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by EOS Intelligence EOS Intelligence No Comments

Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture

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In the first part of our series on agritech in Africa, we took a look into how IT and other technology investments are helping small farmers in Africa. In the second part, we are exploring the impact that potential application of advanced technologies such as blockchain can have on the African agriculture sector.

Blockchain, or distributed ledger technology, is already finding utility across several business sectors including financial, banking, retail, automotive, and aviation industries (click here to read our previous Perspectives on blockchain technology). The technology is finding its way in agriculture too, and has the potential to revolutionize the way farming is done.


This article is the second part of a two-piece coverage focusing on technological advancements in agriculture across the African continent.

Read part one here: Agritech in Africa: Cultivating Opportunities for ICT in Agriculture


State of blockchain implementation in agriculture in Africa

Agricultural sector in Africa has already witnessed the onset of blockchain based solutions being introduced in the market. Existing tech players and emerging start-ups have developed blockchain solutions, such as eMarketplaces, agricultural credit/financing platforms, and crop insurance services. Companies, globally as well as within Africa, are harnessing applications of blockchain to develop innovative solutions targeted at key stakeholders across the food value chain.

Blockchain to promote transparency across agriculture sector

The most common application of blockchain in any industry sector (and not only agriculture) is creating an immutable record of transactions or events, which is particularly helpful in creating a trusted record of land ownership for farmers, who are traditionally dependent on senior village officials to prove their ownership of land.

Since 2017, a Kenyan start-up, Land LayBy has been using an Ethereum-based shared ledger to keep records of land transactions. This offers farmers a trusted and transparent medium to establish land ownership, which can then further be used to obtain credit from banks or alternative financing companies. BanQu and BitLand are other examples of blockchain being used as a proof of land ownership.

This feature of blockchain also enables creation of a transparent environment where companies can trace the production and journey of agricultural products across their supply chain. Transparency across the supply chain helps create trust between farmers and buyers, and the improved visibility of prices further down the value chain also enables farmers to get better value for their produce.

In 2017, US-based Bext360 started a pilot project with US-based Coda Coffee and its Uganda-based coffee export partner, ​​Great​ ​Lakes​ ​Coffee. The company developed a machine to grade and weigh coffee beans deposited to Great Lakes by individual farmers in East Uganda. The device uploads the data on a blockchain-based SaaS solution, which enables users to trace the coffee from its origin to end consumer. The blockchain solution is also used to make payments to the farmers based on the grade of their produce in form of tokens.

In 2017, Amsterdam-based Moyee Coffee also partnered with KrypC, a global blockchain, to create a fully blockchain-traceable coffee. The coffee beans are sourced from individual farmers in Ethiopia, and then roasted within the country, before being exported to the Netherlands.

This transparency can help food companies to isolate the cause of any disease outbreak impacting the food value chain. This also allows consumers can be aware of the source of the ingredients used in their food products.

Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture by EOS Intelligence

Blockchain-based platforms to improve farmer and buyer collaboration

Blockchain can also act as a platform to connect farmers with vendors, food processing, and packaging companies, providing a secure and trusted environment to both buyers and suppliers to transact without the need of a middleman. This also results in elimination of margins that need to be paid to these intermediaries, and helps improve the margins for buyers.

Farmshine, a Kenyan start-up, created a blockchain-based platform to auger trade collaboration among farmers, buyers, and service providers in Kenya. In January 2020, the company also raised USD$250,000 from Gray Matters Capital, to finance its planned future expansion to Malawi.

These blockchain platforms can also be used to connect farmers to other farmers, for activities such as asset or land sharing, resulting in more efficiency in economical farming operations. Blockchain platform can also enable small farmers to lease idle farms from their peers, thereby providing them with access to additional revenue sources, which they would not be able to do traditionally.

AgUnity, an Australian-start-up established in 2016, developed a mobile application which enables farmers to record their produce and transactions over a distributed ledger, offering a trusted and transparent platform to work with co-operatives and third-party buyers. The platform also enables farmers to share farming equipment as per a set schedule to improve overall operational and cost efficiency. In Africa, AgUnity has launched pilot projects in Kenya and Ethiopia, targeted at helping farmers achieve better income for their produce.

A Nigerian start-up, Hello Tractor uses IBM’s blockchain technology to help small farmers in Nigeria, which cannot afford tractors on their own, to lease idle tractors from owners and contractors at affordable prices through a mobile application.

Smart contracts to transform agriculture finance and insurance

Less than 3% of small farmers in sub-Saharan Africa have adequate access to agricultural insurance coverage, which leaves them vulnerable to adverse climatic situations such as droughts.

Smart contracts based on blockchain can also be used to provide crop-insurance, which can be triggered given certain set conditions are met, enabling farmers to secure their farms and family livelihood in case of extreme climatic events such as floods or droughts.

SmartCrop, an Android-based mobile platform, provides affordable crop insurance to more than 20,000 small farms in Ghana, Kenya, and Uganda through blockchain-based smart contracts, which are triggered based on intelligent weather predictions.

Netherlands-based ICS, parent company of Agrics East Africa (which provides farm inputs on credit to small farmers in Kenya and Tanzania) is also exploring a blockchain-wallet based saving product, “drought coins”, which can be encashed by farmers depending on the weather conditions and forecasts.

Tracking of assets (such as land registries) and transactions on the blockchain can also be used to verify the farmers’ history, which can be used by alternative financing companies to offer loans or credits to farmers – e.g. in cases when farmers are not able to get such financing from traditional banks – transforming the banking and financial services available to farmers.

Several African start-ups such as Twiga Foods and Cellulant have tried to explore the use of blockchain technology to offer agriculture financing solutions to small farmers in Africa.

In late 2018, Africa’s leading mobile wallet company, Cellulant, launched Agrikore, a blockchain-based digital-payment, contracting, and marketplace system that connects small farmers with large commercial customers. The company started its operations in Nigeria and is exploring expansion of its business to Kenya.

In 2018, Kenya-based Twiga Foods (that connects farmers to urban retailers in an informal market) partnered with IBM to launch a blockchain-based lending platform which offered loans to small retailers in Kenya to purchase food products from suppliers listed on Twiga platform.


Read our previous Perspective Africa’s Fintech Market Striding into New Product Segments to find out more about innovative fintech products for agriculture and other sectors financing in Africa


And last, but not the least, blockchain or cryptocurrencies can simply be used as a mode of payment with a much lower transaction fee offered by traditional banking institutions.

Improving mobile internet access to boost blockchain implementation

While blockchain has shown potential to transform agriculture in Africa, its implementation is limited by the lack of mobile/internet access and technical know-how among small farmers. As of 2018, mobile internet had penetrated only 23% of the total population in Sub-Saharan Africa.

However, the GSM Association predicts mobile internet penetration to improve significantly over the next five years, to ~39% by 2025. Improved access to internet services is expected to boost the farmers’ ability to interact with the blockchain solutions, thereby increasing development and deployment of more blockchain-based solutions for farmers.

EOS Perspective

Agritech offers an immense opportunity in Africa, and blockchain is likely to be an integral part of this opportunity. Blockchain has already started witnessing implementation in systems providing proof of ownership, platforms for farmer cooperation, and agricultural financing tools.

Unlike Asian and Latin American countries, African markets have shown a relatively positive attitude towards adoption of blockchain, a fact that promises positive environment for development of such solutions.

At the moment, most development in blockchain agritech space is concentrated in Kenya, Nigeria, Uganda, and Ghana. However, there is potential to scale up operations in other countries across Africa as well, and some start-ups have already proved this (e.g. Farmshine was able to secure the necessary financing to expand its presence in Malawi). Other companies can follow suit, however, that would only be possible with the help of further private sector investments.

Still in the nascent stages of development, blockchain solutions face an uncertain future, at least in the short term, and are dependent on external influences to pick up growth they need to impact the agriculture sector significantly. However, once such solutions achieve certain scalability, and become increasingly integrated with other technologies, such as Internet of Things and artificial intelligence, blockchain has the capability of completely transform the way farming is done in Africa.

by EOS Intelligence EOS Intelligence No Comments

Agritech in Africa: Cultivating Opportunities for ICT in Agriculture

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Agriculture technologies in Africa have been undergoing significant development over the years, with many tech start-ups innovating information and communications technologies to support agriculture at all levels. While some technologies have been successfully launched, some are in initial stages of becoming a success. Private sector investments have been the key driving factor supporting the development of agriculture technologies in Africa. In the first part of our series on agritech in Africa, we are examine what impact and opportunities arise from the use of these technologies in Africa.

Agriculture plays a significant role in Africa’s economy, contributing 32% to the continent’s GDP and employing 65% of the total work force (as per the World Bank estimates). Nearly 70% of the continent’s population directly depends on agribusiness. Vast majority of farmers work on small scale farms that produce nearly 90% of all agricultural output.


This article is the first part of a two-piece coverage focusing on technological advancements in agriculture across the African continent.

Read part two here: Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture


Agriculture in Africa has been under the pressure of many challenges such as low productivity, lack of knowledge and exposure to new farming techniques, and lack of access to financial support, especially for the small-scale farmers. These challenges are prompting investments in newer technologies to enhance the productivity through smart agriculture techniques.

Lately, there have been an increased use of various technologies in agriculture in Africa, such as Internet of Things (IoT), Open Source Software, Cloud Computing, Artificial Intelligence, Drones/Unmanned Aerial Vehicles (UAVs), and Big Data Analytics. Many tech start-ups have developed solutions targeting various aspects of agriculture, including finance, supply chain, retailing, and even delivering information related to crops and weeds. These solutions are accessible to farmers through front-end devices such as smart phones and tablets, or even SMS.

Agritech in Africa - Cultivating Opportunities for ICT in Agriculture by EOS Intelligence

Start-ups lead agritech development in Africa

Many agritech start-ups in Africa have come up with solutions that have led to a rise in productivity of the farms. Drones have been a breakthrough technology, helping farmers oversee their crops, and manage their farms effectively. Drones use highly focused cameras to capture picture of crops, soil or weeds. This, coupled with big data analytics and Artificial Intelligence (AI), provides insights to farmers, saving their time and effort, while also helping them find potential issues which could impact the productivity of their farms.

There are various agritech start-ups that are developing such drones, and providing them to farmers for rent or lease to analyse their crops and farms. A South African agritech start-up, Aerobotics, offers an end-to-end solution to help farmers manage their farms using drones, through early detection of any crop-related problems, and offering curative measures for the problems using an AI-based analytics platform. The company partners with drone manufacturing companies such as DJI and Micasense to deliver these solutions.

