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Blue dragonhide is a used in the crafting skill to make blue dragonhide armour after it has been tanned into Blue dragon leather. It can be tanned by bringing the dragonhide along with 20 (or 45) coins to a tanner. A tanner can be found in Al Kharid, the Ranging Guild, Canifis Varrock, and the Crafting Guild.
Along with all other dragonhides, the item is more often sold to make a decent amount of profit.