Blockchain – Opportunities & Challenges across Multiple Industries
It began with Bitcoin, but now it has spread. Blockchain has the potential to radically...
What is Blockchain?
Defined as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value” by Blockchain Revolution authors Don and Alex Tapscott, the technology holds massive promise for multiple industries, particularly in regards to securing data.
Information held on a Blockchain exists as a shared and continually reconciled database. Because the data isn’t stored in any single location, no centralized version of this information exists for hackers to corrupt.
Hosted by millions of computers simultaneously, the data is accessible to anyone on the internet, making it public and verifiable. Blockchain can only be updated with the consent of the majority of its participants. Once entered, information can never be erased, allowing for the creation of a definite and verifiable record of “digital events.”
How Blockchain is used today
Industries like financial services, cybersecurity, education, healthcare, supply chain, and governments have begun to explore the application of Blockchain for a variety of uses; however, most uses remain experimental.
We look at how these sectors are implementing this technology. Read the highlights below, and download our audience insights on the opportunities and challenges of Blockchain for a more in-depth look.
Healthcare organizations have outpaced a lot of other industries when it comes to Blockchain adoption: they are even ahead of the financial industry.
According to a study from IBM surveying 200 healthcare executives across 16 countries, 16 percent of surveyed healthcare organizations expect to have a commercial Blockchain solution at scale in 2017—scaling at higher rates than the banking or financial market enterprises IBM also surveyed.
With Blockchain, healthcare organizations can capture an individual’s lifetime medical history. Privacy concerns can be managed via permissionless Blockchains, where all parties can view all records, or permissioned Blockchains, where privacy can be maintained following an agreement on which parties can view what transactions and when it’s necessary to mask the identity of the party.
Educational institutions are turning to Blockchain as a way to avoid fraudulent certifications as well as to ease record-keeping needs for students and alumna.
While existing paper-based certification systems may be subject to loss or fraud, the need for a centralized database of credentials and achievements has become critical in the face of an increasingly mobile and digital population.
Governments are turning to Blockchain as a potential means to better serve their citizens and improve processes for public administrative functions. The ability to record transactions on distributed ledgers offers new approaches for governments to improve transparency, prevent fraud, and establish trust.
Seven in ten government officials predict Blockchain will significantly disrupt the area of contract management, while another 14 percent expect to have Blockchains in production and at scale in 2017. Half of these trailblazers have already invested in three primary areas: asset management, identity management, and regulatory compliance.
The potential for industry-wide disruption in energy is vast. The first Blockchain-powered energy transaction took place in March 2016 in Brooklyn, NY. The peer-to-peer exchange involved the transaction of energy produced by domestic solar panels exchanged locally. Just over a year later, Blockchain technology in energy trading is becoming an active part of the market.
According to the Harvard Business Review, the coming shift in the industry will have both utilities and consumers producing and selling electricity provided the technology proves to be both reliable and scalable. If so, it will drive the transition to what the energy industry calls a “distributed world,” in which both large and smaller power generation systems exist for homes, businesses, and communities.
Blockchain is poised to create major cost- and time-saving opportunities for the supply chain, logistics, and transportation sectors.
It can be seen as a new method of tracking any kind of shipment or transaction, in any kind of supply chain. With each participant in the supply chain or transaction keeping their own live record of all their information, the potential to tamper with the data decreases.
Blockchain could be applied to optimize freight flows by publicly identifying empty containers and using them for shipping purposes, thus increasing efficiency.
SMART Contracts: from Hype to Reality
Smart contracts, enabled by blockchain—distributed ledgers—have been touted as a cure for...
Jean Coumaros, Global Head – FS, and Antal Ruiter, Principal Consultant, Capgemini Consulting
The potential of smart contracts – programmable contracts that automatically execute when pre-defined conditions are met – is the subject of much debate and discussion in the financial services industry. Smart contracts, enabled by blockchain or distributed ledgers, have been held up as a cure for many of the problems associated with traditional financial contracts, which are simply not geared up for the digital age. Reliance on physical documents leads to delays, inefficiencies and increases exposure to errors and fraud. Financial intermediaries, while providing interoperability for the finance system and reducing risk, create overhead costs for and increase compliance requirements.
