i3 - November/December 2018 - 19

leveraged an asset really was, thereby allowing
them to price their risk accurately.
Another interesting use of blockchain to
increase transparency comes from the world of
the Internet of Things (IoT). The blockchain's
ability to store video footage could be used to
store video feeds from a police officer's body
camera. If data from the body camera were
stored not just on the camera itself but uploaded
to a cloud-based blockchain each maintained by,
for example, the police department, the police
union and the state's attorney general, then footage could neither be added, deleted or edited to
cover up misdeeds or corruption.
In this example, the blockchain increases
transparency by being a solution that overcomes
the misalignment of incentives between a police
department, a union representing employees
and an attorney general's office looking to stamp
out corruption or other transgressions. By
encoding data into the blockchain in multiple
locations, video footage cannot "go missing" or
be altered. Events like turning off a body camera
or device failure could also be encoded in the
blockchain for all to see and verify.

Shana Novak/Getty Images

OVERCOMING MISALIGNED
INCENTIVES WITH BLOCKCHAIN

A third major benefit of blockchain is its ability to
overcome misaligned incentives and asymmetry of
information in certain situations. Real estate is
another tradition-bound industry that is on the
cusp of significant disruption. Anyone who has
ever bought or sold a house can tell you about the
opacity of the negotiation process between the
buyer's and seller's agents. It is not uncommon for
sellers' agents to negotiate the sale price of a home
over the course of hours or days while the seller
waits by the phone for news of the final sale price.
Sellers can inquire as to the details of offers
made on a property, but the timing and nature of
bids from potential buyers, especially in multiplebid situations, are often not disclosed or glossed
over. Further, in a competitive bidding situation,
the seller's agent is the only party to the transaction who holds all the information on bids and
other negotiated terms. It is not inconceivable
that a seller's agent, who is motivated first and
foremost to generate a successful sale, might steer
a home sale away from a buyer who offers more

money than the next highest bidder simply
because the high bid carries more risk for the
underwriter and therefore might inadvertently
scuttle a sale at the eleventh hour.
Blockchain can help solve a couple of issues
inherent in the scenario described above. If bids
are encoded in blockchain, the timing and quantity of bids can be known by all parties and potential bidders. Second, technology exists to determine
if an incoming bid is higher or lower than a bid
already recorded in the blockchain, even if that
value is hashed and not human-readable.
That way, a home seller can verify the quantity,
timing and competitiveness of incoming bids while
a buyer's agent can bid enough to be the high bidder
without causing their client to overpay for a home.
It is important to point out that the majority of
buyer's and seller's agents are honest people working in the best interest of their respective clients, but
it is rare to find an economic system or arrangement
that cannot benefit from some measure of increased
transparency and reconciliation of incentives.

NO SILVER BULLET

Blockchain is not the perfect solution to every
problem. Many of the problems described above
could, in theory, be solved with a database and a
well-crafted and vigilantly enforced legal framework. The power of blockchain to solve these challenges lies primarily in its distributed nature along
with its ability to be both open to inspection (and
therefore transparent) while also protecting its
data from loss, theft, alteration or misuse.
Further, there is a potential cost of non-participation if certain players in an industry like shipping or
real estate choose not to work within the blockchain
ecosystem. Imagine being the only port in southeast
Asia to still require faxed paperwork or being the
last real estate agent in town who only accepts bids
over the phone and won't disclose relevant details.
Blockchain is still in its infancy. Many exciting
projects with interesting applications of the
technology have been announced. Many of those
projects will never make it beyond the press
release. Some will fail because they were misapplications of a headline-grabbing hot-thisyear buzzword. But we will surely see unique
situations where blockchain is the best and most
logical solution to a problem that, as of yet, we
have failed to solve. 

NOVEMBER/DECEMBER 2018

19



i3 - November/December 2018

Table of Contents for the Digital Edition of i3 - November/December 2018

Contents
i3 - November/December 2018 - Cover1
i3 - November/December 2018 - Cover2
i3 - November/December 2018 - Contents
i3 - November/December 2018 - 2
i3 - November/December 2018 - 3
i3 - November/December 2018 - 4
i3 - November/December 2018 - 5
i3 - November/December 2018 - 6
i3 - November/December 2018 - 7
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i3 - November/December 2018 - 19
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