Blockchains and Smart Contracts
By: Jacob Testwuide
Tags: Cryptocurrency, Healthcare, Security, Smart Contracts, Blockchain

Use Cases for a Disruptive Technology

Blockchain DPOS animation, Devenup Health LLC, Oct 31, 2018

“The most valuable commodity I know is information”. This was said by the character Gordon Gekko in the film Wall Street (1987). Gordon Gekko, portrayed by actor Michael Douglas, was a successful and ruthless Wall Street investor. Information and, more specifically, data have become an extremely valuable asset as a result of our lives becoming digitized. This demand for data is accompanied by a growing risk to its safety. In 2009, an anonymous computer scientist who goes by the alias ‘Satoshi Nakamoto’ created the first-ever cryptocurrency, Bitcoin. This was more importantly the creation of the first-ever blockchain database, which would later develop into a technology that has and will continue to profoundly influence society in a variety of ways. The surprisingly effective and extensive capabilities of this somewhat recent technology are quite indicative of its long-term potential in becoming “the new engine for growth in a digital economy” (Crosby 2015). Blockchains and the smart contracts built on them will be used to improve financial services, health care systems, property rights, elections, and more to where this disruptive technology will be overwhelmingly used for good and change how businesses and society operate.

What is a blockchain? A blockchain is an irrefutable record of all transactions on its network. There is more than one blockchain, thousands in fact, with many having specialized functions, though they all use many of the same principal components that define the underlying technology. According to UC Berkeley’s Sutardja Center for Entrepreneurship & Technology (Crosby 2015), blockchains are:

A distributed database of records or public ledger of all transactions or digital events that have been executed and shared among participating parties. Each transaction in the public ledger is verified by consensus of a majority of the participants in the system. And, once entered, information can never be erased. The blockchain contains a certain and verifiable record of every single transaction ever made. (p. 1)

This scholarly explanation nicely summarizes the basic properties of blockchains. Something on a blockchain referred to as a “cryptocurrency” earns the prefix “crypto” because each transaction involving that currency can only be included in the distributed ledger if the contents of the transaction are cryptographically solved or “mined”. Cryptocurrency is a generic term for anything on the blockchain that represents a digital currency, such as Bitcoin. However, cryptocurrencies are only one use of blockchains. A smart contract is an extremely reliable and automated digital agreement on the blockchain that self-executes when its set of programmed conditions is met (Suominen 2018). These smart contracts are free from “censorship, fraud, and third-party interference” (Rendon 2018) and, in doing so, allow for cooperation without the need for trust. Smart contracts only require a third party (escrow) when executing contracts involving irreversible payments for irreversible services, essential for many contracts. Also, smart contacts follow the notion: a system’s security is only as secure as its weakest component. Therefore, specialized escrow services for dispute mediation on the blockchain are required. These contracts are a critical component of blockchain technology and are what provide for a diverse array of uses across many industries.

Cryptocurrencies, made possible through blockchains, have been and will continue improving on the limitations and vulnerabilities of traditional currencies by enabling faster and lower-cost transactions, improved transparency, and greater liquidity. With the banking systems in place currently, wiring funds, trading securities, and exchanging currencies can take up to multiple business days and typically only occur during restricted times. The reason for this is that the exchange of these assets and currencies all rely on third-party intermediaries which can cost customers as much as two percent the value of a security when both buying and selling (Uzsoki 2019). The same applies when converting currencies, two percent the value being converted is not unusual (2019). On the Bitcoin network, the average fee since its inception has ranged from cents to ten dollars of Bitcoin regardless of the transaction value (Crosby 2015). On April 10, 2020, the largest ever Bitcoin transaction, worth $1 billion (161,500 BTC), took 12 minutes to confirm at a fee of $0.68. This is not possible through today’s financial system. There exist other blockchains with enhanced features, such as Ethereum, that are capable of confirming thousands of transactions per minute as well as some operating practically feeless. This is why Ethereum is the platform most commonly used for smart contracts since the network can handle significantly more congestion than Bitcoin’s.

