Blockchain has spread beyond the world of cryptocurrencies, finding its way to concrete applications within the automotive sector. It is a viable solution to innovations such as vehicle-to-vehicle communication, secure data transactions, component provenance and location tracking, as well as a gateway to new products and services. Yet many are still unsure about what the technology actually is and how it can be utilized. Blockchain in automotive is still at an early stage. To help top management achieve clarity, we outline the key points for consideration.

What is blockchain?

In a nutshell, blockchain is a technology that enables secure decentralized transactions with few or no intermediaries. It is based on a decentralized database, transaction history, a consensus mechanism and an automated digital contract execution platform, in which transactions between participants take place and are recorded.

Five areas of application

An increasing number of car manufacturers have been developing proofs of concept for blockchain technology. But where and how is investment best made? We see five main areas of application emerging in the near future:

1. Supply chain
   Blockchains are extremely secure, making them ideal for record keeping between different parties. International trade and trade between raw material suppliers, automotive suppliers, OEMs, dealers, repair shops, online aftermarket retailers and so on often involves multiple parties that need to reach agreement. Rather than each party verifying, validating and reconciling transactions themselves, blockchain allows them to work with a single source of truth.
2. Secure communication
   Blockchain technology has clear application in the area of secure communication, both vehicle-to-vehicle and object-to-object. In the future, autonomous vehicles will communicate with other vehicles, traffic lights and other unauthenticated devices. Blockchain could be used to secure this communication and to ensure that it only occurs between relevant entities, so that it cannot be hacked by unauthorized outsiders.
3. Car e-wallets
   Blockchain can be used to enable direct payments via car "e-wallets". E-wallets allow vehicle owners to automatically pay for repairs, parking spaces, tolls, car sharing services and so on.
4. Streamlined contractual processes
   Blockchain can dramatically simplify contractual processes. For example, when a customer wants to finance a vehicle purchase, the dealer is generally required to run a credit check, validate the customer's employment status and examine their insurance history before providing the loan. This process takes time and in the past involved transmitting large amounts of sensitive data. Blockchain now makes it possible to carry out these validations without passing on personal or sensitive information.
5. Digital identities for vehicles
   Auto companies can also use blockchain to create digital identities for vehicles. These are records that include the vehicles ownership history, and accidents it has been involved in, its service history and so on. This increased transparency would be highly beneficial for buyers and sellers of used cars, generating greater trust, improving satisfaction and enabling more accurate pricing.

Despite the potential offered by blockchain in the automotive industry, those who wish to implement the technology face a number of challenges. Download our full study The blockchain bandwagon, for an in-depth look at the opportunities - and pitfalls - posed by blockchain.