Blockchain

Technology:PossibilitiesfortheU.S.PostalServiceRARCReportReportNumberRARC-WP-16-011May23,2021ExecutiveSummaryBlockchain

technology

allows

peerstoexchangemoney

directlywithouttheneedforatraditionalfinancialintermediary,loweringthecostandincreasingthespeedoftransactions.However,itisprovingtobemuch

more

than

a

waytotransfermonetary

value.Atitscore,blockchaintechnologyisawaytotransferanykindofinformationinafast,tracked,andsecureway.The

technology

is

only

in

the

early

stagesofdevelopmentanditis

hardtorecognizeitsfull

potentialatthisformative

stage.However,developersarebeginningtoexploreblockchainsolutionsoutsideoffinancialservices.

Thesenewapplicationsincludepropertytransfers,theexecutionofcontracts,authenticationservices,networkanddevicemanagement,andrecords

management.Despitetheirnovelty,blockchainapplicationsaregainingmainstreamtraction.Majorbanks,suchasCitibankandJPMorganChase,andgovernmententities,suchastheU.K.andEstoniangovernmentsand

AustraliaPost,areexperimentingwith

how

blockchain

technology

can

help

them

keep

betterrecordsandprovideservicesthataremoreefficient.

ThePostalServicecouldlikewisestandtobenefitfrommonitoringandexperimenting

with

this

technology.TheU.S.PostalServiceOfficeofInspectorGeneral(OIG)contractedwithSwissEconomics,aconsultingfirmwithinterestandexpertiseinblockchaintechnology,tobetterunderstandthetechnologyanditsfeatures,aswellasidentifyareasofpotentialinterestforthePostal

Service.HighlightsBlockchaintechnologyhas

thepotentialtodisruptservicesthattraditionallyrequireintermediaries.1Originallycreatedtotransferfinancialvalue,specificallywithinthecontextofthepeer-to-peercurrencyknownasBitcoin,blockchainisnowviewedashavingthepotentialtobeanefficientandsecurewaytotransferanykindofinformation.Mainstream

banks,governments,

andothercompaniesarestartingtoexperimentwithhowtheycanuseblockchaintechnologyinfinancialapplicationsandinnewapplicationareassuchasproperty

transfers,

authenticationservices,

andrecordsmanagement.Because

blockchaintechnologymay

disruptareasinwhichthePostalServicecurrentlydoesbusiness,itmaybewisetobeginstudyingitsimpactandexperimentingwithitsfuturepossibilities.This

paper

proposesthatblockchaintechnology

could

impactthePostalService’sbusinessinseveralways.Forexample,blockchainisalreadydisruptingtheglobalfinancialservicesindustry

—an

industry

the

Postal

Service

is

involved

in

throughservices

such

as

money

orders

and

international

moneytransfers.

Additionally

blockchain

is

an

enabling

technologythatcouldallow

the

Postal

Servicetoimproveitsoperationsand

expand

itsservices

through

emerging

applications

suchas

identity

management

and

supply

chain

management.

Thispaper

takes

an

exploratory

lookatthetechnology

and

suggeststhatitmaybe

wiseforthePostal

Servicetoengagein

furtherexaminationof,andevenexperimentationwith,thistechnologyin

ordertogaina

better

understandingofitspotentialimpacts.The

Postal

Service

could

improve

itsexisting

services

bybeginningtoexperimentwiththefinancialapplicationsofblockchain.Specifically,thecreationofafinancialplatformusing

blockchain

could

leverage

the

technologytoofferimprovedfinancialservicessuchasmoneytransfers.

Theplatform

could

allow

the

Postal

Servicetostreamlinetheback-endofthiscurrentservice,makingtheservicefasterandcheaperforboththePostalServiceanditscustomers.Itcouldalso

be

especially

usefulforinternationalmoney

transfers

duetothetechnology’sborderless

nature.Inthelong-term,thePostalService’sexperimentationwithblockchaintechnologyinfinancialapplicationscouldnaturallyexpand

into

other

applications

enabled

by

the

technology.

