Blockchain technology is part of the next great industrial revolution! Or at least that is what many enthusiasts and entrepreneurs would have you believe. It is often referred to as Web3, implying that it is a pivotal part of the third generation of web applications.
In fact, at first glance, a casual search on Google would seem to suggest that there are countless examples of real-world applications of blockchain in production and in supporting business-critical processes, with much of the marketing material claiming that it’s an essential part of growth for the future.
Many people see great potential in the use of blockchain technologies for solving a myriad of problems. However, the technology itself is still somewhat limited in its capabilities, is expensive to use, and for most people using it, is still quite awkward and confusing.
Closer inspection may leave one with the nagging feeling that many companies oversell either the success of their offering or the actual degree to which blockchain technology is an essential component of their product.
So how much of it is hype? How much can a real, significant adoption of blockchain technology benefit society? In this article we discuss some of the real-life applications of blockchain technology, and uncover whether it’s just a buzz-word fad, or whether it can add real value to the world.
Finance is the heart and soul of the major blockchains. There are countless finance-related blockchain applications in common use today. The Ethereum website lists some of these capabilities:
These, of course, rely on the popularity of several cryptocurrencies and the confidence of its users.
If you plan on investing in cryptocurrencies, keep in mind that many applications, like cryptocurrency exchanges, do the majority of their transactions off-chain because it is too expensive to do them on-chain. This is why when exchanges like FTX go under, many of their customers lose their money because it was never stored in the blockchain to begin with.
I believe that there is something missing from the Decentralized Finance (DeFi) application landscape.
I expect that one day, as cryptocurrency becomes more ubiquitous, blockchain platforms become more scalable, and blockchain transactions become cheaper, we will start to see much more sophisticated personal cryptocurrency management software. Such software might enable users to do all their banking and financial activities from one place, which the user fully controls.
It might have features that help you do the following:
As cryptocurrencies become more mainstream, someone will no doubt create an app that does all these things and will dominate the market. Any takers?
Non-fungible tokens (NFTs) are digital records stored on the blockchain that prove you own something. They are like certificates of ownership that connect some, usually virtual, collectibles to your address.
Again, the Ethereum website provides many examples:
Unfortunately, many of these solutions require third parties to provide an escrow service or act as intermediaries. The link to the real work outside blockchain is weak.
NFTs do not guarantee intellectual property rights. The real-world goods may be stored in warehouses managed by a provider. Fractional ownership may be encoded in a contract that guarantees a share in earnings via rent, as long as that rent is paid using cryptocurrencies. But your rights may not extend beyond that. You may not have any rights if the management company stops paying the rent through the blockchain.
The legal framework needed to protect the rights of the NFT owner does not yet exist and most NFTs are not 100% controlled by the alleged owner: the original creator of the NFT (the minter) also retains a great deal of control over all the tokens they create. And, in some cases, the NFT owner could do little or nothing if someone managed to take away those tokens or the management company went bankrupt.
To encourage more widespread adoption, we will need to see NFTs gain legal recognition as certificates of ownership of real-world property. That is, the law needs to be changed to give NFTs the power many people say they have. This is no easy thing to do given that laws exist within local jurisdictions and may not be recognized elsewhere. This is problematic because the blockchain is global. In a future article, we will explore the concept of jurisdictions on the blockchain, which is a solution that has been proposed for this problem and for which an open-source proof of concept has been created.
When the law recognizes and enforces the claims in an NFT, we will see a turning point for NFTs and the blockchain. When you can buy, sell, exchange, donate, bequeath, and gift anything you want with no intermediaries, as easily tapping OK on your phone, and you can be certain that the ownership is legally enforceable and recognized outside the blockchain space, that is when NFTs will enter into our daily lives.
A Decentralized Autonomous Organization (DAO) is a blockchain-specific mechanism for running an organization where all decisions are made by member votes. They are based on a concept that has become a vital component of any serious blockchain application that expects to survive in the long term and still maintain its decentralized nature.
DAOs are traditionally used to run investment funds and charities to make decisions on how the funds are invested or donated.
