We have seen rapid adoption of blockchain technology in aerospace, aviation, and defense.
But what is blockchain? And where is it already being used?
Will blockchain technology revolutionize today’s aerospace, aviation, and defense ecosystems, and if so, in which areas?
And what exactly is this talk about “smart contracts”? Are they the blockchain equivalent of legal contracts?
Does this mean blockchain will also impact the way we work today with contracts and contract management?
In this and the following posts, I will attempt to answer those questions and explain what blockchain technology and related terminology are. And I am going to try not to be too technical.
Doing research for this post and bringing everything together onto this post is a learning experience for me as it will be for you to get to know more about this subject.
I will also give examples of how companies use blockchain in aerospace, aviation, defense, and other industries. And that “smart contracts” are not traditional contracts.
My goal is to give you a first or better understanding of why blockchain is a disruptive technology that will also impact business, trade, law, how we deal with contracts, and all the stakeholders involved.
I will detail how blockchain technology already works in aerospace, defense, and aviation (e.g., spares, maintenance, repair & overhaul, supply chain management, air transport) and in which areas there are more opportunities.
This post is the first of several articles I intend to write on the application and benefits of blockchain technology for aerospace, aviation, and defense in general and contract and supply management.
So make sure you subscribe here below to catch the following posts on this fascinating subject!
Blockchain and Smart Contracts for Non-Techies
What is blockchain?
Each post about blockchain inevitably starts with the digital currency Bitcoin. Or a story about an anonymous writer who wrote a now-famous nine-pager called the Satoshi white paper.
Many people now know Bitcoin as a next-generation digital currency.
They often don’t know that Bitcoin is using a unique technology known as “blockchain”.
Blockchain is a technology that provides a significant step forward in secure computing by storing, executing, and establishing trust in an untrusted open environment.
Blockchain is an emerging – and disruptive technology – that has excellent potential to provide trust, reliability, data security and integrity, traceability, privacy, transparency, visibility, and auditability across various aerospace, aviation, and defense industries.
Transactions and data are reliably and securely stored and processed in a decentralized and distributed architecture or blockchain network consisting of peer nodes, smart contracts, ledgers, and many more components.
The “block” and the “chain” in “blockchain”.
Let’s start with the first element in the name: the “block”.
The “blocks” contain data from specific transactions.
What about the second element: the “chain”?
The blocks are streamed or sequenced to form a continuous chain of blocks (thus a “blockchain”).
Any participant in the blockchain network can verify any particular transaction in any block in the chain by the order in which it occurs.
Each block references the immediately preceding block.
The above all happens in a “blockchain network”.
So a blockchain is a decentralized or distributed digital ledger consisting of blocks used to record transactions across many computers (containing the “peer nodes” see later).
Any participant can only change any involved block retroactively by changing all subsequent blocks.
This way, all stakeholders can verify and audit transactions independently.
A blockchain database autonomously uses a peer-to-peer network of computers.
I will here briefly touch on the most critical components of such a network: “peer nodes” and “ledgers” making use of “consensus algorithms”.
Peer nodes
What do all these words mean?
Bear with me when I try to give a very high-level description to explain the principles.
Every digitally signed transaction remains shared among different so-called ‘peer nodes’ on the Internet to guarantee that the same state of the ‘digital ledger’ is available on every node.
A blockchain network primarily comprises a set of peer nodes (or, simply, peers). Peers host ledgers and smart contracts.
Peers work in the same way.
Nodes talk in the network to each other through their peers and learn about the network from their peers.
Sources: Hyperledger Fabric and Stackexchange
So the system is “peer-to-peer”. Since many computers have this information, a central database does not exist. A central database is hackable. Hacking hundreds or thousands of databases at the same time is impossible. In addition, it also uses state-of-the-art encryption systems.
Distributed ledger
Blockchain technology is a decentralized, distributed database system”.
Distributed ledger technologies in peer-to-peer networks enable multiple participants in the network to maintain identical copies of a shared ledger.
Instead of requiring a central authority to update and communicate records to all participants, they allow their members to verify, execute, and record their transactions without relying on intermediaries.
Source: Hedera
Therefore, you can see a distributed ledger as a database that you can spread across multiple sites, countries, regions, or stakeholders.
The same information can be available in different locations, available to anyone, and all participants can be confident the information is trustworthy.
Consensus algorithms
Why? Because ‘consensus algorithms’ secure the blockchain and ensure no one or nothing can perform malicious transactions.
A consensus algorithm allows users or machines to ensure that all actors in the system agree on a “single source of truth”, even if some actors fail.
