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RAND Europe: Understanding Distributed Ledger Technology/Blockchain – Challenges, Opportunities and Future Standards
RAND Europe: Understanding Distributed Ledger Technology/Blockchain – Challenges, Opportunities and Future Standards

RAND Europe: Understanding Distributed Ledger Technology/Blockchain – Challenges, Opportunities and Future Standards

by Xiaohan Han

Source: Internet Research Frontiers

Abstract In January 2017, RAND Europe was commissioned by the British Standards Institute (BSI) to conduct rapid research to explore the potential role of standards in supporting distributed taxonomy technology (DLT)/blockchain.DLT/blockchain refers to the division of branches across multiple locations (i.e. a distributed database) that acts like an electronic ledger that can be used to record and manage transactions. While the technology is still in its early stages and the challenges remain daunting, it is clear that DLT/blockchain has great potential opportunities in a number of areas. In addition, standardization efforts related to DLT/blockchain have recently been gaining momentum, and the International Organization for Standardization (ISO) has established a technical committee on blockchain and electronic distributed classification.

RAND Europe is a non-profit policy research organization that aims to help improve policy and decision-making in the public interest through research and analysis. RAND Europe’s clients include governments, agencies, NGOs and companies in Europe that require rigorous, independent, multidisciplinary analysis.

I. Background and Context

Distributed Ledger Technology (DLT) is an innovative method for storing and updating data within and between organizations. A copy of the ledger is held by multiple parties, and data is added through negotiation between the parties, without the need for a third party. This means that DLT/Blockchain:

– records are immutable: the data added to the ledger is theoretically unchanging, secure and disappears with the existence of the ledger, and its content is determined jointly by all participants.

– disintermediated: nodes are able to interact directly, without the need for a mediator.

– No centralized controlling party.

– New opportunities for managing and sharing data.

II. research objectives

This research aims to help the BSI (British Standards Institute) find ways to develop a strategy for DLT/blockchain related standards. More specifically, the purpose of this study is threefold:

– to explore the potential role of standards in supporting DLT/blockchain based on stakeholder needs;

– to determine which industries will benefit most from DLT/blockchain standards in the future and accelerate the chain technology implementation;

– Identify key stakeholders to co-develop DLT/blockchain related standards.

III. Key findings from the analysis

1. Assessment of challenges and opportunities related to DLT/blockchain

Table 1 Key challenges and opportunities related to DLT/blockchain

2. Expected role of standards in supporting DLT/blockchain

◆ Standards can play an important role in ensuring interoperability among multiple DLT/blockchain implementations, which can help reduce the risk of fragmentation of the ecosystem

Most of the future standards mentioned by interviewees are aimed at ensuring interoperability among multiple current or future DLT/blockchain implementations. Interoperability standards can help reduce the risk of fragmentation in the DLT/blockchain space, where a large number of use cases, applications and systems will not be able to interact with each other if fragmentation occurs. As use cases are applied across more and more sectors, standards can also help establish interoperability within and across sectors, helping to build a competitive marketplace.

interoperability is also needed when it comes to new DLT/blockchain architectures interacting with legacy systems. This will allow companies to plan for the transition of existing systems, and it will also facilitate the interaction of newer systems with the broader network and with former architectures in third-party stakeholder systems and infrastructures.

◆ Standards can be used to unify terminology and vocabulary and build stronger vocabulary consensus, which can deepen understanding of the technology and help the market progress

Perceived immaturity of DLT/blockchain technology, and the lack of clarity in the DLT/blockchain community’s use of terminology related to the technology (including the use of ” DLT” and “blockchain”) were cited as potential challenges preventing widespread adoption of the technology. Several interviewees suggested a broader consensus on the definition and terminology of DLT/blockchain.

However, standardizing terminology can be a difficult process, as many companies already have their own definitions and measures in place when developing systems, protocols and services based on DLT / blockchain. In addition, the use of DLT/blockchain measures and their potential role in a company may vary by business sector. Therefore, rather than trying to create a completely standardized list of definitions that are agreed upon by all, it would be better to create a simpler framework and guidance for the technology that shows, for example, how blockchain can be used as an alternative (including good practice recommendations).

◆ Addressing DLT/blockchain security and resilience issues, and related privacy and data governance issues, through the development of standards can help build trust in the technology.

Organizations that rely on DLT/blockchain need to carefully consider the security and integrity of end-user data. For example, the decentralized nature of DLT/blockchain, distributed access and administrative privileges of multiple nodes in the network may pose serious security risks, and malicious entities may be able to attack the system through multiple “back doors”. In this regard, several interviewees suggested that standardization is needed to ensure the security and resilience of the network and to promote trust. In addition, data governance standards are considered key to protecting the integrity of data on DLT/blockchain systems from manipulation. Kakawande et al. (2017) highlighted the need to facilitate DLT/blockchain implementation with governance standards to enhance the resilience of the system in the face of privacy and cybersecurity risks. In this regard, one interviewee suggested that (a) data governance standards are critical to foster trust in the technology and promote its adoption by end users and enterprises, and (b) data governance standards may affect the use of DLT/blockchain in negotiation and control mechanisms and auditing processes.

could also develop data governance standards for security to protect end-user data. In addition, two interviewees believe that standards may enable processes to be defined for encryption or how user nodes are handled, thus helping to embed cybersecurity controls into DLT/blockchain services. The listed leadersStandards in the domain can also be used to confirm the authenticity of transactions and therefore can also drive the growth of trust and resilience in the system.

