Blockchain – the highly advanced, decentralized database technology behind every virtual currency you can think of, and that most of us don’t understand – has many companies in many industries making huge strides to be at the front of this digital revolution, including aviation. However, it isn’t in regard to the use of virtual currencies (or cryptocurrencies), like Bitcoin, Ethereum, and Ripple, among others, but the multitude of other applications for which blockchain technology can be used.
We discussed virtual currencies and their possible use in the aviation industry, and specifically in aviation escrow transactions, in the previous blog: “Cryptocurrency in Aviation Escrow Transactions: Is it a Viable Option?” This time the focus is purely on the technology behind it all, and what its potential use is for aviation escrow transactions.
To review a bit, blockchain has four main pillars, which include: a distributed ledger, a decentralized database, immutable records, and smart contracts (digital contracts of data agreed upon). This decentralized, encrypted database in the Cloud is shared by all its participants, open to all (anonymously if desired), with access to view each permanent and timestamped transaction or alteration, but not go back and change them.
For the aviation escrow industry, and the large amount of data produced with every transaction, there is a big opportunity for blockchain technology to be applied and radically streamline the closing process, possibly opening the door for the use of cryptocurrency in the future. A relatively brief synopsis of key blockchain capabilities will hopefully help explain the potential benefits of digitizing and automating aviation escrow transactions. Increased accuracy and integrity are at the top of that list.
There are two main types of blockchain ledgers – open, in which participants are anonymous, or closed, in which participants are identified. Participants have confidence and trust in the accuracy of records because they have access to the same information, and consensus is required to add new inputs, or “blocks”, which are connected to those preceding them. Closed blockchains are also referred to as “permissioned” because certain parameters can be applied, allowing specific participants, and limiting functions like the ability to view, add to, or validate the ledger.
There is a high level of confidence in closed blockchain databases because the records cannot be changed, and the database can limit access and functions, providing a more private transactional space. Either type can provide a way to carry out transparent, verifiable and secure transactions in real-time, but a closed blockchain database is more applicable to aviation escrow transactions, and even more so the use of “smart contracts” within it.
Smart contracts, as previously referenced, are digital contracts agreed to by the parties involved. They are already used outside of blockchain technology, helping to efficiently authenticate and conclude agreements, but the increased ability for automation along with a distributed and neutral database can offer specific benefits in escrow transactions. Not only can certain permissions be applied to the database, but conditions can be applied to documents as well. For example, if an escrow document is simply lacking a signature and that requirement is met, then the document will automatically be processed.
Blockchain databases can make the transactions of an aircraft closing accessible to the parties in the transaction. Examples of visible transactions can include submission and/or signing of required documents, submission of funds by parties (though specific amounts can be hidden), filing of documents, registrations of International Interests and more. Through applying conditions to the smart contract, blockchain databases can automate much of the process, reducing the risk of human error. Accordingly, the amount of time spent retrieving and circulating documents, would be greatly reduced.
However, blockchain technology is still largely unregulated. Without consensus among lawmakers as to use and enforceability, there could be jurisdictional issues, especially with other countries. There is currently a lack of integration in the aviation industry as well, which could make it difficult to fully realize the benefits of the technology.
Aviation escrow has to consider all aspects of the aviation and financial industries, so widespread regulation and integration of new technologies is important. However, unlike the use of cryptocurrency and its volatile nature, the use of blockchain technology could mean more security, and a competitive edge. The ability to quickly make more informed decisions increases significantly with automated systems, increasing efficiency and reducing costs.