The system must be fault-tolerant.
Source: Binance Academy
The distributed storage feature of blockchain technology makes it practically impossible to hack, modify, or remove the data from the ledger.
Three categories of blockchain platforms
We recognize three distinct types of blockchain platforms.
1. The “permissionless” or public blockchain
Every user can read the transactions on a ‘permissionless’ blockchain ledger. Such blockchain
platforms are publically accessible and have zero access-control policy.
This ledger is fully decentralized, and all transactions are fully transparent to the public. Anyone can join and read the data on the ledger.
Therefore, for defense and military operations, this is not a recommendable choice.
However, it can boost performance and speed in tracking and tracing services for the supply chain management of aerospace spare parts.
Example: Ethereum
2. The “permissioned” or private blockchain
Access rights to transact on a permissioned blockchain are limited to members of the organization only.
In this blockchain, the distributed ledger is private. It facilitates creating private channels between organizations or between personnel in organizations. The focus is on security and privacy-preserving, and auditability of actions.
Usually, only one entity controls all of the changes to the ledger. The ledger is distributed to all of the members.
This principle applies to highly regulated environments such as banks. Still, you can also imagine this solution can also be applied in aerospace, aviation, or defense organizations and supply chains.
For instance, military operations can use it to automate supply chain services of battlefield ammunition.
All approved members can access all transactions on their servers.
This way, the group can confirm every transaction in the past, whereas only one party can add new transactions.
If a participant attempts to change a prior transaction, the other participants’ computers can confirm it as fraudulent since it doesn’t appear on their computers.
Example: Hyperledger
3. The “consortium” or partially decentralized blockchain
A consortium blockchain platform allows a set of organizations to transact on the blockchain securely.
A consortium is a distributed ledger where a predetermined limited number of participants or a subset of organizations can validate transactions and add transactions to the blockchain. Still, all participants have access to the blockchain.
Example: Quorum
The benefits of blockchain and smart contracts
Traditionally, if we need to solve conflicts, we need to commission centralized third parties (the parties’ management, and if things go wrong, getting arbiters or judges to intervene).
This process often takes a lot of time and resources and can be very expensive.
Blockchain technology eliminates the requirement for such third-party reconciliation.
It allows ‘trustless entities’ to transact with each other in a much faster and economical way with a self-executing code. The code executes when pre-defined conditions are met.
It represents an agreement among the stakeholders to transfer assets of a specific value. Moreover, all that happens is auditable and highly transparent among business stakeholders.
All of the above significantly boosts the performance of a business.
Business partners can solve potential conflicts (if any) among each other in a much faster way.
Blockchain is simply a way to obtain information that you can trust. Also, if you don’t know what or who the source of information is.
Trust, but verify
Ronald Reagan
Blockchain technology is built around verification and therefore creates the trustworthiness of all the information sent and received.
When you exchange information or value, the main ingredient is trust.
Blockchain allows you to trust the system. You don’t even need to worry about trusting the source.
And while there are presently systems to solve this issue now, most are complex, and none of them are nearly as reliable as the potential of blockchain.
What are smart contracts?
A second concept you may or may not have already heard of – and an integral component in blockchain-enabled applications – is that of “smart contracts”.
Smart contracts are not legal contracts. However, smart contracts can “represent” legal obligations and commitments in contracts,
They have a life of their own and can execute their lifecycle events (such as price revisions and interest calculations and payments).
So a smart contract is simply a computer program. A piece of software code designed to monitor, execute and enforce pre-defined obligations of a formal legal agreement. Smart contracts can perform actions and functions based on different inputs and triggers.
One can encodeontractual clauses and the functional outcomes of their execution are encoded onto the relevant part of a blockchain (called a “block,” as explained above). By doing so, that part of the contractual obligation is automated.
Smart contracts can be trusted not to be corrupted or changed by people who are not allowed to change them.
The great benefit of smart contracts is that they reduce the cost of execution, lower risk, and provide transparent certainty about the successful completion or not of the required task.
The Issues Related to Blockchain
Computing power
As a blockchain grows, the need for more computing power and more energy to keep it going grows with it.
Government intervention
Government intervention could also be a significant stumbling block.
When dealing with public access to any system, it becomes more susceptible to government intervention and interference.
Legislators love to legislate, and regulators love to regulate.
The law of unintended consequences runs rampant among this group.
Regulatory interoperability
Another legal issue is regulatory interoperability.
