Blockchain and Its Applications for Service Designers
Debunking the essence of blockchain technology and discussing practical examples of its use cases across different service sectors.
Blockchain might be one of the most notable technological innovations of the last decade. It has recently gained immense popularity in innovator communities, as it can solve some fundamental challenges recurring in many industries. Among many things, blockchain can inject transparency in operations, address data privacy and security challenges and solve the issue of trust in transaction handling.
Considering this, it is particularly important for product, service and system designers to understand the technology and be aware of the opportunities that it provides.
In this article, I will try to explain the essence of blockchain technology and bring practical examples of its applications across industries.
Let’s go! 🤗
What is Blockchain?
Blockchain technology might seem complicated, but its core concept is rather simple. Blockchain is a type of database. To understand the technology, it‘s important to first understand what databases actually are.
A database is a collection of information that is stored electronically on a computer system. In databases, data are typically structured in a table format to allow for easy search and filtering.
Blockchain differs from a typical database in the way it stores information; blockchains store data in blocks that are then chained together. Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain.” All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled. The data are chained together in chronological order.
Blockchain are inherently distributed databases, meaning that many parties hold copies of the ledger (a.k.a. peer-to-peer networks). In a blockchain, each node has a full record of the data that has been stored on the blockchain since its inception (this is done with something called timestamps based on the use of hash-based proof of work). If one node has an error in its data, it can use the thousands of other nodes as a reference point to correct itself. This way, no one node within the network can alter information held within it. This system helps to establish an exact and transparent order of events. It can be used in a decentralized way so that no single person or group has control over it — instead, all users retain control collectively. Immutability and transparency are not the only characteristics making blockchain technologies trustworthy, secure and innovative from technological perspective. Blockchain technologies use cryptographic hash functions and assymetric encryption, which uses a mathematically related pair of keys for encryption and decryption: a public key and a private key. If the public key is used for encryption (read — send), then the related private key is used for decryption (read — receive/access).
If you are scared at this point, note that as a designer, you do not need to understand, or implement the technical aspects of the blockchain, however, having an understanding of the basic concepts and the way they are used is essential for developing functional and innovative solutions based on the technology.
What value does blockchain offer and how can it be applied?
Blockchain’s core advantages are cryptographic security, decentralization, transparency, and immutability. The technology allows information to be verified and value to be exchanged without having to rely on a third-party authority.
Blockchain does not need to be a disintermediator to generate value. Benefits from reductions in transaction complexity and cost, as well as improvements in transparency and fraud controls can be captured by existing institutions and multiparty transactions using appropriate blockchain architecture. There is no singular form of blockchain — the technology can be configured in multiple ways to meet the objectives and business requirements of a particular use case.
So far, cryptocurrencies remain the most well-studies and common blockchain applications. In fact, Bitcoin, the most traded cryptocurrency created by Satoshi Nakamoto in 2009, was one of the first and probably the most well-known applications of blockchain technology. However, the real value of blockchain technology goes beyond cryptocurrencies and the financial sector, in general.
McKinsey has categorized blockchain uses into 5 main categories:
- Static registry: distributed database for storing reference data
- Identity: distributed database with identity-related data (it’s actually a particular case of static registry with an extensive set of applications).
- Smart contracts: a set of conditions recorded on a blockchain triggering automated, self-executing actions when these predefined conditions are met.
- Dynamic registry: dynamic distributed database that updates as assets are exchanged on the platform.
- Payment infrastructure: dynamic distributed database that updates as cash or cryptocurrency payments are made among participants.
There are also other edge cases that do not fit into the categories, or are combinations of these (e.g. Blockchain as a Service, ICO’s).
How is blockchain used by different public and private organizations?
Each of the categories mentioned by McKinsey can be broken down into specific cases based on industries or functions.
Supply Chain Management
Blockchain’s immutable ledger makes it well suited to tasks such as real-time tracking of goods as they move and change hands throughout the supply chain. Using a blockchain opens up several options for companies transporting these goods. Entries on a blockchain can be used to queue up events with a supply chain — allocating goods newly arrived at a port to different shipping containers, for example. Blockchain provides a new and dynamic means of organizing tracking data and putting it to use.
- Food industry
For example, IBM and Walmart have partnered in China to create a blockchain project that will monitor food safety. Similarly, Louis Dreyfus Co, is experimenting with soybean import operation using blockchain.
- Shipping industry
Another example is the case of logistics giant Maersk that has experimented with a blockchain-based project in the maritime logistics industry.
- Mining industry
In the mining industry, The De Beers Group is using blockchain to track the importation and sales of diamonds.
- Inventory management
In inventory management, Russian rail operator Novotrans is storing inventory data on a blockchain pertaining to repair requests and rolling stock.
Healthcare
As connected medical devices become common and increasingly linked to a person’s health record, blockchain can connect those devices with that record. Devices will be able to store the data generated on a healthcare blockchain and append it to personal medical records.
MedRec is one of the pioneering projects experimenting with storing data on the blockchain.
Government
Blockchain has a plethora of application in the public sector, in particular for transparent government operations.
- Voting
Blockchain technology has the ability to make the voting process more accessible while improving the security. Hackers are no match to blockchain technology, because even if someone accessed the terminal, they wouldn’t be able to affect other nodes. Each vote would be attributed to one ID. This is particularly helpful for ensuring transparent and just elections
For example, in Switzerland, voter registration is being facilitates via a blockchain project spearheaded by Uport.
