Blockchain – what is it and why do we need it in everyday life?

There is hardly a person who hasn’t heard about blockchain at least something in the last two years. Even people very far from the IT-industry know that there are some distributed ledgers… But how they are relevant to real life? – you ask. Here we are telling you why blockchain is such an amazing thing. And why it is so useful in public services, finance, medicine, security, entrepreneurship.

Blockchain is…

It is a distributed ledger or a decentralized database. Let’s compare blockchain with a centralized database to grasp the main idea at once.

As an example of a centralized database, let’s take your regular computer. You store all your information here – work files, family photos, favorite videos. That is to say, all valuable in one place. And what huge trouble it could be if the hard drive “dies”! Or your cute baby spills juice on the computer, for instance…

However, you are a provident person, aren’t you? So, you do prevent such troubles. You copy all the information from your computer to an external media. Or better yet, to two or three ones. After that, you put one in the safe, the other you bring to your job – because the house may catch on fire suddenly, yes?

So, you don’t just copy the information. In addition, you regularly – every week – transfer new data from your computer to external media. In this way, you synchronize the information on all media, including the computer. Congratulations – you have created a distributed ledger!

However, this is still not a blockchain. One more thing is necessary. Blockchain means “the chain of blocks”. Thus, blocks contain data and go strictly one after another. The blocks are interconnected through mathematical algorithms. As a result, each new block contains a trace of all previous blocks. That is why it is impossible to alter data in earlier blocks. For this reason, there is no way to snatch the block out of the chain or to interchange blocks places.

The advantages of blockchain technology

Everyone knows that blockchain is cool stuff. Without getting deeply into technical details, we briefly explain why this is true:

Decentralization. The data stored in the blockchain and the transactions occurring don’t rely on a single center. In this way, blockchain protects users from such troubles as “server crash”, “program crash”. And other similar problems specific to centralized systems.

High level of trust and no need for a third party. Blockchain is a peer-to-peer network. As a rule, all participants have equal rights and opportunities. Blockchain users can interact with each other directly. Accordingly, there is no need for a third party – record keeper, administrator, etc.

Transparency and immutability. Blockchain stores each operation. As a result, it is impossible to distort or to remove anything. You have strong protection against malicious attempts to erase your data or to forge transactions. For instance, if all the banks switched to the blockchain, it would be much more difficult for fraudsters to withdraw your money from accounts or to pin a fake loan on you.

Security. Blockchain claims to be one of the most secure IT-systems to date. Security is ensured by:

Cryptography, that is the encryption of data contained in the blockchain. Of course, not only blockchain technology uses encryption. But this is where encryption is the core of the system.

Consensus. Each new block of data should be verified by all participants of the system.

Distribution. The ledger is stored on many distributed nodes. In this way, destroying or disabling several nodes doesn’t stop or suspend the entire system.

It is fair to say that today blockchain is not a panacea for everything. So, distributed ledgers are far from ideal. Their use raises problems and controversies. However, this technology has great potential and obvious advantages over centralized systems.

Blockchain and cryptocurrency

Blockchain primarily conjures up thoughts of cryptocurrencies. Cryptocurrency is high-risk stuff. Many people have given up on crypto. As well as disenchanted with blockchain technology. But absolutely in vain. Anyway, digital money is just one of the blockchain applications.

The creators of cryptocurrencies were guided by the following considerations:

Direct money exchange between people. Governments and payment systems don’t take part in money circulation. So, this significantly accelerates money exchange and reduces costs.

The anonymity of money transactions. Blockchain allows to make transactions anonymous and transparent at the same time. It attracted many participants in the cryptocurrency market. In part, it’s a kind of marginality. However, anonymous crypto payments solve the problem in some countries. For instance, in China where international money transfers are restricted.

No real state control. By the way, the idea of private money competing with each other is not exactly new. In 1976, the Austrian economist Friedrich A. Hayek published the book on this issue. In addition, people used private money in ancient times, before a widespread state monopoly on currencies emission was established. So, here Satoshi Nakamoto and his followers didn’t come up with anything new.

Speculation on cryptocurrency rates. Perhaps, due to the extreme volatility of the crypto market, everyone has learned about cryptocurrency and blockchain.

In fact, the situation around cryptocurrency is rather ambiguous. Crypto-evangelists believe digital money would defeat the dollar, euro, and other official money. Wall Street economists contemptuously predict the collapse of Bitcoin and altcoins. Actually, digital money has occupied a narrow niche in the global economy. Now cryptocurrencies are being developed as alternative payment systems without jeopardizing officially recognized money.

Voting on blockchain

Elections held on the blockchain is one of the most successful examples of its using. Blockchain eliminates the main problem of elections – vote-rigging. In addition, blockchain optimizes organizational costs of elections.

Electronic voting on the blockchain is already actively used. IT-companies are developing the necessary software for elections.

Elections on the blockchain look something like this:

* Voters pre-register in the system using their biometric data. This is the most important moment for the unequivocal identification of a voter. But voters can use other credentials as well. So, they can upload documents, user identification code sent to his/her cell phone, etc. – similar to online banking;

* Just before the election, the voter receives an ID (code) to log in the voting platform. The user logs in and makes his choice.

* Then blockchain records and processes all results of user identification and voting. So, there is no way to enter some extra data or to “throw away” something unwanted. Since all nodes of the blockchain must validate every transaction in the system, that is, to reach a consensus.

* Finally, voters see the objective results of elections.

So far, large countries aren’t willing to elect a President or a parliament via blockchain. Because there are a lot of objective difficulties. A least, these are the “digitization” of each voter, the choice of a blockchain platform provider, the development of super-reliable software.

Voting on the blockchain is still local legislative initiatives. Private and public organizations apply it for the gathering of public opinion and elections of governing bodies.

