Blockchain is also called ‘second revolution of internet’. Just like how internet completely changed daily lives and industries, blockchain is predicting a different rapid change. One of its strengths is its excellent ability to prevent any counterfeit or modification. For blockchain to display its strength, technical difficulties must be solved.
◊Blockchain: Technology That Will Fundamentally change Industrial and Business Infrastructures
Blockchain is a digital ledger that encrypts transactional information that occurs from public and private network and allows members of corresponding network to share them. The Bank of Korea defines blockchain as ‘a technology that records and manages ledgers that record transactions by distributing them to P2P network rather than a control server of a particular organization.
Blockchain is P2P (Peer to Peer)-based, transparent, and instantaneous.
Experts see the fact that blockchain is P2P-based as its greatest strength. Blockchain allows direct transactions between individuals and organizations without any intervention from third parties that mediate transactions. Current financial transaction systems store ledgers into central servers. They continue with their transactions by establishing third-party organizations that manage ledgers and securing trusts from corresponding organizations. On the other hand, blockchain is designed so that users have to mutually trust each other and it stores ledgers into every participant of network. Every member who is participating in blockchain has ledgers and this allows members to make transactions without agencies.
Its transparency is also its another strength. Blockchain creates blocks that record every transactional information that is created during particular duration and sends them to every member. Participants of blockchain are able to access records of every transaction. Fact that blockchain makes every record public makes its transactions transparent.
Its effectiveness is excellent from a standpoint that it allows transactions to take place safely at low cost. It is not possible to voluntarily change transactional information based on blockchain. Having ledgers be entirely open to every participant of blockchain and renewing information in real-time are the foundations of distributed ledger technology. Fees can be reduced as blockchain does not require third-party organizations. Blockchain also increases effectiveness of operation and delivery of funds by reducing time and cost.
Experts predict that blockchain is a technology that will completely change industrial and business models. They are saying that blockchain technologies will cause revolution within industrial infrastructures just like how industries were changed suddenly when internet was introduced.
“Although blockchain is distributed ledger, it can be seen as a computer or internet.” said Director Park Sung-joon of Dongguk University’s Blockchain Research Center. “While computers and internet have to make trust into services, blockchain has trust function as its own technology. As a result, services with trust can be made effectively by reducing trust to a level of infrastructure.”
Global organizations are also pointing blockchain as the next-generation technology that will change the future. They believe that blockchain technologies have huge economic impacts on industries in the future.
A market research company called IDC is estimating that financial industries will be able to save about $20 billion in 2022 by using blockchain technologies. McKinsey is estimating that financial cost including customer data management and security can be reduced by $21.4 billion (23 trillion KRW) when applying blockchain technologies to financial systems. WEF (World Economic Forum) is estimating that 10% of GDP (Gross Domestic Product) will occur from blockchain platforms in 2025 and that financial companies will be able to save 30% from transactional costs.
Blockchain technologies are already solidifying themselves amongst global industries and markets. Ultimately, they are expected to change centralized intermediate systems that are currently out there.
A market research company called Gartner concluded that blockchain technologies are already stabilizing themselves amongst platforms. “Due to disappearance of economic regulating organizations that are centralized, many various types of assets and values will be created, sent, and accommodated.” said Gartner on distributed ledger technology through its report in 2016. “Abstract groups such as individuals, AI (Artificial Intelligence) system, and distributed autonomous groups will have more power to decide on values and risks without intermediaries.” It predicted that distributed ledger technology will break up centralized intermediate systems that are not suitable for digital online businesses.
◊Blockchain: Perfect for Fusibility and Prevention of Counterfeit
Security technologies are always talked about when blockchain technologies are mentioned. Blockchain technology was first introduced as the fundamental technology for virtual currency called Bitcoin. “Blockchain is a technology that utilizes P2P network to prevent duplicate payments.” said Satoshi Nakamoto, who is the creator of Bitcoin, while explaining Bitcoin in 2008. Blockchain also check whether data is counterfeited whenever there are transactions. Often, blockchain is seen as a technology that cannot be hacked theoretically.
Security experts explain that blockchain technologies have excellent strength from an aspect of fusibility and prevention of counterfeit and modification. It effectively prevents any hacking of data by distributing information to many computers.
“While systems that are centralized cannot be used whenever servers collapse, blockchain is excellent in fusibility as systems operate by distributing information to many places.” said Professor Kim Seung-joo of Korea University’s Graduate School of Information Security. “Hackers need to counterfeit data from every person since information is held by everyone.”
Although there was a hacking incident with a ‘virtual currency exchange’ recently, this cannot be equaled to stability of blockchain systems. Hackers usually hack into virtual wallets with virtual currency within exchanges and do not hack into blockchain systems themselves. There is yet to be an incident where blockchain systems were hacked.