Smart contracts do much more than allow for the exchange of cryptocurrencies on the blockchain since they “are computer programs capable of facilitating, executing, and enforcing the negotiation or performance of an agreement” (Justinia 2019). These contracts are highly reliable because “once set, a smart contract is immutable and can be trusted to operate the same way, indefinitely” (Justinia 2019). Also, the decentralized nature of this technology means it doesn’t possess one single point of potential failure. If a single network node is hacked, the distributed public ledger that is the blockchain remains safe and unaffected on the network. Decentralization contrasts the risks of a centralized entity existing as the sole source of information or contract enforcement where a hack would result in a security breach and potential loss of functionality for anything reliant on it. Operational flexibility and distribution of authority are what empower smart contracts to be versatile in implementing desired features for achieving a particular security need. For example, patient medical data on an institution’s blockchain requiring authorized access and complete privacy of records would implement different features than publicly available government spending records published to its separate and unique blockchain.

The potential applications for blockchain in the healthcare industry are quite possibly its strongest. The Health Insurance Portability and Accountability Act (HIPAA) was made a federal law in 1996. This policy aimed to protect patient health data by establishing security standards, requiring that information only be shared with the consent of the patient, and ensuring the availability of patient data. In the U.S., the system is underperforming expectations. Too often are a patient’s records fragmented between different providers, inaccessible, and time-consuming to manage. Blockchain integration in compliance with HIPAA can cost-effectively make patients’ data accessible to them while making it far more secure. The reason for this is “the information stored on the blockchain could be universally available to a specific individual through the private network, enabling patients to share their information with healthcare organizations much more seamlessly” (Justinia 2019). Using smart contracts, blockchain integrations in healthcare can allow providers to issue prescriptions to patients with greatly improved security, authenticity, and efficiency. Encrypted prescription data would not only improve security but, if adopted by healthcare providers, could help authenticate the filling of prescriptions in a way that reduces prescription drug fraud. A patient’s wearable health device could instantly publish important biodata to the blockchain, where it is securely monitored by a health professional. Finally, blockchain-based applications specialized for patients and, separately, providers, would allow for fairly simple interfaces that users can operate without knowledge of the complex underlying technology.

Similar to how blockchain in healthcare returns health data ownership to the patients themselves, the protection of property rights is yet another use case for blockchain in the real world that provides evidence of its immense potential. As of 2018, “[an] artist would need roughly 166,000 streams [in a month] to earn the monthly federal minimum wage in the United States” (Dimont 2018). This statistic is derived from Apple Music’s streaming royalty data. It is also worth mentioning that their platform offers the highest royalty rates compared to competing streaming services. With this in mind, content creators of music, art, and other industries can potentially earn a much greater profit than they are currently. The implementation of blockchain tools such as smart contracts by which they can monetize their products and be fairly compensated each time a customer streams from their platform would make this possible. It makes sense that, with the elimination of participants from the process of distribution and streaming, revenue can be better allocated to those responsible for the creation of such content. Ultimately, this will allow for the sale of content at lower rates than traditional streaming platforms because, when unnecessary intermediaries are excluded from the process, the only thing lying between an artist and their customer is an encrypted and dynamic network. Lastly, the importance blockchain can have in securing property rights does not end at protecting content creators. Aside from nations of absolute militarized oppression, it ensures fairness in holding titles to land by granting immutable, public, and timestamped records about proof-of-ownership and even insurance.

Polling places and workers are among these potentially superfluous intermediaries in a world dominated by blockchain. Nations with democratic election processes would benefit from the advancement of this technology because “its security and identity protection features could reduce fraud, help voters trust that their vote remains anonymous, increase turnout, and allow for instant results in elections” (Suominen 2018). In societies where smartphones have become ubiquitous, accommodating elections to take place on blockchain networks through mobile phones would immensely simplify voting for the vast majority of citizens. However, not everyone in a developed country is expected to own a working compatible smartphone. Even with this in mind, everyone can still benefit from the security and anonymity blockchains bring to elections by simply incorporating them into the already existing voting machines.

Another benefit of bringing blockchain to the smartphone is banking. Blockchain-enabled decentralized banking will be far more accessible to people than the banking systems in place today (Rendon 2018). The barriers to entry in decentralized banking are much lower as it requires nothing more than an internet connection and a compatible phone. At some point in the near future, smartphones capable of connecting to blockchain networks will be very cheap to make and capable of connecting to global internet providers without a physical cell site nearby. Such innovation would allow a significantly larger portion of the world’s population to have access to financial services. To put this impact into perspective, in January 2019, Global Web Index reported that roughly five billion unique mobile users exist around the world, which is 67% of the planet’s population. Such an impact in the short term would remain concentrated among countries already with a relatively high standard of living. Fortunately, the services blockchain provides extend out to people of much less fortunate circumstances.