Acquahmeyer, another start-up based in Ghana, also provides drones to its farming customers to help them use a comprehensive approach to apply crop pest control and plant nutrition management for their farms.

Advent of advanced technologies such as IoT is also helping farmers to adopt smart farm management through the use of smart sensors connected in a network. This helps every farmer to get granular details of the crops, soil, farming equipment, or livestock, enabling the farmers to devise appropriate farming approaches.

Kenya-based UjuziKilimo provides solution for analyzing soil characteristics using electronic sensor placed in the ground. This helps farmers with useful real-time insights into soil conditions. The solution further utilizes big data analytics to guide the farmers, by offering insights through SMS on their connected mobile phones or tablets.

Hello Tractor, a Kenyan start-up, provides an IoT solution, through which farmers can have access to affordable tractors which are monitored virtually through a remote asset tracking device on the tractor, sharing data over the Hello Tractor Cloud. Farmers, booking agents, dealers, and tractor owners are connected via IoT. The company is also collaborating with IBM to incorporate artificial intelligence and blockchain to their solutions.

AI has also witnessed a rapid growth in adoption across agriculture sector in Africa. Agrix Tech, based in Cameroon, has developed a mobile application that requires the farmers to capture the picture of diseased crop, which is then analyzed via AI to detect crop diseases, and helps the farmers with treatment solution to save their crops.

AI is also helping Kenyan farmers with the knowledge on planting the right crops at the right time. Tech giant, Capgemini, has teamed up with a Kenyan social enterprise in Kakamega region in Western Kenya to use artificial intelligence to analyze farming data, and then send insights about right time and technique of planting crops to the farmers’ cell phones.

There are other agritech solutions that include mobile applications which use digital platforms such as cloud computing to reach out to farmers, and provide them with apt agriculture solutions. Ghana-based CowTribe offers a mobile USSD-based subscription service which enables livestock farmers to connect with veterinarians for animal vaccines and other livestock healthcare services using cloud-based logistics management system. The company focuses on managing the schedules, and delivering the right service to the livestock farmers, to help them safeguard their animals from any health-related problems.

Several agritech investments are also impacting the financial side of agriculture. Kenya-based Apollo Agriculture provides solutions related to financing, farm inputs, advice insurance and market access through the use of agronomic machine learning, remote sensing, and mobile technology using satellite data and cloud computing.

Another Nigerian start-up Farmcrowdy has developed Nigeria’s first digital agriculture platform that provides financial support to the farmers by allowing those outside the agriculture industry to sponsor individual farms.

Several other agritech start-ups across the continent, such as Ghana-based Farmerline and AgroCenta, and Nigeria-based Kitovu have also launched data-driven mobile application for farmers. These technology solutions are proving to be a boon for agriculture sector in Africa, helping improve the overall efficiency and productivity.

Agritech in Africa - Cultivating Opportunities for ICT in Agriculture by EOS Intelligence

Agritech development is concentrated in Kenya and Nigeria

But, when it comes to first adopting the newest technologies and starting an agritech business in agriculture, Kenya and Nigeria have been leading in the adoption of new agritech solutions, accounting for a significant share of agritech start-up across Africa. Kenya has played a pioneering role in bringing agritech in Africa since 2010-2011, when the first wave of agritech start-ups began to bring new niche innovations. Currently, Kenya accounts for 25% of all the agritech start-ups in Africa, and the development is progressing rapidly, thanks to the country’s advancement in technology, high smartphone penetration, and relatively widespread internet access.

Similarly, Nigeria too has sailed the boat of success in agritech start-ups since 2015, and now it accounts for 23.2% of total agritech start-ups in Africa, with include major players such as Twiga Foods, Apollo Agriculture, Agrikore, and Tulaa. The growing inclination amongst Nigerian farmers towards using digital tools in agriculture sector has further pushed the rapid development in agritech sector in the country.

Other countries have also shown potential for agritech development, though it is still in the initial stages of becoming mainstream in their agriculture sectors. Ghana has encouraged several start-ups to launch different technology innovations for making agriculture more sustainable, while South Africa, Uganda, and Zimbabwe have also witnessed the rise in agritech start-ups over the years with newer technologies for agriculture sector.

Recent investments highlight the agritech potential

The agriculture technologies in Africa got the boost from the increased private funding. According to a report by Disrupt-Africa released in 2018, there has been a total investment of US$19 million in agritech sector since 2016. These investments have largely focused on funding agritech start-ups working on bringing innovative agriculture technologies. Also, according to the same report, the number of agritech start-ups rose by 110% from 2016 to 2018.

Some of the recent investments in the agritech sector include Kenya’s Twiga Foods, a B2B food distribution company, which raised US$30 million from investors led by Goldman Sachs in October 2019. The company aims to set-up a distribution centre in Nairobi to offer better supply chain services, while also expanding to more cities in Kenya, including Mombasa.

In December 2019, Kenya-based agritech start-up Farmshine, also raised US$25 million in funding from US-based Gray Matter’s Capital coLabs (GMC coLabs), to expand its operations in Malawi. GMC coLabs also invested US$1 million in another Kenyan B2B agritech start-up Taimba in July 2019. Taimba provides a mobile-based cashless platform connecting smallholder farmers to urban retailers. The investment was focused on strengthening Taimba’s infrastructure and increase the delivery logistics to cater to new markets.

Cellulant, a leading pan-African digital payments service provider that offers a real-time payment platform to farmers, also raised US$47.5 million from a consortium of investors in May 2018, which is the largest investment in the African tech industry till date. Cellulant also plans to channel a significant portion of funds into its Agrikore subsidiary, an agritech start-up dealing with blockchain based smart-contracting, payments, and marketplace system.

EOS Perspective

African agritech is expected to witness high growth in future. According to a CTA report on Digitalization for Agriculture (D4Ag) published in 2018, digital agriculture solutions are likely to reach 60-100 million smallholder famers, while generating annual revenues of nearly US$320- US$470 million by the end of 2020.

Adoption and use of innovative technologies such as remote sensing, diagnostics, IoT sensors for digitalization of agriculture is steadily moving from experimental stage to full-scale deployment, contributing to the data revolution in agriculture, while also unlocking new business models and opportunities.

Apart from these, blockchain is gaining prominence, and finding applications in the agriculture sector in Africa. This technology has the potential to significantly impact the agriculture sector, which we will discuss in the second part of our series on Agritech in Africa.

However, lack of affordability and knowledge to access such technologies, especially by small-scale farmers, has restricted the growth and reachability of these solutions. With the need to educate farmers and make such technology affordable and viable, it is likely that it may take at least 5-7 years before these technologies become truly mainstream in the continent.

A disparity of investments has been observed among the countries in the region. Over the years, countries such as Kenya, Nigeria, and Ghana have experienced a strong growth in terms of private investments, while other countries are left wanting. Investors have prioritized easy-to-reach markets in Africa, leaving behind the lower-income markets, resulting in agritech becoming less sustainable and scalable in these markets. However, several other African countries have shown the appetite to adopt agritech solutions, and offer significant potential.

This requires an intervention and participation from both governments and private investors, which can help improve scalability of agriculture technologies in the region. Implementation of farming digital literacy, public-private partnerships, and increased private sector investments in agritech enterprises can help the agritech industry experience a consistent and higher success rate, thus bringing the agriculture technology to a mainstream at faster pace.

by EOS Intelligence EOS Intelligence No Comments

Blockchain: a Frontline Warrior in Battling Coronavirus Pandemic

SARS-COV-2 has brought the world to a standstill. Technology and its creative uses have been playing a pivotal role in sustaining lives during the pandemic as well as combating the crisis. One such technology that has been in the forefront of the pandemic is blockchain. From mitigating supply chain issues with medicines and protection gear to facilitating transparency in donations to effectively tracking the spread of the virus and protecting patient privacy, blockchain technology is being applied across the spectrum to contain and manage the outbreak.

The current pandemic has brought to light many inefficiencies and limitations of the existing global healthcare systems, wherein governments across the globe are grappling to control the outbreak, challenged by the lack of a unified interconnected and trusted network to share data and track cases. Blockchain has several inherent properties, such as decentralized ledger, transparency, immutability, that make it suitable for handling and managing various aspects of containing the pandemic.

Outbreak tracking

Global health authorities and governments across the globe are having a hard time gathering authentic data regarding tests and patient numbers, hospital beds, recoveries, etc. Currently, most of the data circulating is disparate, and comes from multiple sources, such as hospitals, labs, public, and media, instead of one authorized source. This is extremely damaging since this results in the creation of a great amount of inaccurate and duplicate data, which if trusted, makes the process of tracking and containment both time consuming and ineffective. This is counter-productive to the management of a disease that is as fast spreading as COVID-19.

Blockchain technology can come to play in effectively tackling this issue. Owing to its distributed and immutable nature, blockchain can provide a feasible solution for tracking the outbreak. Blockchain-based apps facilitate organizations across the globe to form a single connected network where data can be shared in real time and securely. Moreover, since data stored in blockchain is immutable, it is protected against unauthorized changes and its distributed nature ensures protection against fraudulent data (since each entry requires consensus algorithms and smart contracts). Lastly, blockchain efficiently manages high volumes of data (as in the cases of the COVID pandemic) in a real time basis, which cannot be managed using human resources.

However, in addition to these factors, the aspect that stands out the most and makes blockchain technology ideal for monitoring and managing outbreak-related information is the level of privacy it offers. People do not wish for their information to be shared publicly or be used for other purposes. Thus it is a challenge to get patients to collaborate with governments and healthcare institutions to share information regarding their condition and wellness. For instance, the Israel government recently permitted healthcare institutions to track citizens’ mobile phones to control the spread of coronavirus. This has raised concerns from human rights organizations as citizens are not comfortable with sharing their personal information.

Since blockchain uses a distributed ledger, which ensures accountability and transparency with regards to access to its stored data, the information shared through blockchain cannot be extracted or misused. Moreover, information stored in a blockchain cannot be hacked. This encourages patients to share information regarding their condition, symptoms, location, and underlying health conditions without fear of the information being misused or shared with any third-party.

Furthermore, information shared by patients in a blockchain network may not only be used for tracking the outbreak but also facilitate health centers study the disease characteristics and patterns to develop treatment and solutions.

For instance, WHO has been using a blockchain-based data streaming platform, called MiPasa, which facilitates the sharing of information amongst need-to-know organizations such as state authorities and health officials. The platform is built on top of Hyperledger Fabric and partners with IBM for blockchain and cloud platforms. The application cross-references siloed location data with health information to track and prevent the spread of the outbreak, all while protecting patient privacy.

