Welcome to the third in a series of WFW articles, exploring blockchain technology and its effectiveness across key industries. This article looks at the potential impact of blockchain on the aviation sector.
What is blockchain technology?
Blockchain technology is often described as distributed ledger technology. It is “distributed” because the data, which is stored in a ledger, or chain of chronological blocks, is shared amongst a number of parties who each have a complete copy of the information, as opposed to the data being held by one centralised party as has traditionally been the case. All parties to the blockchain have to agree on new data entries (“Consensus“), and so there is always only one verified set of data.
The blockchain is secure and resistant to modification by design. Cryptographic algorithms validate how transactions are recorded in blocks, per the Consensus. This characteristic is critical as it enables the blockchain to replace trusted middlemen with computer code, which performs the same job with more certainty, with less scope for human error and fraud, all in a fraction of the usual time and for a fraction of the usual cost.
Some blockchain communities are open to the public, such as Bitcoin. However, given the sensitivity of data involved in aviation finance, the systems envisaged in this briefing are private “permissioned” networks, where a party wishing to join the community requires the consent of an entity or consortium acting as gatekeeper. This can enable different parties to have differing levels of access to data, as appropriate.
So, will aircraft be financed in cryptocurrency anytime soon? We don’t envisage this happening as currently this would just replace airlines’ foreign exchange risk with volatile cryptocurrency risk. However, there are four other instances where blockchain might revolutionise elements of the current aviation finance landscape:
- The use of smart contracts in finance transactions;
- Blockchain maintenance logs;
- Implementation of a public registry for ownership and security interests; and
- Implementation of a trading platform for debt and equity interests in aircraft.