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An external view on Blockchain

A Disruptive Technology for the Next Step of Digitization

07/2017 – Blockchain technology represents one of the most promising and potentially most disruptive technologies for the mobility sector. Lisa Wegner and Prof. Dr. Philipp Sandner of the Blockchain Center at the Frankfurt School of Finance & Management provide an external view on its potential benefits.

In today’s world, we head towards a digitization of everything. Nowadays, billions of different devices are connected to the internet, continuously generating massive amounts of data. The progressive rise of software and services will cause an exponential rate of change and will have an impact on every aspect of our daily lives. Technological innovations open up major opportunities and come along with significant risks at the same time. As the digital revolution moves forward, the need to stay competitive and successful in a digital environment results in large-scale transformations across numerous businesses as well as entire industries and changes the world at an accelerating pace. Among the most promising innovations is the Blockchain technology, which was first introduced in 2008 and is commonly known as the technology behind Bitcoin. But, despite its application in a financial context, it holds a massive potential for many other industries.

Blockchain in a mobility context

The mobility sector has become a critical economic factor. With the digitalization moving forward and the rise of numerous technological trends, drastic changes are approaching the mobility sector – with the Blockchain technology  representing one of the most promising and potentially most disruptive technologies in the future. A blockchain can be defined as a distributed register to store static records and/or dynamic transaction data without central coordination by using a consensus-based mechanism to check the validity of transactions. In simple words, it is a database in which transactions are recorded and which is simultaneously shared among all parties in a participating network.

The use of intermediaries in today’s mobility business is very common. Due to the nature and the goal of the Blockchain technology, these intermediaries’ business models in this sector might become obsolete. Additionally, Blockchain might create a new impulse to work towards connected mobility. Hereby, smart contracts will come into action. Smart contracts are small programs running on a blockchain and initiating certain actions when predefined conditions are met. With the use of Blockchain and these contracts in the future, it might become a reality, that cars automatically pay highway tolls or parking fees. People will be able to transfer money to their car’s digital wallet. Via smart contracts, the car can be authorized to make specific payments up to a certain limit. Driving toll roads can then be recognized by the car and automatically paid for without any human interaction involved. A similar application is possible for trains. As both trains and stations will become digitally interconnected objects in the future, via blockchain, the train will be able to automatically pay the train station at the moment of entry. Furthermore, the transportation of goods could also be influenced. Blockchains can serve as asset tracking databases, which enables an automatic detection of goods moving into and out of countries, triggering automated tax payments and deductions at the specific moment of in- or export.

Blockchain and its potential benefits

The main goal of the technology is to create a decentralized environment where no third party is in control of the transactions and data. Simultaneously, it allows for transaction platforms that are highly secure, low cost, fast, with lower incidents of error and the possibility of reducing capital requirements, which will not only change the interaction of individuals with organizations, but also the collaboration between businesses as well as the productivity of our economy. The potential benefits of Blockchain are not only of economic nature, but they also carry problem-solving potential for social, political, legal and health issues, which gives them the ability to reconfigure all aspects of society and its operations as we know them today.

Challenges and risks in the future

Although Blockchain is much acclaimed and has the potential to deliver solutions for multiple issues, the adoption of the technology comes with significant risks and challenges for which an awareness is needed. One of the most significant risks is how governmental regulation will unfold. This factor will play a crucial role in whether the Blockchain industry is going to flourish or not. Governmental agencies might introduce several laws being aimed at monitoring and regulation of the Blockchain industry for compliance. Either, these new laws will result in a slowed-down adoption process or it will help speeding it up. Furthermore, several technical challenges and limitations have been identified, which need to be addressed in the future. Among these technical challenges are the maximum possible throughput, the time required to complete a transaction, as well as the high data volumes. Moreover, there are certain security threats that users are worried about. Especially in a financial context people are concerned about hackers, identity theft and money laundering. All in all, the technology is still evolving and maturing. As an increasing number of people and organizations are investigating it and start experimenting, more and more recommendations are formulated on how to solve current issues.

Future outlook

The technology is said to hold a massive disruptive power for various industries and researchers predict groundbreaking changes in numerous aspects of our lives. The mobility sector can be impacted by its disruptiveness as well. If organizations, operating in this sector, are aware of the technology’s disruptive potential and figure out how to use it in order to improve current processes or to develop new business models, it can be a highly valuable source for generating competitive advantages. Furthermore, Blockchain holds the potential to change the way in which businesses are managed and organized. But, before taking concrete action, companies need to become familiar with the challenges and risks of the technology. In the financial industry, a broad utilization of Blockchain is expected in three to five years already. For other industries, this means, that the breakthrough of the technology might not be tomorrow, but clearly within eyeshot, which makes it a necessity, to start preparing for it.

Lisa Wegner
© Frankfurt School of Fincance & Management

Lisa Wegner

Student of the Master in Management (M.Sc.) program at the Frankfurt School of Finance & Management. Currently writing her Master Thesis in cooperation with Deutsche Bahn AG to investigate the application possibilities of Blockchain and Internet of Things and their respective benefits for transportation companies.

Prof. Dr. Philipp Sandner
© Frankfurt School of Fincance & Management

Philipp Sandner

Prof. Dr. Philipp Sandner is Head of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management. The center was launched in February 2017 and analyzes implications of blockchain technology on companies and business models. It provides a platform for decision makers, startups, technology experts and industry professionals to exchange their knowledge and share their visions. Prof. Sandner is member of the FinTechRat of the Federal Ministry of Finance.