IV. BLOCKCHAIN-BASED APPLICATION EXAMPLES
“Distributed ledger technology will significantly increase transparency between market participants.” –- World Economic Forum Report. 141
Bitcoin has served as our most visible example of a functioning blockchain application. Beyond payments, there are many other blockchain use cases. Here, we examine a small subset of blockchain applications from three sectors—financial services, energy, and supply chain. For traditional enterprises, blockchain applications promise a significant amount of business value, like transacting directly with trading partners, eliminating the need for reconciliations, instantly tracking assets, providing robust data provenance, settling transactions quickly and cheaply, and enabling a security model that is fault tolerant, resilient, and available.142 However, the technology is still maturing, standards are still being established, and concerns over regulatory uncertainty still overshadow many c-suite discussions.
A. Financial Services
Enterprises in the financial services sector have been among the first players to recognize the threats and opportunities afforded by Bitcoin’s underlying blockchain technology. Incumbent enterprises, including banks like Barclays, State Street, and Wells Fargo, that have been in continuous operation for hundreds of years, were among the early explorers of blockchain technologies.143 Over 250 FinTechs also have entered
141. WORLD ECON. FORUM, THE FUTURE OF FINANCIAL INFRASTRUCTURE: AN AMBITIOUS LOOK AT HOW BLOCKCHAIN CAN RESHAPE FINANCIAL SERVICES 26 (2016), [https://perma.cc/XWR2-C6ME].
142. LACITY, supra note 14, at 166.
143. Our History, BARCLAYS, [https://perma.cc/TE6D-NYVH] (last visited Mar. 4, 2020); 225 Years and We’re Just Getting Started, STATE ST., [https://perma.cc/UB83-2PFT] (last visited Mar. 4, 2020); History of Wells Fargo, WELLS FARGO, [https://perma.cc/GEE7- FEUH] (last visited Mar. 4, 2020); See Hugh Harsono, Bank-Based Blockchain Projects Are Going to Transform the Financial Services Industry, TECHCRUNCH (Jan. 28, 2018), [https://perma.cc/9348-6CUQ].
the space, such as Ripple and Stellar.144 Ripple, founded in 2012 by Chris Larsen and Jed McCaleb, aimed to overcome Bitcoin’s inability to trade other currencies, relatively slow settlement times, and massive electricity consumption, while still being inexpensive, transparent, private, and secure.145 It is a universal fiat currency exchange, where its digital assets (called “ripples”) serve as a bridge currency.146 Ripple works with established institutions, a direction with which McCaleb and other Cypherpunks disagreed.147 McCaleb and Joyce Kim launched Stellar in 2015 to focus on a mission of financial inclusion.148 Stellar is based on Ripple’s code, but with changes to its protocol.149 Stellar’s network for global payments settles transactions in two to five seconds.150 Stellar can process over 1,000 operations per second.151 It is used by IBM and Deloitte for cross border payment applications, mostly in the Pacific region.152
B. Energy
The world over, large electric utilities are the primary suppliers of electricity. These large, centrally-managed organizations have been operating with the same business models for over 100 years and they are markedly energy inefficient.153 Most of the electric energy generated by utilities is wasted through the processes of conversion, transmission, and
144. The Fintech 250: The Top Fintech Startups of 2018, CB INSIGHTS (Oct. 22, 2018), [https://perma.cc/SZ9F-B6GS]; Our Company, RIPPLE, [https://perma.cc/3GRU-YZ93] (last visited Mar. 4, 2020); Intro to Stellar, STELLAR, [https://perma.cc/7C47-E78Q] (last visited Mar. 4, 2020).
145. LACITY, supra note 14, at 81-82.
146. XRP, XRP LEDGER, [https://perma.cc/9SBP-6E2M] (last visited Mar. 5, 2020); LACITY, supra note 14, at 81-83.
147. See The Ripple Story, BITMEX (Feb. 6, 2018), [https://perma.cc/VG95-CFKE].
148. LACITY,* supra* note 14, at 87.
149. Id. at 88-89.
150. Id. at 87; Siddharth Sitpure, Stellar Lumens Blockchain – Tech and Business Overview, MEDIUM (Jan. 29, 2018), [https://perma.cc/XG8M-YXF7].
