The Potential Role of Standards in Supporting the Growth of Distributed Ledger Technologies/Blockchain
Even though technological solutions based on distributed ledger technologies, including Blockchain, are at a relatively early stage of adoption and significant challenges remain, they hold the potential for major opportunities across several sectors.
Through an accelerated literature review and interviews with different stakeholders across industry, the public sector, academia, and the third sector, our researchers highlighted a set of priority areas that may require future standardisation to support the technology's growth.
Distributed ledger technology (DLT) refers to a type of database spread over multiple locations, which can be used like a digital ledger to record and manage transactions. Blockchain, which comprises of ‘blocks’ of transactions, is one of the most well-known uses of DLT and underlies the cryptocurrency Bitcoin. DLT has received growing attention in recent years as an innovative method of storing and updating data within and between organisations.
Even though DLT/Blockchain-based solutions are at a relatively early stage of adoption and significant challenges remain, they hold the potential for major opportunities across several sectors. While the financial sector has shown widespread early interest in DLT/Blockchain, other public and private sector organisations that rely on the keeping of records and management of secure transactions may also benefit. DLT/Blockchain may also provide opportunities in the healthcare, pharmaceutical, creative, and food sectors.
In light of the growing interest in DLT/Blockchain, standardisation efforts have gathered momentum, particularly with the setting up of the International Organization for Standardization (ISO) technical committee on Blockchain and electronic distributed ledger technologies.
Against this backdrop, the British Standards Institution (BSI) commissioned RAND Europe to carry out a rapid scoping study to understand some of the areas related to DLT/Blockchain that would potentially require standardisation based on stakeholder needs in the UK.
Understanding the current landscape of DLT/Blockchain and the priority areas for the UK regarding the development of standards will be an important step in developing a strategy to maximise the benefits of this technology for UK and global stakeholders. The study was intended to inform the BSI’s approach towards developing a standards strategy in relation to DLT/Blockchain. In addition, the BSI will use the research as input to discussions in the context of the ISO technical committee on DLT/Blockchain.
RAND Europe did the following:
- Conducted a tailored accelerated review of the literature to explore the challenges and opportunities associated with DLT/Blockchain.
- Interviewed different stakeholders from industry, public sector, academia, and third sector to validate the observations from the document review and to better understand the implications for potential standards development within the UK context.
- Synthesised the evidence to articulate a set of areas for further consideration by the DLT/Blockchain stakeholders around the potential role of standardisation.
The analysis suggests that the opportunities arising from DLT/Blockchain are vast, but there are also a multitude of significant challenges to contend with. From the main challenges and opportunities identified, the research extrapolated a set of priority issues for stakeholders which could potentially be addressed through the development of standards.
Challenges facing DLT/Blockchain
- Insufficient clarity regarding and inconsistent understanding of the terminology, combined with the perception that DLT/Blockchain is an immature technology, poses challenges to wider adoption of DLT/Blockchain.
- The potential high costs of initial implementation, perceived risks associated with early adoption of DLT/Blockchain, and possibility of disrupting existing practices may pose significant challenges to businesses.
- The lack of clarity about the improvements the technology offers over existing solutions may delay its adoption by businesses. In the absence of widespread DLT/Blockchain adoption, the broader economic impact of the technology in the medium and long term is difficult to determine.
- Because of the nascent nature of the technology, there is a lack of clarity with regard to the governance of DLT/Blockchain systems.
- There is uncertainty related to the way current regulatory frameworks would 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 could lead to a fragmented ecosystem and limit widespread adoption.
- Potential security vulnerabilities and concerns about data privacy are seen to be significant challenges, particularly if users are entrusting DLT/Blockchain solutions with personal data.
- Safeguarding data integrity and ensuring strong encryption mechanisms are perceived as key challenges to the wider adoption of DLT/Blockchain.
- The distributed nature of DLT/Blockchain systems and the need for increased computing power can potentially result in high energy consumption and associated costs.
- Key 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 them through DLT/Blockchain.
Opportunities for DLT/Blockchain
- 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, such as new forms of business collaboration and cryptocurrencies.
- The decentralised nature of DLT/Blockchain and the lack of a central point of failure could facilitate transactional systems to become more resilient and secure.
- DLT/Blockchain has the capability to empower users by putting them in control of their own information, and it has the potential to improve users’ trust in carrying out transactions.
- The immutability of DLT/Blockchain transactions can offer a number of benefits, including providing a clear audit trail and reducing the propensity for fraud.
- DLT/Blockchain can enable efficient and cost-effective management of digital identity through the use of public key cryptography.
- DLT/Blockchain technology could be used to implement the underlying mechanism for smart contracts and enable the use of smart auditing capabilities across different sectors.
Prospective role of standards in relation to DLT/Blockchain
The overall consensus based on available evidence and insights provided by key stakeholders was that standards in different areas could play an important role – to varying degrees – in supporting the growth of DLT/Blockchain. However, views differed on the specific areas for potential standardisation and the timelines for developing and implementing the standards. Several areas for action are highlighted in the study regarding the potential role of standards. Rather than providing a definitive list, the study aims to provoke further discussion across stakeholders with an interest in DLT/Blockchain about the potential role of standards in supporting the development and adoption of the technology.
- Standards could play an important role in ensuring interoperability between multiple DLT/Blockchain implementations and, in doing so, could help reduce the risk of a fragmented ecosystem.
- Using standards to establish a stronger consensus on consistent terminology and vocabulary could improve understanding of the technology and help progress the market.
- Establishing standards to address the security and resilience of, and the privacy and data governance concerns related to DLT/Blockchain could help create trust in the technology.
- Standards could play a role in digital identity management and foster end-user trust in the technology.
- There are potential opportunities for standards to play a role in sectors where provenance tracking is important.
- It may be too early to think about standards related to the technical aspects of DLT/Blockchain.
The following graphic is a summary visualisation of the above findings. Click to view a larger image.