In another example, Atlanta-based developer of blockchain-enabled healthcare applications, Acoer, developed an application called HashLog, which allows real time logging and data visualization of the spread of the infection. HashLog provides real-time updates on the spread of the disease by tracking movement of infected people to identify potential outbreaks and prevent further spread. The application uses the Hedera Hashgraph distributed ledger technology and each entry is recorded through a verified hash reference on the ledger, ensuring that the data is correct.

Donations

In addition to tracking and preventing outbreaks, blockchain also plays an important role in securing donations. From hospitals and state authorities with insufficient funds for medical supplies to economically-weaker sections of the populations losing source of income due to lockdown, the current pandemic has displaced a huge number of people across the globe. Thus in such times, donations play a critical role in sustaining livelihoods and providing healthcare supplies to the affected people. However, given fraud associated with donations in recent times, lack of trust is a common factor affecting success of donations. Several individuals want to help and donate, however, are discouraged due to fear of their money being misused.

For instance in India, the government and police warned citizens against several fake relief schemes that have been floating in the name of COVID-19 relief, some even mirroring the Prime Ministers Relief Fund. These kind of activities deter willing people from donating.

Blockchain technology can be used to effectively combat this issue. Since all transactions in blockchain are secure, transparent, and traceable, donors can track their funds and see where they are utilized. This gives confidence to donors that their funds are being used for the exact purpose that they intended.

One such example is Hangzhou-based blockchain startup Hyperchain, which built a blockchain-based donation tracking platform for supporting government and hospitals (such as Tangshan People’s Hospital, Jiayu People’s Hospital and Xiantao No. 1 People’s Hospital) in the donation process. The platform has attracted more than US$2 million in donations.

 

Blockchain a Frontline Warrior in Battling Coronavirus Pandemic by EOS Intelligence

Supply chain tracking

Blockchain technology has been deemed extremely useful in managing and tracing the supply chain in several sectors as retail (for more insights on this read our article Blockchain Paving Its Way into Retail Industry). However, given the current pandemic, the technology can also utilize similar functionalities and play a significant role in tracking of medical supplies.

Given the pace of spread of COVID-19, authorities and healthcare organizations across the globe have faced a shortage of medical supplies, such as masks, sanitizers, PPE kits, ventilators, testing equipment, as well as some medicines. This drastic increase in demand has resulted in distribution of large number of counterfeit and faulty products. Blockchain technology can play a significant role to combat this. Given the data provenance in blockchain and its immutable nature, it is possible to identify and trace back every touchpoint of the medical supplies to ensure its authenticity.

In addition to filtering counterfeit products, blockchain also helps streamline the supply chain process to ensure hospitals and doctors secure timely supplies to treat patients. Blockchain can provide real-time updates regarding demand so that medical manufacturers can adjust production levels accordingly. In addition, it can help fast-track supply chain contracts through the use of smart contracts, and facilitate faster payments, thereby improving the overall efficiency.

In February 2020, China-based AliPay, along with the Zhejiang Provincial Health Commission and the Economy and Information Technology Department, launched a blockchain-based platform to facilitate the tracking of medical supplies required for fighting SARS-COV-2. The platform has improved trust within the medical supply chain since it records and tracks the entire provenance of preventive supplies including masks, gloves, and PPE kits.

Apart from medical supply chain, blockchain can also help limit supply chain disruptions faced by several other industries due to lockdown in several parts of the world. However, companies that are using blockchain for managing their supply chain have an advantage as they have better visibility into their complete supply chain and thereby can identify points of disruption in a timely manner.

Avoiding future pandemics

Blockchain is on the front line for fighting the current pandemic, but it also has the potential to prevent future disease outbreaks. Most of current healthcare surveillance systems across the globe are outdated and lack the required timeliness and efficiency in sharing information with local as well as international health enforcement organizations. Moreover, sometimes there is a question of deliberate delay in sharing of critical information.

To this effect, blockchain-based health surveillance systems can help mitigate future outbreaks. Since they operate on a decentralized ledger, the surveillance data is transparently available to health organizations across the globe in a real-time manner, without the fear of any political disruptions. Timely knowledge of a potential outbreak is the first and most critical step in preventing a similar situation in the future.

In addition to the above mentioned applications, blockchain companies along with institutions are developing creative solutions that help reduce challenges faced by people due to COVID in their day to day living. For instance, Toronto-based blockchain company, Emerge, launched a public safety app called Civitas, which assists the citizens and local authorities across Latin America. This app matches one’s official ID to confidential medical records stored in the blockchain to identify whether the person is allowed to leave the house or not. Thus the app allows police to verify if the person has a travel permission just on the basis of their government ID and without gaining access to the person’s medical records. The app also determines the safest time and day for going out for essentials for people who are experiencing COVID-like symptoms.

Moreover, as discussed in our previous article (Blockchain Scores Well in the Education Sector) blockchain also is extremely useful in the virtual education scenario, which is now the new way of schooling for large part of students across the globe.

EOS Perspective

Blockchain technology has several inherent properties that make it ideal for helping to manage and combat the current pandemic. Its decentralized, traceable, and immutable properties make is especially desirable for managing contact tracing and outbreak tracking, which are critical in handling a pandemic efficiently. Moreover, the benefits of blockchain are further amplified when used alongside other technologies, such as artificial intelligence, cloud computing, and big data.

However, despite its several uses, the issue of scalability plagues blockchain adaption at a larger scale. Blockchain is still a nascent technology and lacks high-level scalability. With COVID affecting most of the world, the current blockchain companies do not have that level of scalability to provide all-encompassing global level solutions.

Furthermore, blockchain technology does not operate alone and it needs to be configured with the operating legacy system at companies and other stakeholders. However, most legacy systems are relatively old and therefore do not support blockchain technology. Updating or reconfiguring a legacy system is a tedious process (both in terms of time and money) and companies may not want to tie up resources for that at the current time.

Given these drawbacks, blockchain may not be deployed at a global-scale level during this pandemic, however, its inherent benefits have made companies, authorities, and global health organizations ponder, explore, and evaluate its potential in managing such situations in the future. While the COVID-19 pandemic has caught the world largely unprepared, organizations and companies across the globe are gearing up to ensure this history is not repeated and blockchain technology has emerged as a critical part of the solution.

by EOS Intelligence EOS Intelligence No Comments

Blockchain Scores Well in the Education Sector

Blockchain has now been widely accepted as a technology offering superior capabilities when it comes to data security, transparency, and immutability. This has made it extremely relevant in industries, such as finance and healthcare, where security is critical. However, after getting a foothold in such industries, the technology is extending its reach beyond current uses into other sectors. One such industry is education, where blockchain can facilitate a safe, secure, and auditable ledger covering all education-based data and transactions. However, since blockchain is still new and relatively unexplored in this space, its wide applicability and commercial acceptability is yet to be proven.

Blockchain is fast finding its ground across several industries and education industry seems to be no exception. While still behind in terms of implementation, especially when compared with other sectors such as finance and healthcare, education sector is exploring various blockchain-based applications that can improve data security, facilitate degree verification, and prevent plagiarism, among other things.


Read our other articles on blockchain where we talk about the technology gaining prominence in several industries, including healthcare, retail, banking, car rental, and aviation.


Data breach/security

Industries such as finance and health have been using blockchain to protect their customers’ data. Blockchain can find similar application in the education sector, which is also highly susceptible to data breaches. As per Gamalto, a Netherlands-based international digital security firm, in 2017, the education sector was third (after finance and healthcare industry) with regards to the highest number of experienced data breaches, accounting for 13% of all data breaches across industries.

The use of blockchain to protect student information and records can help mitigate the issue of data breaches. With schools and universities storing data digitally on blockchain, they would be able to store and share student data without making it accessible to hackers. Moreover, data stored on blockchain would help improve transparency and accuracy, reduce human errors and paper-based processes, and eliminate fraudulence.

With schools and universities storing data digitally on blockchain, they would be able to store and share student data without making it accessible to hackers.

Data being stored on blockchain also helps employers be assured that the candidate or student seeking employment has authentic degrees and qualifications.

In February 2019, the Maltese government signed a contract with blockchain startup, Learning Machine, to store all educational records and certificates in the country on a blockchain. The project is a two-year pilot project and aims at ensuring that all educational certificates, including university and secondary school certificates (encompassing state, church, and independent schools), are issued and stored on blockchain. The project is expected to minimize bureaucracy and provide greater security for students’ private data.

Data access and verification

Currently, most institutions store student data within their own systems and the student needs to approach the university to obtain the certification. Alternatively, prospective employers need to verify the authenticity of a candidate’s certificates from the respective university/institution. In cases where a student has multiple degrees and certification, this process becomes cumbersome and susceptible to errors.

Blockchain-based diplomas can offer an easy solution to this issue. With certifications being stored on a blockchain, students can obtain fast and easy access to their records and can share them with potential employers without the latter being concerned about their authenticity.

With certifications being stored on a blockchain, students can obtain fast and easy access to their records and can share them with potential employers without the latter being concerned about their authenticity.

Moreover, in case a university closes down or the credential records are destroyed due to extraordinary circumstances (fire, earthquake, war, etc.), student’s certifications still hold merit and would be verifiable based on blockchain records.

In 2017, MIT introduced a pilot program under which it offered digital diplomas to 111 graduates in addition to the traditional diplomas. These graduates were given an option to receive their diplomas on their smartphones via an app, called the Blockcerts Wallets. The pilot project, which was a partnership between MIT and Massachusetts-based software firm, Learning Machine, enabled students to quickly and easily share a verifiable and tamper-proof version of their diploma with prospective employers, other schools, as well as friends and family.

Apart from MIT, several other institutions offer digital credentials through blockchain. For instance, Open University’s Knowledge Media Institute (KMI) was awarded about US$550,000 (GBP 450,000) in 2018, to develop and employ blockchain technology to allow learners to manage and verify their educational and employment records.

Copyright and plagiarism

Plagiarism is a big issue in the academic world, with people having easy access to other people’s research or educational resources for free over the Internet. However, the use of blockchain can effectively address this problem. One of blockchain’s key characteristic is that information can be securely stored without being tampered with. Thus, academic materials stored in a blockchain-based platform can be accessed by public but cannot be altered or plagiarized. Moreover, any contention regarding originality of information can be tracked and protected with a time stamp.

One of blockchain’s key characteristic is that information can be securely stored without being tampered with. Thus, academic materials stored in a blockchain-based platform can be accessed by public but cannot be altered or plagiarized. Moreover, any contention regarding originality of information can be tracked and protected with a time stamp.

This also helps publishers keep track of reuse of their material and be rewarded based on actual use and reuse of their papers (similar to how they are rewarded for citations of their research material), thereby eliminating any free-use of their materials on the Internet.

