Applications of Blockchain Technology

In this article we will look at applications of Blockchain Technology in various domains like IoT, Finance, Government, Media etc.

 

Introduction

Digital currencies were the first-ever application of blockchain technology. With the invention of Bitcoin, the concept of blockchain was introduced for the very first time, but it was not until 2013 that the true potential of blockchain technology was realized with its possible application in many different industries, other than cryptocurrencies.

 

Since then many use cases of blockchain technology in various industries have been proposed, including but not limited to finance, the Internet of Things, digital rights management, government, and law.

 

Internet of Things

IoT can be defined as a network of computationally intelligent physical objects (any object such as cars, fridges, industrial sensors, and so on) that are capable of connecting to the internet, sensing real-world events or environments, reacting to those events, collecting relevant data, and communicating it over the internet.

 

This simple definition has enormous implications and has led to exciting concepts, such as wearables, smart homes, smart grids, smart connected cars, and smart cities, that are all based on this basic concept of an IoT device.

 

 

A five-layer model can be used to describe IoT, which contains a physical object layer, device layer, network layer, services layer, and application layer. Each layer or level is responsible for various functions and includes multiple components. These are shown in the above diagram.

 

The usual IoT model is based on a centralized paradigm where IoT devices usually connect to a cloud infrastructure or central servers to report and process the relevant data back.

 

This centralization poses certain possibilities of exploitation including hacking and data theft. Moreover, not having control of personal data on a single, centralized service provider also increases the possibility of security and privacy issues.

 

While there are methods and techniques to build a highly secure IoT ecosystem based on the normal IoT model, there are specific much more desirable benefits that blockchain can bring to IoT. Blockchain-based IoT will be able to solve scalability, privacy, and reliability issues in the current IoT model.

 

Blockchain enables things to communicate and transact with each other directly and with the availability of smart contracts, negotiation, and financial transactions can also occur directly between the devices instead of requiring an intermediary, authority, or human intervention.

 

The aforementioned five-layer IoT model can be adapted to a blockchain-based model by adding a blockchain layer on top of the network layer.

 

This layer will run smart contracts, and provide security, privacy, integrity, autonomy, scalability, and decentralization services to the IoT ecosystem. This model can be visualized in the following diagram:

 

It can also result in cost saving which is due to easier device management by using a blockchain based decentralized approach.

 

The IoT network can be optimized for performance by using blockchain. In this case, there will be no need to store IoT data centrally for millions of devices because storage and processing requirements can be distributed to all IoT devices on the blockchain.

 

This can result in completely removing the need for large data centers for processing and storing the IoT data.

 

Blockchain-based IoT can also thwart denial of service attacks where hackers can target a centralized server or data center more efficiently, but with blockchain’s distributed and decentralized nature, such attacks are no longer possible.

 

Blockchain can allow devices to communicate with each other directly in a secure manner and even request firmware and security updates from each other.

 

On a blockchain network, these communications can be recorded immutably and securely which will provide auditability, integrity, and transparency to the system. This mechanism is not possible with traditional peer-to-peer systems.

 

Government

There are various applications of blockchain being researched currently that can support government functions and take the current model of e-government to the next level.

 

Government or electronic government is a paradigm where information and communication technology are used to deliver public services to citizens.

 

The concept is not new and has been implemented in various countries around the world, but with blockchain, a new avenue of exploration has opened up.

 

Many governments are researching the possibility of using blockchain technology for managing and delivering public services including but not limited to identity cards, driving licenses, secure data sharing among various government departments and contract management.

 

Border Control

Automated border control systems have been in use for decades now to thwart illegal entry into countries and prevent terrorism and human trafficking.

 

Machine-readable travel documents and specifically biometric passports have paved the way for automated border control; however current systems are limited to a certain extent and blockchain technology can provide solutions.

 

One key issue with current border control systems is data sharing whereby the systems are controlled by a single entity and data is not readily shared among law enforcement agencies. This lack of the ability to share data makes it challenging to track suspected travel documents or individuals.

 

Another issue is related to the immediate implementation of blacklisting of a travel document, for example, when there is an immediate need to track and control suspected travel documents.

