and made accessible to authorised users. Once the claim is initiated, the verification of the terms of the policy and the accident details (plus any police documentation) can be checked simultaneously, since the information is securely available to the appropriate parties. Once the claim is settled, the pay-out is done automatically and the electronic records of the settlement concurrently distributed to the parent insurance companies, the independent insurance agents and the drivers.
As demonstrated here, blockchain can be beneficial when it comes to automating complex processes where there are numerous parties to take into consideration. It generates automatic records of transactions once they are input – with all these transactions being traceable, accessible and transparent. The key aspect here is that records cannot be altered by one party without informing all of the other parties involved. Furthermore, records are searchable over the Internet for auditing purposes and the identities of authorised users are verifiable. Many feel that because of these attributes blockchain is a game changer.
Using blockchain in relation to the IoT
It is undeniable that IoT momentum is now unstoppable. Cloud-to-things connections are creating new opportunities everywhere (see figure 2). Manufacturing, transportation (asset tracking), connected healthcare, automotive (autonomous driving), agriculture, smart buildings and smart cities are taking advantage of IoT.
So what role will blockchain play in IoT? Through blockchain it is possible to provide the Internet connection, record distribution and storage for financial transactions. Here are three major benefits of blockchain from an IoT perspective.
Increased security for financial transactions – Fraudulent transactions are a serious problem. Documents can be falsified or modified without anyone knowing it, resulting in money being sent to criminals. Blockchain can help agencies in the financial sector improve their security. For example, take a person assuming the identity of a deceased relative in order to continue collecting their social security benefits for years without being discovered. With blockchain, the social security system could be linked to the individual, so when a death certificate is issued, it will void all future transactions relating to the deceased person. This would help stop fraudulent claims. Blockchain offers a ‘ledger-based’ approach for authentication in an IoT network. The history of the transactions and the peer-to-peer communications are recorded and cannot be altered. Anyone with ill intent trying to tamper will the blockchain system is recorded. In short, blockchain goes beyond verifying that documents are authentic based on trust, it is truth-based because no unauthorised party can ever alter the content.
Improved operational efficiency – During a business transaction, some steps require a manual process. Blockchain can automate these steps and provide faster and better results. Authentication and verification processes are good examples. Often an institution or organisation requires the applicant to verify their true identity with a notary public service, which can be time consuming. With blockchain, the applicant with an account or working through an agent will be able to log into an account and get verified instantly. The efficiency concept can be expanded. For example, because blockchain provides the capability for peer-to-peer transactions and communications, it could potentially enable a new IoT-based business model where users and providers of electricity bypass the traditional gas and electricity utilities. Likewise, with solar technology, many new providers could be operators of photovoltaic resources tied to a local power grid. This could potentially disrupt the entire energy market as we currently know it.
Ability to facilitate the searching and auditing of traceable records – Blockchain offers the convenience to search transaction records in the block shared by authorised users. Today, one may have to go to the county record office to wait in line to search for related records, which is clearly very time consuming. More importantly, when something goes wrong after the fact, authorities and regulators can audit the history and determine which party is responsible. Because the history of the records cannot be altered, it will help create accountability and transparency in any transaction. When applied to IoT, where huge numbers of transactions could be taking place every minute, the value of this could be immense.
The challenge of implementing blockchain
There are some challenges to implementing blockchain. If every transaction is recorded and transmitted over the IoT network by every financial institution, insurance, healthcare and logistics company globally, think about the scale it would need. How would this impact upon data traffic and storage requirements? So far we have only seen some experimental work and small scale deployments. It is unclear what type of computing resources will be required and what their scope will be. Questions have consequently been raised about whether blockchain can be done in a practical manner. On the other hand, we are witnessing the development of 5G communications and GPU-based supercomputers. It will be interesting to see how these technologies can help solve the potential blockchain problems outlined here.
The future of blockchain
Blockchain is already recognised as the most well-known transaction-based IoT application, but it has some weaknesses too – such as potentially low performance speed and unused idle blocks consuming energy. There are other technologies similar to it, including IOTA, that are trying to gain market traction. One alternative in particular, Hashgraph, claims to offer the benefits of blockchain without the limitations. A new organisation called the Hedera Hashgraph Council has been established to promote this technology. Only time will tell which will eventually gain widespread market acceptance. For now, what is the best blockchain strategy? Instead of taking an all-or-nothing approach, it may be advisable to try it on a small scale first, in order to learn and experience both its benefits and its shortfalls.
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