For countries suffering from turmoil, blockchain funds are an opportunity to provide aid while avoiding interference or, even theft, from a corrupt central authority. Given the necessary infrastructure, a group of nations can feel confident contributing to a relief effort utilizing a secure blockchain with smart contracts in place to ensure the intended use and distribution of charitable funds. Venezuela is an example of a country with adequate infrastructure that is very much in need of foreign humanitarian support but suffering from serious corruption. The Maduro invoked public health crisis and complete collapse of their monetary system have made Venezuela a top priority for international assistance. A program called “Building Blocks”, started by the World Food Program and United Nations, “uses biometric identifiers to distribute food assistance to more than 10,000 Syrian refugees in the Azraq Refugee camp in Jordan. This program was so successful that the project has since been extended indefinitely” (2018). Something similar to Building Blocks can certainly be used in the case of Venezuela where food is scarce and government distribution cannot be trusted.

Are proponents of blockchain technology looking to solve problems that don’t exist or need fixing? Some critics of the novel concept think so. However, for the reasons explained and applications mentioned, that does not seem to be the case. Are people necessarily looking for a solution to whatever problems are present within the current state of technology? The answer is likely ‘yes’ as security is one of these problems and is of considerable importance for the average member of the global digital world. The technology of blockchain and its uses in the real world are still in their early stages. Furthermore, plenty of corporations such as Amazon, Google, and Samsung have already begun integrating it into their enterprises. The innovation has yet to be widely understood and fully refined as it grows into what will ultimately be a solution to many relevant problems in an increasingly technology-driven world. The question of regulation primarily pertains to the area of cryptocurrency used as an alternative asset class and possible money laundering tool. Regulation of blockchain is not a challenge but rather a healthy milestone in the growth of its adoption as the innovation’s legitimacy and effectiveness have already begun proving itself. Blockchains, smart contracts, and the platforms using them will define the fourth industrial revolution of the humans on planet Earth. Thanks for reading.

References

Crosby, Michael, and Pradhan Pattanayak. “Blockchain Technology.” Sutardja Center for Entrepreneurship & Technology Technical Report, 16 Oct. 2015, scet.berkeley.edu/wp-content/uploads/BlockchainPaper.pdf.

Dimont, J. (2018). Royalty inequity: Why music streaming services should switch to per-subscriber model. Hastings Law Journal, 69(2), 675–700.

“Health Insurance Portability and Accountability Act of 1996 (HIPAA).” Centers for Disease Control and Prevention, U.S. Department of Health & Human Services, 14 Sept. 2018, www.cdc.gov/phlp/publications/topic/hipaa.html.

Hertz-Shargel, B., & Livingston, D. (2019). Assessing Blockchain’s Future in Transactive Energy (pp. 11–15, Rep.). Atlantic Council. doi:10.2307/resrep24585.6

Justinia T. (2019). Blockchain Technologies: Opportunities for Solving Real-World Problems in Healthcare and Biomedical Sciences. Acta informatica medica: AIM: journal of the Society for Medical Informatics of Bosnia & Herzegovina : casopis Drustva za medicinsku informatiku BiH, 27(4), 284–291. https://doi.org/10.5455/aim.2019.27.284-291

Nakamoto, S. (2009). Bitcoin: A peer-to-peer electronic cash system

Rendon, M. (2018). How the Blockchain Can Help Venezuela’s Future Recovery: Promoting Sound Policy Foundations for Venezuela’s Postcrisis Recovery and Reform (pp. 1–10, Rep.). Center for Strategic and International Studies (CSIS). doi:10.2307/resrep22423.4

Suominen, K., Chatzky, A., Reinsch, W., & Robison, J. (2018). (Rep.). Center for Strategic and International Studies (CSIS). doi:10.2307/resrep22491

Uzsoki, D. (2019). (Rep.). International Institute for Sustainable Development (IISD). doi:10.2307/resrep22004