 

Currently, there is no mechanism available to blacklist or revoke a suspected passport immediately and broadcast it to the border control ports worldwide.

 

Blockchain can provide a solution to this problem by maintaining a blacklist in a smart contract which can be updated as required and any changes will be immediately visible to all agencies and border control points thus enabling immediate control over the movement of a suspected travel document.

 

A high-level approach to building a blockchain-based border control system can be visualized as shown in the following diagram.

 

In this scenario, the passport is presented for scanning to an RFID and page scanner which reads the data page and extracts machine-readable information along with a hash of the biometric data stored in the RFID chip.

 

 

At this stage, a live photo and retina scan of the passport holder is also taken. This information is then passed on to the blockchain where a smart contract is responsible for verifying the legitimacy of the travel document by first checking its list of blacklisted passports and then requesting more data from the backend IPFS database for comparison.

 

If the data from the presented passport matches with what is held in the IPFS as files or in BigchainDB and also pass the smart contract logical check, then the border gate can be opened.

 

After verification, this information is propagated throughout the blockchain and is instantly available to all participants on the border control blockchain. These participants can be a worldwide consortium of homeland security departments of various nations.

 

Voting

Voting in any government is a key function and allows citizens to participate in the democratic election process. While voting has evolved into a much more mature and secure process, it still has limitations that need to be addressed to achieve a desired level of maturity.

 

Usually, the limitations in current voting systems revolve around fraud, weaknesses in operational processes, and especially transparency.

 

Over the years, secure voting mechanisms (machines) have been built which make use of specialized voting machines that promised security and privacy, but they still had vulnerabilities that could be exploited to subvert the security mechanisms of those machines.

 

Blockchain-based voting systems can resolve these issues by introducing end-to-end security and transparency in the process.

 

Security is provided in the form of integrity and authenticity of votes by using public key cryptography which comes as standard in a blockchain.

 

Moreover, immutability guaranteed by blockchain ensures that votes cast once cannot be cast again. This can be achieved through a combination of biometric features and a smart contract maintaining a list of votes already cast.

 

For example, a smart contract can maintain a list of already casted votes with the biometric ID (for example a fingerprint) and can use that to detect and prevent double casting. Secondly, Zero-Knowledge Proofs (ZKPs) can also be used on the blockchain to protect voters’ privacy on the blockchain.

 

Citizen Identification Cards

Electronic IDs or national ID cards are issued by various countries around the world at present. These cards are secure and possess many security features that thwart duplication or tampering attempts.

 

However, with the advent of blockchain technology, several improvements can be made to this process.

 

A blockchain-based online digital identity allows control over personal information sharing. Users can see who used their data and for what purpose and can control access to it. This is not possible with the current infrastructures which are centrally controlled.

 

The blockchain serves as a platform where a government is providing various services such as pensions, taxation, or benefits and a single ID is being used for accessing all these services.

 

Blockchain, in this case, provides a permanent record of every change and transaction made by a digital ID, thus ensuring integrity and transparency of the system.

 

Health

In healthcare, major issues such as privacy compromises, data breaches, high costs, and fraud can arise from lack of interoperability, overly complex processes, transparency, auditability, and control. Another burning issue is counterfeit medicines; especially in developing countries, this is a major cause of concern.

 

With the adaptability of blockchain in the health sector, several benefits can be realized, ranging from cost saving, increased trust, faster processing of claims, high availability, no operational errors due to complexity in the operational procedures, and preventing the distribution of counterfeit medicines.

 

From another angle, blockchains that are providing a digital currency as an incentive for mining can be used to provide processing power to solve scientific problems that can help to find cures for certain diseases.

 

Examples include FoldingCoin, which rewards its miners with FLDC tokens for sharing their computer’s processing power for solving scientific problems that require unusually large calculations.

 

Finance

Blockchain has many applications in the finance industry. Blockchain in finance is the hottest topic in the industry currently, and major banks and financial organizations are researching to find ways to adapt blockchain technology primarily due to its highly-desired potential to cost-save.

 

Insurance

In the insurance industry, blockchain technology can help to stop fraudulent claims, increase the speed of claim processing, and enable transparency. Imagine a shared ledger between all insurers that can provide a quick and efficient mechanism for handling intercompany claims.

