RAND Europe (RAND) has carried out a scoping study to examine the potential role of standards in supporting Distributed Ledger Technologies (DLT)/blockchain. The Report – entitled ‘Understanding the landscape of Distributed Ledger Technologies/Blockchain‘ documents the results of the study which was conducted over a six-week period. It was commissioned by the British Standards Institution (BSI) in January 2017.
For the report, Rand refers to DLT/Blockchain as the type of database which:
- spreads over multiple locations (i.e. a distributed database)
- acts like a digital ledger to record and manage transactions.
It comments that though “the technology is at a relatively early stage of adoption and significant challenges remain, it is becoming apparent that DLT/blockchain holds the potential for major opportunities across several sectors. Furthermore, standardisation efforts related to DLT/blockchain have recently gathered momentum.” The setting up of an International Organization for Standardization (ISO) technical committee on blockchain and electronic distributed ledger technologies is one confirmation.
RAND’s blockchain challenges
In RAND’s analysis the challenges include:
- insufficient clarity regarding and inconsistent understanding of the terminology; combined with the perception that DLT/Blockchain is an immature technology, this poses challenges to wider adoption
- there is a perception of potential high costs of initial DLT/blockchain implementation; this risks associated with early adoption of DLT/blockchain, and the possibility of disrupting existing practices, pose challenges to businesses which many may wish not to pick up
- there is a lack of clarity about what improvements DLT/blockchain offers over existing solutions; if this delays adoption by businesses the broader economic impact of the technology in the medium and long term becomes harder to discern
- the nascent nature of the technology means governance of DLT/blockchain systems remains unclear
- uncertainty exists related to the way current regulatory frameworks should apply to DLT/blockchain and the changes that might be needed in the event of wider DLT/blockchain adoption across sectors
- the emergence of multiple non-interoperable DLT/blockchain implementations threatens fragmented ecosystem; this could limit widespread adoption
- many see security vulnerabilities and concerns about data privacy as significant, particularly if users are to entrust DLT/blockchain solutions with personal data; similarly, the safeguarding of data integrity and ensuring of strong encryption mechanisms are key challenges to DLT/blockchain acceptance
- the distributed nature of DLT/blockchain systems and the need for increased computing power could involve high energy consumption and associated costs
- obstacles remain with respect to the legal enforceability of smart contracts, primarily related to the lack of clarity regarding the definition of smart contracts and how to implement these in DLT/blockchain solutions.
RAND’s blockchain opportunities
The opportunities include:
- by automating processes and reducing the need for third-party intermediaries, DLT/blockchain solutions have the potential to provide significant efficiency gains and cost savings for businesses and end-users
- the adoption of DLT/blockchain technologies could potentially enable new revenue sources for businesses
- the growth of the DLT/blockchain ecosystem could result in the creation of novel business and economic models, for example new forms of business collaboration and/or cryptocurrencies
- the decentralised nature of DLT/blockchain and the lack of a central point of failure could act to reinforce transactional systems; they would become more resilient and secure
- DLT/blockchain has the capability to empower users by putting them in control of their own information; there is the potential to improve users’ trust in carrying out transactions
- the immutability of DLT/Blockchain transactions offers several benefits, including providing clear audit trails and reduction in fraud
- Depending on the use case, DLT/blockchain could enable efficient and cost-effective management of digital identity through the use of public key cryptography
- the technology could implement the underlying mechanism for smart contracts and enable the use of smart auditing capabilities across different sectors.
The RAND analysis suggests: “that the opportunities arising from DLT/Blockchain are vast; however, there are also many challenges to contend with. In this regard, we note that there is scope for standards to play a role in supporting the technology, for example, to act as an enabler to create the necessary space for the development and adoption of Blockchain/DLT and its market.”
What does this mean
As is generally the case with emerging technologies, the timing for developing and introducing standards (especially when these build on existing standards) remains critical. Too much enthusiasm too soon runs the risk of stakeholders committing to solutions that, in the long run, might represent a dead end. Too much of this might stifle innovation. Understanding how to differentiate will be all important.
As RAND points out: “a standards strategy that occurs too late with regard to a technology potentially risks missing opportunities to maximise the benefits the technology could deliver.” There is no doubt, either, that rapid change and many uncertainities still plague the DLT/blockchain arena – from a business adoption viewpoint.
No doubt because the BSI commissioned the Report, its focus is on standards. There is relatively little examination of the processing implications (including the speed and size of DLT/blockchains). The description: “the distributed nature of DLT/blockchain systems and the need for increased computing power could involve high energy consumption and associated costs” does not explore the issues in depth. Similarly, the merits of interworking DLT/blochchains could do with more depth.
But the main points, that standards are desirable for swift adoption by enterprises, is spot on. What is not clear is who will provide the leadership – and no one should expect ISO to step up in advance. It is always the ‘laggard’ cleaning up where others have innovated.