Blockchain Legal & News

Do We Actually Need Blockchain Technology Standards?

Julia Krieger 12 Feb 2020

As a nascent industry, blockchain technology has made extensive progress since its initial mainstream use in Bitcoin roughly a decade ago. From being a concept that only a few understood, having been painted mainly as a tool used for malicious purposes, the public sentiment has changed considerably over the last several years. Governments are looking to introduce their own digital currencies, which are to complement their national fiat money, running on the blockchain, and organizations can be seen implementing the technology in their traditional business models to reap additional benefits.

However, a one size fits all solution does not exist. Blockchains come along in many different forms, each with their own unique characteristics; their differences can be observed in their consensus mechanisms, scaling solutions and degrees of decentralization, among others. Such differences can lead to a highly fragmented industry and to the undesired outcome that individual participants store and process data in their own silos, isolated from other organizations.[1] The disadvantages of such an approach are manifold and can ultimately result in slower adoption of blockchain technology by businesses, and impair the network effect of these systems.[2]

It is, therefore important to answer the following question:

How do we achieve harmonization and unification in an otherwise fragmented industry in order to maximize its value for businesses and society as a whole?

The Case for Standardization

Standards constitute a repeatable, harmonized, agreed and documented way of conducting business.[3] They provide guidelines, definitions and rules to facilitate interaction, enable companies to comply with relevant laws and regulations, speed up the introduction of innovative products to market, and provide interoperability between new and existing products, services and processes.[4]

The lack of interoperability is one of the most significant shortcomings of blockchain technology as of today, with generated data being proprietary to one specific blockchain; this entails that information cannot be shared across different networks and remains restricted to one ecosystem only. As such, most infrastructure projects in the industry can be considered stand-alone, disconnected networks, operating alongside but isolated from each other. If the industry is to move forward and towards mass adoption, though, a seamless exchange of data between different blockchains is of the essence. A prime example would be medical care – how are doctors to retrieve critical data in case of a patient emergency if hospitals are relying on different blockchains? Thus, in industries where the cost of failure – the death of a patient, for example – is too high, the adoption of blockchain technology would not constitute a viable option if it were only to be used in isolation from other networks.

The necessity for blockchain interoperability has already been recognized by several renowned standards developing organizations (‘SDOs’) within and outside the space, such as the Enterprise Ethereum Alliance (‘EEA’), the International Organization for Standardization (‘ISO’) and the standardization sector of the International Telecommunications Union (‘ITU-T’). Other SDOs include the World Wide Web Consortium (‘W3C’), and the Society for Worldwide Interbank Financial Telecommunication (‘SWIFT’).[5]

ISO intends to release its first standards for blockchain and distributed ledger technologies by 2021; for now, one standard has already been published, and ten additional ones are in development.[6] The Technical Committee (‘TC307’) is focusing on topics such as blockchain interoperability, smart contracts and their applications, governance, and security, privacy and identity. The EEA, whose mission is “[…] to develop open blockchain specifications that drive harmonization and interoperability for businesses and consumers worldwide”, is set to launch its Certification Program later this year. This certification will ensure that solutions conform to and interoperate with EEA standards to increase consumer confidence and simultaneously establish a performance benchmark that users can expect to be upheld whenever using an accordingly certified application.[7]

Which Benefits Can Be Expected from Standardization?

From a high-level perspective, standards provide a framework that businesses can adjust to. Every business that complies with its specific industry standards has something to gain – a certification acts as a stamp of approval and confirms quality, signalling customers that they can trust the company. The same expectations underly the current works on blockchain standardization; businesses need to be able to meet on common ground and build from there to move the industry as a whole forward.

Introducing standards, the blockchain space is expected to benef in many ways, some of the most important onesare enhanced growth, especially in cross-organization, cross-border usage scenarios, unified terminology, a potential reference for use case applications for guiding adoption, interoperability between different ledger technologies and also between different ledger technologies and other system components, and the removing of barriers to entry by facilitating accelerated time to market.[8]

One could assume that standards and all the requirements they pose could have a negative impact on future innovations in the space – after all, they intend to ‘control’ the environment. However, the effect may quite be the opposite. Findings show that companies operating in a market with high uncertainty, a highly heterogeneous technical landscape and unpredictable consumer behaviour profit from the introduction of standards since they might provide them with a sense of direction – especially with regards to further technical developments.[9]

Conclusion

As of now, blockchain and distributed ledger technology can still be considered a highly uncertain market. Infrastructure projects are trying to outdo each other in terms of scalability or latency, among others, thereby utterly ignoring the much-needed interoperability aspect; this leads to a fragmentation of the industry that forbids any collaboration between participants.

Standards can help to counteract this trend and push the industry towards a common ground, without running the risk of smothering innovations. This has already been proven in traditional industries, with positive results for manufacturing (e.g. ISO 9001) and software development (e.g. Agile methodology).

Thus, there should be no doubt about the same positive outcome for the blockchain industry. According to Moody’s, 2021 is the year that blockchain standards will go global; coincidentally, this falls also in line with ISO’s set goals.[10]

[1] https://www.hyperledger.org/blog/2018/08/16/business-process-modeling-the-missing-link-between-legal-know-how-and-blockchain-based-legal-products (January 20th, 2019)

[2] https://www.ledgerinsights.com/ethereum-enterprise-standards/ (January 24th, 2019)

[3] https://www.irena.org/inspire/Standards/What-are-Standards (January 24th, 2019)

[4] https://www.cencenelec.eu/research/tools/ImportanceENs/Pages/default.aspx (January 24th, 2019)

[5] https://www.researchgate.net/publication/320364955_Blockchain_Standards_for_Compliance_and_Trust (January 24th, 2019)

[6] https://www.iso.org/committee/6266604.html (January 24th, 2019)

[7] https://tokenpost.com/Enterprise-Ethereum-Alliance-launches-blockchain-testing-environment-for-members-4793 (January 24th, 2019)

[8] https://isotc.iso.org/livelink/livelink/fetch/2000/2122/687806/ISO_TC_307__Blockchain_and_distributed_ledger_technologies_.pdf?nodeid=19772644&vernum=-2 (January 24th, 2019)

[9] https://www.sciencedirect.com/science/article/pii/S0048733316301743 (January 24th, 2019)

[10] https://www.moodys.com/research/Moodys-Blockchain-standardisation-will-amplify-benefits-for-securitisations--PBS_1193318?WT.mc_id=AM%7ERmluYW56ZW4ubmV0X1JTQl9SYXRpbmdzX05ld3NfTm9fVHJhbnNsYXRpb25z%7E20190905_PBS_1193318 (January 24th, 2019)

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