After several years spent in the shadow of bitcoin, it's time for blockchain, the technology on which it was built, to move centre stage. An ever-growing array of stakeholders – service providers, developers, investors and many more besides – are recognising that the most exciting aspect of this cryptocurrency phenomenon is actually the technical wizardry behind it.
In very simple terms, that's a shared, distributed ledger that can facilitate thoroughly decentralised networks for trusted peer-to-peer transactions. Offering an approach that is as elegant as it is effective, blockchain now looks set to fundamentally redesign any number of public and private sector ecosystems, as well as opening the door to completely new ways of doing business.
But whilst blockchain is without doubt a transformative technology, a clear and objective understanding of its core characteristics and benefits is an essential starting point for any attempt to predict precisely where it will take us in the years ahead.
In the near to medium term, the most convincing use cases look set to include banking and payments, digital ID, smart energy and quite possibly travel credentials too.
Learning the lessons of history
With origins that date back to the global financial crisis of 2007-8, the emergence of blockchain is an interesting story in its own right. It also sheds a light on the fundamental strengths the technology has to offer in other sectors. That's because the creators of bitcoin (and with it blockchain) were at least partly driven by a high-minded desire to launch a monetary system that did away with the need for central authorities.
In their eyes, institutions such as central banks had failed the citizens they were supposed to serve. Bitcoin's developers therefore sought to enable trusted and transparent peer-to-peer transactions, without any need for such middlemen. In fact, the participants would not even need to trust each other – just the system itself.
To this end, blockchain seamlessly combines all the necessary ingredients to fulfill that overall goal, including a single database, synchronised across multiple members of the peer-to-peer network, a guarantee that all transactions are shared, ensuring both transparency and immutability (or, in plain English, records cannot be changed or tampered with), and the ability to ensure that sensitive personal information remains under the control of users.
Finding the perfect fit
This unique combination of assets explains the new consensus that bitcoin's most significant legacy will be found beyond the realms of cryptocurrency. Reflecting this, Gemalto's Innovation Lab team has for some time been investigating blockchain's potential to add value across a number of key sectors. The results have been enlightening.
Perhaps the most important lesson learned is that the use cases with most to gain invariably share a relatively small number of clearly definable characteristics. Is there an opportunity to decentralise trust and eliminate the need for a central authority? Does a number of different actors need to come together to exchange assets? Does the ecosystem need to be highly scalable, and adapt readily to the arrival of new players?
An end to the identity crisis?
Using such relatively simple criteria, it quickly becomes evident that blockchain-based digital ID schemes demonstrate an ideal fit, particularly in terms of enabling safer, more convenient online banking and payments.
For example, KYC (Know Your Customer) information can be shared efficiently between financial institutions, whilst so-called 'self-sovereign' identities put users firmly in control of their personal data.
The need for either service providers or a central body to manage this information on behalf of their customers is eliminated, as are the laborious tasks of negotiating numerous enrolment processes and remembering a multitude of different username/password combinations. Convenience, security, privacy and efficiency go hand-in-hand.
Creating more trusted travel credentials
Other potentially interesting opportunities include travel documentation. Significantly, this again represents an environment in which trust between various stakeholders is not always present. In this case, national governments may not necessarily recognise the passports and other travel documentation issued by others. However, in principle it is perfectly feasible to create completely new ecosystems for traveler credentials, sharing digitalised passports and visas via blockchain.
Indeed, as the relevant international authorities investigate how best to improve existing processes, this is one of the options being considered.
Smarter ecosystems for smart energy
The IOT is another sector where the interest in blockchain is particularly strong. But, in practice, the fit here is not always an obvious one. Primarily that's because the IOT is very much focused on connecting a multiplicity of relatively simple devices with low processing power. In contrast, current generation blockchains are best suited to running on servers and PCs.
However, there are undoubtedly a number of specific IOT applications that can reap significant benefits. In Smart Energy, for example, there is real value to be derived from the creation of scalable ecosystems that can easily accommodate numerous different stakeholders – generators, distributors, suppliers and end users – and provide a foundation of trust for the peer-to-peer transactions that must take place between them. For example, this type of model could ensure that generators deliver on contractual promises to supply a certain value of electricity to other stakeholders.
Forging new partnerships is now the key
As well as sharing distinct characteristics, prospective blockchain-based ecosystems are likely to face similar challenges in harnessing the technology's undoubted potential. Specifically, these include the need to bring together a diverse array of stakeholders; even direct competitors will be required to collaborate and co-operate closely in pursuit of common goals.
Blockchain may eliminate the need for a central authority, but this new breed of ecosystem still demands that rules of governance are agreed and maintained. In some applications, suitable candidates to lead the revolution will be obvious: banks and other financial institutions are ideally positioned to pioneer the new generation of self-sovereign ID schemes. In other sectors, government bodies may be best equipped to take the lead. But whatever the project in question, forging effective partnerships will probably prove harder than the 'nuts and bolts' of actually designing and operating the underlying system.
To ensure a successful outcome, all concerned will need to grasp the bigger picture. What's more, they may well need to demonstrate just a little of the radical spirit that inspired blockchain in the first place.
* By Laurent Castillo, blockchain expert: Gemalto Innovation Labs.