In this summer of oppressive heat, I believe many of you plan to travel inside or outside the country to escape the swelter. And if you travel long distances, especially overseas, planes are a practical way to do it. For those of you who love to travel, you're probably already member of your regular airline company's frequent flyer program and are planning to fly using the miles you've saved. Air miles are convenient because they can buy you air tickets; on the other hand, however, they cannot pay for meals at restaurants or souvenirs during a trip. You may have wished air miles were more useful.
If that's your experience, I have good news for you. Blockchain has made it possible to pay with miles. It was Singapore Airlines that introduced this payment system to various stores and restaurants. The company launched KrisPay, the world's first blockchain-enabled miles-based digital wallet on July 24, 2018. Mileage members can now shop and pay with KrisPay miles instead of cash at partner merchants. Taking advantage of the ability of blockchain to settle small payments at a low cost, the minimum payment is only 15 KrisPay miles (approximately 0.1 Singaporean dollars, or 8.16 yen).
Screens of Singapore Airlines' digital wallet, "KrisPay," for members called KrisFlyers (source: KrisPay screen images on the Apple App Store)
Users can pay for purchases with KrisPay at 18 partners including beauty shops, restaurants, retailers, and gas stations. Restaurants in the Shangri-La Hotel Singapore and the famous tea brand TWG Tea are some examples. KrisPay can be used only in Singapore now, but the availability may expand internationally as more partners join.
The airline industry is a very competitive one, so other airline companies are likely to be watching closely how KrisPay goes. If it proves useful, there will be airlines clambering to offer a digital wallet as a part of their mileage services in future.
KrisPay benefits from the unique feature of blockchain where it can create a small-payment settlement system at a low price. In this article, we will take a look at what various industries are trying to accomplish with blockchain while examining how it is being used.
Financial Institutions Trialing Blockchain in Search of Business Fields and Operational Know-How
Blockchain was originally designed for cryptocurrency transactions. Naturally, the financial industry is actively exploring how to use it effectively. As represented by the Japanese Bankers Association's experiment introduced in the previous article, a number of financial institutions and emerging companies specialized in blockchain technology began testing financial operations on a blockchain platform. They are now identifying problems in practical use and discovering ways to operate and manage it effectively.
Blockchain is attractive to financial institutions because they can easily and inexpensively implement features that are difficult or expensive for current financial systems built around a host computer. Proof of falsification, excellent failure resistance, secured anonymity, no intermediaries, and sharing of transaction records by relevant parties are some of the examples. It's particularly noteworthy that a blockchain is created with a large number of computers that can retain all transaction records simultaneously, achieving extremely high failure resistance. A conventional financial system, on the other hand, is created in a completely different way: a few large computer centers backup each other's records. In the case of Bitcoin, for example, a blockchain has over 10,000 computers called full nodes that can refer to all transaction records.
Needless to say, blockchain has its own limitations and issues. Real-time payment settlement is not easy, the number of payment settlements per unit time is limited, and there are security risks. Financial institutions, consequently, are experimenting to discover business fields where they can take advantage of blockchain features to gain operational know-how ahead of others and boost their competitiveness.
Energy Industry Accelerates Practical Application of Blockchain Technology to Realize Easy Small-Payment Settlement
Some industries recognize blockchain as a breakthrough technology for business expansion. The energy industry is one of them. Blockchain is attracting attention as a technology that may be able to connect ordinary households with solar panels to allow them to directly trade excess electricity according to their consumption needs. In Japan, the feed-in-tariff (FIT) program for general ordinary (a ten-year program where the government purchases excess electricity generated using solar panels at high prices) ends in 2019. After that, over a million households that are selling electricity under this program must look for new electricity buyers. For these households to sell electricity easily, a small-payment settlement system with a low charge is needed. The energy industry is therefore raising expectations for blockchain as a solution for the 2019 Problem by providing an inexpensive way to settle small payments without intermediaries.
Outside Japan, an attempt to create a blockchain-based platform to allow ordinary households to trade their solar energy began in about 2016. In Japan, development of a blockchain-based system began to take shape in 2017.
For example, in March 2018 Tokyo Gas, which focuses on electricity retailing, invested in Digital Grid Corporation. This is a venture company promoting blockchain-enabled platform business for direct electricity and environmental value trading. As an implementing entity of the Ministry of the Environment-endorsed project to generate value from CO2 reduction using a blockchain-powered platform, Digital Grid Corporation provides a platform that allows power companies and consumers to directly trade the environmental value of renewable energy. For the future, the company is considering launching a platform business to allow individual households to directly trade their excess solar energy with energy companies.