Taking things a step further, teachers or publishers could be awarded crypto-coins for the reuse of their material through smart contracts. This way publishers would not have to use intermediaries such as research journals, which charge high fees and thereby limit access to the material.

Creation of decentralized education marketplaces

Education industry still operates in a closed and centralized way with universities and education providers giving credentials for courses through their own diplomas and degrees. Even in case of digital education solutions, there is always a body providing credentials for the course undertaken. Due to this, education remains relatively expensive and not approachable by all.

However, blockchain-based platforms can help solve this problem by creating decentralized education marketplaces, where the quality of education provided is validated by students and educators participating in the course. Using blockchain, these marketplaces connect students and professors who in turn use smart contacts to undertake the course they are interested in. At the end of the course the student receives an immutable certificate of completion and the ledger records the professor who taught the course.

An example of such a company is Switzerland-based ODEM, which was founded in 2017. ODEM is a blockchain-based decentralized marketplace for educational products and services, wherein professors and students come together to teach and learn various courses. The two parties engage through smart contracts and the ODEM ledger recognizes the courses a student has taken or a professor has taught, which boosts their reputation on the ODEM platform. Moreover, ODEM creates ‘skill badges’ for professors and students who complete courses in their network. This helps the decentralized platform as more students wish to undertake courses with professors who have multiple skill badges (thereby higher proficiency in the subject), while professors are also more interested to work with students with multiple badges (i.e. have displayed interest to learn and expand their skill set in the subject).

Several other blockchain-based education marketplaces have emerged. In February 2018, a blockchain-based university, called Woolf University was founded, which allowed any accredited educator to launch and teach courses that would advance users toward a degree.

Blockchain Scores Well in the Education Sector by EOS Intelligence

Other solutions

In addition to this, blockchain increasingly finds application in other educational areas across the globe. In Kazakhstan, the government is using blockchain to manage the national school enrollment of young children to kindergarten. In Kazakhstan, all parents need to apply for their children’s enrollment in local kindergartens, which results in waiting lists for several such institutions, and these lists are managed by the state. In February 2019, the government decentralized the system and put it on a blockchain in order to optimize the waiting list and make the process more transparent.

Similarly, blockchain is also being used for test prepping and learning. Blockchain-based platforms can assist students in preparing for tests as this helps students keep track of their progress. One such example is a chatbot app by Opet Foundation, wherein students can ask questions regarding any subject, the app recommends resources for further studies based on current proficiency, and tracks learning progress through blockchain technology.

Blockchain is also being applied to improve and expand school library systems. With blockchain, schools can create and manage a distributed metadata system for libraries that would allow peer-to-peer sharing of books and other reading material. Also, it will assist in management of libraries as the technology keeps detailed logs of what books are going out and which ones are being returned in an error-free and meticulous fashion. In November 2017, the Institute of Museum and Library Services gave a US$100,000 grant to the San José State University, School of Information to explore blockchain applications in libraries encompassing building an enhanced permission-less metadata archive, supporting community-based collections, and facilitating better digital rights management.

EOS Perspective

Blockchain-based applications are gaining momentum across industries and the education sector is no exception. As in many other sectors, blockchain has the potential to revolutionize the industry, especially with regards to storing data and sharing credentials. Several start-ups have entered this space and are already challenging industry norms.

More so, blockchain-based start-ups in the education sector are becoming even more relevant as the world struggles with calamities such as bush fires or the coronavirus pandemic. As schools and universities shut down due to the ongoing pandemic, blockchain-based platforms play an important role in ensuring that education is not disrupted. Recently, blockchain-based educational platform, Odem, has offered its online integrated learning platform and certification management system free of charge to schools and educators that have shut down due to the virus scare. In the midst of the pandemic, the platform has received interest from Italy, Ireland, Germany, Cairo, and the USA, with a US-based University discussing uploading about 500 courses onto the Odem blockchain to combat class time lost due to the outbreak.

While blockchain appears to be in a strong position to reinvent the education sector, it is easier said than done. Blockchain requires alterations in industry-wide business processes, which not only require significant amount of investments but also involvement of government bodies to develop blockchain regulations as well as build the requisite infrastructure for the technology. Currently the cost of processing and storing data through blockchain is high and scalability remains an issue.

Moreover, currently most schools across the globe have their own systems to store and manage student’s information, progress, and certifications. These would require to be standardized if the use of blockchain grows and new standards would need to be developed. This is an extremely tedious and time consuming procedure and several schools may not be interested in sharing information with third parties.

That being said, blockchain is expected to penetrate the education sector in the years to come and many institutions have already started toying with the technology and its applications. However, just like in case of some other industries, it is yet to be seen if blockchain manages to revolutionize the entire industry or offer few niche applications in some areas and limited geographic scope. It will have a lot to do with the cost and ease of adaptation of the technology in already exiting school systems.

by EOS Intelligence EOS Intelligence No Comments

Blockchain Likely to Make a Safe Landing in Aviation Sector

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Blockchain technology has captured the interest of several industries and aviation is no exception. Its decentralized, secure, and immutable nature makes blockchain technology ideal for many operational aspects and verticals within the aviation industry. In fact, most of the blockchain-based solutions in the aviation sector extend beyond basic financial transactions and range across security and identity management, ticketing, maintenance, baggage management, and loyalty programs. Various stakeholders in the aviation industry, including airlines, airports, aircraft manufacturers and maintenance providers, and airspace technology providers, etc., are partnering together to explore and develop blockchain-based capabilities across the industry’s value chain.

Blockchain technology is fast emerging as the revolutionary technology in the aviation industry with most airline and airport CIOs investing huge resources and effort in exploring this space. As per Air Transport IT Insights 2018 report by SITA, one of the world’s leading air transport communications and information technology company, about 60% airlines have invested in blockchain-based pilot projects or research programs for implementation by 2021. This shows an increase from 2017, when only 42% airlines invested in blockchain-based research programs. Moreover, airports are also exploring this technology, with 34% airports planning blockchain-based R&D projects by 2021.

Owing to its decentralized, scalable, transparent, and secure nature, blockchain technology’s capabilities align well with the needs of the aviation sector, especially in the fields of ticketing, maintenance, luggage tracking, loyalty programs, and identity management.

Blockchain to streamline security and identity management

Passenger identity management is one of the most sought-after uses of blockchain in aviation. As per the SITA study, about 40% airlines and 36% airports claim passenger identity management to be one of the most prominent areas of application and benefit of blockchain technology.

Blockchain technology has the ability to streamline the identity management of passengers through the combined use of blockchain, biometrics, and mobile (or wearable devices). Currently, a passenger needs to pass several checkpoints where different parties (airport staff, airlines, control authorities, etc.) verify their physical IDs. This process is cumbersome, time consuming, and also vulnerable to human errors. Moreover, it results in a great amount of duplication of data as each stakeholder stores and verifies passenger information at their own level.

Blockchain, owing to its immutable, decentralized, and secure nature, helps solve these issues by validating identities using biometrics. Blockchain with security wrappers ensures that the information stored in the system is protected and helps share it with all the stakeholders through the use of authorized access protocols. Thus, blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints. Moreover, it will reduce security lapses as the need for paper documents (that can be forged) and human intervention is low.

Blockchain start-up Sho Card, which provides digital identification cards through blockchain, has partnered with SITA to develop a digital identity card as a proof of concept, wherein the traveler obtains a single travel token for his journey.

Under this concept, the traveler undergoes an initial check at the travel counter, where he is positively identified using biometrics and issued a travel token. A photo of the traveler is also taken for verification. This information (biometric ID information, travel token, photo) is stored on the travelers mobile or wearable device and replaces the requirement of any physical/paper identification. When the traveler approaches any gate or checkpoint, he presents the travel token via a QR code on the SITA traveler app. The agent at the checkpoint scans the QR code and validates the travel token and the individual matches to that in the photo. The traveler is allowed to pass if the information matches. This significantly reduces costs and time taken at several checkpoints for document validation. Moreover it reduces the human liability around documents check.

Other blockchain players, such as UK-based ObjectTech and VChain Technology, have also entered into agreements with Dubai’s Immigration and Visa Department and International Airlines Group (AIG), respectively, to provide blockchain-based solutions to streamline passenger data management for the aviation sector.

Blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints.

Smart contracts to ease out ticketing

Airlines currently sell paper-based or electronic tickets through their centralized ticketing system. For each booking, there are multiple touchpoints, which include airlines, travel agencies (online and offline), banks and card providers, and government agencies. Upon the sale of a ticket, each party stores passenger data at their individual level, which makes the process complex and vulnerable to errors. In addition, ticketing information being currently stored in a centralized database by airlines and airports makes it vulnerable to hacks and glitches, which in turn can result in reputation and revenue loss for the airlines or airport. This was seen in case of Southwest Airlines in July 2016, when the centralized ticketing database failed, resulting in the cancellation of about 2,000 flights and a revenue loss of US$82 million.

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of embedded business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights. Moreover, further stipulations can be added to the ticket such as the class of the ticket, lounge access, etc. The decentralized nature of blockchain insulates it from hacking and system failures and also mitigates data sharing errors. Furthermore, it allows for the sale of tickets in real-time from different partners across the globe. It also improves customer experience and cost effectiveness of service by automating time consuming tasks, streamlining payment process, and reducing settlement times.

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights.

In July 2018, Russia’s second largest airline, S7 Airlines partnered with Russian commercial Bank, Alfa Bank, to build and sell its airline tickets over an ethereum-based private blockchain platform. The use of blockchain enabled the airlines to securely connect its online booking system with the bank’s payment processing systems, thereby speeding the payment processing time (from about two weeks to less than a minute) and reducing manual paperwork. In July 2019, the airline’s blockchain-based ticketing platform witnessed sales of US$1 million, indicating the success of the venture.

Blockchain to enable luggage tracking

One of the areas where airlines are constantly working on improving customer service and reducing costs is cargo and passenger baggage management. A passenger’s baggage passes through several automated and manual processes before being handed back to them and data about the cargo/luggage’s journey is usually stored in a non-standardized form on an individual level by multiple players that handle the cargo/luggage, including airlines personnel, transportation companies, airports, and local authorities.

This process results in passenger luggage being often lost or misdirected, a fact that impacts the airlines both in terms of reputation and cost. As per SITA’s Baggage Report 2018, this translated into additional costs of about US$2.3 billion for airlines in 2017.

