Opportunities and risks of blockchain technology

Blockchain revolutionizes the Internet and will massively change the world, according to the statements of many scientists, experts and politicians. But the popular technology is not only suitable for a wide variety of application scenarios, but also has some inherent risks.

The popularity of Blockchain technology has a simple reason: With its help, every type of transaction should be forgery-proofed – whether remittances, contract conclusions, internal documentation processes, digital proof of identity or the validation of scientific publications. After fintechs and banks, companies from other industries are now catching up. And they are waiting with their first projects. For example, Axa wants to be the first insurance company tooffer its customers flight insurance via the blockchain and, in the event of damage, to handle it.

The Blockchain technology should make the exchange of information in the network much safer than before. Because a transaction is no longer performed, validated and monitored by a central entity, but distributed over the Internet according to the peer-to-peer principle. According to estimates of the Fraunhofer Institute, this transforms the “Internet of Information” into the “Internet of Value“. The application areas for Blockchain are diverse – the first scenarios are not only in the financial sector for stock market trading or asset management – but above all for the networking of devices in the Internet of Things (IoT) and for securing intellectual property (Intellectual Property Management).

Various applications

The Blockchain can be used in any field, which involves the capture, confirmation and transfer of contracts or objects, such as money or smart devices. In the public sector, for example, Finland is testing refugees to provide blockchain prepaid credit cards. In Greece, there are plans to replicate the nationwide property cadastre based on blockchain technology. Even processes, for example in compliance, can be implemented via the blockchain. The travel group TUI wants to use the technology for the administration of internal records as well as for the administration of group-own hotel contingents.

Supply chain in export

The peer-to-peer principle is both an advantage and a disadvantage. The blockchain technology becomes vulnerable to DNS attacks.

Likewise, Blockchain is suitable for securing supply chains. That is why banks from seven European countries have combined the so-called “Digital Trade Chain”set to go into operation in early 2018. The digital supply chain is aimed primarily at medium-sized companies that export their goods abroad. Blockchain allows all involved parties to view and trace supply chain transactions at any time. Here, so-called smart contracts are used. These are some kind of computer programs that can make decisions when certain conditions are met. If the desired event occurs, a transaction is triggered. For example, partial payments are automatically made when the goods are shipped from the manufacturer when they arrive at the terminal or the consignee receives them.

Secure transactions

Blockchain is also attractive to the automotive industry in the supply chain with its many suppliers and in the field of connected cars. In the future, intelligent vehicles should be able to interact with the user and carry out transactions for them. For example, by the car acts as a wallet and makes payments to insurance companies, charging stations or car park operators automated. In the case of Mobility-as-a-Service models, for example, the rental of bicycles and cars can be realized via smart contracts and the blockchain. Already today owners of private charging stations and e-drivers can network via the App Share & Charge. Here, too, charging and payment processes are to be initiated independently via smart contracts.

Why is Blockchain considered safe?

But why are blockchain systems considered particularly secure? On the one hand, because they are distributed systems, in which no central authority, such as a bank, is required to verify a transaction. The transfer of a transaction, such as that of money, and their acceptance is made by a variety of computers (network nodes). These are interconnected in the blockchain system. Each computer or network node redundantly stores the common status of the blockchain and shares it with other computers, which should make validation extremely forgery-proof. In addition, only transactions can be added to the blockchain, but not removed or changed.

Not fail-safe

Nevertheless, blockchain also has one important aspect to consider – in the networking of IoT end devices. The growing number of IoT devices means an increase in DNS requests and DNS-dependent services. By 2020, one in five IoT implementations is expected to leverage basic blockchain services. However, if the DNS service is not reachable, the blockchain can not retrieve the next part of the chain and will be disturbed. The DNS functionality therefore has a decisive influence on the performance of the blockchain. In 2016, the Mirai botnet showed just how dangerous DNS attacks are and how vulnerable the networked devices are. In theory, a DNS attack can also adversely affect the blockchain.