Is blockchain a magic wand that can answer the many ills plaguing the digital world, from privacy protection to cyber hacks? Supporters say yes: its resistant-to-modification blocks provide a transparent platform to build a multitude of trusted, secure services. Yet critics worry that its decentralised technology might mitigate its effectiveness and governance.
At a recent CEPS event entitled Blockchain: Hype or Solution, a panel of business representatives detailed concrete cases of how they are using blockchain technology. Their examples ranged from deblocking the inefficiencies of the equipment leasing market to building a privacy-secure social network. In all cases, blockchain opens to door to innovation; it enhances trust, transparency, and efficiency. Blockchain is the real thing, a breakthrough technology.
To be sure, the technology remains at an early stage. Blockchain attracts hype. Much revolves around crypto currencies and financial services. Blockchain-based bitcoin is a decentralised digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer network without the need for intermediaries. Bitcoin has been subject to boom and bust and central banks around the globe have vowed to block Facebook’s plans to launch its own digital currency Libra, saying it could destabilise the global financial system.
But blockchain is much more than crypto and financial services. It is a technology for many, less controversial uses – for example in health, sovereign ID, patents and digital right management.
Let’s understand what blockchain is and what it is not. Blockchain creates distributed, individualised ledgers that hold data in a secure and encrypted way. The data stored on blockchains resists tampering. This ability to create verified, unchangeable data chains creates trust and wrings out inefficiencies in a complex industry.
Provided the proper data is obtained and blockchained, almost every business could be improved. Examples cited in presentations included ID PASS, an open-sourced, blockchain-based solution which enables governments and humanitarian organisations to issue and verify identities. Without a verifiable identity, one-seventh of the global population lacks the right to access essential services such as citizenship, education, justice, health care, banking and insurance. Eva, a cooperative ride-sharing application, allows data on drivers and riders to be secured.
Consider equipment leasing. Dagmar Tricot is general counsel for a startup called Ferrum, explained how the present process to lease tractors, airplanes and other machines is complex and inefficient. It takes four to six weeks to onboard a new client because of financial regulations to prevent money laundering. Paper documents must be exchanged. Signatures must be obtained and verified.
Blockchain accelerates this process. It verifies equipment data. It verifies client financial data. It guarantees the provenance of a machine to be leased. It does all this in a seamless and fast fashion, registering new clients to a matter of minutes.
Another potential industry waiting to be blockchained is patents. Only two percent of registered patents are monetised; negotiations to license them are long and arduous. Blockchain brings all participants together, sharing trusted recorded data among trusted parties to foster trusted transactions. It eliminates intermediaries – reducing costs.
Since the data stored on a secure blockchain is held on decentralised platforms, it is by definition secure, allowing individuals to choose when to share or withhold personal information. All of the platforms that presented at CEPS insisted their products are consistent with Europe’s GDPR privacy rules.
The European Commission supports blockchain. Peteris Zilgavis, head of the Commission’s Digital Innovation and Blockchain unit, said at the CEPS event that Europe is particularly ripe for blockchain innovation: the technology can help tie together the continent’s different countries.
If policymakers want to encourage blockchain innovation, the panel agreed that there should no rush to regulate. Instead of regulating the tool, the sector should be regulated, just as fin-tech blockchain solutions are being reviewed (and often rejected) by financial regulators. Governments should instead promote understanding of blockchain and help spread the ways it can drive efficiencies.