In

thispaper,theOIGoutlinesthreeotherareasofpotentialinteresttothePostalService:identityservices,devicemanagement,andsupply

chain

management.Summary

ofPotentialPostalBlockchain

ApplicationsFinancial

ServicesIdentity

ServicesSupply

Chain

ManagementDevice

ManagementStreamline

and

Expand

Existing

Financial

ServicesBuild

and

Manage

the

Internet

of

Postal

ThingsStreamline

Ecommerce

by

Integrating

Tracking,Customs,

and

Payment

InformationValidate

and

Authenticate

User

IdentitiesSource:OIG.2TableofContents3CoverExecutive

Summary......................................................................................1TableofContents..........................................................................................3Observations

................................................................................................4Introduction

.............................................................................................4Blockchain

Technology:DefinitionandDevelopment..............................4Blockchain

as

a

Mechanism

to

Transfer

Value

..................................4The

Development

ofBlockchain

Technology

....................................6Strengths

and

Weaknesses

ofBlockchain

Technology......................9Potential

Postal

Blockchain

Applications...............................................13Financial

Services

............................................................................13IdentityServices...............................................................................16Device

Management

........................................................................16SupplyChainManagement..............................................................17Conclusion.............................................................................................18Appendices.................................................................................................19Appendix

A:

The

Blockchain

Mechanism

Detailed

................................20Appendix

B:

Management’s

Comments

..................................................

