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  • Writer's pictureMarco Paolini

Blockchain: Advantages and Use Cases

Updated: Oct 14, 2020

The blockchain market has been constantly growing in the latest years and is now approaching a stage of maturity. But how can companies integrate the technology to improve their products and processes? Let's focus on those who already use it successfully.

Let's take a step back... What is Blockchain? Before analyzing the benefits of the technology and exploring its real-life use cases, it's a good idea to provide a brief, generic definition of Blockchain to help those readers who are not yet familiar with the concept. Blockchain is in fact not a single technology, but a group of technologies for the implementation of distributed (digital) ledgers. Such ledgers are in essence similar to traditional ledgers, i.e. books in which all operations of some kind (usually transactions) are recorded. They are implemented digitally and their copy distributed to all participants. In order to record a new transaction to the ledger, its participants need to reach some sort of consensus so that the transaction can be first approved and then propagated. The ways in which consent is achieved and the structure of the register are some of the properties that allow us to distinguish the various Distributed Ledger technologies. In Blockchain the register is structured as a chain of blocks (hence the name) containing the various transactions, whose validation must be subject to the consent of all nodes in the network. We can, therefore, say that the primary function of the Blockchain is to certify the operations that are carried out between different subjects, in order to make them reliable.

However, in order to have a more complete picture, a clarification is needed. In fact, it is possible to make a classification by distinguishing three different subfamilies of Blockchain, which we will list following a hierarchy based on a decreasing degree of accessibility to the network and to the information contained in the blocks.

  1. Public: these are decentralized Blockchain with no network access limit. Any user can execute transactions and create a new block, but no one has the right to modify the information stored in the chain or alter the protocol that determines its operations. The main examples are Bitcoin and Ethereum.

  2. Authorized: subject to the discretion of a central authority that determines who can access the chain and the roles played by the various users, assigning each one the relative level of visibility of the information. Hyperledger Fabric and Ripple are the best-known examples.

  3. Private: they have the lowest degree of accessibility to data and the highest level of control by a central authority, which also has the power to modify the protocol that determines the functioning of the network and freely refuse transactions that do not adhere to this protocol.

The Internet of Value and the benefits of Blockchain Now that we have a rough idea of "what it is", let's focus on "why". What acted as a catalyst, determining its diffusion, was the innovative concept of the Internet of Value. This term stands for the use of the Internet as a means of transferring and storing value of all kinds, not only currencies and securities but also intellectual property, music, art, scientific results, etc. In this context, the Blockchain plays an essential role as it provides a number of important advantages for this purpose:

  • Efficiency: the exchange of these values takes place in real-time.

  • Decentralized structure and security: blockchain data is not stored on a single computer but within a distributed network of nodes, so the system and data are highly resistant to technical errors and malicious attacks. Each node is able to replicate and store a copy of the database.

  • Incontestability: the decision to validate information is not taken unilaterally but through a mechanism of consensus gathering within the network, making it particularly difficult to question the outcome.

  • Immutability: transactions and data that are recorded within the blocks are immutable.

  • Traceability: concerning data and transfers.

  • Transparency: any authorized person within the network can view the amount, sender, and recipient of any transaction at any time.

  • Trustless system: unlike traditional payment systems, transactions do not require any financial intermediary.

  • Programmability: instructions can be included within the blocks to trigger specific actions when certain conditions occur.

  • Ductility: can be used for both commercial and private purposes.

It is incredibly easy to see how much the above benefits are juxtaposed to the world of transactions and, consequently, to the financial sector. In fact, at least initially, the Blockchain was used to certify transactions between people. Nowadays, everyone has already heard terms such as "Bitcoin", "Cryptocurrency", etc. In recent years, however, the areas of application of the Blockchain have multiplied, investing mainly in sectors such as logistics, public administration, agri-food, health care, telecommunications, insurance.

Some data

According to the Observatory Blockchain & Distributed Ledger of Politecnico di Milano, there are 557 Blockchain and Distributed Ledger projects launched worldwide in the three-year period 2016-2018, of which 312 in 2018 alone. 2019 confirmed the growing interest in technology, with 488 projects, up by 56% compared to 2018. The figure that makes you think is that of the 488, only 32.4% (158) are implementation projects, the remaining 330 represent only announcements.[1]

The data show a strong determination on the part of companies around the globe to experiment with Blockchain by applying it to different areas, other than cryptocurrency. At the same time, there is still a low propensity to use the technology in practice, mainly due to the lack of specific skills, the lack of an adequate regulatory framework and, above all, the insufficient diffusion of a real culture regarding the functioning mechanisms, advantages, and potential of the Blockchain.

Use cases

Although there is still a lack of confidence in the technology, there are those who have immediately grasped its enormous potential.