Blockchain, which functions as an online record-keeping system maintained on a peer-to-peer network rather than a central agency or authority, can help airlines tackle the issues of lost luggage. Using blockchain, customers (and airlines) can track the luggage throughout its transfer process, which provides full transparency to the process. Thus if a bag is misplaced, the airlines can track back the entire journey of the lost luggage to identify the point where it went missing and why.

Blockchain Likely to Make a Safe Landing in Aviation Sector by EOS Intelligence

In November 2017, Air New Zealand partnered with Swiss-based start-up Winding Tree (which is a blockchain-based distribution platform for the travel industry), to explore applications based on blockchain technology that could help the carrier improve the efficiency and security of booking and baggage tracking services. The potential applications that Air New Zealand is looking to explore include cargo and baggage tracking, retail distribution, and loyalty program opportunities.

Another use of blockchain in baggage management is in determining lost baggage compensation. Through the use of smart contracts, airlines could automate insurance claims for lost baggage and instantaneously compensate customers. Rega, a blockchain insurance platform, has been deploying blockchain to create a “crowd-insurance” platform in which the risk of lost luggage is shared across the community. This works primarily as a peer-to-peer insurance that uses smart contracts and smart tokens to insure baggage for a group of passengers without the need for any insurance companies, agents, or intermediaries. Through this method, it has managed to reduce lost baggage premium to about US$12 annually for a coverage of up to US$5,000.

Blockchain to better manage maintenance history and spare parts sourcing

Flight maintenance is one of the largest cost-heads for an airline. As per IATA, in 2017, airlines globally spent US$76 billion on MRO (maintenance, repair, and overhaul), representing about 11% of total operational costs.

Currently, the MRO process is extremely complex, with the value chain encompassing multiple players such as manufacturers, component traders, airlines, service providers, and regulatory authorities. Moreover, each of these bodies store information in separate databases or physical ledgers. This makes obtaining information about components and maintenance extremely challenging and time consuming. Moreover, it can lead to data discrepancy (as it is stored at individual levels by the various parties), which in turn questions the reliability of this data and the safety of the component. In these cases, the worthiness of the component is established through an expensive and time consuming investigation, testing, and recertification process.

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines. Blockchain digitally logs and stores data regarding aircraft spare parts and maintenance, from the time the part is manufactured, to when it is installed, to every time maintenance or repair occurs. This decentralized, transparent, and real-time storage of data ensures that the information is available to all authorized parties (from airlines to MRO service providers) in a prompt and accurate manner, thereby saving on time and costs while achieving better safety and maintenance standards.

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines. 

In addition, the use of blockchain enables airlines to engage in more predictive maintenance, by enabling technicians to review the complete configuration and history of the various components in the aircraft on a blockchain-based ledger. This helps them tackle issues in a preventive manner rather than taking action after a problem has occurred. Similarly, MRO providers can also use blockchain to offer predictive maintenance services to airlines, saving money for both themselves and the airlines.

Blockchain also helps in sourcing spare parts and removing middle men in the sourcing process. Currently, aircraft components are sourced from vendors or traders in a marketplace, who then further scout for the component with manufacturers or sometimes other traders/resellers. This process is expensive (due to multiple mark-ups) and time consuming and most of all, lacks transparency. To tackle this, various manufacturers, airlines, and MROs can create a blockchain-powered aerospace marketplace, where the buyers can share the serial number of the product needed, which in turn can be matched to the real-time ownership and location of the seller currently holding the product. This would eliminate the need for middle men in the industry and also save time and reduce costs especially in case of scarce parts.

In October 2017, Air France-KLM announced its plans to evaluate and develop a blockchain-based system to manage replacement parts on in-service airplanes and improve aircraft maintenance procedures and record keeping. Similarly, in August 2018, Russian airlines, S7, in association with Russian energy player, Gazprom Neft, announced the successful development and implementation of a blockchain-based system to refuel aircraft using smart contracts. The smart contracts will remove the need for pre-payment, bank guarantees, and will further insulate the parties from any unforeseen financial risks involved in the refueling process. This is expected to help reduce cost and also save time both for the airlines as well as their energy partner.

Blockchain to add value to airlines loyalty programs

Flyer loyalty programs, better known as frequent flyer miles, are an integral part of an airline’s customer engagement program. All airlines run a loyalty program, whether individually or as an alliance. However, in traditional loyalty programs travelers need to wait to accrue a certain amount of points to utilize them, with limitations on where and when they can use them. Loyalty programs for alliances have an even more complex structure when compared with stand-alone loyalty programs. This results in limited incentive for travelers to remain loyal to a certain airline(s), thereby defeating the purpose of frequent flyer programs.

Blockchain has the ability to streamline the frequent flyer programs, especially for alliances. By tokenizing loyalty points on the blockchain, travelers can obtain instant value for the points by redeeming them in real-time and across a great number of partnering merchants. Thus with points being accepted as a form of “currency” across a pool of merchants, travelers can use these points in a faster and more efficient manner, thereby remaining motivated to maintain loyalty with a particular airline(s).

In July 2018, Singapore Airlines was the first airline globally to launch a blockchain-based loyalty program for frequent flyers. Under this program, Singapore Airline members can convert their miles into units of payments which are stored in a digital wallet, called KrisPay. This digital wallet was developed by Singapore Airlines in partnership with KPMG and Microsoft. The airline has partnered with 18 merchants across Singapore (including eateries, gas stations, beauty parlors, etc.) where customers can use KrisPay units.

Blockchain initiatives

Considering the various applications of blockchain across the aviation sector, a great number of airlines and airspace technology providers are investing heavily to explore this space and develop blockchain-based solutions for various verticals.

In July 2018, Lufthansa airlines partnered with SAP to launch a global Aviation Blockchain Challenge in order to support blockchain R&D in the sector. Through this venture, the two companies are seeking ideas from entrepreneurs and blockchain start-ups with regards to enhancing passenger experience, improving airline operations, processes, and maintenance, and streamlining the aviation supply chain.

Similarly in July 2018, SITA, which is the air transport industry’s largest technology provider and is jointly owned by a large number of airlines, launched the Aviation Blockchain Sandbox project. Through the Sandbox project, the technology provider aims to achieve intra-industry collaboration to understand and explore the applications of blockchain in the aviation space and undertake cross-industry initiatives. This platform gives access to smart contracts known as FlightChain, which will help improve flight status data problem for airlines and airports by storing all flight information on the blockchain to provide consistent data across the network.

EOS Perspective

Blockchain technology has taken several industries by storm, and shows great potential in several others (read our previous publications: Blockchain Technology – Next Frontier in Healthcare?, Blockchain Paving Its Way into Retail Industry, and Blockchain: A Potential Disruptor in Car Rental and Leasing Industry to find out more). Aviation seems to be no exception. Although application of blockchain in the aviation industry still seems to be largely at the exploration stage (with most companies running proof of concepts and investing in testing phases), it definitely holds the potential to transform the way air travel is currently done.


Explore our other Perspectives on blockchain


That being said, blockchain cannot be seen as a universal remedy for all the issues faced by the aviation sector. To ensure that blockchain is used in the most efficient and cost effective manner, it is critical for players to have a solution-oriented approach when exploring blockchain-based applications, i.e. starting with a specific problem and working towards developing solutions, rather than making blockchain a solution and looking for problems to solve with it. With blockchain becoming the buzz word across the board, it is very common for companies to get carried away with the technology trying to fit in places, where its needs or costs are not justified. Considering that the technology is relatively new and has limited scalability at the moment, a lot of blockchain-solutions that may work well in theory may not be practical in today’s day and may need to wait for the blockchain technology to evolve further.

Moreover, for blockchain to be successfully applied across the industry, it is very important for the stakeholders to collaborate to develop blockchain solutions with regards to sharing data, technology, and costs related to R&D. This is also somewhat of a challenge as adoption of blockchain requires transparency and most companies are wary of sharing their data and information with external players.

Despite these challenges, the adoption of blockchain technology by the aviation sector seems more like a matter of “when”, rather than “if”. Most players in the aviation sector have been operating through traditional business practices for several decades now and may take time to embrace blockchain in mainstream operations. However, several players such as Lufthansa and Air France-KLM have started leading the way. With promises of cost savings and better services, it is to be seen if blockchain can enjoy a smooth landing in the aviation sector.

by EOS Intelligence EOS Intelligence No Comments

Blockchain: A Potential Disruptor in Car Rental and Leasing Industry

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Blockchain, with its ability to offer significantly more transparent and decentralized way of conducting operations, has the potential to come to the forefront of technologies which are disrupting the way most industries work today. While the application of blockchain is still currently focused largely on cryptocurrencies, the technology is slowly finding its way to a range of industries, including the car rental and leasing industry.

Car rental and leasing sectors are growing worldwide, driven by rising technological advancements in transportation and increased need for ease of mobility. A shift in demand from car ownership to car sharing (not to be confused with ride-sharing services such as Uber or Lyft) is driving the growth in car rental and leasing industries.

The process of renting a car is highly centralized, where the car rental company being the main point of contact for the driver to rent cars. Car rental companies need to maintain a fleet of cars, as well as car stations and staff to efficiently run their operations, which makes up for bulk of their operating costs. Car rental companies cover these costs from (high) rental rates charged to their customers.

In the peer-to-peer (P2P) care rental (or car sharing) model, there is no need to maintain any infrastructure or staff required to perform the task of renting, a fact that reduces the overhead costs. Lower costs offered by P2P car rental have resulted in the model gaining prominence. P2P car sharing has significant potential, highlighted by recent investments in car sharing services such as Turo and Getaround. In July 2019, US-based Turo raised US$250 million from IAC, an internet media company, taking its overall valuation to US$1 billion. Getaround, a US-based car sharing company established in 2011, raised US$300 million funding from SoftBank in 2018.

However, the P2P car sharing model is inherently prone to fraud and other illicit activities, causing lack of user trust, which in turn acts as a barrier to scaling of rental business, despite the growing demand for car sharing.

The issue can be aided by the emergence of blockchain, which is acting as the market disruptor. The use of a distributed ledger for car rental and leasing is likely to revolutionize the industry, especially P2P car sharing.

Blockchain to enable peer-to-peer car rental gain further prominence

There is a shift in paradigm from car ownership to car sharing, via car rental or leasing. The fact that vehicles are under-utilized and parked (and inactive) most of the time, while the vehicle owners incur ongoing fixed costs such insurance, tax, maintenance, and parking, is further driving this shift.

Emergence of use of blockchain in car rental offers a safe (from frauds) and reliable car-sharing platform, a fact that is likely to further promote P2P car sharing. Inherent unalterable properties of the blockchain offer a secure platform for both car owners (to list their cars) and the customers.