The most famous cases of elections on the blockchain initiated by authorities:

* Elections in Sierra Leone in March 2018. It is one of the poorest and most politically unstable African countries. People was deeply disappointed and did not believe in fair elections. The atmosphere for the experiment with blockchain was the most suitable. The technical organizer of the elections was the Swiss Foundation Agora, specializing in voting technologies. But for obvious reasons, the population couldn’t vote via the Internet. Still, citizens filled out paper ballots, passed them to authorized representatives of the Red Cross and other respected organizations. After that, the representatives recorded the results from paper bulletins in the blockchain.

* Elections in West Virginia in the United States in May 2018.

It is interesting, the state authorities initiated this election. They organized voting especially for residents of the USA who are in service abroad. Voting was conducted via the mobile application developed by Voatz. 140 Americans from 29 foreign countries took part in the voting. Voters uploaded their documents, recorded selfie-videos. Then they confirmed their selection with a fingerprint or via facial recognition.

Registering transactions on blockchain

Real estate, cars or intellectual property transactions – all these can be recorded in the distributed ledger. The advantages are obvious:

*Transparency of transactions and protection against forgery;
*Time-saving for registration operations;
*Cost reduction in paperwork flow and staff;
*Quick access to information on registered rights.

Today, there is already a lot of experience in this area. For instance, in Georgia. It is one of the first countries to use blockchain to register real estate deals. Transactions are registered via a special application developed by Bitfury. Similarly, Sweden and Estonia use the blockchain to register transactions. In Estonia, via the blockchain, you can register a marriage and obtain a birth certificate as well.

Another good example is in Ghana. The owners of real estate and other natural resources faced with a property grabbing. Bitland project created by local resident Narigamba Mvinsubo proposed a platform for registering transactions. Bitland employees met with property owners and recorded property rights into the blockchain. The platform not only stores information about property rights. It also allows users to make transactions via smart contracts.

USA and Russia also launched pilot projects of registering transactions on blockchain.

However, there are some sufficient difficulties. Just imagine – you have to digitize all registered objects, as well as their owners, and input all the information in the ledger. In addition, the platform should have a huge capacity for storing transactions. As well as super-reliable protection against hackers.

Information security and blockchain

The technology of consecutive blocks recording changes the approach to information security in many ways.

For example, well-known DDoS attacks on websites servers. The point is that hackers do a huge number of requests to a site server through centralized security barriers. As a result, the server is down, and users have no access to the site.

Creating a distributed security network between the server and users will help prevent such attacks. In this case, requests will be distributed among blockchain nodes. A distributed security network is able to analyze suspicious traffic and block attacks much faster.

Blockchain is also involved in the latest technologies of biometric authentication. This technology is replacing traditional logins and passwords. Biometrics (fingerprints, voice, face parameters) is convenient because it is impossible to fake data and it is unique for each person. Thus, there is no need to set up, remember and reset passwords that may be easily stolen by hackers. It is worth noting that biometric data also requires robust storage and protection. And here, blockchain ensures ultra-secure storage and cryptographic protection of biometric data. Furthermore, it records all cases of using biometrics.

By the way, blockchain technology is used as a distributed storage for any other data required protection.

Blockchain would be very relevant in the field of banking security. For instance, to verify transactions – this could prevent fraudulent withdrawals from accounts. But today, the use of blockchain to improve security in banking is still a kind of experiment. The full transition to distributed networks will require the restructuring of the entire IT infrastructure. Most banks are not ready for this yet.

Blockchain in healthcare

The technology of consecutive blocks recording has great potential in the healthcare industry. Anyway, it is already being actively implemented in this industry in the following areas:

Authentication of medicines. The distributed ledger allows monitoring drugs and pills through the entire chain – from a manufacturer to a patient. Of course, centralized systems can do this as well. But the advantage of blockchain is its transparency and impossibility to forge data. However, such a solution can really work only if the majority of manufacturers and distributors of medicines join a distributed ledger. Thus, the US planes to create a single e-system for tracking prescription drugs in terms of legislation. And some companies already offer pilot platforms – for example, MediLedger.

A single ecosystem for clinics, patients, and insurance companies. Different doctors in different clinics diagnose, cure and vaccinate patients. But there is no single health record. The blockchain system allows combining all patient data for a single clinical picture. Moreover, this system will be transparent and protected against fraud. And it will help to increase the level of trust between its participants.

A single health record allows doctors to improve the quality of treatment. In addition, scientists get the possibility to collect a huge body of clinical data for research.

Patients can manage access to their medical records. They will decide who and under what conditions to provide or even sell their data.
Such an ecosystem simplifies the process of data exchange between all participants of the health insurance system. This kind of project was led by IBM in partnership with health insurers and banks.

Blockchain and traditional businesses

Blockchain has potential in industries existing for many centuries. Here are food and industrial production, logistics, etc.:

Tracking the production, supply, and delivery of components and raw materials, checking their quality and authenticity.

Organization of complex production processes. Each step is recorded in distributed network. This prevents equipment failures or optimizes the inefficient producing sections. Of course, production automation systems have long existed. But blockchain technology makes them more transparent and protected against both human errors and data loss.

For example, in food production. Attention to composition, purity and health benefits of food is highly increasing. How can producers make sure they buy quality raw materials for food production? How can consumers protect themselves from counterfeit products? Product tracking systems solve these tasks. They track food from a farm to a consumer’s dining table. And blockchain with its transparency and immutability allows participants of the food industry to trust each other as much as possible.

IBM Food Trust is one of the most famous projects in this field. The platform brings together farmers, processors, manufacturers, distributors and retailers. IBM Food Trust has already joined the largest players in the food industry – Carrefour, Nestle, Dole Food, Kroger, Walmart, and Unilever.

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