The U.S. Postal Service has identified a number of ways that blockchain technology can improve its services and make it a more relevant player in global commerce, according to a report, “Blockchain Technology: Possibilities for the U.S. Postal Service.”

The postal services’ Office of Inspector General (OIG) contracted with Swiss Economics to better understand blockchain and identify potential areas of interest for the Postal Service.

The postal service could use blockchain technology to improve the back-end of its financial products like money orders and international money transfers.

A blockchain-based financial platform could digitize and streamline the services to make them faster and cheaper for both the Postal Service and its customers.

The technology could also be useful in areas such as identity services, supply chain management, and device management.

Blockchain Experiments Proliferate

The report noted that banks and government entities, such as the U.K. and Estonian governments and Australia Post, are already experimenting with how blockchain technology can keep better records and provide more efficient services.

In the last year, an entire ecosystem of new companies has emerged, offering hundreds of different blockchain applications.

The blockchain’ public ledger is similar to existing ledgers used by financial institutions, the difference being that there is no single third party maintaining the ledger and verifying the transaction. Instead, the network itself verifies the transactions through a decentralized consensus mechanism.

In the blockchain ledger, blocks of data build upon each other, with the data in each block irrevocably linked to the blocks before it. Each “coin” on the blockchain is a string of data that identifies every transaction the coin was involved in, serving as a historical record.

Non-Financial Uses Take Shape

Because the blockchain was originally conceived as a financial exchange tool for bitcoin, much of the innovation has been in financial applications. However, a coin on a blockchain can easily represent assets such as an identity, a vote, a house, or a stock.

As with any new technology, challenges associated with blockchain exist. The OIG collaborated with Swiss Economics to outline the benefits and shortcomings of blockchain technology.

Users can make online transactions for a fraction of the fees charged by current intermediaries like financial or legal institutions. Credit card companies charge a processing fee to merchants, but that can also be passed along to buyers. Remittance service providers charge senders 8 percent on average to transfer money to family overseas.

Other benefits of blockchain technology include faster transactions, geographical freedom of transactions, irreversibility of transactions, and increased privacy.

Blockchain Downsides

On the downside, the study noted there are technological barriers to the blockchain. In its current form, it requires above average computer literacy. This limits its use for non-tech-savvy users, and can expose them to fraud risks. Since blockchain is decentralized, there are no central customer care resources.

While the bitcoin blockchain has not been compromised, service providers such as exchanges and wallet providers are vulnerable to attacks. In addition, the transaction privacy can be a disadvantage since not knowing the partner to a transaction makes it hard to resolve disputes that can arise. This privacy factor can place users at risk to fraud.

Another concern is limited access. Access to blockchain is limited to exchanges. Physical touchpoints like bitcoin ATMs and service locations are scarce.

Still another concern is regulatory uncertainty. Existing regulations address financial applications. It is not known how records management and smart contracts will be regulated. Regulatory uncertainty is believed to have contributed to the volatility of bitcoin.

Potential Postal Applications

Potential applications for the postal service include financial services, device management, identity services and supply chain management.

The postal service offers basic financial services such as international electronic money transfers. With blockchain technology, these services could be cheaper and more efficient for both the customers and the postal service.

Swiss Economics suggested the creation of a financial platform that they term a Postcoin platform. Having a trusted entity like the postal service acting to facilitate a platform’s use could address many of the challenges that currently prevent individuals and businesses from using the technology.

The postal service could provide multi-channel access at USPS.com, through the USPS mobile app, and in-person at post offices or through carriers.

Two Possible Scenarios

The Postcoin platform could follow two paths. One is to “buy in” to an existing public blockchain. Once the postal operator owns coins, it could add a layer of information to each coin, or fraction of a coin, to mark it as representing a specific asset, a Postcoin.

After exchanging money into Postcoins, users can exchange them over the existing public blockchain.

The other option would be to create a new blockchain. The postal service could use the bitcoin protocol, another open source software, or create its own. This would allow the postal service to maintain control over the platform. It would address many of the shortcomings listed above, such as security and access issues while bringing the benefits of low cost, speed, and auditability.

Postcoin would be strongest as a global payment and postal money transfer platform. Postal operators worldwide have an unmatched physical presence extending across more than 600,000 post offices.

A global Postcoin system would need national postal operators to interoperate. The Universal Postal Union (UPU) could act as the governance body for a global platform. The UPU is well-positioned for this since it already manages a global payment and money transfer platform that is used by many countries.

Postal Financial Services

The blockchain could help improve and expand the postal services’ existing money transfer service. Its existing international money transfer services are currently only cashable in a limited number of countries.

Postcoin could potentially allow the expansion of electronic money transfer services. Postcoin would not only enable these services to be conducted at a lower cost, but it might also help to modernize and expand the reach of its financial services. Postcoin could also be used for transactions between posts. This could streamline the settlement of terminal dues.

The postal service could offer blockchain-based escrow services. It could also offer currency exchange services. This service could allow travelers to obtain foreign currency at ATMs or post offices at a lower exchange rate and transaction fees.

The postal service could verify identities in-person at a post office using an identification card, such as a fingerprint or a driver’s license. The postal service could link a virtual identity used by the customer to operate within a blockchain system with identifiers, like a postal address. Customers could use these verified identities for accessing secure websites, notarizing documents, or using smart contracts.

The postal service already has experience identifying customers for its own services and for services it provides to other agencies.

Device Management Services

Device management is another potential application. Blockchain technology may provide a way for the postal service to build and manage an Internet of Postal Things at a lower cost than traditional, centralized methods.

As more devices are brought online, blockchain’s decentralized control and verification system could enable devices to record and transfer data securely. This would improve the security of the network by eliminating the risks associated with single points of access.

Also read: Making block chain real ushers in a new era

Supply Chain Services

Supply chain management is another area where the blockchain can benefit the postal service. The blockchain can be used to identify packages and mail the way individuals can be identified. Since blockchain removes the need for trust between parties, it can coordinate the activities between parties more efficiently.

The postal service has a number of partners, customers, contractors and other stakeholders it coordinates with, such as customs agencies, other posts, shipping partners, long-haul truck drivers, mailers, and recipients. The blockchain can help manage and speed up shipments, particularly international ones.

Each mail piece can be embedded with a sensor that keeps track of its chain of custody while executing smart contracts for payment and customs clearance. Each mail piece can be uniquely identified on a blockchain and be able to create transactions, allowing for the timely sharing of information and processing of payments.

It would be prohibitively expensive at present to tag every piece of mail with a sensor. But the postal service could use the blockchain approach on high-value shipments in its early adoption stages, then rely on downward pressure on the cost of sensors to expand the use over time.

There is currently an experiment on the Ethereum blockchain involving invoices that are automatically paid when a shipment arrives.

Blockchain technology allows for linkages among financial, logistics, and delivery parts of commercial transactions. It brings the ability to unify payment and delivery in one seamless experience.

Posts could become a single intermediary between merchants and customers, enabling them to reduce coordination needs, provide more efficient e-commerce solutions, support the growth of e-commerce (especially cross-border e-commerce), and improve the postal service’s market share and revenue.

Featured image from Shutterstock.