A blockchain is a peer-to-peer distributed ledger (information recorded in a shared database) that enables open and trusted exchanges over the internet without using central servers or an independent trusted authority. Using consensus, a shared record is distributed to all participants in a network to validate transactions and remove the need for a third-party intermediary. In short, blockchains facilitate transparent, verifiable, and secure digital asset transactions with both proof of rights and ownership.
Blockchain has its origins in the secure exchange of digital currency – such as Bitcoin – but its applicability is extending far beyond digital payments and into a number of different industries including financial, healthcare, government and even telecommunications. In fact the number of use cases for blockchain is actually quite astounding:
The question is what role will (can) blockchain play in telecommunications?
Key characteristics of blockchain include the following:
- Trust, transparency and neutrality: Due to its distributed nature, the database is decentralized with a copy of the entire record available to all users and participants of the peer-to-peer network. Additionally, it requires participants to authenticate and verify each new block and only adds with majority consensus. By storing information in multiple cryptographically validated ledger copies across a network, blockchains eliminate single points of failure, hacking attacks, or control by any single entity.
- Speed and efficiency: Because the blockchain is decentralized and digitally distributed across a number of computers, it eliminates the need for expensive infrastructure as well as the need for central authorities or third-party intermediaries. More importantly, it increases the speed of exchange between people, departments, etc.
- Security and immutability: Blockchains are encrypted using both public and private keys to maintain security as well as using both cryptography and digital signatures to prove identity. Furthermore, because each block is linked to a preceding block, it is virtually impossible to change historical records as each block has a permanent timestamp that allows for tracking and verifying information.
The Block Chain Opportunity in Telecommunications
It is well established that traditional telecom operators are being challenged by decreasing revenues and increasing costs – not to mention competition from over-the-top players. As such, the need to reduce costs, drive new revenue streams and make their digital services more competitive is at the top of the “to-do” list for every C-level executive.
The telecommunications industry is already in the midst of significant transformation as it moves towards a virtualized and digitized environment. So adding blockchain into this equation must offer some measureable and quantifiable benefits to current operations as well as towards the enablement of future opportunities.
Implementation of blockchain within the telco environment will likely have the greatest impact on a telco’s core management systems (OSS/BSS), providing cost reduction through efficiency gains. However, there are a number of areas in which telcos could benefit from the implementation of blockchain.
One area where telcos could clearly benefit from blockchain is fraud prevention. In the most recent published survey by the Communications Fraud Control Association, losses associated with fraudulent activity were $38.1 billion. Blockchain-based solutions could be implemented to minimize both identity and roaming fraud.
For identity fraud, blockchain could change the process where identity is validated and verified by device and that device is linked to an owner’s identity. This is different than the current model, where device verification is based on the subscriber profile. In this scenario, if a user’s identity is compromised it can affect not just the device but every service associated with the subscriber’s identity.
Roaming fraud could be mitigated by implementing a permissioned blockchain between every pair of operators that have a roaming agreement. Every time a subscriber triggers an event in a visiting network, a smart contract and the terms of the agreement between the roaming partners are executed. This allows instantaneous and verified authorization as well as settlement to occur – reducing costs and reducing fraud.
A telco could participate in blockchain-based identity management for their own services as well as to offer it as a service to its partners. In a blockchain, identity authentication could be applied across devices, applications and organizations – removing the need for a user to have separate passwords for different online accounts. With a master identity key, a user could access all of their services that require identity verification such as accessing secure buildings, smart vehicles, airplane tickets, etc. as well as verification of personal documents such as passports, driver’s licenses, birth and marriage certificates, to name only a few.
In fact, the UN has formed the ID2020 project – a public-private partnership to provide identity services to the 1.1 billion people who live without an officially recognized identity. The goal of ID2020 is to make digital identity a reality through a technology-forward approach that will leverage secure and well-established systems based on blockchain.
IoT connectivity provides unique challenges including the need to secure billions of interactions among machines and sensors as well as to secure the sensitive information that is captured and transmitted. As such data and network security requirements can become costly as these IoT networks grow. Blockchain’s decentralized control enables IoT security to be more scalable and with its inherent capabilities for verification and validation would help prevent a rogue device from disrupting a home, factory or transportation system by relaying misleading information.
While blockchain will not be the only solution for creating a highly secure IoT environment, it is likely to play a key role in the future of IoT as it helps to build trust, reduce costs and accelerate transactions.
While blockchain can offer a cost effective approach across many use cases, it is not without its challenges – most notable its ability to scale and the inefficiencies around the fact that every node performs the same tasks as every other node. While keeping historical data has its advantages, over time this is unsustainable and creates the need for archiving. Other challenges include how blockchain fits into regulatory frameworks as well as security and privacy-related issues.
The real challenge for telcos will be to determine the best entry point for blockchain and it may well involve streamlining their own internal processes.
Nonetheless, there is widespread appeal for blockchain in building trusted environments that can provide more robust validation and verification of users and services; offer better data integrity; offer more innovative ways to handle settlements and payments between operators as well as facilitating the sharing of infrastructure and spectrum.
Blockchain’s role is only expected to grow but, similarly to the transition towards NFV and SDN, it will require significant changes to business processes and organizations. As such, while there are many potential applications for its use in telecom, it will be necessary for telcos to take a long-term view of where and when its adoption will add the most value.