24ContactInformation

....................................................................................25ObservationsIntroductionIn2021,themysterious“SatoshiNakamoto〞introducedanewformofdigitalcurrency,calledBitcoin,totheworld.1Bitcoinaimstorevolutionizetheworldofpaymentsbycreatingtheworld’sfirst“peer-to-peerelectroniccashsystem〞thatallowsindividualstoexchangevaluewithouttheneedforanintermediaryinstitution.2Attractedbythepotentialbenefitsoffast,inexpensive,andprivatetransactions,usersaroundtheworldnowexchangemillionsofdollars’worthofBitcoineveryday.3Despitethis,Bitcoinhasstruggledtogainafootholdintheglobalmarketplace.Sevenyearsafteritsintroduction,onlyabouthalfofAmericanshadheardofBitcoin,letalonefeltcomfortableusingit.4ThefutureofBitcoinisstillunknown.ThetechnologyunderlyingBitcoin,however—knownasblockchain—mightbeheretostay.Similartohownow-defunctNapsterchangedhowweshareandlistentomusicoverpeer-to-peerdigitalplatforms,blockchainshavethepotentialtochangehowwetransfermoneyandinformationevenifBitcoinitselfdoesnotlast.Blockchainhaslatelyspurredagreatamountofinterestandideationamongmainstreamplayers.Thispastyearwehavewitnessedthedevelopmentofanentireecosystemofnewcompaniesofferinghundredsofdifferentblockchainapplications.5However,thetechnologyisstillintheearlystagesofdevelopment;itishardtorecognizeandappreciateitsfullpotentialatthisformativestage.TheU.S.PostalServiceOfficeofInspectorGeneral(OIG)contractedwithSwissEconomics,aconsultingfirmwithinterestandexpertiseinblockchaintechnology,tobetterunderstandthetechnology,itsfeatures,andpossiblepostalapplications.BlockchainTechnology:DefinitionandDevelopmentBlockchainasaMechanismtoTransferValueBlockchaintechnologywasoriginallycreatedasawaytotransfervalue,specificallywithinthecontextofthedigitalcurrencyBitcoin—moneyintheformofdatastreams.6Assuch,primaryusesofblockchaintechnologyincludepaymentsandotherfinancialtransactions.Blockchainenablespeer-to-peertransactionsbyremovingtheneedforatrustedintermediaryverifyingthetransactions—arolethatisneededwhenpeersdonotknowortrusteachother.7Blockchainmakesthispossiblebybeingadecentralizedpublicledger.Thispublicledgerisnotsodifferentfromtheledgerthattraditionalfinancialinstitutionsmaintain,witharecordofwhoownswhat.Thedifferenceisthatthereisnobankorothersinglethirdpartykeepingtheledgerandverifyingthetransaction—nooneentitycontrolstheledger.Instead,thenetwork,asawhole,verifiesthetransactionsthroughadecentralized“consensusmechanism.〞8TheidentityofSatoshiNakamotohasalwaysbeenshroudedinmystery.Recently,AustraliancomputerscientistandbusinessmanCraigWrighthasclaimedtobethecreatorofBitcoin.However,therearestillthosewhodonotbelievethatMr.WrightisinfactBitcoin’screator.SeeGreenberg,AndyandGwernBranwen,“Bitcoin’sCreatorSatoshiNakamotoisProbablyThisUnknownAustralianGenius,〞Wired,December8,2021,w.wired/2021/12/bitcoins-creator-satoshi-nakamoto-is-probably-this-unknown-australian-genius/;“CraigStevenWrightClaimstoBeSatoshiNakamoto.IsHe?,〞TheEconomist,May2,2021,w.economist/news/briefings/21698061-craig-steven-wright-claims-be-satoshi-nakamoto-bitcoin;Butcher,Mike,“MajorQuestionsAriseofCraigWright’sClaimtoBeSatoshiNakamoto,〞TechCrunch,May2,2021,://techcrunch/2021/05/02/major-questions-arise-over-craig-wrights-claim-to-be-satoshi-nakamoto/.Nakamoto,Satoshi,“Bitcoin:APeer-to-PeerElectronicCashSystem,〞s:///bitcoin.pdf.B,“EstimatedUSDTransactionVolume,〞s:///charts/estimated-transaction-volume-usd.eMarketer,“UsageandAwarenessofBitcoinAmongInternetUsersinSelectCountries,〞February2021.“BitcoinTrendsintheFirstHalfof2021,〞Coinbase,July15,2021,.AlthoughsomepeoplearereferringspecificallytotheBitcoinblockchainwhentheyusetheword“blockchain,〞forthepurposesofthispaperthewordblockchainreferstoblockchaintechnologyingeneral.Thispaperwilluse“Bitcoin〞or“Bitcoinblockchain〞whenreferringtoBitcoinspecifically.Blockchainsare“awayforpeoplewhodonotknowortrusteachothertocreatearecordofwhoownswhatthatwillcompeltheassentofeveryoneconcerned.Itisawayofmakingandpreservingtruths.〞“TheGreatChainofBeingSureAboutThings,〞TheEconomist,October31,2021,w.economist/news/briefing/21677228-technology-behind-bitcoin-lets-people-who-do-not-know-or-trust-each-other-build-dependable.Aconsensusmechanismisthesetofrulesgoverningtheprocessofagreementwithinasystem.InthecaseofBitcoin,consensusneedstobereachedregardingwhich4Thetechnologyiscalled“blockchain〞becauseindividualtransactionsaregroupedintowhatiscalledablock.9Membersofapublicpeernetworkseektoverifytheblock,andeachoftheseverifiersinthenetworkretainsacopyoftheledgerontheirharddrive.Blocksthenbuilduponeachother,withthedataineachblockbeingirrevocablylinkedtotheblocksbeforeit—hencethe“chain.〞Assuch,each“coin〞ontheblockchainisastringofdatathatidentifieseverytransactionthatcoinwaseverinvolvedin—asortofhistoricalrecord.10Imagineholdinga$100billinyourhandandnotonlyseeingthecoldhardcash,butalsoachainofinformationidentifyingeverytradethat$100billwaseverinvolvedin.Becauseofthislinkageofblocksandtransactions,itisprohibitivelyimpracticalandcomputationallyverydifficulttomodifyablockoncecreatedandconfirmed.11Thishelpstokeepthesystemsecurewhileeliminatingtheneedforanintermediary.Figure1belowillustratesablockchaintransaction.Figure1:ABlockchainTransactiontransactionsarevalid.Formoreinformationonhowablockchainworks,includingadetaileddescriptionoftheBitcoinblockchainaswellasdifferenttypesofconsensusmechanisms,pleaseseeAppendixA.“HowBitcoinMiningWorks,〞Coindesk,December22,2021,w.coindesk/information/how-bitcoin-mining-work.9 Blocksarecreatedthroughtheconsensusmechanism.InthecaseofBitcoin,minersarethemembersofthenetworkthatarecreatingblocks.Thisrequiresasubstantialamountofcomputingpower.Thecoinistheunitofaccountthatdenotesvaluethewayadollardenotesvalue.Ithasauniqueidentitythatistrackedalongablockchain.Formoreinformationonthecomponentsofablockchainsystem,seeAppendixA.IBMInstituteforBusinessValue,EmpoweringtheEdge,2021,,p.6.Source:

