What crypto technology can really do and how companies are already using it today.
Blockchain applications are considered a megatrend of the coming years. The cryptocurrency Bitcoin has helped the blockchain technology behind it to gain popularity. Many companies are interested in the principle of blockchain, but the technology is not very tangible. What are companies already implementing and what blockchain-based solutions are they developing? We examine this in the first part of our series: Hype or Opportunity?
Blockchain: It’s the next big thing, say some. Completely overrated, say others. And many people equate blockchain with bitcoin. Half-knowledge abounds. What does it really look like?
In 2008, Satoshi Nakamoto published the famous “white paper”, the concept paper for a blockchain-based payment system called Bitcoin. Which author or which team is behind this pseudonym is still unknown today?
What for a long time only interested insiders has been talked about by everyone since 2017 at the latest: the world of cryptocurrencies and the technology behind it, blockchain or distributed ledger technology (DLT).
The blockchain is a register that shows who owns what and when something changed hands. This register is not located in a central place, but on different computers. These computers are networked with each other.
Security
The advantage of the blockchain is that this register cannot be falsified. Because every transaction that is added to the blockchain can no longer be manipulated and is therefore secure.
How does this work? A blockchain consists of blocks filled with data. Each of these blocks contains certain information. Since each of these blocks is cryptographically linked – i.e., encrypted – with the previous ones, none of these blocks can be subsequently changed. This is because all blocks and transactions can be seen by every participant in the network.
Anyone who wanted to change a data block on a computer would fail. Since all chains monitor each other, the manipulated chain would be excluded. The others would continue to work. Read here how the blockchain works exactly.
With a blockchain, a hacker can no longer penetrate a database through a single attack. In places with a lot of corruption, i.e., where there is a lack of trustworthy providers for central registers, a blockchain solution therefore comes in handy.
Blockchain solves the problems of data security in Industry 4.0, which is so important for the European economy, i.e., when machines are networked and communicate with each other.
Another advantage is that it reduces dependence on intermediaries. Banks, notaries, lawyers, and intermediaries, who earn money on all transactions, no longer play a role due to decentralization. Only the register is decisive.
Smart contracts
Blockchains are particularly interesting when contracts are to run automatically. The technical term for this is smart contracts. In practice, this mostly involves payments that are triggered when previously agreed conditions occur. These smart program codes are stored on a blockchain and perform their actions automatically in the form of an if-then relationship.
Smart contracts can in principle take over the function of intermediaries such as banks. The automated contracts ensure, for example, that a payment is only triggered when the agreed goods have reached the recipient.
Areas of application
DLT is changing the world – and we are only beginning to understand the wealth of its possibilities. Depending on the industry, the applications vary in nature. Roughly three concepts are currently crystallizing:
- firstly, the possibility for smart contracts, i.e., computer-controlled contract solutions
- second, the creation of decentralized autonomous organizations (DAOs), i.e. purely computer-controlled companies consisting of a combination of smart contracts
- thirdly, the networking of new methods of artificial intelligence via blockchain in industry.
Industry examples
Travel
The Swiss start-up Winding Tree is working on a decentralized B2B marketplace for companies in the travel industry. The blockchain-based travel marketplace brings together airlines, hotels, and other travel service providers. This is intended to eliminate middlemen and ensure transparency and efficiency. Lufthansa and other partners are already cooperating.
Internet of Things and Sharing Economy
The Slock.it project deals with the sharing economy. The blockchain is intended to simplify the sharing of objects such as unused flats, office space, machines or other movables and real estate. Slock.it would therefore have the potential to make Airbnb superfluous as a middleman.
Example: renting a bicycle. A networked bike lock can be opened via the blockchain and the bike can be paid for the duration of use – without a third party. Anyone who wants to rent a bike only must hold their mobile phone up to a smart lock, and the rest, such as transferring money and concluding the contract, is done automatically. The project is supported by the Innogy Innovation Lab and Siemens.
Manufacturing, logistics and retail
IBM is researching more than 400 blockchain projects with other companies. One of these is IBM Food Trust. The blockchain aims to improve food safety, facilitate recalls, and reduce waste. IBM is currently working with ten large food retailers on a pilot project that maps the entire supply chain via blockchain. The decentralized transparency is intended to create trust – not only with the end customer, but with all partners along the supply chain.
Railway
DB Systel, the IT division of Deutsche Bahn, is working on a universal ticket that works across the board: regardless of whether travelers are travelling by train, plane, car or taxi. With the blockchain, it is possible to uniquely identify people across the entire travel route. Thanks to the documentation in the blockchain, the individual service providers can be billed according to their performance.
Music industry
The US start-up Ujo Music offers a beta version with smart contracts for the management of rights including remuneration to the part owners. This allows everyone who has contributed to a track to be adequately remunerated through blockchain technology. Third parties such as record companies or music portals, with whom a large part of the money often remains, no longer apply. A similar basic principle is behind peer tracks and bittunes.
Insurance
Fizzy is a policy from Axa in beta stage that allows passengers to insure themselves against delays. The blockchain system automatically handles both the purchase process and the notification of claims in the event of a delay – without any further intervention by the customer.
Banks
Landesbank Baden-Württemberg (LBBW) has used blockchain in promissory note transactions with Daimler and Teléfonica Deutschland. Traditionally, there are many manual interfaces between the borrower, the arranger, and the investors in the promissory note business. Thanks to the cross-party transparency of the new technology, many processes can be digitalized. This significantly reduces the processing times in the settlement.
Conclusion
Hype or opportunity? More than ten years after Satoshi Nakamoto’s vision, the time is ripe for an honest stocktaking.
A lot of groundwork is currently happening. Not all blockchain use cases are equally relevant. Under certain circumstances, one or the other cryptocurrency will prevail on the market. It is possible that the central banks will one day issue a cryptocurrency themselves. Whether bitcoin will have a future in its current form is rather doubtful.
Critics complain that many problems can be solved much more efficiently with conventional technology. Also, using the numerous computers to mine Bitcoins costs a lot of energy. Therefore, before the blockchain reaches the mainstream, it must first be shown at which point an added value really arises for the individual actor.
In the best case, it will be like the evolution of the PC and the internet: At the beginning, a few nerds and tinkerers believe in the success of the project. But only with a user interface that is simple and convenient will the breakthrough come.
Very likely, blockchain technology has a great future ahead of it. But now, blockchain applications are in a trial-and-error phase. We can look forward to seeing what awaits us at the end of this process.
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