Technology | January 11, 2019
Blockchain – Fashion or Internet Revolution?
Exactly a year ago, in my report from the FinTech Digital Congress, I claimed that “blockchain” is a revolution on a similar scale to the Internet or electricity, and I promised to come back to the topic. This article will be an extension of that thread, with an emphasis on identifying the key aspects that determine the uniqueness of this issue.
The history of blockchain
It’s hard to believe that blockchain is already a decade old. In January 2019 it will be exactly 10 years since the mysterious Satoshi Nakamoto made the first transaction based on this technology, sending 10 Bitcoins to Hal Finney. To this day, we do not know who Satoshi Nakamoto is and whether he really exists. We only know that a person or group of people under this pseudonym created a domain and released a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System”; thus the history of Bitcoin and blockchain technology itself began.
The next milestone was the creation of the Ethereum project five years later. This was accomplished by a Canadian of Russian origin named Vitalik Buterin, a talented mathematician and programmer who dropped out of college at the age of 19 and traveled around the world, taking part in the creation of open-source cryptocurrency software. The network created by Vitalik offered many possibilities beyond Bitcoin. Blockchain programming was a revolutionary change. Vitalik envisaged the Ethereum network not only as a record of cryptocurrency transactions, but also a “global computer” – a platform that allows the creation of distributed applications using the benefits of blockchain technology, which they would be embedded on. It is safe to say that, from that moment on, blockchain and the concept of cryptocurrency ceased to be one and the same.
Basic blockchain mechanisms and technology
The principle of blockchain technology works by creating unique and unambiguous “fingerprints” of data using one-way cryptographic hash functions. These are functions which have been used in computer science for over 28 years now, and their operation consists of calculating a short signature (the so-called “hash”) for given input data. With any document, photo or other information in digital form, or even entire large data sets, we can calculate a short form of this data using the hash function.
A very important mechanism used by the blockchain is asymmetric cryptography, which allows for the protection of information exchanges by encrypting the information exchanged between the parties. Asymmetrical cryptography is used by all of us when we open an SSL secured website (HTTPS) or sign e-mail or documents digitally.
In addition, blockchain also uses the time-stamping procedure. Time in the blockchain network is synchronized between the network participants, its “nodes”, thanks to which both transactions and the blocks themselves can be time-stamped. This means that all objects and events in the blockchain are located very precisely on the synchronized timeline, and together they create a reliable, chronologically ordered history.
When it comes to the functioning of the system, the mechanisms of consensus and smart contracts are also very important. The mechanism of consensus is, in a nutshell, a mechanism for automatic transaction approval and the addition of new blocks to the chain, carried out by the blockchain network node software. With traditional solutions, in order to confirm the occurrence of certain events (to approve transactions), it is necessary to entrust a suitable third party with all the data, allowing it to decide which version of events presented by participants in a given process will be considered binding. With blockchain, the need for such a trusted third party has been eliminated and replaced by an agreement made automatically between the network nodes, which is called consensus.
Selected elements of blockchain
This area of the economy seems to have been created especially for blockchain technology. Based on GPS data, we can monitor the route and save particular locations on the map in time, and thanks to blockchain, this data cannot be modified. It gives us certain transport documentation, security, and if we combine it with the Internet of Things, we can collect and save other data, e.g. from sensors measuring temperature and humidity. How can it be applied in practice? Luxury restaurants in the United Kingdom pay many times more for fish from Indonesia, simply because the catch and transport history is stored in blockchain, which guarantees full quality control.
The possibilities of blockchain in public administration are virtually unlimited, from tracking taxes and contributions, to issuing electronic invoices, to the electronic registration of people and cars. Imagine how convenient it would be to buy used cars with the service history, mileage and accidents recorded in blockchain. More than two years ago, the Polish minister of digitization Anna Streżyńska brought together an expert “Blockchain and cryptocurrency” group, whose main goal was to create the conditions for the development of Polish cryptocurrency projects and facilitate the use of blockchain technology for administration and business needs.