Swiss

Economics.addedtotheblockchainprocesscontinues445Ifvalid,theblockis55

PartyBControlstherighttotransferthecoinstootherparties,andthe33Ifvalid,thetransactionisconfiguredintoablock;theblockisthenbroadcastacrossthenetwork22

PartyAcreates

atransactiontosendthisrighttopartyBandbroadcastsitacrossthenetwork1

PartyAcontrolstherighttotransfer

acertainamountofdigitalcoinsAlthoughtheblockchainthatmostpeoplearefamiliarwithisBitcoin,therearemanydifferentblockchains.Atthehighestlevel,theseblockchainsfallintotwogroups:publicandprivate.12Inapublicblockchain,therighttoaltertheledgerbyparticipatingintheconsensusmechanismisopentoanyone.Transactionsarepubliclyavailableforanyonetoread.BitcoinandEthereumaretwoprominentpublicblockchains.13Inaconsortiumorprivateblockchain,therighttoaltertheledgerbyparticipatingintheconsensusmechanismisrestrictedtopre-selectedindividualsorinstitutions.14Transactionsmayeitherbepubliclyavailableorrestrictedtoaselectnumberofparticipants.Rippleisaprominentexample,andprivateblockchainsarealsoofgrowinginterestforbusinessuse.TheDevelopmentofBlockchainTechnologyWhileblockchainwasoriginallydevelopedaspartofdigitalcurrency,peoplearerealizingthatatitscore,itisawaytotransferanykindofinformationinafastandprivatewayandthatitcanbeusefulforanykindofinformationorvaluetransferthattypicallyinvolvesanintermediary.Thisrealizationhasspurredintensedevelopmentactivityinthemarket.Infact,peopleinthefieldarecomparingittotheearlystagesinthedevelopmentoftheInternet,andtherearesimilarlevelsofcapitalinvestmentinstartupsrelatedtoblockchainservicesandapplicationsastherewasinthedevelopmentoftheInternetinthemid-1990s.15JustastheInternetreliesonservicessuchasbrowsersandemailclientstohelpconsumersaccessitscapabilities,blockchaintechnology’sutilityandcontinueddevelopmentwillrelyoninnovationbynewserviceproviders.SincetheblockchainmechanismwasoriginallyconceivedasafinancialexchangetoolforBitcoins,muchoftheinnovationactivitysofarhasbeeninfinancialapplications.Itisimportanttonote,however,thatacoinonablockchaincouldeasilyrepresentmorethanBitcoinsormoney.Itcouldrepresentahouse,acar,astock,orevenavoteoranidentity.Arguably,acoincouldrepresentanykindofinformationoranypieceofdata.Itisthisrealizationthatissparkinggrowthinthissector,includingthedevelopmentofnewapplicationsandincreasedinterestinthistechnologybymajorplayers.NewApplicationsandServicesDevelopersarebeginningtocreateandmarketnovelusesofblockchain,whichhasthepotentialtodisruptanysectorthatusesintermediariestoverifyortrackthetransferofinformation.Someofthemajorapplicationareasincludefinancialservices,thetransferofproperty,theexecutionofcontracts,authenticationservices,networkanddevicemanagement,andrecordsmanagement.16ThishasledtheInstituteofElectricalandElectronicsEngineerstosuggestthat“thepossibilitiesareendlessandthatmoneyisonlythefirst,andperhapsthemostboring,applicationenabledbyBitcointechnology.〞17Table1describescommonapplicationareaspursuedbymanyofthestartupsinthespace.ChristianJaagofSwissEconomics,indiscussionwiththeauthor,December14,2021,andButerin,Vitalik,“OnPublicandPrivateBlockchains,〞EthereumBlog,August7,2021,.Ethereumisablockchain-basedplatformdesignedspecificallyforuseinsmartcontracts.Smartcontractsareblockchaintransactionsthatareautomaticallycarriedoutundertherightcircumstancesbybuildingconditionallanguageintothetransaction.“WhatisEthereum,〞/;and“TheGreatChainofBeingSureAboutThings,〞TheEconomist.Thisrighttoaltercouldalsobelimitedtojustoneindividualorparty,tocreateatrulyprivateblockchain.Thistypeofblockchain,though,wouldessentiallybeverysimilartoatraditionaldatabase.BrockPierce,presentation“Bitcoinmightfailbuttheblockchainisheretostay–FullWIREDRetailtalk,〞YouTubevideo,postedby“WiredUK,〞December9,2021,w.youtube/watch?v=jbu6I-8mNUo.GrowthPraxis,citedinLet’sTalkPayments,“BlockchainUseCases:ComprehensiveAnalysis&StartupsInvolved,〞July29,2021,://letstalkpayments/blockchain-use-cases-comprehensive-analysis-startups-invoved/.CategorizationbyOIG.MorganE.Peck,“TheFutureoftheWebLooksALotLikeBticoin,〞IEEESpectrum,July1,2021,looks-a-lot-like-bitcoin.InadditiontotheInstituteofElectricalandElectronicsEngineersexpressinginterestinthenewapplicationsofthistechnology,expertsinthefieldofBitcoinandblockchain,suchasMikeHearnandChrisEllis,areinterestedaswell.“Bicoin2021London:MikeHearn,〞YouTubevideo,fromtheLondonBitcoinConference2021,postedby“QueuePolitely,〞September27,2021,w.youtube/watch?v=mD4L7xDNCmAandJayCassano,“WhatareSmartContracts?Cryptocurrency’sKillerApp,〞FastCompany,September17,2021.Likewise,IBMisinvestinginthefutureofnon-financialapplicationsofblockchain.RobertMcMillan,“IBMAdaptsBitcoinTechnologyforSmartContracts,〞WallStreetJournal,September16,2021,w.wsj/articles/ibm-adapts-bitcoin-technology-for-smart-contracts-1442423444.6Table1:

Startup

Activity

intheBlockchainSpace*Smartpropertytransactionsmayutilizesmartcontracts,andsomeparticipantsinthefieldseesmartpropertyasasubsetofsmartcontracts,y.Source:OIGAnalysisandGrowthPraxis.BigPlayersareBeginningtoAdoptBlockchainInadditiontoanincreasingarrayofdiverseapplicationsbeingdevelopedbystart-ups,thereisanincreaseduseofblockchainsbymajormainstreamplayers.InJanuary2021,OverstockbecameanearlybeneficiaryofblockchaintechnologybybecomingoneofthefirstmajorcompaniestoenablepaymentinBitcoinonitswebsite.18IthassincereceivedapprovaltoissuestockthroughtheBitcoinblockchain.19Sincethenmanymajorplayershaveannouncedplanstouseblockchain,investinblockchainstartups,orattheveryleastresearchhowthetechnologycouldaffecttheirbusiness.AfterOverstockannounceditwouldacceptBitcoin,manyothermajorcompaniesfollowedsuitincludingMicrosoft,Dell,andExpedia.Bheemaiah,Kariappa,“BlockChain2.0:TheRenaissanceofMoney,〞Wired,w.wired/insights/2021/01/block-chain-2-0/.PatrickM.Byrne,“OverstockCEO:WhyWe’reAcceptingBitcoins,〞CNBC,January7,2021,wbc/2021/01/07/overstock-ceo-why-were-accepting-bitcoinscommentary.htmlandYessiBelloPerez,“SECApprovesOverstock’sPlantoIssueBlockchainSecurities,〞Coindesk,December16,2021,w.coindesk.com/sec-approves-overstocks-proposal-to-issue-securities-on-the-blockchain/.7Type

ofServiceIntermediaries

ReplacedSample

Companies

intheMarketFinancial

Services:

servicesinvolving

the

exchangeof

money

that

can

now

be

performed

on

a

blockchain.Such

servicesinclude

money

transfers,

remittances,andpaymentsBanks,

credit

card

companies,money

transmitters,clearinghouses,and

otherintermediariesin

the

financialindustryBitpay,

Coinbase,

Kraken,

BitPesa,coins.ph,

LocalBitcoins,

bitso,

bitt,Bitcoin

Venezuela,

expresscoin,CounterpartSmart

Contracts:

verificationand

enforcement

ofagreements

negotiated

between

two

or

moreparties,suchas

escrow

services

or

wills,

is

writteninto

theblockchainLawyers,sharing

economyplatforms

(suchas

AirBnb

orUber)SmartContract,

Codius,

New

SystemTechnologies,

Bitnplay;

