Blockchains vs. the Real World

Navigating the Evolving Market for Blockchain Services

By Emily Vaughn / March 16th, 2016

Emerging technologies have a long history of initial aversion, of being feared and despised by the beneficiaries of threatened business models. Examples of humanity’s resistance to innovation include the Luddites of the Industrial Revolution, 19th century Romanticism, and more recently the media-fueled technophobia that dared to challenge the Internet. Fear has failed in the face of new technologies, as time and again, humans discover convenience, utility and a better quality of life.

Bitcoin introduced the concept of a blockchain, a type of cryptographic data structure that uses logic, which can be summarized as being simply “logs with rules.”

Blockchain technology is no exception, a fact made evident by the resilience of Bitcoin and substantial institutional buy-in from the world’s largest banks and financial exchanges. Today’s experts tout the inevitable capitulation of centralized networks to decentralized ones, and the proof is in the pudding. The most powerful computing network in the world is more powerful than all of the world’s Top500 supercomputers combined. That’s the Bitcoin blockchain.

Bitcoin introduced the concept of a blockchain, a type of cryptographic data structure that uses logic, which can be summarized as being simply “logs with rules.” The log itself is cryptographically secure, immutable and trusted by its users. Because every party trusts the log, they can also run secure applications on top of it, like asset issuance, peer-to-peer trading, smart contracts (a.k.a. programs), and automation. This gives businesses the ability to act on the same data as a third party and know that the other party can see the same information… all without compromising the integrity of the data.

Blockchains not only deliver irrefutable logs, but they allow you to share that history with other parties so that you are all acting on the same information at the same time.

Identifying the right blockchain solution for your business can be tricky. Blockchain technology is new and a little unrefined, whereas database technology—to which it is often compared, though not accurately so—has been tested, trusted and proven over the past 50 years. An important difference between the two is that blockchains aren’t designed to store vast amounts of data. In fact, currently, they are better outfitted to be transactional logs that reference databases.

Why is a log so important? One word: chronology. When it comes to reconciling transactions, for example in a double-spend scenario, order matters. Chronology is important not only to financial transactions, but also in making business decisions. When it comes to acting on the information you have, you want to know that the information is irrefutably sound. Blockchains not only deliver irrefutable logs, but they allow you to share that history with other parties so that you are all acting on the same information at the same time.

Let”s explore how that might work in the real world through three use cases.

Insurance—A private blockchain could be used to enforce a contract, like an insurance policy. The insurance company, the bank and the policyholder are all participants in the network with different user types, access controls and capabilities. The policy itself is programmed on the blockchain, and claims can be automated under a certain set of criteria. This policyholder has flood detection devices in their basement, and when a flood begins to seep in, the monitoring devices relay the incident to the policyholder and the insurance company. The policyholder authorizes the release of funds with his or her digital signature. The rules of the contract require that the insurance company also authorize - a multi-signature transaction - and when they do, the bank is notified in real-time to deposit funds into the policyholder’s account. These “if this, then that” rules allow the parties to create intricate automation rules and controls. The blockchain connects these three entities to a network they all trust, and now they are able to reduce resource expenditure, like time and paperwork, and improve disaster responsiveness.

Luxury Goods—Proof of origin and legitimacy is the principal instrument of value in the trade of luxury goods. A blockchain could help track the purchase and distribution of fine jewelry. Today, the purchase of a Rolex comes with a certificate of authenticity. But once I sell that Rolex on the Internet, that piece of paper becomes suspect, and the origin of the watch becomes unclear. On a blockchain, that paper is replaced with a digital certificate and its record of ownership is recorded as it changes hands over the years. Now there is a log that represents every Rolex out there, and every time ownership is transferred, there’s a record of it. When the watch becomes separated from its digital token, through theft or simply being lost, there is a record of its last legitimate owner. Proof of ownership and immutable record keeping are central concepts to blockchain technology, which makes it an interesting application for provenance and supply chain management.

Debt Sales—Blockchains enable multiple entities to view and write to the same data store. This could potentially reduce reconciliation processes, redundancies, and other costly operational inefficiencies. If insurance companies, banks, hospitals, and debt collectors used a blockchain to manage the lifecycle of a patient’s medical bill, instances of debt collectors calling on bills that have already been paid would be reduced. Many patients will pay an overdue bill directly to the hospital, rather than giving out their payment information to debt collectors. But when that happens, the databases of debt collectors are not automatically updated. The debt collector in this instance has not collected the debt, and when the bank “buys back” that account, they sell it to another collection agency. The cycle continues, creating a regulatory nightmare and frustration for the patient and the hospital. Using a blockchain to relay the status of a bill, where each party can submit updates, would allow these businesses to make decisions based on the correct information and would reduce costly redundancies.

This gives businesses the ability to act on the same data as a third party and know that the other party can see the same information…

…so why is a log so important? One word: chronology.

These examples assume the technical complexity and stakeholder buy-in is present to make these blockchain applications work. Getting to that point is going to be very challenging for blockchain service providers, but the interest is there. Innovative industry leaders from finance, healthcare, supply chain and IT are already experimenting with this technology. The current problems this technology can solve may be a narrow window of possibilities, but they will impact the way we share and secure value.


By Emily Vaughn

Directory of Marketing, Gem

Emily Vaughn, Director of Marketing at Gem has been involved with Bitcoin and blockchain technology since 2012 and previously worked in marketing at BitPay before joining Gem in 2015. A marketing veteran in blockchain technology, Vaughn believes education is the most important factor in early adoption. Vaughn has initiated a variety of educational projects in blockchain technology in collaboration with BTC Media, notably The Distributed Ledger. Gem provides data integrity for enterprises powered by blockchain technology and is based in Venice, CA.