By Alexander Jones – alexander.jones@internationalbanker.com
The last 12 months or so have seen blockchain finally emerge from the shadows of bitcoin—with much of the attention having definitively shifted away from the digital currency and onto the technology of the ledger underpinning it. While much of the excitement around blockchain initially centred on its potential to disrupt banking and finance, a wide range of industries are now exploring the ledger’s potential to transform the way they operate. Some of blockchain’s ostensibly desirable traits being examined by such industries are its immutability, meaning that records created on the ledger can’t be unduly altered or nefariously manipulated; its transparency, whereby any changes made to the ledger will have to be verified by a number of network users rather than just one centralised party; and its ability to be updated in real time, meaning that records will never be considered out-of-date—unlike a paper-based, central-registry system.
The diamond industry, for instance, is now being touted as having a particularly exciting future under blockchain. FinTech company Everledger, in particular, is leading the way in examining the technology’s potential applications. The company aims to use the immutability of blockchain’s ledger to reduce fraud—an issue that currently plagues the global diamond industry. It is intended that the ledger be able to store information about the origin of each diamond, information that will effectively be impervious to manipulation, unlike the paper records that currently exist and that can’t be updated in real time or easily forged. The use of blockchain instead, however, means that a diamond’s documentation will remain secure and uncompromised. By collecting specific data items for each diamond related to its appearance, and then recording this data onto the ledger, the unique “fingerprint” for each diamond can’t be changed. Each data item will store information pertaining to the diamond’s cut, clarity, colour and carat weight.
According to Everledger, this process is supported by diamond laboratories that inspect each diamond and then use information related to the diamond’s appearance to create a unique digital identity for that diamond, which Everledger then records and stores on blockchain. Given the security of blockchain, Everledger intends to create transparency around each diamond with regards to its origin, trail of ownership and the processes it has undergone during its existence. Everledger CEO Leanne Kemp is currently attempting to encourage many organisations, including “…retailers, insurers, suppliers, manufacturers”, to put their diamonds on blockchain. According to Kemp, Everledger’s ambition is that “the public blockchain becomes the central, single version of truth for the industry, market and law enforcement agencies”.
By using the secure data recorded on blockchain for each diamond, it will also prevent the diamond from being sold for a wildly inflated price in the future. As such, buyers will be protected by being able to verify the history and quality of the diamond, through its digital fingerprint. Although this could technically be altered or removed altogether by cutting the diamond further, this would significantly lower the diamond’s value, while the cutting process itself is an expensive one.
The fact that blockchain’s ledger is immutable, moreover, gives rise to perhaps its most important application for the diamond industry—it will enable diamond-mining companies to prevent their rough-cut stones from being used as “blood diamonds” further down the line. Blockchain’s ledger will be able to securely track and trace a diamond’s journey from its production, recording where it ends up and when. Blood diamonds are used to fund militia insurgencies against ruling governments, and they are currently estimated to account for 4 percent of the world’s total diamond trade. By having a reliable record of a diamond’s history on blockchain, it will ensure that it does not end up in the possession of those with illegal intentions. The blood-diamond business, therefore, could be well and truly quashed should the diamond industry make the transition onto blockchain.
The global real estate industry also appears set to undergo a comprehensive overhaul of its operations under blockchain. Indeed, many of the business processes in real estate have now long been viewed as antiquated and in need of updating. As such, real estate practitioners around the world are becoming increasingly bullish on blockchain’s potential. It is hoped that fraud, in particular, will be sizeably reduced under blockchain, especially as it litters the real estate industry at present. Rental scams are a particular problem, for instance, whereby someone will copy property listing details from one source and then post it again on another site while pretending to be the agent managing the property’s sale. The fraud is committed when the fake agent asks potential buyers for up-front fees as a deposit for the agent’s services—money that is never returned to the buyer. Under blockchain, however, digital ownership certificates can be logged on the system that are unique and tamperproof. Such certificates would be tied to one property only, making it impossible for anyone other than the legal owner to sell a property. According to Ragnar Lifthrasir, president of the International Bitcoin Real Estate Association (IBREA) and one of the key proponents of building a blockchain-based real estate model, such a shift for property titles “will bring the real estate industry out of its existing 18th century technology. Title insurance is a $20 billion industry. It’s estimated that the total annual cost of fighting and resolving title fraud is $1 billion”.
Additionally, it appears as though the technology can assist those developing countries most in need of building a secure land-registry system. Early last year, US FinTech company Factom announced it was working with the government of Honduras to repair its much-damaged land-title registry system, specifically by transferring land records onto a blockchain-based ledger. USAID has estimated that about 80 percent of privately held land in Honduras is either improperly titled or not titled at all. According to Factom’s president and founder. Peter Kirby, “only 14 percent of Hondurans legally occupy properties, and, of the properties held legally, only 30 percent are registered”. This is principally because of tempestuous land-title disputes that have often led to violent outcomes.