151. LACITY, supra note 14, at 87.
152. Id. at 87-88.
153. According to Lawrence Livermore National Laboratory, of the 101.2 quadrillion BTUs (quads) of energy produced in the U.S. in 2018, 67.7 percent, or 68.5 quads, was waste or “rejected energy.”* See* Anne M. Stark, U.S. Energy Use Rises to Highest Level Ever, LAWRENCE LIVERMORE NAT’L LAB. (Apr. 11, 2018), [https://perma.cc/8LDW-ZB6J].
consumption.154 Large petroleum companies are the primary suppliers for gasoline used to fuel vehicles.155 Consumers are increasingly concerned about the pollution, waste, expense, and lack of control over their energy supplies. Consequently, many households have installed solar panels on their properties, and many people now drive battery-operated cars. Several blockchain applications have been developed to help consumers share their energy-efficient resources with neighbors. For example, LO3 Energy—founded in 2012 in Brooklyn, New York—built a blockchain technology platform to create peer-to-peer markets to enable neighbors to buy and sell their locally produced energy credits.156 The LO3 “Brooklyn Microgrid” has been run as a test project since 2016; however, New York State only granted permission in late 2019 to operate the microgrid in a regulatory sandbox.157 Innogy, a recently purchased subsidiary of the German-based electric utility E.ON, was established in 2016 by E.ON competitor RWE to focus on renewable energy solutions.158 One of its projects is Share&Charge, a startup venture developed with Slock.It, that went live in 2017, to create a peer-to-peer
154. Conversion waste generally happens when burning fossil fuels to produce energy; however, while more efficient, converting renewable resources to electricity also produces small amounts of waste. See 6 Ways to Cut Big Waste in Our Energy System, Switch to Renewable Energy, ENVTL. DEF. FUND, [https://perma.cc/5R87-MP87] (discussing the amount of waste loss when converting fossil fuels to energy, and how that waste could be minimized by using renewable sources). Transmission waste occurs when pushing electricity over long distances. See Frequently Asked Questions, How Much Electricity Is Lost in Electricity Transmission and Distribution in the United States?, U.S. ENERGY INFO. ADMIN. (Dec. 31, 2019), [https://perma.cc/6C6Z-SU5S] About 5 percent of electric energy is lost in transit annually. Id. Consumption waste occurs when consumer appliances lose electric energy to heat, for example. The Brooklyn Microgrid: Blockchain-Enabled Community Power, POWER TECH. (Apr. 11, 2017), [https://perma.cc/2B6J-NLXM] [hereinafter The Brooklyn Microgrid].
155. Gasoline Explained: Where Our Gasoline Comes From, U.S. ENERGY & INFO. ADMIN. (Dec. 3, 2019), [https://perma.cc/DZ8E-YCJ2].
156. The Brooklyn Microgrid, supra note 154.
157. See Peter Maloney, New York Approves Regulatory Sandbox for Brooklyn Microgrid, MICROGRID KNOWLEDGE (Dec. 30, 2019), [https://perma.cc/S4PH-HA2L] (discussing a campaign in October 2019 to petition the State of New York to allow deployment of the Brooklyn Microgrid Sandbox, which was recently approved and will launch in 2020).
158. Andrea Biancardi & Matteo di Castelnuovo, A New Paradigm in the Electricity Sector: Key Trends and Stock Performance of European Utilities, 9 EUR. ENERGY & CLIMATE J. 31, 47 (2020); see also LACITY, *supra *note 14, at 106.
marketplace for electric car charging.159 Share&Charge aims to expand Germany’s infrastructure by enabling 60,000 private charging stations to join Germany’s 6,500 public charging stations.160
C. Supply Chains
Today’s global supply chains are a complex web of trading partners and trusted third parties. While manufacturers, exporters, couriers, freight forwarders, customs, inspectors, exporters, shippers, and importers are all moving physical goods, they are also creating data about those movements with bills of lading, certifications, consignments, customs forms, inspections data, insurance forms, invoices, lines of credit, purchase orders, shipping manifestos, and receiving documents, to name a few. As a consequence of so many players with their own centralized systems and so much paperwork, assets get lost, shipping containers get delayed in ports because of missing paperwork, inconsistent records across trading partners trigger disputes, and counterfeit products slip through supply chains, to name but a few challenges. Blockchains have the potential to solve many of these challenges.
By 2016, enterprises began moving blockchain applications for asset tracking into production. For example, Everledger tracks diamonds from diamond mines to retail stores; over 1 million diamonds were represented on the ledger as of March 2017.161 Everledger has since expanded its business model to track and trace other valuable assets such as art, wine, and antiquities.162 TradeLens tracks shipping containers.163 MediLedger tracks pharmaceuticals in the U.S. supply chain.164 The IBM Food Trust traces food from farm and fishery to retail
159. Steven Tual, Share&Charge Launches Its Mobile App, On-Boards over 1,000 Charging Stations on the Blockchain, MEDIUM: SLOCK.IT BLOG (May 1, 2017), [https://perma.cc/QV2E-5K8G].
160. LACITY, supra note 14, at 106.
161. Id. at 109-10.
162. Id. at 110.
163. LACITY ET AL., supra note 84, at 11.
164. Id.
stores.165 WineChain tracks and authenticates wine bottles.166 And Microsoft uses a blockchain application to track royalty payments owed to Xbox application owners.167 While none of these applications are fully scaled yet, they demonstrate the possibilities of getting business value from blockchain technologies.168
Beyond these applications, other innovations are particularly relevant for legal professionals to understand. Namely, the new fundraising models that accompanied many blockchain projects.