Issued by the internal Office of the Inspector General (OIG), the report comprehensively suggests that the government agency responsible for mail services should consider using blockchain technology for identity purposes, supply chains, device networks, and possibly even a cryptocurrency to be issued for purchasing postage with.
“This paper proposes that blockchain technology could impact the Postal Service’s business in several ways,” the 26-page report summarizes. “The Postal Service could improve its existing services by beginning to experiment with the financial applications of blockchain.”
The agency generated $68.9 billion revenue in the 2015 financial year, a mere 1.6% increase from the previous year. However, the total expenses of $74.0 billion resulted in a net loss of $5.1 billion. First-Class Mail generated the most revenue, at $28.3 billion, followed by Standard Mail which brought in $17.6 billion revenue.
Nonetheless, mail volume continued to decrease, most notably First-Class Mail which decreased by 1,420 million pieces. Overall mail volume for the year was 154 billion pieces. In the second quarter of the fiscal year 2016, the Postal Service reported a net loss of $2.0 billion for the quarter, compared to $1.5 billion for the same period last year.
“We are still reporting net losses and contending with long-term financial challenges. We continue to focus on improving operating efficiencies, speeding the pace of innovation, and increasing revenues for the Postal Service.”
- Megan J. Brennan, Postmaster General and Chief Executive Officer
The Postal Service has not turned profit since 2006. The $900 million is made that year was a ~38% decline from the previous year. The agency’s net losses bottomed out in 2012, with a financial loss of $15.9 billion. This was due to the Postal Service’s “current inflexible business model and as a result of several years of significant financial losses,” the 2012 annual report reads.
To conserve cash needed to fund operations, an “unprecedented action” was taken when the Board of Governors elected to default on two payments totaling $11.1 billion to the U.S. Treasury in August and September to fund retiree health benefits in accordance with legislative mandates.
Such constant losses in the face of thriving private-market competition like Fedex Corporation and United Parcel Service Inc. (UPS) jeopardize the whole agency’s existence, calling for sweeping changes.
“The Postal Service’s market share of revenue is smaller than its market share of volume because the Postal Service earns less average revenue per piece than its private competitors.”
The first of the four areas that the report targeted for blockchain disruption is financial services. Although the USPS doesn’t offer a full line of banking services, as offered by the Australia Post, there are still services such as printed money orders and international electronic money transfers, where a cryptocurrency solution could save money and increase efficiency.
The OIG recommended creating the “postcoin,” a centrally-run digital currency that is issued and used on the USPS website. “Although financial applications on the blockchain do not need intermediaries to function,” the report explains, “having a trusted entity like the Postal Service acting to facilitate its fair, affordable, and transparent use may help address many of the challenges that currently prevent individuals and businesses from taking advantage of this technology.”
The report explores two possibilities for creating the postcoin, the option “to ‘buy in’ to an existing, public blockchain” and the option “to create a brand new blockchain altogether.” The benefits and challenges of each choice are examined, including implementation. “The Postal Service could use the Bitcoin protocol,” it stated, or “another open source software.”
The postcoin could be used for more than replacing money orders and remittance transactions, states the report. They suggest the currency would be used as a kind of ATM network, and to purchase postage worldwide, across a global network of 600,000 post offices.
Digital Identity is the second major area of opportunity for blockchain disruption mentioned, and the report suggests storing verified identities for all citizens on their blockchain, even for use outside of the postal system. “Identity services are one of the biggest areas of opportunity in the blockchain community, and the Postal Service, as a highly trusted government agency, would be well-suited for a role in identity verification.”
“The Postal Service could verify identities in-person at a post office by using an identification card, such as a driver’s license, or a biometric ID, such as a fingerprint," the USPS report continued. "[It] could further link that virtual identity used by the customer to operate within a blockchain system with real-world identifiers, such as a person’s postal address.”
The customer benefit derived from such a system could be available in far more roles and applications than any state ID system has attempted to address before. “Customers could use these verified identities to login to secure websites, notarize documents, or participate in smart contracts.”
The least well-known area for opportunity covered in the report was about Device Management, pertaining to the agencies’ own Internet of Things (IoT), including delivery trucks, hand scanners, terminals, and mailboxes. Putting all of these devices on a shared blockchain offers attractive cost savings, through security and efficiency gains.
“As the Internet of Postal Things scales and thousands of more devices are brought online, blockchain’s decentralized control and verification system could potentially allow devices to more securely record and transfer data.”
The final opportunity for disruption may be the biggest cost saver of them all, focusing on the overall postal system supply chain management. Supply chains are explored in the report as a way of “using blockchain to identify packages and mail in the same way individuals can be identified.” Added benefits include tracking every single postal letter and package on a blockchain, removing the need for trust throughout their entire system, and even operating smart contracts for each package.
Although they make no cost savings estimates, it is clear that the improvements could be sweeping, and touch every part of their system. “In essence, blockchain technology allows for close linkages between the financial, logistics, and delivery parts of commercial transactions with the power to unify payment and delivery in one seamless experience.”
“Imagine if each mailpiece was embedded with a sensor that could keep track of its own chain of custody while executing smart contracts for payment and customs clearance. Each mailpiece, whether a parcel or letter, could be uniquely identified on a blockchain and have the ability to create transactions, allowing for the timely sharing of information and processing of payments.”
Although the report admits it would be cost prohibitive to put such a sensor in each letter and package, it presumes that some customers may pay more for that level of service, while most letters only need a simple barcode printed on them for tracking, like we have today, but referencing the blockchain.
Between the four areas of opportunity mentioned, the report makes no claims which should be implemented first and strongly suggests research for each of them.
The USPS previously revealed, in their 2015 annual report, that the agency has been upgrading their information technology platform, equipment and processes to generate accurate and high-quality data for years, amidst financial challenges. “In many ways, the entire organization is going through a data-driven transformation,” the annual report states “How we use this information is changing the way we manage the organization.”
“Here at the Postal Service, we’re not standing still — we never have. We have a long history of adaptation, embracing new technologies and innovating to meet the evolving needs of the people we serve. We’ll keep investing in the future because we’re always looking forward.”
The USPS isn't the first postal system to consider the upside of using blockchain technology. The public and private jointly-owned enterprise that delivers Australia's mail, Australia Post, has been considering using blockchain tech for identity management purposes since at least March of this year. Like the USPS, Australia Post is also facing financial challenges, suffering a net loss of US$5.06 billion in 2015. Their investigations have so far been limited to improving their process for issuing digital identification, while the USPS seems to be considering any use for blockchain tech.
A similar use for the technology in identity management has been considered in the U.S. already too. The U.S. Department of Homeland Security, through the Small Business Innovation Research (SBIR) program administered by the U.S. Small Business Administration (SBA), has been exploring potential applications in identity management as well. The agency said that it is seeking to “Design information security and privacy concepts on the blockchain to support identity management capabilities that increase security and productivity while decreasing costs and security risks for the Homeland Security Enterprise (HSE).”
“Because this technology is likely to be a disruptor in areas of the Postal Service’s business, monitoring the development of this technology and beginning to experiment with its possible applications could benefit postal operations and customers.”