UbiMS,BitHalo,LighthouseSmart

Property*:

tracking

ownership

of

physicalandnon-physical

property,suchas

cars,

real

estate,stocks,and

otherassets

through

a

blockchainLawyers,stock

markets,

realestateand

other

salesagentsSymbiont,

Mirror

Labs,

SecureAssets,

BitShares,

equityBits,DXMarkets,

MUNA,

EverledgerAuthentication

Services:

use

ofinformationinaddition

to

auser’s

public

walletaddress,suchasa

homeaddress

or

social

media

profile,

to

verifyand

authenticate

auser’s

identityandactivity

on

ablockchain.

Servicesinclude

identification

verificationand

proof

of

ownershipGovernmentagencies,suchasmotor

vehicle

departments

or

theSocial

SecurityAdministration,and

other

identity

brokersOnename,

Bitnation,

BlockCDN,Colu,

MyPowers,

TRST.im,

Blockai,Bitproof,ascribe,

Artplus,

Stampery,ChainyLink,

Proof

of

ExistenceRecords

Management:

the

maintenance

of

officialrecordsand

registersin

a

transparent,

secure,andauditable

manner

byusing

a

blockchain.Includes

themanagement

of

health

records,

government

records,and

votingHospitals

that

managepatientrecords,

governmentsBitHealth,Agora,

BitCongress,

FollowMy

Vote,

BTC

Blockchain

ApparatusNetwork

and

Device

Management:

allowingconnected

objects

to

communicate

with

each

otherdirectly

over

a

blockchain.

This

enables

decentralizedInternet

of

Things

managementand

networkstorageCentralized

cloud

computing,humanintervention

required

tomanage

devicesChimera

IOT,

Storj;

ePlug,

Filament,TilepayAs

one

would

expect,

a

number

of

the

interested

companies

are

in

the

banking

and

financial

services

sector

(see

figure

below).

UBS

hasopened

a

research

lab

to

explore

the

application

of

blockchain

to

their

financial

business.20

Citibank

is

testing

different

uses

of

blockchain

intheir

lab

and

has

gone

so

far

as

to

experiment

with

their

own

coin:

CitiCoin.21

JPMorgan

Chase,

America’s

largest

bank,

has

just

begun

toinvestigate

how

blockchain

could

be

used,

for

example,

to

deal

with

data

errors

in

the

bank’s

loan

funds.22

Additionally,

the

stock

exchangeNasdaq

revealed

that

it

will

soon

record

trades

in

privately

held

companies

on

a

blockchain-based

system.23Figure

2:

Timeline

of

Major

Financial

Institutions’

Activity

in

the

Blockchain

SpaceSource:CBInsights.Outsidethefinancialservicessector,someadditionalblockchainapplicationsarebeginningtogaintraction—particularlywithgovernments.Intherecordsmanagementspace,theU.K.Governmentisstartingtoresearcharoleforblockchaininkeepingregisters,andgovernmentrepresentativesinHondurasareworkingwithastartupcalledFactomonaprototypeofablockchain-basedlandregistry.24TheLiberalAllianceinDenmarkwasthefirstmajorpoliticalpartytovoteusingthetechnology,inaninternalelection,andsimilarsystemswerelaterusedinNorwayandSpain.25CitizensofEstoniawillsoonbeabletomanagetheirhealthrecordsandwhohasaccesstothemviaablockchain-baseddatabase.26Intheareaofidentitymanagement,theEstonianGovernmenthasannouncedthatresidentsRachelKing,“UBSWorkingwithBlockchainPrototypes,〞WallStreetJournalBlog,October2,2021,prototypes/.JohnBiggs,“CitibankisWorkingonItsOwnDigitalCurrency:Citicoin,〞Te