In this report, we aim to cut through the speculation and hype around the potential of smart contracts.
Investment banking: In trading and settlement of syndicated loans, corporate clients could benefit from shorter settlement cycles. Rather than the current 20 days or more, smart contracts could bring this down to 6 to 10 days. This could lead to an additional 5% to 6% growth in demand in the future, leading to additional income of between US$2 billion and $7 billion annually. Investment banks in the US and Europe would also see lower operational costs.
Retail banking: The mortgage loan industry will benefit significantly by adopting smart contracts. Consumers could potentially expect savings of US$480 to US$960 per loan and banks would be able to cut costs in the range of US$3 billion to $11 billion annually by lowering processing costs in the origination process in the US and European markets.
Insurance: Usage of smart contracts in the personal motor insurance industry alone could result in US$21 billion annual cost savings globally through automation and reduced processing overheads in claims handling. Consumers could also expect lower premiums as insurers potentially pass on a portion of their annual savings to them.
The Revolution is Underway – Blockchain is for Real
Blockchain technology is set to revolutionize the flow of transactions and the daily lives of...
Nilesh Vaidya, Head of Banking and Capital Markets
Blockchain technology is set to revolutionize the flow of transactions and the daily lives of hundreds of millions of people around the world. Capgemini has already begun designing blockchain solutions for banking and financial services.
15 to 20 Billion Dollars
Projected savings for the banking sector by 2022 thanks to blockchain technology.
A revolutionary blockchain
“It’s being hailed as a revolution—a major technological breakthrough,” says Nilesh Vaidya, Vice-President of Capgemini Financial Services. Blockchain technology will shake up just about everything, especially the financial sector. But what is it exactly?
“Simply put, this technology allows you to record transactions in decentralized digital registers that are simultaneously saved and updated on a computer network,” explains Nilesh Vaidya. “Each transaction, represented by a ‘block’, is linked to the next one and added to the ‘blockchain’ once it is verified by network members. Any update is applied across the entire network, without the involvement of a central authority.”
“Banks and Insurance companies can no longer afford to ignore the Blockchain. This technology will completely transform the industry’s business model.”
What are the advantages? Greater transparency, for a start, since data is accessible to all users. Another benefit is robust security. The network is much more difficult to hack since any validated data is impossible to modify. “The blockchain is a vast digital registry that records every exchange between users since its creation. Furthermore, users themselves perform validation and authentication. This means transactions are fully secure and impossible to tamper with,” adds Nilesh Vaidya. Finally, the technology enables tailor-made services to be offered to customers.
This is indeed a technological breakthrough, at a pivotal time when online financial transactions are taking off. It’s no coincidence that this is the technology underlying Bitcoin, an electronic currency that first appeared in 2009. Neither issued nor overseen by a central institution, Bitcoin is managed by a network that is, in a sense, self-governed.
À la carte services
Now, the goal is to implement blockchain technology within banking and insurance groups. This is what motivated Capgemini to develop its own blockchain solutions for banking and financial services in 2016. “We developed four different solutions. The first is designed to expand loyalty programs for credit and debit cardholders. The second focuses more on creating new retail banking services. The remaining two are devoted to commercial banking services and international transactions,” says Nilesh Vaidya. “Today, all financial operations are validated centrally and involve numerous intermediaries. By decentralizing validation, we intend to cut out the middlemen and settle transactions in minutes or even seconds. This will result in substantial cost savings.” For example, customers enrolled in loyalty programs will have direct access to a vast network of suppliers and service providers. The obvious challenge for banks is to build customer loyalty by offering them more diversified, responsive, and secure services.
“By offering a decentralized system that reassigns authority to network users, blockchain represents a breakthrough on par with the birth of the internet or the printing press.”
Why Governments are Banking on Blockchain
It is not just the financial sector that is set to benefit from blockchain—it can hold data of...
Diving into the new year always brings with it a sense of speculation on what the next 12 months will bring, and an overview of the 12 months just past.
In the technology sector, 2016 was very much a big year for blockchain, and it’s set to get even higher up the agenda in 2017.
Many global banks, including the likes of Barclays, RBS and HSBC completed trials of blockchain technology last year, to assess its use in financial markets across the globe.