 

Blockchain can reduce the overall cost and effort required to process claims. Claims can be automatically verified and paid via smart contracts and the associated identity of the insurance policyholder.

 

For example, a smart contract with the help of Oracle and possibly IoT can make sure that when the accident occurred, it can record related telemetry data and based on this information can release payment.

 

It can also withhold payment if the smart contract after evaluating conditions of payment concludes that payment should not be released.

 

For example, in a scenario where an authorized workshop did not repair the vehicle or was used outside a designated area and so on and so forth.

 

There can be many conditions that a smart contract can evaluate to process claims and choice of these rules depend on the insurer, but the general idea is that smart contracts in combination with IoT and Oracle can automate the entire vehicle insurance industry.

 

Post-Trade Settlement

This is the most sought-after application of blockchain technology. Currently, many financial institutions are exploring the possibility of using blockchain technology to simplify, automate, and speed up the costly and time-consuming post-trade settlement process.

 

To understand the problem better, the trade life cycle is described briefly. A trade life cycle contains three steps: execution, clearing, and settlement.

 

Execution is concerned with the commitment of trading between two parties and can be entered into the system via front office order management terminals or exchanges.

 

Clearing is the next step whereby the trade is matched between the seller and buyer based on certain attributes such as price and quantity.

 

At this stage, accounts that are involved in payment are also identified.

 

Finally, the settlement is where eventually the security is exchanged for payment between the buyer and seller.

 

In the traditional trade life cycle model, a central clearinghouse is required to facilitate trading between parties which bears the credit risk of both parties.

 

The current scheme is somewhat complicated, whereby a seller and buyer have to take a complicated route to trade with each other.

 

This comprises various firms, brokers, clearing houses, and custodians but with blockchain, a single distributed ledger with appropriate smart contracts can simplify this whole process and can enable buyers and sellers to talk directly to each other.

 

Financial Crime Prevention

Know Your Customer (KYC), and Anti Money Laundering (AML) are the key enablers for the prevention of financial crime.

 

In the case of KYC, currently, each institution maintains their own copy of customer data and performs verification via centralized data providers.

 

This can be a time-consuming process and can result in delays in onboarding a new client.

 

Blockchain can provide a solution to this problem by securely sharing a distributed ledger between all financial institutions that contain verified and true identities of customers.

 

This distributed ledger can only be updated by consensus between the participants thus providing transparency and auditability.

 

This can not only reduce costs but also enable meeting regulatory and compliance requirements in a better and consistent manner.

 

In the case of AML, due to the immutable, shared, and transparent nature of blockchain, regulators can easily be granted access to a private blockchain where they can fetch data for relevant regulatory reporting.

 

This will also result in reducing complexity and costs related to the current regulatory reporting paradigm where data is fetched from various legacy and disparate systems and aggregated and formatted together for reporting purposes.

 

Blockchain can provide a single shared view of all financial transactions in the system that are cryptographically secure, authentic, and auditable, thus reducing the costs and complexity associated with the currently employed regulatory reporting methods.

 

Media

Critical issues in the media industry revolve around content distribution, rights management, and royalty payments to artists.

 

For example, digital music can be copied many times without any restriction and any attempts to apply copy protection have been hacked in some way or other.

 

There is no control over the distribution of the content that a musician or songwriter produces; it can be copied as many times as needed without any restriction and consequently has an impact on the royalty payments.

 

Blockchain can provide a network where digital music is cryptographically guaranteed to be owned only by the consumers who pay for it.

 

This payment mechanism is controlled by a smart contract instead of a centralized media agency or authority.

 

The payments will be automatically made based on the logic embedded within the smart contract and number of downloads.

 

Moreover, illegal copying of digital music files can be stopped altogether because everything is recorded and owned immutably in a transparent manner on the blockchain.

 

A music file, for example, can be stored with owner information and timestamp which can be traced throughout the blockchain network.

 

Furthermore, the consumers who own a legal copy of some content are cryptographically tied to the content they have, and it cannot be moved to another owner unless permissioned by the owner.

 

Copyrights and transfers can be managed easily via blockchain once all digital content is immutably recorded on the blockchain.

 

Smart contracts can then control the distribution and payment to all concerned parties.