Decisions are requested with a construct called a “proposal,” which contains instructions on how to perform an operation on the DAO, its members, or its funds. Different DAOs work in different ways but the general idea is as follows:
The whole process is controlled by smart contracts and it is impossible to circumvent this process.
DAOs are decentralized because they operate on blockchain technology and no one person controls them. They are autonomous because their operation is defined by code that determines the rules that they operate under.
When you combine this mechanism with the ability to update contracts, you have the possibility to create secure and decentralized applications that can adapt and evolve as needs change.
Blockchain can be used to track the movement of goods and materials through the supply chain. This can improve transparency and enable more efficient and accurate tracking of goods and materials.
Accurate tracking enables consumers to make informed purchasing decisions by enabling them to confirm the quality and origin of products and materials, ensuring that they meet industry standards and regulations. It also makes it easier to identify and recall products in the event of a problem.
From a security perspective, since blockchain technology can provide an immutable record of the movement of goods and materials, it would ultimately reduce the risk of fraud and tampering.
Finally, transparent records and smart contracts could improve the efficiency of these supply chains and the procedures built on them by allowing us to build more automation and improve the reliability of the systems and the users’ confidence in them.
Supply Chain Management is one of the few areas outside cryptocurrencies and NFTs where blockchain technologies are actually used day-to-day in critical business processes. There are numerous examples:
In addition, the Institute of Electrical and Electronics Engineers (IEEE) created a standards group called BITA Standards Council that is dedicated to developing standard formats for storing information on the blockchain to ease the development of supply chain applications that rely on blockchain technology.
The energy industry is another sector that has begun to explore the benefits of blockchain. By leveraging the security, transparency, and decentralization features of blockchain, the energy sector can improve its operational efficiency, reduce costs, and enhance sustainability.
One of the most significant advantages of using blockchain in the energy sector is the increased transparency it offers. Every transaction is recorded on the blockchain that is accessible to all participants in the network which can be particularly useful in tracking the movement of renewable energy credits (RECs). RECs are certificates that represent the generation of one megawatt-hour of renewable energy. By using blockchain to track the creation and transfer of RECs, energy companies can ensure that they are accurately accounting for the amount of renewable energy they are producing and using.
Another benefit of using blockchain in the energy sector is its ability to enable peer-to-peer energy trading. With blockchain, energy producers can sell excess energy directly to consumers without the need for intermediaries. This can lead to lower energy costs for consumers and increased revenue for producers. Furthermore, peer-to-peer energy trading can facilitate the integration of renewable energy sources into the grid, as producers can sell their excess energy back to the grid during times of high demand.
Additionally, by using smart contracts, energy companies can automate the execution of certain tasks, reducing the risk of human error and improving overall system security.
Clearly, using blockchain in the energy sector can help promote sustainability. By tracking the creation and transfer of RECs we get transparency around the use of renewable energy sources. And by enabling peer-to-peer energy trading, we incentivize the production and consumption of renewable energy.
Blockchain has the potential to revolutionize the way the energy sector operates. As more companies begin to adopt blockchain technology, we can expect to see continued innovation and progress in the energy sector.
Here are some examples:
From the early days of blockchain, many people have recognized the potential for it to revolutionize the way countries manage their property registries. As early as 2012, a solution existed called Colored Coins that could potentially have been used to represent land ownership in a reliable way on the Bitcoin network. A project in Brazil attempted exactly this but has so far not done much beyond the initial pilot.
The arrival of blockchains like Ethereum, which created “turing-complete” programming environments and more powerful smart contracts, opened up the intriguing possibility of more sophisticated blockchain applications. This prompted numerous pilot projects in various governments that wanted to explore the capabilities of this technology and its application as a more secure and reliable land registry.
Here is a list of some of the attempts by different governments and a summary of how far they got with their efforts.
The Republic of Georgia tried to use a private blockchain from Bitfury called Exonum to store hashes of the registry. A hash is a very large number that securely reflects the state of the associated documents at a given moment in time, much like a fingerprint uniquely identifies a person.