While the concept of the blockchain is that it should be ubiquitous, transparent, and open to the world at large, the creation of private blockchains keeps the power in the hands of large companies.
Bigger, stronger, and richer than their competitors, will they completely privatize blockchain technology and usurp it for their purposes?
Will the blockchain make those companies that control private systems much more wealthy at the cost of loss of work for middle and working-class families? Will the blockchain create more opportunities for employment than exist now?
Legal issues
Traditional legal principles might not always apply as expected. For instance, who owns the data? This uncertainty is causing a lot of trouble in the industry right now.
Technical issues
Then, in addition to regulation and law, cost and energy consumption, there also are issues related to:
- Latency – minimum execution time for a transaction to meet objectives; especially a problem in military environments where fact action is essential
- Privacy – on public blockchain platforms, data privacy cannot be guaranteed as transactions, data, and addresses are publicly accessible on the ledger.
- Large data traffic – for specific applications, a considerable amount of data needs to be collected and transferred, so determining how much and which data should be recorded on the blockchain ledger is very critical (e.g., in battlefield environments)
- Smart contract security – the presence of program bugs can prevent smart contracts from functioning correctly, and that may lead to huge losses and disruptions.
- Interoperability – differences in supported languages, consensus protocols, and levels of protection in smart contracts can cause issues.
How Can Blockchain Transform Aerospace, Defense, and Aviation?
If you took a look at companies’ back offices, you would see that they are huge and deal with thousands of administrative tasks.
The industries manage a large number of contracts, assets, and distributed processes in extended supply chains;
- Invoicing
- Payments
- Purchase orders,
- Contract changes,
- Interests
- Price revision calculations
- Send confirmations
- Match confirmations
- Settle transactions, claims, and penalties (e.g., for late delivery)
- And many other essential administrative tasks.
Anything a company or organization does has a legal contract behind it.
This fact is also the case for all players and supply chains of aerospace & defense, aviation, high-tech manufacturing.
All need to manage large numbers of contracts. From simple spares contracts to complex lease structures.
Can you put everything in smart contracts?
Yes.
But maybe you don’t want to do that.
In aircraft programs – where you can have stretched deliveries over a long period – prices are often subject to price revision formulas to account for labor and material cost changes.
The indices used in the formula come from governmental bureaus of statistics. The calculation can be standard and agreed upon and included in the smart contract, but maybe the inputs should come from a trusted service – in this case, these bureaus of statistics.
You also need to store and manage the lifecycle events of your contracts. Similarly here, smart contracts can help.
Blockchain technology is still in its first phase of the technology lifecycle, but its potential impact across discrete and linked industries is vast, and its widespread adoption is realistically an inevitability.
It can transform many industries, including industries like aerospace, defense, aviation, and high-tech manufacturing.
Blockchain technology will revolutionize industries, but there are still some hurdles to take
Based on the opportunities discussed, we conclude that blockchain technology has immense
potential to successfully improve the services and operations of the aerospace, aviation, and defense industries.
Blockchain technology promotes radically new ways of operating. Also, it will impact lawyers and contract managers. Also, it will affect other domains in aerospace, aviation, and defense.
However, there are still several open issues and challenges that prevent the widespread adoption of blockchain in the aerospace, aviation, and defense industries.
In my next post, I will explain what those challenges are and visit some great examples of blockchain in aerospace, aviation, and defense.
Here already a taste :
- Air transport -the adoption of blockchain technology and smart contracts in air transport-related applications requires risk assessments for utilizing such technologies to include both a thorough legal analysis and regulatory analysis.
- Logistics and supply chain management – blockchain-enabled supply chain to establish the provenance of each part, detect counterfeit components, locate the spare parts requiring maintenance, repair, and overhaul (MRO), monitor airworthiness, and to help reduce the total maintenance cost of an aircraft.
- Maintenance, repair & overhaul (MRO) – how smart contracts allow maintenance scheduling of aircraft or engines and how NATO is employing blockchain to ensure secure military procurement and traceable logistics supply services.
- Contract management and legal – how blockchain for contracts can help keeping track of their paper trails is critical in business transactions; encryption can provide a high level of security while allowing for complete transparency.
The complexities of our industries create fertile ground for the widespread adoption of blockchain technology and smart contracts.
However, and in parallel, the world must develop the legal technology and contract lifecycle management systems and frameworks for those new technologies must exist.
Also, you and your company can take advantage of these new technologies to improve your operations and increase efficiency and business value.
See you back with the next post on this exciting subject!
Leave comments or questions below, and maybe I can use them for my next posts!