What’s more, the Royal Mint declared that it is putting Gold Bullion on the blockchain this year, with each Royal Mint Gold (RMG) token equating to a gram of Gold.
With such seasoned experience in the financial sector, both the banks and the Royal Mint’s experiments with blockchain point to this technology’s potential in trade.
But it’s not just the financial sector that’s set to feel the benefit. And while its currencies and commodities that are typically associated with the blockchain, it can hold data of all shapes and sizes. Whether this data pertains to healthcare, tax, property or citizens, blockchain is about to shake up the public sector in a big way.
An introduction to blockchain
Many are familiar with bitcoin, the cryptocurrency that’s dominated the news agenda, with many central banks fearing it.
Blockchain is the behind-the-scenes-technology of bitcoin; it provides the publicly distributed ledger technology that stores records visible for all to see.
These records are called ‘blocks’, and each and every block is linked to the next block in the chain. If a block is altered, this will be transcribed into the publicly facing ledger, meaning it can’t be tampered without getting noticed.
You can also apply specific rules to the blockchain. For example, some transactions could require two people to approve them before they occur, or, a transaction might need another to be made before it for it to take place. These bespoke rules can facilitate particular processes to suit the unique demands of every industry.
Alongside these security benefits, blockchain is also said to be decentralised, so the data isn’t held in a central repository. It’s the reason why many organisations are turning to this technology, but how might it impact the public sector this year?
Blockchain: easing off pressure
Implementing blockchain capabilities across various public sector functions and organisations will be no easy task, and will be accompanied by change management challenges for those employed by governments too. But the benefits of this technology will ensure that it’s worth it in the long run.
Digital infrastructures can be costly. For governments, this is particularly true, given the vast amount of public data that needs to be stored. There are also peak periods in which data is offloaded to these infrastructures – tax returns, for example, mean that the Government’s central system is put under a lot of strain at the end of the financial year.
With blockchain being decentralised, it eases off the pressure for centrally held infrastructures, which would ultimately save money, too.
The Royal Mint for example, charges 0.5% to 1% of the value of a customer’s holdings for a vault. Its move to put Gold Bullion on the blockchain means that these storage and management fees are significantly reduced, as spot trading Gold on the blockchain enables it to become digitised. It’s these reduced costs that will no doubt seem appealing for public sector services in the future.
Paving the way for e-voting
One major process that involves government infrastructure is the electoral vote. For many, 2016 was a year of trips to the polling station, with the EU Referendum, the London Mayoral Election, and by-elections for some.
When so many parts of our lives are digitised, why couldn’t voting be? Blockchain technology could make the ballot vote a thing of the past, removing security risks associated with online voting, as well as the costs that come with dealing with the overload of traffic and data it generates.
Shared, digital identities
Estonia is setting a great example in this regard, offering unparalleled eGovernment services, with an e-residency programme that’s powered by blockchain.
The Eastern European country offers Digital ID cards for its citizens, which have cryptographic keys that are stored on the blockchain. These are what its citizens use to securely vote online for general elections, a regular practice for the last 12 years!
As the results can’t be tampered with, they can be trusted. And what’s more, as this method of voting is far more convenient than finding a polling station to travel to or organising a postal vote, in theory more citizens get to have their say when election day comes around. Its popularity is also growing in Estonia – 30.5% of participants voted this way in 2015.
Estonia’s e-residency programme is paving the way for other eGovernment services, too. Its Digital ID cards are used for authenticating a lot of public facing records, from tax returns, to property ownership records, government forms and healthcare information.
By having these digital identities stored online, it sidesteps the need to have physical signatures, and physical documents for that matter, enabling everything to be entirely processed online.
These digitised processes are much quicker, more secure, and give public sector bodies greater visibility as to where documents are at any point in time.
Holding these digital identities online means they can also be shared across public sector bodies on the blockchain. It’s a big benefit for organisations that are dependent on citizen data, and the citizens themselves, as it means that they don’t have to repeatedly share the same data over and over to different bodies – it’s all communally available.
This might be data relating to your address, your employment history, tax information or healthcare records – all data that is useful to governments can be pooled so that all public sector organisations are working from the same data source, and it also means that the data they are working from is the most up to date.
