Blockchain adoption use cases

Comprehensive overview and analysis of blockchain use cases in many industries

Blockchain is considered to be a game-changing technology, which can potentially disrupt existing business models by making intermediary services obsolete and inspire the creation of new and cost-effective business models. However, this technology can not resolve all issues and its value can only be fully realized by combining it with other mature or emerging technologies, such as big data platforms, cloud computing, data science/AI, and IoT. Here is an excellent article for learning about blockchain history and evolution and how blockchain technology works.

In this article, we first talk about popular blockchain use cases across industries, including financial, civil services, supply chain, IoT, and healthcare, at a high level. We will then proceed to a discussion of factors for consideration, before determining proper use cases and developing a successful DApp. Specifically, we cover the following topics:

  • Examples of blockchain uses cases
  • How to choose a proper use case

Blockchain use case examples

The evolution of technology has fundamentally changed people's lives. Throughout human history, machines have replaced humans for performing various tasks. For example, in agriculture, farming vehicles made farming work less labor-intensive and greatly increased productivity. In the US, as of 2008, less than 2% of the population directly work in agriculture. They not only supply the food needed for the other 98% of the population, but also make the US the biggest agricultural products exporter. Examples in other areas include programmable telephone switchboards replacing telephone operators, and automatic elevators replacing elevator operators.

This trend of machines replacing humans sped up in the last several decades, largely due to the invention of computers. So far, there have been three computer-led revolutions in technology. Each of these revolutions fundamentally affected existing business models and inspired new ways of doing business. We are now at the dawn of the fourth phase: a blockchain technology-led revolution. The following are the phases:

  • Invention of mainframe and PC: Computers replaced humans for performing repetitive computations faster and better. Applications of computers driving automation are numerous and everywhere.
  • Internet: The internet refers to a globally interconnected network of computers. The arrival of the internet fundamentally changed the way services are delivered. For example, in the 90s, renting a video cassette or CD/DVD at a local rental store was a popular family entertainment activity on the weekends. Blockbuster was a household name offering rental services, and its business model worked well. In 2004, Blockbuster employed 84,300 people worldwide and had 9,094 stores in total. With the internet, new companies such as Netflix emerged and disrupted the reign of companies such as Blockbuster. Families no longer need to make a trip to a physical rental store to pick up a CD/DVD. Instead, they can downloaded a virtual copy of a movie from the internet. In 2010, Blockbuster filed for bankruptcy. Today, Netflix is a 145B company. The same story has repeated itself many times in other areas.
  • Social media sites: Social media sites such as Facebook, Twitter, or YouTube not only changed existing business models, they changed the way people obtain news and how news is distributed. Papers and radio/TV-based news distribution are no longer the only channels for news dissemination. Many news publishers were forced to shut down due to the loss of subscribers. On the other hand, freelance news reporters started emerging via YouTube and so on. Social media sites have also fundamentally impacted governments as news censorship became more difficult.

 

Phase 4—blockchain technology: Even with social media sites, censorship—although more difficult—is still possible since information is hosted and processed at a centralized server, so censorship can be implemented at that centralized server. With a blockchain network, censorship is not practical thanks to the decentralized design of blockchain technology. The only way is to shut down all the nodes of the network within a country. The biggest impact of blockchain on existing business models comes from the fact that this technology will make intermediary services obsolete. It will particularly affect the financial industry, where most financial services are essentially intermediary. This technology is about to bring changes not just to the financial industry, but to virtually every other industry.


Next, we cite a few examples of potential blockchain technology applications. We use the word potential, since the technology is still evolving and its current form has many limitations. There is no guarantee that these use cases can be implemented. It will take a while before many of these use cases become a reality, and some may never come to fruition. Regardless of whether a use case can be implemented or not, we focus our discussions on business problems and on ideas of how business pain points can
potentially be addressed via this technology. As the technology advances, for example with improvements in performance, some use cases will become a reality. We first talk about use cases in the financial industry.

 

Payment and settlement services

Reconciliation of transactions between banks is costly and time-consuming when performed traditionally. For example, in 2016, the US alone had 70B debit card transactions. In the same year, VisaNet (one of world's largest electronic payment networks) processed an average of 150 million transactions a day. With these high volumes, even a tiny saving in each transaction can lead to a huge reduction in the overall cost of doing business. In the case of stock trading, the complete cycle of a trade plus clearing and settlement take three days. A failure in reconciling a transaction could result in a significant monetary loss. (Therefore, a clearinghouse such as DTCC implements an insurance mechanism to mitigate settlement risks.) With blockchain technology, payment processing is increasingly moving towards instant payment worldwide. For example, Ripple can complete a cross-board payment in minutes. The technology combines transaction and settlement. It dramatically reduces the associated transaction costs. The steps of a transaction are visible to a requester. A recent research report claimed Ripple's payment cost is only 0.1% of the cost associated with a traditional transaction. Similarly, for stock trading, since a blockchain implementation merges trading and clearing/settlement into one action, there is no longer a settlement risk. An exchange member firm will not need to pay a premium for settlement insurance and will not require a large back office team dedicated to handling settlements.
This will significantly reduce the cost of doing business for the firm.