  • Honeywell Aerospace Honeywell is one of the largest U.S. multinationals, operating in several sectors including used aircraft parts. The average "life" of an airliner ranges from 26 to 30 years. Just as with cars, when the service life of an aircraft ends, operators can collect valuable components, sell them, recertify them as fit for flight, and reuse them for other aircraft. The demand for aeronautical spare parts is very large, but since this sector is highly regulated, it is necessary that each component is tracked, certified, and documented with a complete history of its ownership, use, and repairs over time. Before the advent of Blockchain, those who decided to buy this type of products online were forced to use sites similar to Craigslist, characterized by bare advertisements, without photos or images, and with very little important information, if not the most basic. The buyer had to undertake a long transaction with the seller (who's phone number he only had) in order to get a detailed picture of the condition and history of the component. The Honeywell Aerospace team's merit was to capture a significant lack of assurance and confidence in the industry's transactions and remedy this by creating a digital marketplace based on the Blockchain: GoDirect Trade. This is a modern e-commerce site, through which the customer can easily access a large volume of information, which is essential to assess the condition of the part, such as number of service hours and repair and owner history, essential to assess the condition of the part. Through Hyperledger Fabric, the used aeronautical spare parts market has undergone revolutionary innovations, making the related transactions safer, faster, and more reliable. Just one month after its debut, the platform has registered more than 300 buyers and almost a quarter of a million dollars in online transactions. In 10 weeks, sales have risen to over a million dollars. [2]

  • Dubai, the first Blockchain-powered city The rapid development of Dubai in various economic sectors over the last decade has meant that traditional processes had to be continuously updated to ensure efficiency and speed of public services, both in the G2C (Government to Consumer) and G2G (Government to Government) markets. In particular, the enormous growth of the tourism and construction sectors (just think that in 2009 there were only 44 hotels, in 2019 there were more than 350) has highlighted the need for government authorities to carry out stricter controls to verify and track the ever-growing transactions. As a result, the need for an agile solution to streamline the growing government processes has emerged. The Blockchain was the optimal solution, firstly because it had the advantage of storing information securely in distributed books of account and secondly because it made transactions much more agile by eliminating the need to use other financial intermediaries. In October 2016, Dubai launched a strategy at the city level with the aim of becoming the first city powered by the Blockchain. The strategy is based on three pillars: - Implement blockchain technology on all government services able to use it. - Support the creation of a blockchain industry by providing an ecosystem able to support start-ups and enterprises, stimulating their growth. - Launch an education and awareness campaign about blockchain and its potential, becoming the main center of intellectual capital and skills development in this field. In 2020 Dubai became the world capital of development of the Blockchain, having implemented 24 use cases in eight industrial sectors (finance, education, real estate, tourism, trade, health, transport, and security) and launching the Dubai Blockchain Platform and the Dubai Blockchain Policy. To date, Dubai is home to over 100 companies involved in the Blockchain sector. The Blockchain market in Dubai grew by 24% in 2018, exceeding the global average by 19%. [3]

  • Hyper Property: a blockchain board game Starting in 2015, every year there will be "Consensus", a gathering for all fans of Blockchain and cryptocurrency that will attract many large companies, developers, and investors from around the world to engage in a debate on the future of the industry. During “Consensus 2017: Building Blocks Hackathon”, sponsors launched hackathon challenges to competing teams. The one launched by Hyperledger was to implement Blockchain on any board game through one or more Hyperledger projects. The victory went to the Hyper Property team, who decided to apply Blockchain, in particular Hyperledger Fabric, to the famous Monopoly, due to the excellent representation of the real estate market functioning mechanisms provided by the game. The structure of the project is based on three key elements: 1) the real estate properties; 2) the players, who can buy properties from their bank account; 3) the board, containing all the properties and the position of each player. The operating mechanism consists of writing four types of events on the ledger: - start of the game; - dice roll; - property purchase; - turn end. Each time one of these 4 actions is taken, it will be automatically recorded. Each game starts with a table on the ledger containing all the initial data regarding each player's properties. When a player rolls the dice, a request to roll the dice goes into the backend and the result of the roll is written on the ledger. This also includes an update with the player's new position. When a property is purchased or a player passes the turn, the board status is updated again with everything that has changed, such as the properties the player owns, the new account balance, and his position. The game ends when all n-1 players go bankrupt. The game emulates a tokenized economy, where each property is represented by a token within Hyperledger Fabric. When a player buys a property, he is assigned the token for that property, and his balance decreases. The same example can then be applied to any economy where assets are represented by tokens on a blockchain. When assets are to be traded, participants in the trade can exchange the value for the token and conclude transactions without the help of intermediaries. In addition, thanks to Fabric, a trustless, unchangeable environment is provided where you don't have to worry about the possibility of someone cheating, as each action is recorded permanently. This provides an effective example of how Blockchain can make transactions secure, more efficient, and less expensive. [4]

There are many successful cases in the world concerning the application of the Blockchain. To narrow the field, those just proposed refer exclusively to companies that have adopted Hyperledger Fabric as a type of implementation. We have consciously chosen to deal with use cases not related to the traditional finance sector to demonstrate how flexible and thin the application boundaries of Blockchain are, able to successfully adapt to many sectors, even very different from one another.

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