However, blockchain technologies are not ‘perfectly secured technologies’. There are still many tasks to overcome from an aspect of protection of personal information.
“Because every person holds data within blockchain, blockchain is not incompatible with protection of privacy.” said Professor Kim. “Although some say that personal information can be encrypted, it is not possible to verify whether medical records are correct if information is encrypted and applied to blockchain.”
◊Blockchain Technologies Used Widely amongst Governments and Industries
Many incidences of applying blockchain technologies to governments and industries are coming out from all over the world. Financial industries see blockchain as a technology based on virtual currency. Non-financial industries have also started to apply blockchain technologies to industrial infrastructures based on their transparency and effectiveness.
U.S., England, Australia, and Honduras started demonstrations of using blockchain for public services and medical fields. According to Korea Internet & Security Agency, U.S. Government is starting to develop blockchain-based services for recording and sharing medical information. British Government announced ‘Beyond Blockchain’, which is a report related to blockchain, and stated its plan to utilize blockchain and Smart Contract throughout public services. Australian party called FLUX is going to utilize policy voting platform based on blockchain. Dubai Government set up a goal of storing every electronic administrative document into blockchain.
Major global financial industries are also active in using blockchain technologies for research purposes. They are carefully analyzing strengths and weaknesses of blockchain technologies and are looking into possibilities of how they will be used. There are many incidences where they are used as technologies based on virtual currency.
Bank of England issued blockchain-based virtual currency called ‘RS Coin’ in 2016. Bank of England looked into issuing digital currency as part of its medium and long-term direction of its policies in 2015. It has since been carrying out research on virtual currency based on blockchain technologies. People’s Bank of China, central banks in Canada, Australia, and Russia, and The Bank of Korea have also carried out R&D on blockchain technologies.
Collaborative work between businesses is being carried out globally to utilize blockchain technologies.
R3CEV, which is the world’s biggest blockchain consortium, is going to develop blockchain technologies that will be applied to 8 different financial areas. It has global banks such as Goldman Sachs and JP Morgan as its members and it also has 5 South Korean banks such as KEB Hana Bank, Shinhan Bank, KB Bank, Woori Bank, and IBK Bank as its members. It is going to look into ways of applying blockchain to financial transactions involving wire transfer, conclusion of contracts, and prevention of money laundering. In 2017, Nomura Holdings, Daiwa Securities Group, and Mizuho Financial Group finished demonstration on conclusion of master contracts from ISDA (International Swaps and Derivatives Association) by using a blockchain technology platform called Corda. They are currently carrying out tests to commercialize its research product.
Hyperledgr, which is a global blockchain research consortium, is working to standardize blockchain industry and it has global businesses such as IBM, Intel, JP Morgan, ABUS, and American Express as its members. It is heard that it has about 180 businesses from manufacturing and distribution companies on top of IT and financial companies as its members.
Hyperledgr is looking for standards of blockchain industry based on open source, open standard, and open governance. Its strategy is to enhance influence of blockchain technologies by developing open blockchain standards. Actually there have been businesses that are utilizing blockchain technologies based on Hyperledgr. Maersk, which is a distribution company, is utilizing distribution and trace management systems by utilizing blockchain technologies based on Hyperledgr. ABUS is looking to ways of using blockchain technologies for management and monitoring of parts that go into manufacturing of aircrafts.
◊Need for Improvement in Regulations for Popularizing Blockchain Technologies
Although blockchain technologies are expanding through governments and industries, there are still technical difficulties. National and industrial foundations that will carry blockchain technologies also need to be established.
Currently, there are theoretical problems such as a problem involving deviations occurring when information is sent to members of blockchain and others that need to be solved. To achieve transparent agreement mechanism, information needs to be distributed to members at the same time. However, it becomes easier for deviations to occur as number of members increases and there are limitations in reducing time to send information to members. Fundamentally, speed drops when blockchain technologies share information with members.
“Because some people want to look at ledgers fast and some people want to look at them later, asynchronous problem arises whenever ledgers are created within blockchain.” said Professor Kim. “When deviations start to occur, there will be unfair happenings when people are coming to agreements.”
“Because information has to be evenly distributed to every person, it is not possible to reduce processing speed unlimitedly.” said Professor Kim. “Blockchain technologies can be used property when these problems are solved and there are active R&D going on in overseas to solve such problems.”
Regulations that go together with blockchain technologies also need to be improved if blockchain technologies are going to be used as next-generation technologies. There has to be suitable systems since blockchain technologies bring out business models that are different from current methods of trusted third parties.
“South Korea just started demonstrating blockchain businesses and there are regulations that are already formed by assuming trusted third parties.” said Professor Park. “Improvement in regulations such as Blockchain Basic Act, Cryptocurrency Act, and Smart Contract Act is needed to create blockchain into services.”
Staff Reporter Byun, Sanggeun | sgbyun@etnews.com