In the tax-office, for example, citizens would be able to grant it access to their bank details, enabling a fully automated tax return.
This wouldn’t kick off a Big Brother type scenario, though. Every individual would be able to share as little or as much data on the blockchain that they would like, giving them control over their own information.
Future of public sector services
While Estonia is pioneering this technology in government, the good news is that the UK is not too far behind – having digitised Gold Bullion, and implementing its Blockchain-as-a service platform on Government Digital Services’ Digital Marketplace. But there is more to be done.
With the UK’s thriving technology scene, new start-up businesses are founded on a daily basis. It’s these start-ups that are the agents of change, particularly in the public sector, and they’re driving innovation across the country.
With a whole host of benefits to be gleaned from blockchain technology in particular, there’ll be more start-up businesses competing with one another, and joining forces with system integrators to develop offerings that fully use this technology for the better. It’s certainly set to be an interesting year ahead!
Blockchain Testing Before Deployment is Crucial
It is predicted that 2017 will be the breakout year for blockchain in mainstream...
2017 is predicted to be the year that the Blockchain technology moves towards main stream implementation.
To visualize this, let us consider a use case of a credit card processing giant, that facilitates new commerce opportunities for the digital transfer of value by allowing businesses and financial institutions to facilitate transactions on a distributed ledger. In this use case, the distributed digital ledger will be shared within a network of computers held by the participating businesses and financial institutions. The participants in the network will have copies of the existing Blockchain, and approval for any new transaction is subject to the decision of the majority of the participants. The new block is added to the Blockchain once the transaction’s validity is authenticated.
The heart of the Blockchain validation technology is a Smart Contract. A Smart Contract is a set of rules in the form of programmable constructs that are capable of automatically enforcing themselves when pre-defined conditions are met. An example of a pre-condition could state that transactions beyond a certain limit will undergo additional validations.
From a technology standpoint a Smart Contract is an API. It has public functions which might be called by anyone registered on the Blockchain network. However, unlike a traditional API, a Smart Contract cannot call external web APIs.
The reason why testing is very critical is that when a contract is created, it is immutable; once deployed to the Blockchain it stays there forever. If you find a defect in production, a new version of the contract has to be created and deployed. When you deploy a new version of an existing contract, data stored in the previous contract isn’t automatically transferred – you have to manually initialize the new contract with the past data which makes it very cumbersome. Similarly, updating a contract is not possible and neither is rolling back an update; this greatly increasing the complexity of implementation and places a huge responsibility on the quality assurance team to get it right the first time. Three critical steps in testing a smart contract have been defined below; it is crucial to keep these in consideration when testing Blockchain.
Step 1: Validating the methods in a Smart Contract:
This is essentially similar to API testing where one would use method validations, boundary value analysis, decision tables, test driven development and behavior driven development techniques.
Step 2: Validating encryption and transmission of Smart Contracts:
This refers to the validation of the encrypted Smart contracts sent out to other computers via a distributed network of ledgers (i.e. Distributed Ledgers). Two validation scenarios are possible: facilitated via public permission less Blockchain (you do not need a previous relationship with the ledger) such as bitcoin, the contract is sent out similar to the way that a network update of a bitcoin transaction would occur. This can also be done in a permissioned (recognized by ledger) hybrid distributed ledger platform such as R3.
Step 3: Validating Processing of Smart Contracts:
This is the most complicated part. Once the computers in this network of distributed ledgers, in this case financial institutions, receive the executing code(Smart Contract api), they each come to an individual agreement on the code execution.The network would then update the distributed ledgers to record the execution of the contract and ending with monitoring for compliance within the terms of the smart contract. In this type of system, execution is no longer in the hands of a single party. Validation is a very manual intensive process requiring a great deal of understanding of the business process of the participating financial institutions behind the Smart Contract .Other things that will come into play are regulatory tests, performance tests and business impacts of downstream systems.
Smart Contract testing is complicated and in the nascent stage; forward-thinking QA teams need to future-proof by building specialized capabilities for validating Smart Contracts. Testers will need to learn API skills, regulatory, security, data and business process domain skills. Those who can bridge the gap between business, domain and technology will be highly sought after in the near future.