The concept of blockchain in car rental industry works similarly to any other blockchain transaction. Service providers (or car owners) and end clients registered on the blockchain can sign digital smart contracts which execute contract terms based on pre-agreed rules in place, similar to a regular rental model.

The smart contract also contains the necessary information, such as details of the renter (driving license proof, insurance, and credit card details) and data such as car registration number, rate, mileage, length of rental, and credentials of the car owner. All financial transactions (rental payment) can be done either through a card, or using associated cryptocurrencies and tokens purchased to get registered on the blockchain.

 

Blockchain - A Potential Disruptor in Car Rental and Leasing Industry - EOS Intelligence

The process is fully decentralized and digital without any intermediary required which is the key advantage of car rentals being executed over blockchain. Transparency of transactions made over a distributed ledger also adds to the credibility, thus lowering the risk of any fraudulent activity to a great extent.

Lower fee offered due to elimination of intermediaries is another major advantage of using the blockchain technology in car rental industry. For example, HireGo, a UK-based blockchain-based car rental start-up, claims to offer transaction fee up to 35% lower compared with traditional car rental charges under the existing B2C model. Moreover, use of smart contracts has made the system direct and reliable, as information on the contract is unalterable.

Blockchain technology is designed to encourage a sharing economy platform so that businesses such as P2P car rentals and leasing can become integrated and cost-effective, through collaboration among participants in a common, transparent, and “trustless” (or distributed trust) environment, which are the primary attributes of blockchain.

Blockchain in car leasing to improve visibility

When it comes to leasing, blockchain has even more potential. Tracking a car right from the OEM, transfer of ownership, tracking of repairs, mileage, fuel, and maintenance over a single distributed ledger can help bring visibility across the leasing journey. This in turn can help customers avert mileage fraud, while also eliminating any disputes at the end of the lease term.

With all necessary and unnecessary repairs being visible to all parties involved, calculation of charges and violation penalties is likely to become much easier.

The use of a distributed ledger also eliminates the need of undertaking time-consuming paperwork at each node (or stakeholder) of the leasing value chain, thereby improving the overall efficiency of the process, while also cutting costs, making it much more cost-effective to lease a vehicle.

Similarly to its function in car rentals, a distributed ledger also eliminates high costs charged by car leasing companies, resulting in increased popularity P2P leasing of vehicles through smart contracts. Blockchain can also be used as an open maintenance log, as well as for the provision of other value added services such as insurance and toll payments.

Blockchain - A Potential Disruptor in Car Rental and Leasing Industry - EOS Intelligence

Transparency across the lease to help minimize customer disputes

The benefits of blockchain are most prominent at the end of the lease term, when a customer returns a leased vehicle. The use of an open distributed ledger eliminates any disputes that may occur between the service provider and end client, with regards to end-of-lease charges. Transparency across the lease lifecycle, including open logs of vehicle usage, mileage, fuel, maintenance, tire changes, and insurance, make it easier to calculate any end-of-lease charges, based on the pre-defined terms of the smart contract. These charges can also be automatically paid in the form of cryptocurrencies or tokens, as per the provisions in the smart contract.

Blockchain entries can also help leasing companies estimate the approximate value of the vehicle at the end of the lease term, making it easier to decide whether to remarket (re-lease) or dispose of the vehicle, as well as reducing the overall time and resources required in the remarketing process.

Newer blockchain-based platforms expected to drive growth

The global automotive blockchain market is likely to witness growth of 31.1% CAGR between 2020 and 2030, with Asia witnessing the fastest growth. Majority of this growth is attributed to proliferation of car rental and leasing in countries such as India and China, where people are seeking easier means of mobility and are making cautious effort of reducing traffic in metro cities.

Several companies in the region started investing in building platforms using blockchain. In 2017, Mumbai-based Drivezy, an Indian car sharing company, successfully developed a car rental and leasing platform using blockchain, in which users can rent cars and make payments using cryptocurrencies and tokens. In 2018, the company raised US$20 million in a Series B funding through an initial coin offering (ICO). Such investment is encouraging further start-ups looking to utilize blockchain for car rental and leasing.

Darenta ICO, a Russian car rental start-up, developed a platform for existing car owners to rent out their cars using a digital solution that employs geolocation, smart contracts, and other blockchain technology. Launched in 2018, the company has already expanded its presence in 20 countries, and plans to enter the USA and Canada, followed by other European and Asian markets (including China) by 2020.

Several major companies have also invested in developing other technology platforms using blockchain technology, which could have applications in the rental and leasing businesses. In 2017, Ernst and Young, for example, launched a blockchain-based platform called “Tesseract” to support an integrated and autonomous mobility. Through this platform companies and individuals can share cars, while payment and insurance are handled through blockchain. In 2017, Renault also launched a prototype blockchain platform to track information about a car’s maintenance history, including repair shops and dealerships at one place, through a digital maintenance log prototype.


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Lack of acceptance of cryptocurrencies likely to pose challenges

While blockchain has plenty of benefits, broad scale deployment of the technology faces certain challenges as well – one of the most crucial ones being recognition of cryptocurrencies in key emerging markets in Asia, including India and China. Most blockchain-based solutions are looking at ICO to generate funds, issuing their own cryptocurrencies (mostly based on Ethereum tokens), which also act as a mode of transactions and payments for the service. Lack of regulation of cryptocurrencies is currently limiting the adoption of blockchain technology in the rental and leasing space.

Also, for the blockchain technology broad scale implementation, there is a need for high performance computers (or supercomputers) along with highly skilled workforce to handle the blockchain. Such challenges can cause delay in widespread adoption of blockchain technology for car rentals and leasing system at a larger scale.

EOS Perspective

Currently, blockchain is considered synonymous to cryptocurrencies such as bitcoin, which is still very unstable and is commonly seen as an investment rather than a mode of transaction. Such a perception is likely to continue to prevail in the short term. Once the paradigm shifts from cryptocurrencies being looked at as a mere investment tool, to being considered as a mode of transaction or a trustless platform, which utilizes inherent properties of blockchain, the overall acceptance of blockchain is also expected to increase. This shift is also likely to bring more stability in cryptocurrency prices, which in turn is also expected to generate a more positive regulatory outlook in favor of cryptocurrency and blockchain technology.

Once blockchain gains prominence, we are likely to witness a lot more start-ups promoting peer-to-peer car sharing (rental or leasing), driving a change in the way people look at their cars. Idle vehicles will increasingly be considered as assets which can generate a source of additional income via car sharing model, resulting in better overall utilization of cars.

ICOs are likely to remain the most common mechanism to generate funds. While the technology has several potential uses, which are expected to disrupt the car rental and leasing market in the near future, the state of blockchain acceptance currently remains highly speculative, primarily due to its close association with cryptocurrencies.

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Blockchain Paving Its Way into Retail Industry

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Blockchain technology, which initially became popular with cryptocurrency (especially bitcoin), is now making its way into many other industries, including retail. Though still in its infancy, blockchain holds tremendous potential for retailers and has applications across supply chain data management, customer retention through loyalty programs, digital advertising, among many others. While several industry experts have proclaimed blockchain to be the next revolutionary technology in the retail sector, it is yet to be seen if these applications gain commercial acceptability (or remain niche solutions for niche products).

While the financial services industry has been one of the early adopters of blockchain technology, other sectors are also increasingly realizing the potential that blockchain can unlock for their businesses.

One such sector is retail, which is increasingly going digital – shedding its paper-based and centralized way of doing business. With an increasingly demanding customer and growing need for transparency, blockchain technology is expected to play a big role in the retail sector.

In addition to its inherent application as a payment-medium supporter (i.e. increasing acceptance of cryptocurrencies as a payment mode by retailers), blockchain has several other applications in the retail space – encompassing supply chain management, customer loyalty programs, and digital advertising.

Blockchain in supply chain

Blockchain helps improve transparency

Blockchain technology makes it possible to record every touchpoint of the product’s life as it moves through the supply chain – from manufacturer to shipper to supplier to seller – adding blocks of verifiable record to the product’s heritage.

For instance, if a supermarket is selling a box of cookies, blockchain data would record exactly when, where, and by whom the cookies were made, as well as what ingredients were used during manufacturing. By placing the cookies supply chain on the blockchain, the process becomes more transparent through inerasable tracking of how cookies have been handled at each node all the way up to the store shelves. This makes any affected ingredient traceable faster. For instance, if milk or eggs used in the cookies were affected due to poor storage, the affected ingredient (or its batch) could be traced back to the storage location and could be withdrawn from the warehouse without the tedious and error-prone process of checking each supply chain node. This ensures greater food safety and helps hold suppliers accountable throughout the chain. This is also useful in case of tracing of organic products where it is particularly important to trace whether each ingredient used to make a product is organic and matches the claims made by the producer.

There are several players in the industry who are already taking advantage of the benefits brought to their operations by blockchain. One of the largest retail giants, Walmart, has partnered with IBM and has been working together since October 2016 to develop a food safety blockchain technology called, IBMs Food Trust, to facilitate the digitization of the food supply chain process. The technology, which was previously in its testing phase, was launched for commercial use in October 2018. With the help of this technology, the source of the product can be tracked in 2.2 seconds, which previously could take up to seven days (with the use of paper-based ledgers).

In September 2018, Walmart announced a Food Trust Initiative, under which it has requested all its greens suppliers to upload data about their produce on the blockchain and ensure end-to-end traceability by September 2019. It is likely that the company extends the use of this technology to other fresh foods and vegetable suppliers in future.

Post the commercial launch of the IBM Food Trust platform in October 2018, France-based retail giant, Carrefour, also announced that it will be using IBM’s blockchain technology to track animal and vegetable product lines. Furthermore, it expects to expand this technology to other fresh products by 2022.

Blockchain Paving Its Way into the Retail Industry

Blockchain effectively combats food-related fraud

Another issue that blockchain helps combat in the retail space is food-related fraud, i.e. the misrepresentation of product contents by substituting the ingredients with cheaper alternatives. It is estimated that the global food industry suffers losses of about US$40 billion annually due to food fraud. An example of such a fraud was the Tesco horsemeat scandal in 2013, where some of Tesco’s packaged beef meals were found to include 60% horsemeat (undeclared on the label).

To fight such frauds, one of the world’s largest e-commerce players, Alibaba, has partnered with four Australian and New-Zealand-based companies, among whom are Blackmores (an Australian health supplement company) and Fonterra (a multinational dairy co-operative) to create a food tracing system built on blockchain technology. The project entered into its pilot phase in 2018. Through this system, Tmall Global’s (Alibaba’s international online marketplace) customers in China will be able to trace the goods that they order online (from partnering companies) across each node of the supply chain before the goods are finally delivered. The partnership is not only expected to help customers track the supply chain of food ordered online but also to prevent food fraud thanks to greater visibility and traceability of such fraudulent actions potentially attempted by producers.