 

Import and export finance

In goods trading, importers and exporters respectively use their banks for issuing letter of credit (LC) and settling payments. Blockchain will allow banks to simplify document management. It provides transparency to the parties involved and mitigates the potential risk of document fraud. It makes transaction reconciliation between and within financial institutions a lot simpler, leading to significant savings. The decentralized ledger provides auditable transaction logs, making legal disputes less likely and simpler to settle.


Immutable ledger

Book or record keeping methods, such as using a ledger, become increasingly complicated due to the increasing number of participants and the complexity of transactions. The traditional way of maintaining a ledger is for it to be centralized. This approach lacks transparency, leading to frequent disputes legally or not legally. It is also difficult to identify an error as parties involved in a transaction do not have an efficient real-time method to check and verify transaction facts against the ledger. Blockchain technology can resolve the issues seamlessly. The decentralized and immutable ledger maintained on the chain virtually eliminates any chance of a dispute and brings trust between parties in transactions. Blockchain allows for real-time queries and permits parties to ensure their correctness. Unlike the traditional way, where two trading parties kept entries in their respective ledgers, possibly leading to discrepancies, the blockchain ledger allows all parties to maintain a unified ledger, eliminating the possibility of inconsistencies.

 

Regulatory compliance and auditing

With its immutability, regulators can trust any information that they extract from transactions recorded on enterprise blockchains. Financial companies do not have to take steps to prepare data and invest heavily in implementing data governance to ensure the correctness of data. As a result, blockchain technology can potentially help lower the cost of regulatory compliance and auditing for financial companies in areas such as security trading, anti-money laundering (AML), and know your customer (KYC).

 

Identity theft detection

The decentralized blockchain system deters bank theft and hacking activities. The adoption of blockchain technology will make detection of identity theft easier. If a thief steals an identity and opens a bank account or makes a fraudulent tax claim, the affected individual can see all the accounts under his/her name and identify the suspicious activities. The person can then report them to a bank or the IRS immediately, preventing them from suffering further loss.


Funds back-office operation

Blockchain can be used to improve the efficiency of implementing measures to satisfy the regulation requirements of AML and KYC while onboarding a new client. It can help with funds' net present value calculation, as well as other back-office activities such as reconciliation and handling corporate actions (such as, stock splitting, company mergers and acquisitions, and so on).

 

Collateral management

In a traditional way, regardless of a bilateral or tri-party transaction, information on collateral is not available in real time to parties involved in a transaction. Blockchain can be used to provide a decentralized system for collateral management. It provides real-time transparency and maintains one copy of state on collateral usage, which removes the possibility of having inconsistent information on collateral due to parties keeping their individual records as well as a traditional collateral management approach.

In the previous section, we discussed examples of use cases for the financial industry. Next, we cover examples beyond the financial industry.

 

Healthcare systems

Blockchain can help to address the issue of lacking a way to manage health data efficiently. The adoption of blockchain technology can simplify medical data management. For example, a patient's medical history, diagnostic information, and test results are kept at their respective doctors' offices. Sharing medical information among doctors, for instance a patient's family physician and specialists, is time-consuming and difficult. This could lead to a delay in diagnosis or generatre redundant medical tests. The blockchain can make data sharing easier, while the confidential data is well protected. The detailed medical records can then be aggregated. The aggregated information can be made available to medical researchers, government agencies, and pharmaceutical or insurance companies. With simplification and worldwide access, health data sharing helps promote cooperation among researchers and pharmaceutical companies in the development of new treatments and drugs. Based on real health data, government agencies can make improved health policies. Medical insurance firms can utilize data to calculate the premiums for plans and reduce the cost of collecting the required data. The same goes for decentralizing the results of clinical trials. In summary, blockchain can revolutionize how health data is stored, managed, and shared. It will profoundly impact the development of the health industry as a whole.