It is possible for a power company to use blockchain to provide a system for households to trade their excess electricity. For example, since April 2018, Kansai Electric Power Company and Australian Power Ledger have been conducting joint experimental research on blockchain-enabled direct electricity trading. This research simulates cryptocurrency payment for the amount of energy collected through smart meters installed at residences of individual prosumers (those who sell generated electricity) with solar-power generation equipment when their excess energy is sent to consumers. Power Ledger is a company with a track record of creating blockchain-based inter-household trading systems.
So in the energy industry, as illustrated above, blockchain is gathering momentum as a solution for the 2019 Problem, and shows promise as a post-FIT business model.
Creating a Content Distribution Platform with Anonymity and Smart Contracts
Evident elsewhere is the creation of a platform to take advantage of blockchain features and realize innovative business. Digital content distribution is one such example.
Japan produces an enormous amount of entertainment content such as manga, anime and games that are popular outside Japan, too. The country also has many companies, local governments, and individuals that own such wonderful content. Meanwhile, the issue of illegal websites where such content is distributed while ignoring the rights of creators continues to loom. Unfortunately, we still have not encountered services that allow content owned by companies and individuals to be used easily and safely in various areas.
Blockchain, however, could make a difference. While securing anonymity, blockchain saves all transaction records with no falsification risks. It can also be used for small-payment settlements because it can keep individual transaction fees low.
An example of developing a blockchain-powered digital content distribution platform was the experiment of a nail-art design service using content owned by companies, local government, and individual designers. Fujitsu Broad Solution & Consulting ran the trial at a citizens' participatory event called 078 (read as zero-nana-hachi) in Kobe City in April 2018. In this experiment, purpose-specific communities were created on the platform. Content owners, providers of products and services using their content, and service users distributed digital content on the platform while following the unique rules implemented for the experiment. A smart contract system was established so that content users automatically paid for the amount of content they used. In general, people who like nail art can turn various designs that they see and like in daily life into their nail art designs. Some people, though, may be unable to find designs they like so easily. This platform not only introduced them to a wide variety of designs, but enabled them to use new designs they like as nail art.
Cross-Industry Transaction Record Sharing and Analysis Generated New Customer Value
A whole new approach to blockchain has also begun. Business entities in different fields are using blockchain to share their transaction records, and analyzing the shared data from many angles to generate new customer value.
Mitsubishi Estate, Fujitsu, Softbank, and the University of Tokyo are working on this approach. On May 14, 2018, they began experimenting with a new town development in the Marunouchi district of Tokyo using data in a business-academia collaboration.
More specifically, Fujitsu is applying its unique data distribution and use platform created with blockchain technology to distribute and share data from Mitsubishi Estate and Softbank. Mitsubishi Estate has building equipment operation data and commercial facility data, while the Softbank Group owns crowd movement data. The distributed and shared data is analyzed using Softbank's platform and knowledge of business units. This way, they can generate cross-industry business and services. For example, they can combine office building power-consumption data and crowd movement data for areas around these buildings to develop effective sales promotion strategies. Their goal is to employ data in ways that a combination of seemingly irrelevant data will result in generation of new value.
As we have seen, many industries are adopting blockchain to realize capabilities beyond the reach of traditional systems, or to develop platforms to co-create business that never existed before. It seems safe to assume that system creation will spread into a whole raft of business fields.
Exploration of how to use blockchain must have begun in your business field, too. For businesses, what significantly enhances their competitiveness is not limited merely to improvements in system efficiency or cost reduction. It also depends on how much they can extract their own co-creation capability, which is the power to work with other companies and generate new business.
In the next article, we will explore the future development of blockchain.
Nikkei BP Intelligence Group Clean Tech Laboratory, Chief Research Officer
Mr. Hayashi joined Nikkei BP after graduating from Tohoku University's School of Engineering in 1985. As a reporter and editor-in-chief for outlets such as Nikkei Datapro, Nikkei Communications, and Nikkei Network, he has covered stories and written articles on topics such as cutting-edge communications and data processing technologies as well as standardization and productization trends. He consecutively held the post of chief editor for Nikkei BYTE from 2002, Nikkei Network from 2005, and Nikkei Communications from 2007. In January 2014, he became Chief Director of Overseas Operations after acting as publisher for magazines including ITpro, Nikkei Systems, Tech-On!, Nikkei Electronics, Nikkei Monozukuri, and Nikkei Automotive. He has served at his present post since September 2015. Since August 2016, Mr. Hayashi has been writing a regular column, "Creating the Future with Automated Driving," in the Nikkei Digital Edition. Moreover, he published the "Overview of International Automated Driving Development Projects" in December 2016 and the "Overview of International Automated Driving/Connected Cars Development" in December 2017. Mr. Hayashi has also served as a CEATEC Award judge since 2011.