FAB Use Cases: Regulatory and Standards Compliance
In this series, we tackle different potential use cases of Fast Access Blockchain and how we can build a better world through our solutions.
New Applications, New Business Models, New Possibilities
Applications which are an ideal fit for blockchain technology have the following characteristics:
- Involve multiple organizations
- Where trust is key, or trust is presently severely eroded
- Proof is key
- Involve exchange/transfer of assets or value
- Involve data sharing or presently suffers from silo’d data
- Benefit from micro transactions/streaming
- Have opportunities for new business models, products or services
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Many industries must comply with regulations or standards for how they are operated, and/or the quality and safety of their products. These industries are usually those affecting public safety, such as aviation, rail, nuclear, medical products and devices, and oil and gas.
But other customer-facing industries are not immune to government and regulatory standards that can create bureaucracy, large expense and barriers to entry. The costs of compliance activities are generally quite high. As an example, the United States Federal Government alone has over 41 different regulations that bring in $1 Billion USD each every year in payments (2016).
Regulation and compliance standards are an important bedrock of a functioning economy, but it comes with many difficulties for businesses. Blockchain technology can serve to automate, reduce, or otherwise eliminate auditing and oversight activities as well as significantly increase trust in these industries by providing immutable records and traceability.
Taking the example of aviation: pilot time logs, training records, maintenance logs, and inspection records must be maintained. Developers of hardware and software for aviation must comply with certification standards such as DO-178C and DO-254 which are extremely burdensome and, at times, unclear. Any organization which is ISO 9000 registered operates a large quality management system involving extensive documentation and audits to prove compliance. In these examples, the standards or regulations apply to the business processes, and the time sequence of activities is crucial and is recorded in the documentation as part of “proof of compliance”.
However, no organization is perfect, and there will always be a temptation to change previously created documentation, or create backdated documentation (i.e. falsify documents) to cover up process slips prior to an audit.With blockchain technology, when a document is created, a cryptographic hash of the document can be created and stored along with the timestamp in a public blockchain. This ensures that:
1) any attempt to tamper with the document is immediately obvious when the document’s hash is re-calculated and compared to the hash on the blockchain, and
2) the time sequence of documents is frozen, capturing the sequence of process steps and
3) it is impossible to delete a document or create a backdated document to falsify data. (The term “document” is used loosely here, and could be any chunk of data. The blockchain based time stamping could even be done for each approval signature step on a document. Multi-signature approvals are common in such applications.)
By using a public blockchain in which no single entity controls the blockchain, including any of the organizations involved with the aircraft or aircraft personnel, guarantees that the data on the blockchain cannot be tampered with.
This is a game changer in the realm of evidence capture for business processes, providing an enormous boost to the level of trust in documentation evidence. This should in turn force organizations to comply with regulations and standards improving process and product quality, and safety. Taking this further, by storing key workflow status and role information on the blockchain to make the system aware of business process, smart contract capabilities can be used to automate and enforce workflow rules.
These uses are applicable to many other industries where compliance is essential. In the energy production industry (oil, gas, solar, wind, hydro), data sensors implemented on the production materials, such as pipeline leak sensors, can feed data into a blockchain for regulators to see in real time. This process could not only save time and money, but also indirectly affect the contentious political realm around energy production.
Furthermore, movement of industries into blockchain based reporting will allow regulators and governments to conduct data analysis more frequently, quickly and accurately.
A further example is automotive, military, and electrical/electronics manufacturers who must comply with various specific product related safety or reliability standards. Examples of this for electronics are UL (safety) and RoHS (Restriction of Hazardous Substances). Part of this compliance involves ensuring that the complete bill of materials meets these standards. In some cases this includes thousands of components. This must be done not only at the design stage, but during the manufacturing lifetime as well since part number substitutions may occur due to purchasing and supply chain changes.
By applying blockchain technology to the supply chain management process, the provenance of all components and materials can be monitored continuously.
Protection against grey market fraud is also a major benefit. The grey market is where people sell products from a different jurisdiction in another where the price is higher, undercutting the local supplier there. An example: If iPhones cost $500 USD in Canada and $700 USD in Switzerland, a grey market supplier will buy iPhones in Canada in bulk, and sell them in Switzerland at $650 USD. Generally, most view the grey market as a positive — low costs on products is usually better for the economy and consumers.
But many grey market suppliers rig the system by introducing counterfeit or fake products into the market. Third party certifications (e.g. UL) on components ideally could be verified on the public blockchain, to protect against unscrupulous suppliers that might falsely label a component as certified or approved when it is not. Blockchain based supply chain management to track the provenance of components can be used to protect against grey market (counterfeit) electronic components that may initially seem to work, but may have inferior performance under critical circumstances or fail prematurely. Some industry estimates of the dollar value of grey market components are as high as $26 billion (2014).
Written by: Ken Tang & Eugene Cofie
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