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Blockchain technology has been gaining a good deal of momentum in the technology world this year, with major vendors like Microsoft and IBM jumping on the blockchain bandwagon over its potential to revolutionize the way transactions are processed and managed.
Moody’s Investors Service on July 21 released a report on the potential of blockchain, as the technology, originally created as a platform for the Bitcoin cryptocurrency, is now used in applications across a host of transaction-related areas. The Moody’s report identifies 25 use cases for the technology.
The Moody’s report defines blockchain as a “chain of blocks of encrypted information.” Moreover, each block can be thought of as a record of some transaction between two or more parties, the report said. A blockchain is a continuously growing list of data records that are organized into a series of blocks, each containing a batch of records or transactions.
Blockchain is a distributed database based on the Bitcoin protocol that maintains a continuously growing list of data records hardened against tampering and revision, even by its operators. The initial and most widely known application of blockchain technology is the public ledger of transactions for Bitcoin.
The Moody’s report said a blockchain can be developed in a public, private or consortium context. For each use case an appropriate type should be selected.
According to the report, a public or permissionless blockchain is a fully decentralized platform that moves data storage and verification away from a single point of control, is open to everyone in the network and lets anonymous members, without trust established among each other, participate in the ledger.
A consortium or hybrid blockchain is a partially decentralized platform controlled by a group of pre-selected members that know each other, the report said. Validation is handled by trusted members and it is easier and cheaper compared with permissionless solutions. This model would be beneficial to a consortium of companies in a similar industry among whom trust is already ensured, said the report.
And a private or permissioned blockchain is where one centralized organization has write and validation permission to the ledger and authorizes read access. Under this framework, the central organization is empowered to change rules or revert transactions, as needed. As such, this would work well for company internal databases, the report said.
In addition, a key concept that blockchain users can apply is “smart contracts,” the report said. These smart contracts exist among several parties and they automatically verify and enforce contractual clauses when predetermined conditions are triggered.
Although blockchain was created seven years ago, it is only now coming to the forefront and many companies are still in the early stages with the technology, deploying pilot projects and testing the efficacy of the ledger technology. The tire kicking phase will likely continue for some time.
“In the next year we expect more blockchain-related research and development, including proofs of concept, which will improve the understanding of potential benefits, approaches to overcoming known hurdles as well as identifying others, with increasing focus on developing large-scale applications,” Nick Caes, an analyst at Moody’s Investors Service and author of the report, told eWEEK.
Blockchain Moving Beyond Finance; Still in Early Stages
As blockchain originated as the public ledger of transactions for Bitcoin, initial uses of the technology have been focused on banking and financial services applications.
However, “We started to see increased developments in blockchain applications in the government sector, for example for notary services and land registries, and non-financial corporates such as supply chain management, energy and healthcare,” Caes said.
Indeed, the Moody’s report notes that the State of Delaware has developed a blockchain with smart contracts to register companies, track their share price and manage communication with shareholders. Also, the U.S. Department of Defense is developing a blockchain based secure messaging service that separates the creation of a message from its transfer and reception. Other government–related uses include the U.S. Department of Homeland Security, which is developing blockchains for the security of digital identity for Internet of things (IoT) devices, identity management, privacy protection and security analytics. The U.S Postal Service is assessing blockchain for supply chain management, identity services and device management.
Overall, the Moody’s report identified more than 120 ongoing blockchain projects—spanning investments and partnerships with start-ups, internal projects, and industry collaborations. And there are likely many others yet to reach the public domain, the report said.
In addition to the use cases cited above, Moody’s identified a series of other use cases including healthcare for managing records, media for digital rights, big data, cyber-security, data storage, IoT and voting, among other uses.
The Moody’s report notes that Microsoft and IBM have developed open-source platforms that enable developers to create and test their blockchain applications.
“This unique open-source approach will allow Microsoft and IBM to get many innovations developed on their platforms,” the report said. “Several financial institutions and corporates are leveraging these platforms to build their own blockchain solutions. Additionally, both Microsoft and IBM are also actively participating in blockchain industry consortia, such as Microsoft in R3 and IBM in the Hyperledger Project.”
Last month, Microsoft launched a new project to enable companies and governments to build blockchain applications on the Azure sandbox. IBM created an entirely new business unit to focus on blockchain. Also last month, IBM joined the Chamber of Digital Commerce, a Washington, D.C.-based digital asset and blockchain trade association, as an executive committee member.
“It is critical from a national competitiveness point of view for U.S. companies and government agencies to lead the world in understanding the potential of blockchain and putting it to use,” said Jerry Cuomo, vice president of Blockchain Technologies at IBM, in a statement.
Blockchain is clearly experiencing a rise in popularity as its potential is big. However, “Although market participants are mapping a large and growing landscape for blockchain applications, the tangible territory for fully implemented blockchain solutions beyond Bitcoin is limited and is likely to remain so for up to a decade or longer,” the Moody’s report said.
“Only when blockchain applications solve real-world problems—providing user-friendly applications with a high level of stability and governance—will substantial ground be gained, paving the way for further investment and progress,” added the report.