◆ Standards can play a role in digital identity management and promote end-user trust in blockchain technology

In order for standards related to digital identity to work, sufficient attention needs to be paid to the nature of the target identity (i.e., sovereign, national, or world identity) and the goals of the authentication process. Several interviewees argued that in order to achieve cross-sector adoption of DLT/blockchain, robust specifications are needed to protect the digital identities of end users. One interviewee asserted that given the distributed nature of the technology, authentication mechanisms would need to be employed not only for the platform provider, but also for other end users in the system. This would be a clear departure from current mainstream security/trust mechanisms, where end-users authenticate themselves when interacting with a central authority (e.g., public sector or enterprise) over the network.

From a cross-sector perspective, standards can help manage the risks associated with identity, responsibility, liability and compliance. In particular, to ensure KYC/AML compliance, digital identity verification for financial transactions enabled by DLT/blockchain-based solutions may differ from existing processes. This underscores the importance of evaluating and verifying trader identities in DLT/blockchain implementations and changing existing standards to reflect changing business practices. Standards can also inform end-users of the importance a particular DLT/blockchain solution/platform places on such things as “privacy by design”, hash validity, and digital identity protection measures.

◆ Standards may work in industries that value provenance tracking

Several interviewees mentioned that provenance and the ability to use DLT/blockchain for provenance tracking (i.e., the ability to provide a complete record of transactions) are critical to unlocking their innovation potential. Particularly in the physical transaction industry, DLT/blockchain’s provenance tracking capabilities are critical in linking the digital identity (and history) of a product to its physical attributes so that commodity tracking can be reached.

The key to effective source tracking is data – and how multiple stakeholders (which can be humans or automated systems such as machines) exchange data. This means that standards have the opportunity to define how the data is stored, the possible encryption requirements and levels depending on the product type, and the length of time the data can and should be stored (INT01). Another aspect to consider is the tokenisation (tokenisation) mechanism and whether the complexity of the transactions will allow for effective application of DLT/blockchain. However, one interviewee indicated that a DLT/blockchain-based specification for supply chain transactions needs to be established before a wide application of DLT/blockchain for source tracking can be considered. Further research on use cases and ontologies may be needed to enhance DLT/blockchain design for source tracking before discussing the role of standards.

◆ It may be too early to consider standards related to the technical aspects of DLT/blockchain

Currently, there is still limited consensus on technical standards (e.g., format of data storage, block size, communication protocols) and their impact on DLT/blockchain applications. Some interviewees suggested implementing the standardization process only for specific applications within the DLT/blockchain, not necessarily for other applications. However, one interviewee expressed the opposite view that standards in technology may improve technical performance, especially in terms of reduced transaction processing times. In addition, standardization of technology may be used in financial services to harmonize the information exchanged and ultimately meet KYC needs. The interviewee also suggested that a cautious approach should be taken when it comes to technology standards, as not all technology needs to be standardized.

Finally, a key insight in the development (or lack thereof) of technology standards is the role of the market in supporting the growth of technology. Given the relative immaturity of the technology, standards targeting the technology side may be counterproductive at this stage.

◆ Areas where standards may play a supportive role for DLT/blockchain

We have identified a number of areas where standards may, to varying degrees, overcome challenges and help the DLT/blockchain ecosystem to innovate, grow, and become more competitive:

In Figure 1, we list priority areas and roughly represent the relative timeline for developing standards related to the priority areas. To reiterate, our analysis shows that while most people agree on the overall importance of standards to support DLT/blockchain growth, people disagree on the areas where standards need to be developed, and the timeline for their development and implementation.

In Figure 2, we describe aspects of (a) the areas that have been identified where standards can support DLT/blockchain growth, (b) the industries that may benefit from the emergence of DLT/blockchain standards, and (c) the overall challenges and opportunities associated with DLT/blockchain.


Our analysis shows that the opportunities presented by DLT/blockchain are enormous; however, there are also many challenges to be addressed. In this regard, we note that standards may play a role in supporting the development of the technology, for example, by acting as enablers and creating the necessary space for the development and adoption of blockchain/DLT, and the market for blockchain.

However, as with any emerging technology, the timing of the development and introduction of standards (which may build on existing standards) is critical. Premature intervention may trap stakeholders in solutions that are not the most effective in the long run, and in the process, may also stifle innovation. A standards strategy associated with a technology that emerges too late may miss the opportunity to maximize the benefits that the technology can provide. While this is an area characterized by rapid change and uncertainty, we can still take steps to better understand the current state, drivers and impact sectors.


Original article:

Understanding the Landscape of Distributed Ledger Technologies/Blockchain Challenges, Opportunities, and the Prospects for Standards


Advait Deshpande ( Advait Deshpande

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