The current centralised ledger of Honduras, upon which its land-registry system has been built, has been subject to widespread fraud, especially from the political class, many of whom have managed to obtain the best properties as a result of dubious database manipulation. A secure, immutable and transparent land-registry system, therefore, is badly sought after in Honduras, and indeed in many developing countries. A decentralised system on blockchain, in contrast to the current system, would remove land-registry records from a centralised body and place them in the hands of numerous parties that all have to verify the records, as well as any new transactional changes.
“Land title corruption is a very common problem in the developing world, and an immutable ledger solution could help these economies move forward dramatically,” Kirby believes.
In Ghana, meanwhile, the organisation Bitland aims to provide services that allow individuals and groups to survey land and record title deeds on its blockchain-inspired ledger in order to provide a permanent and auditable record, while also working with the government to help resolve land-title disputes. Corruption in this sector has been rife in Ghana, which has made it difficult to foster integrity in the land-title tracking system. Today, approximately 78 percent of land in the country is unregistered, while Ghanaian courts face an insurmountable backlog of land-dispute cases. Bitland hopes that once its blockchain-based registry system is in place, property buyers will be able to see the history of land-ownership disputes associated with a property, as well as its ownership history. Having access to such information, it is believed, will go a long way toward resolving future disputes before they reach the courts.
The healthcare industry has also been showing interest in using blockchain technology—with numerous FinTech companies now working on exploratory projects, such as BitHealth and Gem. Indeed; given the confidential nature of medical records, including information related to payment, medical history and treatment, it makes sense to have such information stored on a system that guarantees confidentiality. The cryptographically secure system under blockchain would prevent such information from being leaked, falsified or manipulated, which would, therefore, prevent a litany of potentially serious consequences, including mistreatment and legal action. The blockchain could also help to dramatically reduce the costs of maintaining and updating such information, which could be done in real time. It is even thought that blockchain could improve the health insurance industry by securely verifying claims while still maintaining confidentiality of the parties involved. This would be especially welcome, given the number and scale of the malicious cyberattacks and data breaches that US health insurance companies have been subjected to over the last few years.
However, the interest has not solely been confined to small organisations. It was revealed in October that global health-industry leader Philips Healthcare Group was working with Tierion, a FinTech startup that is working on storing big data on blockchain, although little more about the collaboration has been revealed to date. As well as pioneering blockchain’s real estate potential, moreover, Factom has also partnered with HealthNautica in a bid to improve the security of medical records. Factom will create a digital fingerprint of HealthNautica’s sensitive client data, including medical bills and medical claims and disputes, that will be timestamped. No parties external to blockchain’s verification network will have access to such information, which means that patient confidentiality cannot be compromised.
Art and music participants are also optimistic over widespread blockchain use. The art world still uses middlemen to close deals between buyers and sellers—a decentralised ledger would remove the need for such a role. As such, corruption would be greatly reduced by the elimination of both the requirements to pay excessive fees for the services of such middlemen and for them to provide authenticity guarantees for artworks. Such information can be stored and verified on blockchain, and therefore could purportedly be available to the blockchain network whenever a particular work is about to be bought. Given the abundance of forgeries that exist in the art world, the persistent problem of authenticity could well and truly be solved using this immutable technology.
US FinTech company Verisart is now operating a blockchain-based ledger to provide secure verification for artworks. Again, each artwork is provided with a unique identifier on blockchain, which allows it to have a secure set of records and authenticity certification that can’t be altered. The decentralised ledger will also provide anonymity to both buyer and seller, which provides protection to both parties and further reduces the possibility of corruption.
According to the UK government’s chief scientific adviser’s recent study, “distributed ledger technology provides the framework for government to reduce fraud, corruption, error and the cost of paper-intensive processes. It has the potential to redefine the relationship between government and the citizen in terms of data sharing, transparency and trust. It has similar possibilities for the private sector”.
Today, there are many industries that hope to undergo a transformation by using blockchain’s ledger. Indeed, any industry that is vulnerable to data manipulation and fraud resulting from the limitations of using a centralised party could potentially benefit from the significantly more secure technology of blockchain. Industries as wide-ranging as gambling, music and auditing are now extensively investigating the cost-saving and security-enhancing benefits of blockchain. Although research still remains in its early stages, it seems increasingly likely that complete overhauls to the way certain industries operate could well be in the offing.