Real estate trading and rental markets

In the US, realtors charge a broker fee, typically 5 to 6% of the selling price, for bringing a seller and a buyer together to make a real estate transaction. Lawyers charge hundreds of dollars for providing legal services to a buyer or seller. In New York city, a real estate broker typically charges a customer one month of rent, which is often thousands of USD, for facilitating a rental transaction. This is quite expensive compared to the limited services provided. Blockchain provides a much lower cost solution with the added value of providing transparency. A real estate blockchain network matches untrusted buyers/sellers or tenants/landlords for a deal. The scripted legal document, a smart contract, replaces mos legal services provided by a real estate lawyer, thus rendering them nonessential. No escrowsing accounts are required since blockchain combines transaction and settlement into one action. In other words, transferring ownership of a house and payment occur at the same time. A similar solution is applicable in the case of property rentals. This will lead to dramatic savings in transactions by both parties. Facing the threat posed by blockchain technology, realtors will either have to find an innovative way of providing value added services or change to a different occupation.

 

IP market

IP refers to intellectual property. This can be a digital or digitized asset such as a novel, a song, a movie, a painting, a patent, or a piece of software. Blockchain technology can potentially be used to set up a market for buying and selling IPs. This will allow an owner to sell an IP asset to a buyer. For example, upon completion of a novel, an author can generate a predetermined number of digital copies of the novel and sell directly to readers. Each digital copy has a pair of public/private keys and an address. Upon paying the price of the book, the title of this copy is transferred to a buyer. The buyer can in future resell the copy at a secondary IP market. This new business model does not involve a publisher. An author can pocket most of the proceeds from book sales.

 

Elections

The current way of conducting an election has multiple downsides. First, it often requires the physical presence of the person casting the vote. Many elections still rely on paper voting. This makes counting the result very time-consuming, labor-intensive, and expensive. It also may lead to a lengthy recount, which happened during the previous US presidential elections in several close-call states. The recounting took weeks or longer to complete. Manipulating the outcome, double voting, or faking a vote are other frequently cited problems, even during several highly watched elections in other countries.


Blockchain technology can be used to address these issues. With a blockchain-based election DApp, casting a vote can take place worldwide. Every voter is uniquely assigned an account, an address, making double voting infeasible. The result of an election is immutable. Therefore, manipulation of an election outcome is not possible. The technology brings another advantage by making worldwide, cross-border referendums feasible on issues such as environmental topics.

 

HR and recruiting

A common issue faced by the HR department at a large company is how to identify a candidate with the right skills, work experience, and educational background. Often, the solution is to hire a professional recruiter or headhunter, who either identifies candidates via personal networking or through scanning social media sites such as LinkedIn. The fee paid to a recruiter is equal to a month's salary for the hired candidate or more. Blockchain can be utilized to build a decentralized database of professionals. This can serve two purposes. First, it provides transparency to match employers and candidates. Second, every company can learn the history of a potential employee and the person's current employment status. This can help to filter out potential fraudsters getting employed by a company.

 

Public records

The government's civic administration office maintains different types of record, for example on citizens, tax returns, holders of deed and property titles, building permits, zoning information, patents, water pipeline and sewage layouts, and so on. They require continuous updates. In addition, these offices receive frequent inquiries. Keeping these records on paper is expensive since the government has to hire a team of office clerks to manage the records manually.Even in the case where records are electronically filed, hands are still needed to respond to inquiries. With a digital ledger hosted on a blockchain, inquiries can be met via software query tools instead of via an office clerk. This solution will safeguard the data from being altered for malicious purposes. This can help to reduce identity theft as well.


Reduce contract disputes

Blockchain is used internally by IBM for resolving contract disputes between partners on the network. According to IBM's estimates, an average of 0.9% of its 2.9 million transactions result in disputes. These disputes lead to around US $100 million in capital being tied, up and unable to be put to work to make a profit. The capital financing cost for $100 million is not trivial. There are also significant costs associated with resolving the disputes. With the blockchain solution, IBM can combine data provided by participants in the network and create a comprehensive view of all transactions. The blockchain provides strong privacy and confidentiality controls via an access-entitling governance mechanism. This solution has greatly reduced the number of disputes.

 

Sharing economy

Blockchain technology can be used to create a market to promote the sharing or rental of the residual value of an item or services to others. For example, one may have an  underused computer that can be rented out to another user who needs a temporary boost in computational capacity. In this case, the blockchain sharing market can be used to complete such a rental arrangement. The platform essentially allows individuals to run a private rental business on virtually anything that is shareable. The blockchain technology-based market is suitable for any device whose usage can be conveniently shared digitally, such as a computer. The market can be used to facilitate the sharing of general services as well. For example, in a European country young people provide nursery services to elders in exchange for credits. The accumulated credits can be used to receive similar services when a person becomes old. With the blockchain solution, the person will receive digital coins that may be called ServiceCoin for the services being provided to others and can spend the coins later to receive a service. This can potentially be a solution to addressing the problem of the high cost of nursery care in the US.


