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A Taxonomy of Blockchain Applications Proceedings of the 52nd Hawaii International Conference on System Sciences | 2019 From Hype to Reality: A Taxonomy of Blockchain Applications Olga Labazova Tobias Dehling Ali Sunyaev University of Cologne Karlsruhe Institute of Technology Karlsruhe Institute of Technology [email protected] [email protected] [email protected] Abstract Yet, challenges of developing blockchain-based systems outweigh envisioned benefits [8]. Most of Blockchain is a decentralized digital ledger that the current blockchain projects could not move from challenges existing business models and theories by ideas to production use [13]. For example, projects shifting the trust from institutions towards aimed at employing blockchains to support algorithms. However, the number of successfully tokenization of space missions (e.g., SpaceBIT) or developed blockchain-based systems remains low. artificial intelligence [35] did not reveal proofs of This points towards a research gap between concept. Narrow-scoped blockchain prototypes blockchain applications and technical blockchain experience issues with scalability of blockchain characteristics. We answer the research question: protocols, waste of computational resources required What application areas fit blockchains with what for consensus mechanisms, traceability of users, and technical characteristics? We develop a taxonomy, a lack of network protection against fraud [11, 36, 44, which comprises six blockchain application areas 45]. Currently, practitioners continue experimenting that are classified across eight technical dimensions. with proofs of concept and system designs based on We demonstrate the utility of the taxonomy on ninety- trial-and-error approaches [13]. nine blockchain-based systems. We contribute to the Extant research in the blockchain domain is scientific literature by delimiting blockchain focused on the development of blockchain-based application areas, identifying new technical systems and the diversity of technical components dimensions, and linking application and technical (e.g., consensus mechanisms, permissioning) and knowledge on blockchain to guide development of applications (e.g., financial transactions, the internet blockchain-based systems. For practitioners, we of things). A closer examination of extant research present an overview of current blockchain-based reveals the diversity of blockchain application areas systems. with no-size-fits-all technical blockchain characteristics [20, 39, 44]. For example, the Bitcoin network is untrusted and requires a secure proof-of- work consensus mechanism [25] while a Hyperledger 1. Introduction business network ensures trust and can employ lighter consensus mechanisms, such as practical A blockchain is a decentralized digital ledger [12] Byzantine fault tolerance [19]. The relevant technical with the unique value proposition to shift the trust blockchain characteristics, however, remain abstract, from institutions towards algorithms [25]. The future fragmented, and scattered across applications. impact of blockchains on existing business models More knowledge connecting technical blockchain and theories might be comparable to the invention of characteristics and blockchain applications is crucial smart phones or the internet [3, 9, 27, 41]. Therefore, to provide the guidelines on development of researchers and practitioners jump on the blockchain successful blockchain-based systems. Trial-and-error bandwagon [1, 3] in attempts to replace established development leads to unfulfilled expectations in trust-based business models with blockchains [12, blockchain-based systems and loss of investments. 37]. The hype emerging around blockchains suggests Therefore, we answer the research question: What that blockchains can replace banks in the financial application areas fit blockchains with what technical sector [25, 37], support agreements among characteristics? individuals or internet-of-things devices using smart Taxonomies are used to organize knowledge in contracts [18, 28], and manage essential records (e.g., many fields (e.g., Darwin’s classification of species health records, education records) that are currently in biology) [4, 10, 24, 31]. We choose a taxonomy as maintained by centralized organizations [2, 32]. the fundamental tool to organize knowledge on blockchains [26]. We develop a taxonomy of URI: https://hdl.handle.net/10125/59893 ISBN: 978-0-9981331-2-6 Page 4555 (CC BY-NC-ND 4.0) blockchain applications, which captures six on reading and writing financial transactions to blockchain application areas that are classified across authorized users; decentralized payment platforms do eight technical dimensions [26]. The taxonomy is not require user authorization to read and write based on extant scientific literature, business reports, financial transactions. A review of cryptocurrencies and previous blockchain classifications. We investigates different consensus mechanisms, levels demonstrate the utility of the taxonomy by of anonymity, and data integrity among classifying ninety-nine blockchain-based systems cryptocurrencies [23]. Different consensus [12, 43]. Extant blockchain taxonomies and other mechanisms (e.g., proof-of-stake, practical Byzantine classifications describe blockchains from either fault tolerance) are determined to be suitable to technical or application perspectives [5, 17, 39, 44]. improve the efficiency of second-generation Our taxonomy is different because it integrates cryptocurrencies [6, 38, 45]. Compared to Bitcoin, technical and application knowledge that allows to Zerocoin guaranties a stronger anonymity of users guide the development of blockchain-based systems. that prevents user traceability [11, 14, 29] and This research contributes to the scientific Litecoin has lower data integrity that allows for knowledge base in three ways. First, we establish an support of devices with low storage capacity (e.g., overview of extant research on blockchain mobile phones) [15]. Further overviews of key application areas. Second, we identify new technical technical characteristics of blockchains gather dimensions of importance to blockchain applications, previous findings in the financial sector including which complement extant work in the technical reading and writing permissions of transactions, literature. Third, we link blockchain application areas consensus mechanisms, anonymity levels, and other and technical blockchain characteristics, which can technical characteristics that are not focused on guide development of blockchain-based systems. For blockchain design but rather on interoperability (e.g., practitioners, the taxonomy gives an overview of chain modularity) [16, 17, 39, 44]. successful blockchain applications that can reduce Investigations of blockchain application areas development challenges for future blockchain-based start with the idea that blockchains can be useful systems. beyond the financial sector. Extant research focuses This manuscript proceeds as follows. We start predominantly on applying blockchains for digital with related research on blockchain. Next, we outline payments, certification, cloud storage, identity the approach employed for taxonomy development. management, energy distribution, and advanced Then, we present the taxonomy of blockchain tracking [30]. Business reviews of blockchain applications and demonstrate its utility on ninety-nine startups reveal new application areas including blockchain applications. Finally, we discuss principal customer loyalty, cybersecurity, digital rights findings, future research, limitations of our study, and management, digital voting and government, gaming, implications for theory and practice. content distribution, platform development, prediction markets, and smart contracts [12, 30]. 2. Related research Isolated knowledge of technical and application research causes hypes of blockchain application areas and technical blockchain characteristics. Further The scientific literature on blockchain is at an consideration and consolidation of application and early development stage. An absence of guidelines on technical knowledge on blockchains will result in a development of blockchain-based systems hinders foundational classification of blockchain application successful blockchain projects. Extant blockchain areas in alignment with technical blockchain taxonomies and other classifications consider characteristics and provide the first steps to guide the technical blockchain characteristics and blockchain development of successful blockchain-based systems. application areas separately. Technical blockchain classifications are focused on the diversity of technical components (e.g., permissions to read 3. Research approach transactions, consensus mechanisms) and cover predominantly the financial sector [6, 21, 23, 38, 43, To organize knowledge on blockchains, we use 45]. For instance, a study comparing digital payment the method for taxonomy development proposed by providers identifies permissions to read and write Nickerson et al., who define a taxonomy as a set of financial transactions as important technical dimensions [26]. Each dimension consists of characteristics to consider when choosing between “mutually exclusive and collectively exhaustive centralized and decentralized payment platforms characteristics in a way that each object under [21]. Centralized payment platforms give permissions consideration has one and only one” [26:5] Page 4556 characteristic in every dimension. The taxonomy distributed ledger” on October
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