Some will say that Exonum is not a blockchain at all, but rather an example of permissioned, and not-quite-decentralized, Distributed Ledger Technology. Also, since the blockchain stores only a hash of the registry, it is very limited in its usefulness. It only permits you to verify the state of the registry at a particular point in time, and then only if you have a full copy of the registry at that point in time to compare it with. Land ownership records and all related activities, documents, and payments remain off-chain. Two consequences of this are that it is not possible to use the blockchain to trade properties, and fractional ownership is not possible.
The Swedish Land Registry implemented a system that stores title transfers on a private blockchain platform developed by ChromaWay. In this case, transfers are stored on the blockchain, but such transfers still need the involvement of third parties like brokers, banks, notaries, and the land registry itself. Payments still occur off-chain and fractional ownership is not possible.
In India, the National Informatics Centre has a live application running on a private blockchain based on Hyperledger, which stores hashes of documents and allows the public to confirm authenticity of any of these documents. It has no transferable tokens and all records belong to the land registry. Again, trading without intermediaries and fractional ownership are not possible.
Accubits helped authorities in Dubai run a pilot project to store titles on the blockchain. However, no more progress was made after this project concluded in 2019. Consensys helped HMLR in the U.K. do something similar but was also discontinued after an initial pilot. In 2016, Cook County in the U.S. ran a project to demonstrate a hash anchoring app for the land registry similar to how Georgia’s worked. Nothing came of it, however. GoLand did the same in Afghanistan in 2020, with similar results.
These and others have consistently fallen short of any real change to current approaches to land registry operation. Some failed because there was never any real effort to take advantage of the true benefits of blockchain technology:
Part of the reason for these failures is that they did not account for the realities of blockchain technology. Answering the following questions is critical to any government adoption:
I have been involved in a project that sets out to use the blockchain to record land records and records of ownerships of other types of property. The project also addresses the problems that arise from owners losing their keys, disputes, and fraud and other crimes. It is the open source project that I worked on in 2023 with the staffing agency Stateside, based out of California and Costa Rica, called Blockchain Estate Registry.
This project provides a way to tokenize land titles, exchange them without intermediaries, administer them and resolve disputes in a decentralized manner, and even allows the possibility to exchange them on NFT marketplaces and crypto exchanges if desired. Resolving disputes is achieved by implementing a “hard” form of a concept created by Oleksii Konashevych called “Jurisdictions,” in which the government can intervene in transactions involving land titles. This intervention is enabled by logic in the title tokens but can only be executed using a proposal and voting mechanism which requires a consensus from many people. This approach ensures all interventions are public, recorded, and resistant to fraud and corruption.
We will cover the Blockchain Estate Registry project in detail in a later article.
The fundamental goal with using the blockchain to manage identity information is to allow individuals to control their own identity data and who can see it. This is done through Decentralized Identifiers (DIDs) which are stored on the blockchain and owned by the individuals.
The most promising approach to DID is called Self-Sovereign Identity (SSI) which is a standard for Verifiable Credentials which use secure credentials (also called attestations) issued by different authorities which are independently verifiable by any interested party.
Some clever cryptographical techniques allow authorities (or anyone else) to make attestations about an individual in a way we can trust because all the parties and information are verifiable and impossible to fake without detection. In addition, many of the details in the attestations are private unless the individual chooses to selectively share some or all the details with others.
Blockchain is not needed for all of this as most of it can be done using just Public Key Infrastructure (PKI) technology. PKI is the technology that gives you a public address plus a private key that you can use to prove you own the address by signing documents with it. However, blockchain provides a secure and decentralized platform where such attestations can be stored and retrieved.
Some applications of this approach include:
Despite the enormous potential of blockchain technology, its adoption has been slow but steady, mainly due to regulatory and technological challenges. However, with more companies and governments recognizing its benefits and increasing usability and energy consumption improvements, we can expect to see wider adoption in the future. As we continue to discover new blockchain applications and improve their scalability, security, and interoperability, it's clear that blockchain will play an essential role in shaping the future of many industries. The possibilities are endless, and the only limit is our imagination.
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