New kids on the blockchain

A new wave of innovation based on blockchain technology is seeking to disrupt a whole range of industries. But is there substance beyond the hype?

So, what exactly is blockchain? It’s a distributed database technology that records and timestamps transactions in blocks, creating a chain that acts as a ledger. The ledger is decentralised across multiple computers, making it virtually impossible to retroactively alter, and thereby inherently secure.

Readers will be familiar with bitcoin, the digital currency that introduced the world to blockchain. Bitcoin transactions do not require a trusted third-party, theoretically making them efficient as well as secure. However, it is not just financial transactions where trust and security are desirable, and a new wave of innovation based on blockchain technology is seeking to disrupt a whole range of industries. But is there substance beyond the hype?

USAF maintenance
Aerospace production has a high degree of complexity, and may be an area suited to blockchain

“Blockchain is on the steep upward path to the peak of inflated expectation, which means it’s going to be on its way down pretty soon,” explained Accenture’s Craig Gottlieb at PTC’s Liveworx conference in Boston. “But that’s not to say that there aren’t practical, pragmatic applications for the technology.”

Gottlieb is a principal director in Accenture’s Aerospace and Defence Practice. These are sectors with a high degree of complexity, involving intricate supply chains, multiple stakeholders, and generally a strong requirement for security. The multitude of moving parts in an aircraft engine can engender a lack of transparency and efficiency.

“Where blockchain comes into play — and why it’s cool — is that it starts to solve some of these problems,” said Gottlieb.

A traditional, centralised ledger is owned by a single entity, with changes generally not shared. In contrast, blockchain distributes ledgers across multiple decentralised nodes, with stakeholders coming together to form consensus on transactions. As the entries are immutable, there is a permanent audit trail that can be reviewed in case of disputes.

The Bitcoin blockchain allows parties to transact anonymously. Actors are not known to each other, but can interact securely due to the nature of the system. This has led to Bitcoin and other digital currencies being adopted for nefarious purposes, such as buying illicit drugs on the dark web and paying ransom to hackers in the wake of cyber attacks.

But just as cybercrime hasn’t thwarted internet adoption, these practices aren’t preventing blockchain being adopted for legitimate ends. Companies are exploring private blockchains, where parties known to each other participate inside closed systems. Although some don’t consider these systems to be genuine blockchains — rather, they are classed as distributed ledger technology (DLT) — most agree they have potential. In fact, DLT has advantages over ‘pure’ public blockchains such as Bitcoin.

The struggle for power
Public blockchains need large amounts of computing power, and in some cases a lot of time, to generate new blocks. Bitcoin transactions can take up to an hour, something the community is trying to solve, but that is causing tension between stakeholders and impacting the currency’s price. Solutions are being tabled to speed up transaction consensus, but no agreement has been reached yet.

Private blockchains and DLT are not faced with these systemic scaling issues. Agreement on transaction consensus doesn’t require the same cryptographic rigour, so can occur quicker and without the overheads of computing resources.

“There are faster mathematical means to achieve that consensus,” said Gottlieb. “From a business standpoint, where speed matters, that format makes a lot more sense.”

One area suited to DLT is configuration management, particularly on complex systems such as aircraft. According to Gottlieb, maintaining visibility over every part of an aircraft during its lifetime is a challenging task.

“Maintenance, repair and overhaul organisations obviously update the configuration of an engine during an overhaul,” he said. “If they don’t have visibility to the current configuration of what needs to be done, they can’t schedule their capacity effectively.”

On top of this, the business models of OEMs such as General Electric rely on the accuracy of the data they use.

“They sell service plans,” Gottlieb continued. “And these are optimised around when overhauls happen, what spare parts they can sell etc. Their ability to optimise the profitability of those, and the availability of the aircraft, is rooted in knowing what’s on the engine at any given point in time.”

Bitcoin introduced the world to blockchain

While Gottlieb believes blockchain can help address these issues, others are more sceptical. Purely digital transactions can be governed exclusively by economic incentives and cryptography, but transactions that incorporate action in the real world still require an element of trust.

“Immutable digital records of ownership are incompatible with an analogue world where misunderstandings and errors are commonplace and the state is the arbitrator in case of dispute,” said Ciaran Murray, founder of consultancy Verbatm. “When you’re dealing with supply chains, you’re dealing with physical objects in the real world, off the blockchain. There’s no way the blockchain can maintain jurisdiction over them, as the nation state rules supreme in the physical world.”

Although blockchain cannot have physical jurisdiction over things such as configuration management, it can act as a strong incentive to act in good faith. If one party claimed to have replaced an engine part, but a quick reference of serial numbers on the blockchain revealed otherwise, that party would be liable. In the world of aerospace, consequences could be severe.

Questions of utility
As far as public blockchains go, there are questions as to the breadth of their utility. Murray believes their use will be limited to digital currencies, decentralised over-the-counter exchanges, and perhaps prediction markets. We’ve already seen the technology challenge established views on decentralisation and its possible benefits. DLT may not have as profound an impact, but could potentially operate across any industry. In highly regulated fields, Murray believes DLT will hold greater sway, as it is compatible with existing legal and arbitration systems.

“DLT, as opposed to anarchic public blockchains, may have utility in increasing transparency and constraining corruption while possibly decreasing friction in certain areas, but it requires industry consortia to come together,” he said. “The barrier is organisational, not technological. However, the result might not necessarily be good for the consumer, with a potential opportunity for cartels to form.”

The burgeoning IoT industry is another where expectations of blockchain’s impact are high. With billions of connected devices due to come online in the coming years, blockchain could play a key role in device identity.

“If you want to have a good IoT, you need to have a good identity of things,” said Gottlieb. “You need to know that the device that’s sending you information is a device you can trust.”

But Murray, again, urges caution. Having seen blockchain evolve since its early years, he is pragmatic about its limits, and warns against the current hype surrounding the technology. “There’s no doubt decentralised identity is more secure and an insecure IoT is quite a scary proposition, but a ledger that maintains an indelible record of identities is an even scarier one. In any event, the ability to repudiate digitally signed statements is a well-established legal doctrine in most nation states, so the idea is currently legally unworkable.”

Relatively speaking, blockchain is an incredibly young technology, the long-term impact of which is hard to predict. True believers claim it will transform society, while others are suggesting that the emperor may be underdressed. Part of the fascination over the coming years will be seeing who is right.