ntegration with IoT

IoT refers to Internet of Things. IoT is a network of many different types of things, such as physical devices, vehicles, home appliances, and sensors. These things are connected and can collect and share data. When combining blockchain technology and IoT, we can potentially implement many meaningful applications. They can have a lot of benefits such as providing convenience in people's lives, saving lives, and reducing the cost of conducting business. The following are a few possible use cases:

  • A smart contract can be automatically called to place an order for additional laundry detergent when an embedded sensor detects the level of detergent is down the preset level.
  • A health wristband or embedded sensor in clothing may detect vital statistics on a person pointing to the likelihood of a potential heart attack. It then automatically triggers a smart contract to send an order to a pharmacy store and an SMS or email alert to the person. When implemented well, this kind of application can save many lives.
  • A built-in sensor in a refrigerator can detect the quantity of vegetables or meat and trigger a smart contract to order additional vegetables/meat from a local farmer and a meat supplier without the involvement of a grocery store. This will avoid costs added to grocery products by stores and lead to savings for consumers.
  • When a hotel guest is ready to check out, the guest can simply drop a room key (or smart key) at a designated place. A sensor triggers a checkout smart contract. When triggered, the smart contract will access the data being collected via other sensors in the room, such as information on consumption of snacks/drinks at a mini-bar or possible damage to room facilities. Based on the collected data, the smart contract will calculate a final amount and complete the guest's checkout by invoking and completing a payment transaction. With such a solution, a guest does not need to visit the hotel reception desk and this saves the guest time. It also helps the hotel reduce operating costs since the hotel does not need to hire an employee to man the reception desk.

Facilitate commercial and social relationships

The Australian government entity, the CSIRO (Commonwealth Scientific and Industrial Research) Organisation , carried out scientific research for the benefit of Australia. The agency pointed out that the blockchain can be used as a database system that facilitates commercial and social relationships. An effective use of blockchain technology lies in complex markets with multiple organizations interacting with each other.

 

How to choose a proper use case

With so much speculation about blockchain technology and its potential impacts on existing business models, it is a time to be realistic. In Gartner's most recent Hype Cycle for Emerging Technologies report, blockchain is said to have entered the trough of disillusionment phase, the third phase of the company's hype cycle metric, as shown in the following screenshot:
Blockchain use cases


Between Q4 2017 and Q1 2018, the price of 1 BTC reached above 19K and then quickly dropped down 10k in a matter of days. It is 3.4K on December 11, 2018. This eye-popping roller-coaster in BTC price has led to the cooling down of frantic speculations on cryptocurrencies and consequently a reduction in investment in cryptocurrency projects. In addition, the limitations of the technology are also a factor, making the technology unsuitable for certain use cases. A well known issue is the low rate of transactions per second (TPS) inherited by most blockchain platforms from Bitcoin, as discussed in Article 2, Ethereum Fundamentals. Successful blockchain applications are still scarce and they are mainly concentrated in the financial industry. Ripple is a success story, which focuses on cash payments.

Since blockchain technology is not suitable for all use cases, it is important to choose a proper use case before jumping into action. The following comments can be useful to help you in determining which use case to work on and how to choose a blockchain platform for its implementation along with other architectural considerations:

  • Not every use case is suitable for blockchain. For instance, many use cases can be implemented with traditional technology. It is true that blockchain is a data repository. If the sole purpose is to host data, choosing a regular database may be sufficient. Currently writing to a blockchain is still much slower than writing to a database. Insertion into a blockchain takes seconds or minutes. Insertion into a database takes only milliseconds. This makes databases a better choice in many use cases requiring high throughput, such as capturing credit/debit card transactions or equity trading market data. In the future, as performance and scalability improve, blockchain technology can be used for these use cases.
  • In IoT use cases, an issue to consider is how to integrate an IoT device with a blockchain network. An IoT device is not a computer. As a result, an IoT device cannot be a node of the blockchain network. One possible solution is to link the device with a node on the network via APIs. The node interacts with the blockchain ledger and triggers the corresponding smart contracts upon receiving a signal from the IoT device. Performance is also an issue. Some IoT devices, such as airplane sensors, generate high-frequency measurements. A low TPS blockchain network cannot respond quickly to requests from these devices.
  • The block size of a blockchain platform is limited. For example, Bitcoin has a block size restricted to around 1 MB. The following graph (from blockchain.com) shows its average block size history up to October 2018. For use cases such as an IP market for selling a novel or a movie, detailed information on a digital asset requires a lot of storage space. One can consider an architectural design of combining on-and off-chain storage to resolve the limited block size issue. Details about a digital asset can be saved off-chain at a centralized location. Ethereum has already adopted the on-and off-chain data storage approach:

Blockchain use cases

  • If a use case involves a digitized asset, a few issues need to be addressed for managing the underlying physical assets:
      • The physical asset needs to be notarized in order to prove its authenticity.
      • A solution is needed to ensure that the underlying asset remains the same and is not changed between the time it is notarized andwhen it is transferred in its title.
      • Similar to the digital coin double spending issue, a solution is needed to ensure that a physical asset is mapped to one and only one digital asset.
      • Valuable physical assets require secured places for storage. When ownership is transferred digitally, the corresponding ownership on the underlying asset needs to be recorded and transferred. A possible solution could be borrowed from bullion (gold) trading. The physical gold can be stored at a safe place, like the NY Fed gold vault. When a pile of gold bars changes ownership, the physical gold bars do not leave the vault.
  • Although Ethereum is a generic platform supporting DApp development, its implementation involves a digital coin. Whenever a cryptocurrency is part of a solution, one may need to deal with legal complications associated with it. For example, in the US, BTC is defined as an asset, not a currency. In other words, there is a tax implication (for instance, sales tax) when a BTC is sold to a buyer. Certain countries such as China prohibit cryptocurrency trading. As a result, an enterprise blockchain solution such as Hyperledger Fabric (HF) may be preferred since its implementation does not involve a cryptocurrency.
  • Many use cases such as healthcare data sharing or credit data digitization are not suitable for public use. A permission-based enterprise (or private) blockchain is needed instead of a public blockchain such as Ethereum.
  • Another advantage of a private chain such as HF or R3's Corda over Ethereum is that both HF and Corda support development in Java, while Ethereum requires a programmer to learn a new language such as Solidity.  Given the scarcity of talent in Solidity, it is difficult and expensive to find qualified developers. On the other hand, turning a Java programmer into a HF or Corda developer could be   an easier solution.
  • Blockchain technology implies the guaranteed execution of a scripted legal document, a smart contract, which makes untrusting parties feel comfortable doing transactions. If a use case does not require a guaranteed transaction, then it is not a suitable use case. For instance, blockchain is not needed to replace the traditional internet dating site. Dating is very personal and it does not lead to a guaranteed transaction—a marriage.
  • If blockchain is only used for the purpose of being a distributed ledger, it is not justifiable due to the cost associated with a blockchain solution. If fault tolerance and providing transparency are the primary goals, a distributed ledger can be implemented in a traditional way by making identical copies of the ledger at multiple nodes without the need to involve additional components, such as Bitcoin's mining and consensus mechanism. The consensus component was introduced to resolve the double spending issue. A distributed ledger does not involve double spending. In other words, blockchain is overkill if one only needs a distributed ledger.
    • Blockchain currently is still not a suitable solution for many use cases requiring high throughput, such as stock trading or credit card transactions. Existing blockchain platforms are many magnitudes slower than other platforms (for instance, traditional databases) for hosting transaction data. For example, a specialized database, KDB, is needed to save market data in terms of billions of records a day.
    • Since smart contracts are scripted legal documents, there are legal challenges to be dealt with:
  • Are local laws applicable when a smart contract runs? If the answer is yes, how do you deal with conflicts with local laws, a scenario when the contract is legal at some locations of nodes and not at other locations of nodes?
  • Regulations and laws are not fully developed on blockchain and cryptocurrency. A US lawmaker recently pushed the IRS to clarify regulations on blockchain.
  • Since the execution of a smart contract is automatic and unstoppable, a blockchain application could be ruled to be unlawful when it cannot sufficiently address illegal activities such as money laundering.
  • Cryptocurrency receives different statuses in different countries. For example, in the US it is defined as an asset and in Singapore, it is considered to be a currency.
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    Summary
    By now you have good understanding of current blockchain use cases and whether or not it is a good fit for your business. At DC Web Makers Company, we consult small to large companies on how to navigate through blockchain technology. Specifically, we assess your industry and company business processes and needs and determine whether your business will benefit from blockchain technology.

    Decentralized App Use Case for Healthcare Data Sharing is a good article for analyzing blockchain use case in healthcare.

    For those interested in doing blockchain development, below articles and tutorials are highly recommended:
    Blockchain Developer Guide- Comprehensive Blockchain Ethereum Developer Guide from Beginner to Advance Level

    Blockchain Developer Guide- Comprehensive Blockchain Hyperledger Developer Guide from Beginner to Advance Level

    Brian Wu
    April 2019