Blockchain helps bring down the counterfeit luxury goods market

As a digital ledger where multiple stakeholders share and authenticate the same information, blockchain also makes counterfeiting more difficult. Counterfeiting is a big issue in the luxury and premium goods market owing to high prices and limited availability. The scale of counterfeiting in the luxury retail segment is overwhelming and it is sometimes nearly impossible to distinguish legitimate goods from the counterfeit ones. Forbes estimated the counterfeit luxury goods market in 2018 to be worth approximately US$1.2 trillion.

However, the use of blockchain technology can help luxury brands fight against the menace of counterfeiting. By using blockchain, companies can track every link in their supply chain and customers can access information to ensure the origins of the product and its authenticity.

Greats, a US-based premium sneaker brand, has been using blockchain and embedding smart tags in its footwear since 2016. Customers can use their smartphones to scan the tags to verify the authenticity of the sneakers.

The use of blockchain technology can help luxury brands (and other retail companies) fight against the menace of counterfeiting. By using blockchain, companies can track every link in their supply chain and customers can access this information through smartphones to ensure the origins of the product and its authenticity.

In 2018, a Paris-based blockchain company, Arianee, announced that it will be building a registry to combat counterfeiting of luxury brands, where every product will be classified with a unique token that differentiates it from the rest of the products.

Another example of this is De Beers, one of the world’s largest diamond producers, which along with five other diamond players (Diacore, Diarough, KGK Group, Rosy Blue NV, and Venus Jewel) has developed a blockchain platform, called Tracr in 2017. Through this platform, a diamond can be tracked from miner to end customer, i.e. throughout its complete value chain, using ethereum blockchain technology. In 2018, De Beers announced that it has successfully tracked 100 high-value diamonds along the value chain during the pilot run of its blockchain platform. The platform is expected to bring transparency in the diamond trade through physical identification of diamonds. A diamond could be tracked through its unique number from mining to cutting to polishing and to retail, which will ensure its purity.

Owing to its ability to empower companies to track, trace, and authenticate their products from the point of origin to the retail shelf, blockchain is likely to become the standard in supply chain tracking for the retail sector. However, this application is currently in its nascent stage of development and is being experimented on by only few large and niche players before it reaches industry-wide adoption.

Blockchain in customer loyalty programs

Customer loyalty points is another area where blockchain could be considered very useful. Loyalty programs generally work by awarding points to customer account for each purchase, which later can be redeemed for discounts on future purchases. While it follows the principle that retaining existing customers is less expensive than attracting new customers, loyalty programs are not always successful.

Most loyalty programs are centralized, where the customer could only redeem its value with the same retailer (or in some cases a small group of retailers), thereby limiting their use and appeal. Moreover, in many cases, loyalty programs also have stipulations that further restrict the use of the points and reduce the program’s perceived value, which in turn results in lower loyalty of the customer. According to Colloquy Loyalty Census 2017, there were approximately 3,000 loyalty programs in North America, where 6.7 trillion points were issued every year and about 21 trillion points were dormant or not used. This suggests that more often than not, customers find loyalty programs more exhausting than benefitting, defeating the entire purpose of having loyalty programs.

Blockchain technology allows customers the flexibility to use their loyalty points when and how they please. Blockchain-based loyalty programs award customers with tokens or cryptocurrencies instead of points, which could be redeemed by customers during future retail purchases and could even be redeemed for fiat currency (as the value of tokens grow overtime and do not expire).

This can be seen in the case of Rakutan’s loyalty program. In 2018, Rakutan, one of Japan’s largest retailers, announced an alt-coin, called Rakutan Coin, with which customers could redeem reward points for gifts at all Rakutan Group companies and also for other cryptocurrencies. The company has moved US$9 billion worth of existing Super Points (customer loyalty program points) into the blockchain to provide a boost to the Rakutan Coin.

Blockchain-based loyalty programs award customers with tokens or cryptocurrencies instead of points, which could be redeemed by customers during future retail purchases and could even be redeemed for fiat currency.

In another example, in 2017, University of New South Wales in Australia partnered with LoyaltyX, an experimental loyalty agency for a blockchain loyalty research project, wherein students and staff earned US$5 of ether (cryptocurrency ethereum) for every ten transactions made at any of the eleven campus retailers including Boost Juice (Australian fruit juice and smoothie retail outlet) and IGA (Australian chain of supermarkets). It was found that 86% of the participants were more attracted to earn cryptocurrencies where they had the option to redeem them for fiat currency.

Thus, blockchain-powered programs seem to encourage customers to engage in the loyalty programs as they not only curb the problem of set expiration of traditional loyalty points but also give the power to the customer to use the tokens as and when they require with any retailer. This is likely to help retailers renew customer interest in their loyalty programs, which in turn is likely to improve brand loyalty.

In addition to adoption in the retail space, players from other related industries are also experimenting with blockchain-based loyalty programs. In 2018, American Express (an American financial services company) partnered with Boxed (an American online wholesale retailer) to make its membership rewards program more versatile by integrating blockchain. With blockchain, merchants will be able to create custom membership rewards program for American Express card holders. The power to structure the offers will be with the merchants, whereas American Express will have the right to regulate the products or brands being promoted.

Also in the same year, Singapore Airlines partnered with KPMG and Microsoft and created a blockchain-based digital wallet KrisPay, where customers can turn travel miles into units of payment that can be used with partner merchants such as eateries, beauty parlors, gas stations, and some retailers, including LEGO store outlets within Singapore. This shows that some large brands are experimenting with this technology for their loyalty programs.

While integration of blockchain seems to be the ideal solution to invigorate the fading customer loyalty programs, it is still in its embryonic stage. Such applications need mass adaption to be successful and this will require significant time and investments.

Moreover, the adoption and success of blockchain-based loyalty programs to an extent also depend on the overall sentiment towards cryptocurrencies – their value and ease of transactions.

Lastly, scalability is also an extremely critical point for the smooth running of such loyalty programs. With numerous retail transactions happening every second, it is yet to be seen if blockchain can cater to these huge numbers without a slag time.

Blockchain in digital advertising

Another space where blockchain technology is likely to have significant potential is digital advertising, which is used by numerous retailers as a medium to reach their prospective customers. However, the process of buying online advertising is susceptible to fraud, especially with the increasing use of automated real-time bidding through ad-exchanges (programmatic advertising).

Under real-time programmatic advertising, publishers (themselves or through ad vendors) showcase their inventory along with details about the kind of visitors that their site targets. The advertisers then bid for these ad impressions and the highest bidder gets to display their ad on the site.

The entire process and ad marketplace lacks a sufficient level of transparency. Sometimes vendors misrepresent remnant inventory for a publisher as premium inventory, thereby charging higher fees from advertisers. In other cases, fraudulent sellers enter the exchange, claiming to represent publishers and having access to their inventory, in turn selling fake inventory to advertisers.

Blockchain has the potential to make the online ad marketplace more robust and legitimate by providing transparency, which is currently missing. Since blockchain is a peer-to-peer online ledger where all transactions between the participating parties are recorded (and cannot be deleted or changed), the advertisers can see for themselves where the inventory that they are bidding for has originated and who has access/authority to sell it.

Some examples of implementations are already found in the market. In June 2017, MetaX, a blockchain technology company, along with DMA (The Data and Marketing Association) launched adChain, an open protocol built on the public ethereum. adChain is an open access ledger that tracks and reports the origin, sale, resale, and publishing of an online ad.


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In December 2017, MetaX also launched a blockchain-based solution ‘Ads.txt Plus’ to improve transparency in the digital advertising space. Ads.txt Plus is based on a technology by IAB Tech Lab, called Ads.txt, which helps prevent fraud in the industry by allowing publishers to broadcast a list of authorized sellers of their ad inventory. By bringing this technology to ethereum blockchain, MetaX aims to further improve efficiency and transparency for its users.

If blockchain is adopted successfully in the digital advertising space, the advertisers can see exactly where their ad dollars are being spent, which players made commission, and how much of the total amount paid by them for the ad reached the site publisher.

Further, with the help of blockchain, buyers and sellers (advertisers and publishers) can enter into smart contracts for the sale and purchase of digital ads without the need for intermediaries, eliminating them from the ad bidding process.

Alternatively, buyers and sellers can choose to add other verifying parties/service providers to the smart contracts, such as measurement provider, ratings provider, payment provider, and arbitrator. In 2017, Kochava Labs (the R&D subsidiary of Kochava Inc.) launched XCHNG, an open and unified blockchain-based framework for the digital advertising ecosystem. Through the use of smart contacts, XCHNG aims at reducing the number of middlemen in the digital advertising ecosystem by facilitating transactions between the buyer and the seller and measurement providers.

While blockchain-based solutions fit perfectly in the digital advertising space on paper, the practicality and adaptability are yet to be seen.

One of the key issues challenging the adoption of blockchain in the digital ad space is scalability. The process of chaining and verifying on a blockchain takes much longer, especially, when compared with the current speed of real-time bidding transactions. It is yet to be seen if blockchain technology can evolve to offer faster processing speed, which is critical for industry-wide adoption.

While blockchain-based solutions fit perfectly in the digital advertising space on paper, the practicality and adaptability are yet to be seen. One of the key issues challenging the adoption of blockchain in the digital ad space is scalability.

While few blockchain solutions, such as XCHNG (which claims it can handle 180,000 transactions per second per smart contract composed of multiple insertion orders), refute this challenge, the other challenge in this area is that of intent. Since blockchain is expected to make transactions more transparent and also reduce the number of intermediaries, industry players may not fully embrace the technology and despite its inherent benefits, blockchain may take time to gain ground in the digital advertising industry.

EOS Perspective

In an era where businesses are becoming more customer centric, blockchain helps bring the customer and retailer together on the same platform and promises a future with more transparency. It is clear that blockchain technology has the ability to transform the retail sector just as it is likely to transform several other industries (such as healthcare, car rental and leasing, or aviation).

However, despite holding immense potential and promise, most applications in this space are still to move beyond just being proof-of-concepts. Several issues, such as high investment requirements, scalability, and to an extent, willingness to change, remain to be addressed before there is an industry-wide acceptance for these solutions.

That being said, executives are definitely keeping an eye open for the latest developments in this space and several of them are open to testing and investing in blockchain-based solutions, hoping for them to be the key differentiator/value-proposition that attract the customers towards them. While most investments currently are being seen in the supply chain space (since its benefits seem most achievable and tangible), solutions in the space of loyalty programs and digital advertising may take a little more time to gain traction.