- Taxation
Blockchain tech makes the cumbersome and human error-prone process of tax filing much more efficient with enough information stored on the blockchain.
For example, In China, a tax-based initiative is using blockchain to store tax records and electronic invoices led by Miaocai Network.
- National Security
The immutable nature of blockchain, and the fact that every computer on the network is continually verifying the information stored on it, makes blockchain an excellent tool for storing big data.
For example, for the past two years, the US Department of Homeland Security has been using blockchain to record and safely store the data captured from its security cameras.
Insurance
In the insurance industry, blockchain-based smart contracts allow customers and insurers to manage claims in a transparent and secure manner. All contracts and claims can be recorded on the blockchain and validated by the network, which eliminates invalid claims, since the blockchain by default rejects multiple claims on the same accident.
For example, American International Group Inc. uses a smart contact-based blockchain as a means of saving costs and increasing transparency.
Energy
Blockchain technology could be used to execute energy supply transactions, but also to further provide the basis for metering, billing, and clearing processes. Other potential applications include documenting ownership, asset management, origin guarantees, emission allowances, and renewable energy certificates.
One example is the case of Chile. As Chile’s National Energy Commission seeks to update its electrical infrastructure, it has started to use blockchain technology as a way of certifying data pertaining to the country’s energy usage.
Another example is The Energy Web Decentralized Operating System (EW-DOS). It is an open-source stack of decentralized software and standards — including the Energy Web Chain, middleware services, and software development toolkits (SDKs). EW-DOS is a shared technology running on a decentralized network maintained by many respected energy companies. EW-DOS supports two primary use cases: 1) clean energy and carbon emissions traceability and 2) using distributed energy resources to increase grid flexibility. EW-DOS leverages self-sovereign decentralized identifiers, a series of decentralized registries, messaging services, and integrations with legacy information technology (IT) systems to facilitate transactions between billions of assets, customers, grid operators, service providers, and retailers.
Real Estate
The average homeowner sells his or her home every 5–7 years. With such frequent movement, blockchain is particularly useful in real estate market. It can make home sales more efficient by quickly verifying finances, reducing fraud thanks to its encryption, and offering transparency throughout the entire selling and purchasing process.
For example, Propy, in Kiev uses blockchain to complete real estate deals.
Payments
Blockchain offers a way to efficiently and securely create a tamper-proof log of sensitive activity. This makes it particularly relevant to international payments and money transfers.
For example, Banco Santander money transfer service “Santander One Pay FX,” uses Ripple’s xCurrent to enable customers to make same-day or next-day international money transfers. The blockchain ledger that Ripple uses had been latched into by a group of Japanese banks, who will be using it for quick mobile payments.
Environment
- Protection of endangered species
In the environmental sector, the protection of endangered species can be facilitated via a blockchain project that records the activities of these rare animals.
One example is the Newton Project. Newton uses NewSensor technology consisting of small IoT devices for monitoring location, temperature, air quality, humidity, etc, and uploads that data to NewChain, Newton’s blockchain. By inserting a NewSensor under the skin of an endangered mammal, for example, a rhino or elephant, it is possible to track the location and basic behavior of that animal.
- Fishing
One application in fishing is the provision of a transparent record of where fish were caught to ensure legal landing.
For example, The WWF project uses a combination of radio-frequency identification(RFID) tags, quick response (QR) code tags and scanning devices to collect information about the journey of a tuna at various points along the supply chain.
- Carbon Offset
The monitoring of carbon offset trading is another environmental application of blockchain technologies
For example, IBM is using the Hyperledger Fabric blockchain in China to monitor carbon offset trading.
- Waste Management
Waltonchain is using RFID technology to store waste management data on the blockchain in China.
Record Management
The encryption that is central to blockchain makes it quite useful for record management because it prevents duplicates, fraudulent entries, and the like.
- Land Registry
Record management can be particularly useful in land registry. For example, in Georgia, in a project developed by the National Agency of Public Registry, land registry titles are now being stored on the blockchain.
- Border control
In the Netherlands, Essentia has developed a blockchain-based border control system that allows customs agents to record and safely store passenger data from an array of inputs.
Blockchain as a Service
Enterprises also benefit from blockchain technology by developing models offering blockchain as a service solutions.
For example, Ethereum’s blockchain can be accessed as a cloud-based service courtesy of Microsoft Azure.
Similarly, Google is building its own blockchain, which will be integrated into its cloud-based services, enabling businesses to store data on it and to request their own white label version developed by Alphabet Inc.
A concluding note for service designers
In this article, I tried to explain the basics of blockchain technology and give some examples of its use cases in different service sectors. One of our functions as service designers is to devise new business models, processes and infrastructures to help stakeholders exchange value and achieve their goals in more mutually beneficial ways. On the other hand, we are responsible for anticipating the threats that blockchain-based products, services and systems might create. Considering this, it is crucial for us to understand the nuts and bolts of the technology and be aware of its use cases. I hope, I managed to motivate you to learn more about one of the most promising technologies of the last decade.
P.S. Note that the use cases that I covered in the article are non-exhaustive. There are many more blockchain applications that are worth scrutinizing. There are also a lot of threats associated with possible applications of the technology that must be understood. As a starting point, I highly recommend watching this documentary about the future of cities driven by blockchain and this talk about the future utopian and dystopian realities that blockchain might create.🤗
