What is blockchain, how does it work, and how could it be applied to aviation? Aircraft Guaranty explores the advantages and risks this technology could bring to aviation owner trustee transactions…
Blockchain: the highly advanced, decentralized database technology behind every virtual currency you can think of and that most of us don’t understand. Blockchain has many companies in many industries making huge strides to be at the front of the digital revolution, including aviation. That isn’t regarding the use of virtual currencies (i.e. cryptocurrencies) like Bitcoin, Ethereum, Ripple and others, but the multitude of other applications for which blockchain technology can be used.
In last month’s article, ‘Cryptocurrency in Aviation Owner Trustee Transactions’ we looked at virtual currencies and their possible use in the aviation industry (and specifically in aviation owner trustee transactions). Following, we will focus purely on the technology behind it all, and what its potential use is in aviation owner trusts.
The Four Pillars of Blockchain
To review, blockchain has four main pillars. These 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, is open to all (anonymously if desired), and provides access to view its immutable records (permanent and timestamped with each new transaction or alteration) but not retrospectively change.
How Does Blockchain Work?
For aviation owner trustee companies, and the large amount of data produced with every transaction, there is a big opportunity for blockchain technology to be applied and significantly streamline the process (possibly opening the door for the use of cryptocurrency in the future).
A relatively brief synopsis of key blockchain capabilities will hopefully help to understand the potential benefits of digitizing and automating the aircraft owner trustee registration process and associated 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.
Confidence and trust in the accuracy of records is established because participants have access to the same information and consensus is needed to add new inputs (‘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 such as the ability to view, add to, or validate the ledger.
While a closed blockchain database can limit access and functions, providing a more private transactional space, the same level of confidence in records applies due to their immutability. 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 aircraft owner trusts, and even more so the use of ‘smart contracts’ within it.
How Could it Work in Owner Trustee Transactions?
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 in conjunction with a distributed and neutral ledger offers specific benefits in owner trustee transactions.
Not only can certain permissions be applied to the database and contract, but certain conditions as well, meaning if the pre-set ‘input’ requirement is met then the ‘output’ would be automatically enacted.
This digital offer and acceptance of terms, and the resulting transactions still necessary to conclude it, would be immediately accessible to the parties, making the process almost fully automated and free of human error. Accordingly, the amount of time spent and the cost incurred retrieving and circulating documents, along with the fees associated with processing transactions would be greatly reduced.
However, blockchain technology is still largely unregulated. Without consensus among lawmakers regarding its use and enforceability, there could be many pan-jurisdictional issues. There is currently a lack of integration in the aviation industry, too, which could make it difficult to fully realize the benefits of the technology.
Aviation owner trustee companies must consider all aspects of the industry, especially security and compliance, so widespread regulation and integration of new technologies is important.
However, unlike the use of cryptocurrency (given its currently volatile nature) the use of blockchain technology could mean more security, and a competitive edge. The ability to make more informed decisions more quickly grows significantly with automated data inputs creating more reliable outputs, increasing efficiency and reducing costs.
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