It is safe to say that retailers cannot afford to ignore the benefits of blockchain technology anymore. Many retailers lack specific understanding of this concept and its potential across different areas of their operations. This could cost them dearly in terms of customers. Technological innovations are happening at light-speed in today’s day and age and while blockchain technology currently may lack commercial acceptability and scalability, it is expected to seep into the operations of the real sector in a significant way in the coming future.

by EOS Intelligence EOS Intelligence No Comments

Can Cryptocurrencies Dent the Trillion-Dollar Banking Industry?

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Cryptocurrencies (such as bitcoin, ethereum, and litecoin) have definitely been the talk of the town this year. With their prices rising beyond bounds, everyone is sharing their two cents on the future of this fairly new concept of digital currency. Among these, are also players of the established financial system, which up till now have largely ignored cryptocurrencies terming them as a short-lived phenomenon. However, this has changed as bitcoin prices continue to soar and banks and other financial institutions evaluate not only the merits of the new currency and the technology behind it, but also the perils of not acting swiftly enough to adapt to the changing financial market scenario.

Cryptocurrencies and blockchain – what are we talking about?

Owing to an unparalleled rise in its prices, cryptocurrencies, especially bitcoin, have garnered massive interest from the public at large, however, very few understand how they and the technology that underpins them actually work.

Cryptocurrency is a digital form of money that is secure and largely anonymous. It uses encryption techniques to regulate the creation of the currency units and verify the transactions, thereby eliminating the need of a third-party verification (that is conducted by banks in case of traditional currency). However, to better comprehend the concept of cryptocurrencies it is vital to understand the core technology that enables its existence – blockchain technology.

Blockchain is a global distributed ledger or database of transactions running on an expansive peer to peer network, where transactions are securely stored and confirmed without the need of a central certifying body. Each and every transaction ever made historically is noted transparently and any new transaction is accepted/verified on the basis of all previous transactions undertaken (i.e. to ensure that the person undertaking the transaction has the credit to carry out the transaction).

Blockchain is increasingly finding application across industries – we wrote about its entry into the healthcare sector in our publication Blockchain Technology – Next Frontier in Healthcare? in March 2017.

The next aspect is to understand how cryptocurrencies are created/transacted. A new unit of currency is created when a “cryptocurrency miner” solves a complex computational algorithm to confirm a transaction and add it to the blockchain. For their service (i.e. to confirm and conduct the transaction), the miner generates a certain amount of the cryptocurrency for himself, thereby creating additional units of the cryptocurrency. Having said that, cryptocurrencies are limited in number (for example, there can only be 21 million Bitcoins and 84 million litecoins).

Cryptocurrencies are stored in a digital wallet, using which the user can spend the currency as well as check his balance.

Leading companies increasingly accept cryptocurrencies

While the reach of cryptocurrencies still remains largely limited when compared with conventional money, their acceptability and transaction value have been steadily rising. Several leading companies now accept bitcoins (the leading cryptocurrency) as a form of payment. These include Subway, Microsoft, Reddit, Expedia.com, WordPress.com, Virgin Galactic, Tesla, etc.

McDonalds announced that it will start accepting bitcoins in 2018, while Argos (a retailer) as well as British Airways have also expressed their intent to start accepting bitcoins as a mean of payments by 2018. In addition, the daily total value of bitcoins being transacted has also seen a substantial rise from about US$200 million worth of bitcoins being transacted daily in January 2017 to US$2 billion by November 2017. However, the per-day volume of transactions has witnessed a comparatively moderate rise as they ranged around 200,000-300,000 transactions per day at the beginning of the year and increased to about 350,000-450,000 number of daily transactions by December 2017.

Central banks evaluate risks to the banking system

This momentous rise in their popularity and acceptability over the past years has made central banks across the world realize and evaluate the risk posed by this revolutionary technology.

Cryptocurrencies bite into banks’ space

The traditional money used across the globe gains its credibility by being backed by a centralized authority (mainly a central bank of a country). However, cryptocurrencies remove the need of a third-party guarantor and depend on un-hackable peer-to-peer (blockchain) technology to guarantee value (i.e. when a transaction is made using cryptocurrency, the miners validate the transaction and unlock a small amount of cryptocurrency from the network as a compensation for their service.) Thus, in simple terms, they make the job of banks (who act as a third-party in terms of all money transactions) redundant.

Therefore, when using cryptocurrencies, consumers save on commissions that they have been paying to banks for processing financial transactions. These include credit and debit card transaction fee, international money transfer fee, clearing and settlement fee, among several others. This not only saves customers money but also time.

Moreover, the use of cryptocurrencies makes financing easier as it opens another avenue for financing for people who have been turned down by banks or other traditional channels. In case better terms and rates are offered in this form of peer-to-peer financing, customers eligible for bank loans may also steer towards digital money for financing.


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Decentralized nature of cryptocurrencies protects the client identity

Another advantage of cryptocurrencies over conventional currency is security and privacy. Blockchain technology is known to protect client information and identity better than banks. Since it is a peer-to-peer network that is distributed across a host of computers across the world, it is less susceptible to cyberattacks when compared with bank servers that are usually located at one place (thereby making attacks comparatively simpler). Thus, the decentralized nature of blockchain and in turn cryptocurrencies makes it more secure than traditional banking. The anonymous nature of the transactions also makes it attractive to a certain type of customers who value privacy.

These factors pose a significant risk to the traditional banking system, which must act swiftly if it does not wish to cede further ground to cryptocurrencies. In order to compete with digital money, banks need to improve services, especially by offering digital services at a lower fee, and offer similar real-time services that cryptocurrencies offer. Moreover, they must realize the end of their monopoly on financial transactions and get rid of standard manipulations such as charging hidden fees on several financial services, such as credit and debit cards.

Banks start to embrace the revolution

Banks can also seize certain opportunities presented by the growing popularity of cryptocurrencies. These include providing escrow services, helping customers exchange their money for bitcoins, etc. For instance, in May 2017, Norway’s largest online-only bank, Skandiabanken announced its plans to offer clients the ability to link bank accounts to their cryptocurrency holdings.

At the same time, several banks (both central and private) are also looking at creating their own digital currency and are showing keen interest in understanding and adapting blockchain technology for interbank transfers.

People’s Bank of China (China’s central bank) is developing its own digital currency in an effort to reduce transaction costs, expand the outreach of financial services to rural areas and increase the efficiency of its monetary policy. On similar lines, Russia’s Communications Minister has announced in October 2017 the country’s plans to create and launch state-controlled digital currency, which would use blockchain to decentralize control and improve trust but would be issued and tracked like conventional currency. The Dutch Central Bank has also created its own cryptocurrency for internal circulation only to get an understanding of its working. On the other hand, the Bank of Japan and the European Central Bank have launched a joint research project on the adoption of blockchain technology.

The 2017 Global Blockchain Benchmarking Study, published in September, analyzed 200 central banks and stated that about 20% of central banks plan to deploy blockchain within the next two years, while about 40% plan to apply it within the decade. Moreover, about 80% claim to be researching blockchain technology with the aim of issuing their own cryptocurrencies.

On the private side, in July 2017, the Digital Trade Chain Consortium, which consists of seven European banks, namely Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale, and Unicredit awarded a contract to IBM to build a digital trade platform that will run on IBM’s cloud.

In another deal, IBM is working along with Japan’s, Aeon Financial Service, to develop a blockchain-based financial platform to provide settlement and transactions for both corporate as well as retail financial services, which will include virtual currency payments between individuals and businesses, loyalty points allocation and redemption, and transaction data management.

In September 2017, six major banking corporations (Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG, and State Street) announced that they are partnering up to create a cryptocurrency of their own. The digital coin that is being called “utility settlement coin” would be used for clearing and settling transactions for these banks globally over a blockchain. Currently, the banks are in talks with central bank regulators regarding the same and are expected to launch their commercial-grade blockchain by 2018.

While banks may be wary of the credibility of the currently regulated cryptocurrencies, most of them agree on and see blockchain technology as the difference-maker and are open to adopting blockchain to upgrade their services, such as improving payment systems. As per experts, blockchain technology can save the financial industry US$20 billion per year by 2020.

Cryptocurrencies’ drawbacks go beyond threats just to the banking system

However, not everything about cryptocurrencies works well, as the current set of cryptocurrencies being traded also has some shortcomings when compared with the traditional financial system.

While the anonymity of transactions may be seen as a positive to a certain group of users, it does pose a threat to the society in general. The anonymity makes cryptocurrencies a convenient choice for illegal activities, such as money laundering. Moreover, it also provides a window to terrorist financing as money can switch hands without being traced.

Cryptocurrencies, such as bitcoin, also have a drawback of being limited in number (the number of bitcoin is limited to 21 million). This limitation makes cryptocurrencies somewhat similar to the gold standard currency, wherein a country’s currency has a value directly linked to gold. This monetary approach has been deserted by most economists as this money supply policy that does not factor in the fact that changes in demand generate large fluctuations in prices (as being witnessed in bitcoins presently) and these fluctuations are not practical in the day-to-day workings of the society, especially wage payments. Therefore, while demand for bitcoin may be increasing, it cannot largely replace traditional currency due to such intrinsic characteristics.

Moreover, the current increase in bitcoin demand is speculated to be a bubble by several analysts who claim that the exponential rise in prices has more to do with an ongoing investment frenzy to make quick profits and exit, rather than actual established increase in usage.

cryptocurrencies

EOS Perspective

Whether it is a long-term replacement to traditional currency or not, cryptocurrencies cannot be ignored. The unimaginable rise in the prices of bitcoin (from close to US$1,000 in January 2017 to about US$17,000 in December 2017) has compelled banks to pay close attention to this upcoming competitor. While cryptocurrencies do offer several benefits (such as elimination of third-party, easier financing, and greater security) that are enticing consumers to move beyond traditional currencies and banking, they are no position to uproot the gigantic money market. However, that does not mean that banks can just ignore them.

While cryptocurrencies do offer several benefits, they are in no position to uproot the gigantic money market. However, that does not mean that banks can just ignore them

Banks must work towards innovating digital services and making them cheaper and faster. Cryptocurrencies also open doors for banks to launch few supplementary services, such as providing escrow services and syncing their bank accounts with their cryptocurrency digital wallets. While these may be short term goals, banks are most interested in testing and adopting blockchain technology especially for clearing and settling of inter-bank transactions.

While cryptocurrencies are unlikely to uproot the banking system any time soon, we believe it should be considered that blockchain has the capability to impact the financial sector the same way Internet impacted many industries back in the 1990’s.

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