Blockchain case studies
Blockchain has the potential to be a disruptive technology across industries, with varying impacts on finance. While many applications are still at the exploration stage, there are plenty of examples demonstrating how the technology could be used. Here you can read case studies gathered by the Tech Faculty and Deloitte.
There are a range of different ways blockchain technologies can be used to generate business benefits, such as improved visibility and near real-time reporting. Some applications are built around the synchronicity of the ledger and its ability to simplify reconciliation, while others are focused on removing middleman from systems, reducing cost and bias. A third group, meanwhile, are dedicated to hosting smart contracts, automating and adding certainty to contractual arrangements and transactions.
Perhaps the clearest case for where blockchain could be advantageous is provenance and transfer of ownership of assets, and land registry is a particularly good case. There have been several pilot studies and proofs-of-concept made, including in Georgia, Sweden and Honduras, but none have yet reached large-scale testing.
If property transactions were handled on a blockchain, it could record the entire transaction history of a property, which would increase the efficiency of transaction processing and fight corruption by distributing the maintenance of records to all parties.
Using smart contracts, asset exchange could also follow specific instructions encoded as part of the transaction to be executed automatically once agreed criteria have been met, further increasing the efficiency of the exchange process.
As a public register, the openness of the blockchain is not an obstruction for land registry. It is acceptable for participants to see who owns, sells, and divides land. Furthermore, the verifiability aspect can help to add transparency where needed.
A land registry blockchain would have to start by tokenising land assets – that is, creating a representation of each section of land as a legally-equivalent digital asset, stored on the blockchain. This would be followed by ensuring the present owners had the ownership of the appropriate tokens assigned to them. This is no small undertaking as existing systems are already very complex, and there is a need to be flexible in future if existing land deeds are altered or split.
While bitcoin works because it is a wholly online system, with all participants agreeing to the ownership and provenance records, blockchain application in areas like land registry is more complex due to the need to register the ownership of assets and tie the records to the real world.
This causes problems in that the register must reliably reflect real-world existence and condition of assets, and there must be legal mechanisms for enforcing ownership rights when blockchain records indicate these are held, even against parties who are not part of the blockchain, or do not recognise it as legitimate.
Assuming that these challenges could be overcome, then a land registry blockchain could record sales of land (or other similar transactions), creating a verifiable and permanent record. The distributed nature of the ledger would mean that neither downtime nor server failure would ever affect the availability of the service.
Bitcoin is an online cash currency launched in early 2009. Bitcoin was created to be a form of electronic cash that could be sent peer-to-peer without the need for a central bank or other authority to operate and maintain the ledger, much as how physical cash is used.
The engine that runs the bitcoin ledger is original and largest blockchain, while other blockchains run several hundred other similar currency projects with different rules.
Bitcoin works by paying miners – those that do the computational legwork of posting new transactions – with newly-minted bitcoins. As long as the currency is desirable, it is self-sustaining. The system automatically adjusts the difficulty of posting transactions and the reward for doing so to control inflation.
Bitcoin is attractive to users for several reasons:
- payer-borne transaction costs are low;
- the valuation of the currency has generally been growing strongly since its creation; and
- the system is much less restricted than traditional banking.
As an internet-based currency, bitcoin also observes no international borders, meaning that transfer between territories is no different from any other payment. There are other blockchain projects, such as Ripple, that are looking to capitalise on this for international payments applications in central bank issued fiat currencies.
Blockchains are designed to be useful in systems that require reconciliation between parties. Many of the major players in banking are backing the R3 consortium, which is researching the use of a blockchain-like distributed ledger for interbank reconciliations and other financial applications.
Millions of dollars are spent each year reconciling ledgers between banks. If a distributed ledger solution could be created that is able to handle the volume of transactions between the banks, then this outlay could be greatly reduced.
This kind of application would be a private ledger – one where only invited parties can view the records or participate in creating new entries. However, it would allow for interbank transactions to form a single, authoritative record that all parties could verify. This could reduce the considerable efforts spent reconciling books with counterparties, and allow for a more efficient banking system.
A solution of this kind is not feasible with the present implementations of blockchain, either in volume or in speed, and indeed the R3 project has now morphed into other distributed ledger applications for the financial sector. However, assuming that these significant challenges could be overcome, this is potentially a very impactful area of application for blockchain. Others are looking at supply chain integration for similar reasons.
Smart contracts allow for transactions to be made automatically and without the need to rely on a central party to adjudicate the operation of the contract terms. Blockchain offers opportunities in this arena, because smart contract code can be written directly onto a block and is examinable by the contracting parties ahead of time, just like a traditional legal contract.
If it is agreed to, then the smart contract will automatically execute its own terms. This could mean releasing a payment following a certain trigger, running a software escrow account or making an investment.
One potential advantage of smart contracts over traditional law is that they reduce counterparty risk. With a traditional legal contract, the courts act as a cure to breaches – if the contract is broken, they can enforce the terms after the fact. However, smart contracts can be preventative; they operate on the stated terms regardless, which binds its parties. What’s more, smart contracts are unambiguous – the contract will carry out the one and only meaning of its code.
There are some challenges to smart contract adoption. While the process of executing a smart contract might remove the need for an intermediary, there may still be a need for a trusted professional (ie, a programmer) to create the smart contract. If institutional trust (and cost) moves from the lawyers drawing up the contract to the programmers encoding it, there is no real advantage to be gained.
However, we are currently a fair way away from this reality. Courts would have to recognise that the operations of smart contracts are legitimate ways to transfer ownership and value between parties, and that the terms of smart contracts are enforceable in case a breach somehow does occur. What’s more, an answer would have to be found to the question: What redress is available if the smart contract is exploited in a way not expected by one of the parties? Could intent override the letter of the code?
This last issue is not theoretical – when the DAO (a smart contract-driven investment vehicle created for the Ethereum blockchain) had much of its funding hijacked through a loophole in a poorly-written smart contract, there was a fierce debate over how to resolve the issue. This eventually lead to a fork, with most participants agreeing to roll back the loss of funds, but some kept the status quo and became a separate blockchain, which now exists under the name Ethereum Classic. This rollback was only possible because more than half of the participants agreed to implement it.
Supply chain traceability
Today’s supply chains are increasingly complex and span across borders, meaning time-consuming, manual, inefficient and costly processes for all parties. Low traceability in a fragmented system can result in safety issues, counterfeited goods and inconsistent data. At the same time, consumers are demanding more transparency about the origin and quality of the products that they buy.
Blockchain technologies could significantly reduce processing time across every step of this process. Each transaction indicating a movement of goods would be recorded, from raw materials to the finished product. Documentation would be created, updated, viewed or verified by parties on the blockchain, enabling visibility of the entire supply chain.
A full audit trail would be created, which could be used to protect consumers from counterfeit goods and also gives businesses increased confidence in the authenticity and quality of goods, impacting sourcing decisions.
For finance, payments could also be initiated seamlessly between parties throughout the process, based upon agreements. As an extension, connected sensors and smart devices could measure the condition of containers and other information can be recorded to inform final settlements (eg if goods have been damaged).
You can read more industry-specific examples in the Finance in a Digital World eLearning resource:
- ‘Know your customer’ compliance in financial services
- Managing clinical trials in healthcare and life sciences
- Asset optimisation in the energy and utilities sector
- Royalty payments for musicians