Shared ledger technology moves beyond cryptocurrency and financial services.
If blockchain technology lives up to the current hype, it could soon unleash a new wave of disruption.
As a distributed, decentralized ledger, blockchain contains data integrity and authenticity characteristics that can guarantee trust among untrusted parties as they conduct digital transactions. And that opens up a world of possibilities.
These are still early days for proven, large-scale blockchain applications aside from Bitcoin, the well-known cryptocurrency and digital payment system. But the technology’s potential is immense, with Gartner making a staggering prediction that blockchain’s business value-add will grow to slightly more than $176 billion by 2025, exceeding $3.1 trillion by 20301. That value add can be derived from such factors as increased sales, new sales opportunities, decreased input costs, and reduced indirect costs.
Most of today’s discussions and predictions about blockchain focus on its ability to fundamentally reshape the nature of financial transactions and services. At Juniper, we believe that blockchain will also bring significant benefits to a broad range of industries, specifically helping in the areas of identity and data integrity.
Transparent Yet Secure
Blockchain is transparent by design, yet it inherently guarantees the integrity of data. A blockchain electronically links transaction records called blocks. These blocks are resistant to tampering because each block is cryptographically tied to the previous block’s information. The data cannot be changed or removed once it’s in the blockchain—a key design characteristic that safeguards the data and audit trail.
This assurance can be a welcome relief in today’s climate of more frequent security breaches that compromise personal information and growing mistrust in the authenticity of news, information, and documentation.
Identity and data integrity are indeed important issues to solve. But for success with this technology, as with any application, blockchain still requires secure underlying communications networks, reliable infrastructure, and end-to-end cloud orchestration. Breaches can occur if private keys for accessing the blockchain are compromised or stolen, as we saw in the 2011 attack on the Mt. Gox BitCoin exchange that resulted in an estimated $450 million loss. Blockchain can assure data authenticity and integrity, but it is by no means a replacement for comprehensive network security.
Consensus-Based Control
Blockchains contain consensus mechanisms that serve as a substitute for centralized command and control. This means that no one entity—corporate, government, or otherwise—acts as an intermediary to control the transactions. In this way, blockchain fundamentally facilitates trust among parties and decreases transaction costs by reducing duplication, reconciliation, and record-keeping tasks. The technology reinvents the notion of contracts and facilitates peer-to-peer interaction, strengthening the foundation of a gig economy.
To illustrate how blockchain works, consider a traditional supply chain, an ecosystem in which different vendors or other entities transfer assets or share information. Vendor ecosystems today are defined by a lack of trust, which results in a complex, inefficient web of interactions among them. Imagine that each vendor needs a ledger (or database) to record transactions, and that dependency opens the possibility that the ledgers could differ due to errors, fraud, or negligence. These complexities and inefficiencies exist in countless industries, from healthcare records, to music copyrights, to government registration databases.
By contrast, what if you had a single database that everyone in the ecosystem could see and update? Such a setup would remove many inefficiencies and complexities. Still, how could you control access to it? How would you verify that the transactions have, in fact, been executed?
A carefully designed blockchain system provides the streamlining benefits of the single, distributed database while solving the access and verification problems of a centralized database.
Blockchain in Action
Blockchain’s potential touches countless industries, but let’s explore two examples related to the identity and integrity of data and parties in a transaction.
Supply Chains—Blockchain verifies origin and authenticity at every step of the way through the supply chain to assure legitimacy. Smart contracts, which consist of code that can reside within a blockchain, set rules about transactions and automate interactions among parties.
Let’s use an aircraft parts transaction as an example. Blockchains with smart contracts can verify authenticity of the part as it makes its way through the supply chain. The item leaves the manufacturing plant on a container truck and travels to the local port. The container holding the aircraft part is shipped to the destination port, where it gets loaded onto a truck to the distributor’s facilities and then on to its final destination at, perhaps, the aircraft depot. How can we know that the part received is the genuine article, and not a cheap substitute that could put people in danger?
We can use distributed ledgers and smart contracts to ensure both the integrity of the process and that the part arriving at the aircraft depot is legitimate. At the manufacturing plant exit, we might laser-etch a tracking number on the part, then scan it and make this the first entry in our blockchain. On successive journeys and handoffs, smart contracts confirm receipt and automate payment between vendors. Intermediate fabrication steps, such as painting the part, might take place, and those events also are added to the blockchain to provide a full accounting.
Internet of Things—With blockchain, it becomes economically viable to form contracts over numerous low-value transactions, many of which reside in the Internet of Things (IoT). Blockchain makes it easier to manage large numbers of devices that communicate autonomously amongst themselves. Take the shipping container in the aircraft parts example above and multiply it by thousands, for instance. Or imagine the millions of sensors that monitor a critical industrial process. These are examples of the size and scale that the IoT introduces, scale that could overwhelm existing management systems.
Authorization of IoT endpoint identity is another use case in which blockchain can add value to improve IoT security. Protecting end or edge devices that make up the IoT is a relatively new effort. Hackers can gain entry into systems through these devices because IoT security is still evolving. Recent security breaches such as Mirai have originated from IoT devices. Blockchains can protect these devices against fraud and unauthorized communications if each device is initially registered on the blockchain and accepted by consensus. The blockchain records each transaction and communication performed by the end device. Device identity and history are transparent and verifiable. Without having the private keys and verification from the blockchain networks, hackers won’t be able to compromise the massive numbers of IoT devices to launch DDoS attacks.
Future Dependencies
Success of B2B blockchains will depend on the willingness of individuals and companies in an ecosystem to collaborate. As a result, when planning for blockchain we have to look beyond the business case for the technology and consider also the impact of any powerful, yet threatened, incumbents that might resist change.
Security issues will continue to rear their heads. While blockchain promises identity assurance and data integrity, it doesn’t solve all security-related problems. Blockchain expands the attack surface and will expose vulnerabilities that we haven’t yet considered. And as more developers build applications, the application layer with blockchain presents a new type of vulnerability that hackers could exploit. How long will it take to fix a bug that poses a security risk in a blockchain application once it’s found? Keep in mind that it takes time and consensus for any change. The best defense includes shifting toward a more holistic network security strategy where all elements of the network are involved in threat intelligence and remediation.
Powerful Potential
Blockchain’s potential touches nearly every industry. Financial institutions can settle securities in minutes instead of days. Manufacturers can reduce product recalls by sharing production logs with original equipment manufacturers (OEMs) and regulators. Mobile network operators can combat roaming fraud through call records that trigger blockchain smart contracts implemented between host and visitor mobile networks. Businesses of all types can more closely manage the flow of goods and related payments, and do so with greater speed and less risk.
So powerful is blockchain’s potential, however, that it’s advisable to prepare for it by first educating yourself on its intricacies. Then scan the current obstacles that hold back your business. Can blockchain solve a problem in a way that another, more traditional solution cannot? Experimentation can be a valuable step. Consider setting up a trial to demonstrate results.
Restoring Trust
As governments, businesses, and consumers increasingly digitize, network traffic continues to explode. But the network and our data are under constant attack, undermining our faith in technology and, in particular, privacy and authenticity. Combined with secure networks, blockchain may be the technology that restores our trust and reinvigorates a new era of interactions and empowerment.
Learn more about blockchain and its possibilities in the resources for this article.
1 Source: Gartner, Inc., “Forecast: Blockchain Business Value, Worldwide, 2017–2030,” March 2017.