Traditional financial institutions have noticed the huge potential of blockchain technology because numerous start-ups have found the solution to such problems as the high cost of transferring funds, limited methods of money distribution, limited opportunities to promote their own brand, as well as restrictions in terms of obtaining financing and many, many more. They did something else which constituted a particular threat to traditional financial institutions: they eliminated the need for a third party, guaranteeing the security of transactions. Thanks to blockchain, this function can be carried out much more reliably and cheaply.
Identification and authenticity of goods
The key element in the purchase of goods, especially when it comes to e-commerce, is the authenticity of the product. This applies to both luxury goods and digital products, and indeed many more. Blockchain technology eliminates the risk of false certificates. More than a year ago, the IT giant Microsoft introduced an add-on to MS Office which uses blockchain networks (Bitcoin and Ethereum) to save the document identifier, which is a one-way short form of the document.
An example of the uses of this type of solution in the energy sector are solar panels connected to the Internet via technologies from companies such as Filament, enabling the connection of traditional electronic devices to the Internet. Thanks to the use of IoT sensors, anonymous energy certificates are created for use in decentralized energy trading, which means savings on the consumer side, optimizing network flow and minimizing transmission losses.
TrustedHealth, a medical services provider, uses blockchain technology on its website to enable treatment and consultations for patients with chronic illnesses and those suffering from life-threatening diseases. The platform is used to store the medical history of patients, as well as other sensitive data regarding the treatment and course of the illness. This enables patients to undergo medical consultations with specialist doctors, even if the patient and the doctor are on opposite sides of the world. Access to the data also helps to facilitate consultations with other doctors and obtaining second opinions. Studies show that in 88% of cases, a second opinion revealed previous errors or established a new diagnosis. TrustedHealth presented a draft version of its platform to the World Health Organization (WHO) in February this year. Discussions on how the project fits into the WHO mission are ongoing.
The pharmaceutical giant Sanofi is also working on a blockchain-based system for collecting global laboratory results. Studies preceding the introduction of new drugs to the market last a very long time, and the dispersed nature of documentation makes the process even longer. A global research system can significantly reduce the time between the discovery of a drug and making it available to patients.
The topic of electronic voting pops up every election and dies a natural death afterwards due to the need to create a safe system, the selection of suitable tools or external companies, and doubts as to whether the outcome of the elections will be free of outside influence. Blockchain seems to be the solution to this issue, as shown in Estonia which was the first country to introduce the possibility of voting via the Internet using blockchain technology. By using blockchain, the voting system becomes more secure, more transparent and much more accessible, which broadens the possibilities of voter participation in the electoral process. Numerous governments have been working on introducing similar solutions for years now.
The uniqueness of blockchain
In a classic database, information is stored on a central server, and anyone with the right level of access to this system can steal or destroy the data stored therein. So when we use classic databases we are always dependent on the manager of the database. In this case, we must also trust all organizations which store information about us, such as banks, governments, or IT giants like Facebook or Google. This is a significant restriction on privacy, which also often ends with the violation of our rights.
The fact that blockchain transactions have their own proof of validity and confirmation of authorization means that we can completely eliminate the need to have third parties handling these transactions. They are executed and verified independently by numerous network nodes.
Another advantage of this technology is its transparency. In classic databases, everything is stored in one central location with limited access for users. Blockchain, however, is characterized by full disclosure of the transmitted data and transactions. This could also be viewed as a limitation of this technology because full transparency is undesirable for some applications. Here a problem arises in the commercial use of blockchain, but new cryptographic concepts are created as it develops, such as “zero-knowledge proof”, which will allow the authorization of information without the need for disclosure.
The last advantage of blockchain technology that I want to mention is its lower failure rate. Thanks to the dispersed nature of the nodes, even the failure of half of them does not cause disturbances in the system – we are able to rebuild it. This is also possible in a traditional database, of course, but it is very expensive and complicated.
Observing the development of blockchain technology, I get the impression that the approach to blockchain has changed a lot over the last 10 years – from highly critical to innovative assessments. In my opinion, this is not just a temporary trend – blockchain allows us to solve real problems, niches in which traditional solutions aren’t sufficient. This is only the first decade of its story, so I think that this technology is really about to start to take off.
Check our offer and find out more about FinTech Software Development Services.