Blockchain In Practice

Table of contents:

Video: Blockchain In Practice

Video: Blockchain In Practice
Video: Blockchain 101 - A Visual Demo 2023, June
Blockchain In Practice
Blockchain In Practice

They have not stopped talking about blockchain for several years, and there is an explanation for this: this technology contributed to the phenomenally fast and unregulated enrichment of participants in the cryptocurrency gold rush. In the book "Blockchain in Practice" ("Alpina Publisher"), an expert in the field of the blockchain industry, Alexander Tabernakulov, together with the co-founder and CEO of the blockchain platform for electricity management NS Jan Koifmann, describe all stages of the creation and development of blockchain technology. N + 1 publishes an excerpt from the chapter “The time for experimentation is over. In what areas the blockchain will find application”, which describes how the technology will be applied in the near future and what problems will need to be solved by those who want to work with it.


The time for experimentation will pass. In which areas the blockchain will find application

10 years after the first blockchain appeared, this technology is still largely experimental. It is difficult to predict with confidence the future of the blockchain industry and the technology itself, but certain outlines of it are already looming.

The Bitcoin Orthodox believe that the blockchain itself is not needed by anyone, and all attempts to use distributed ledgers without cryptocurrencies will not meet expectations and will be discontinued or their improvements will lead to the abandonment of the basic principles of the blockchain. Their opponents, mainly representing banks or government agencies, on the contrary, claim that cryptocurrencies and most public blockchains will disappear in a few years and the future will remain with standardized and certainly regulated distributed ledgers.

Reality is unlikely to meet all the hopes of idealists or will fully meet the expectations of skeptics: the sum of all efforts will lead to a certain compromise, and the blockchain will take its place among other achievements of mankind. We will try to formulate positive and negative factors that will affect the development of the industry in the foreseeable future.

Bitcoin emerged in 2008 as a reaction of a free society to the growing ability of the state to regulate financial flows. The transition of developed countries to non-cash payments and the gradual abandonment of cash make all people's income and expenses visible to the banking system, and through it to regulators. If the transfer of even large amounts of cash is easy to hide, then any non-cash transactions before the advent of cryptocurrencies could only go through intermediaries in the form of banks and payment systems. The intermediary has all the possibilities not only to track, but also to cancel the transaction, freeze or even confiscate the funds of a citizen who is only suspected of illegal activity. But even in day-to-day operations, the presence of intermediaries slows down operations and increases costs. With the development of global communication networks, the old financial system became more and more cumbersome and more and more lagged behind technological progress.

Society's need for new money with better opportunities led to the emergence of cryptocurrencies (almost immediately after the 2008 financial crisis, which remains the largest in the 21st century). They gave people the opportunity to completely control their operations, get rid of middlemen and disregard borders. Unlike a suitcase full of cash, any amount in cryptocurrency is transferred anywhere in the world in a matter of seconds, and the transaction cannot be blocked by a bank or regulator. Therefore, the emergence of bitcoin made a real revolution in the minds and a few years later caused a new "gold rush".

Uncertainty persists

With a new type of money, a new bunch of problems have appeared. Speculative bubbles blossomed on high volatility, many weak and often fancied security systems for cryptocurrency exchanges turned out to be vulnerable to hackers, and the anonymity and lack of control of cryptocurrencies attracted scammers: with their help, sales of illegal goods began, cases of tax evasion and money laundering became frequent. Regulators, worried about the lack of control over the growing financial flows, began to sound the alarm and introduce restrictive measures - from a complete ban on cryptocurrencies in a number of countries to attempts to control transactions with them.

Meanwhile, while the excitement around cryptocurrencies and the emerging platforms of smart contracts was raging in society, the interest of business grew not so much in the new financial system as in the blockchain - the basic technology that allows you to solve the problems that have matured both in the financial sector and in production, logistics., energy, government and even medicine.

In fact, blockchain is a niche solution and is unable to completely replace existing DBMS or international payment systems, but it can be integrated with them.

However, in 2016-2017, a strange and possibly more dangerous bubble formed in the business environment, which has been repeatedly compared to the boom of dot-coms (Internet companies), which originated in the wake of the spread of the Internet. The dot-com bubble burst at the turn of the millennium and took with it not only the majority of failed startups, but also hundreds of billions of dollars invested in them by investors.

Since 2016, they have been trying to apply blockchain literally everywhere, even where its implementation is completely unnecessary and will not give any economic effect. Tens and hundreds of millions of dollars are invested in startups only because their names contain the word "blockchain", and also often because of empty promises that are not backed up either by the professionalism of the development team or by a well-developed and well-grounded concept. And this happens not only in unregulated ICOs, but also with public companies whose shares are traded on the US stock exchanges.

The case of the beverage maker Long Island Iced Tea in the first quarter of 2018 is notable. Its capitalization on the NASDAQ stock exchange more than quadrupled in one day only due to the rebranding in Long Blockchain! After the exchange conducted an investigation and found that the company did not really plan to develop the blockchain, its shares were removed from trading and plummeted 10 times. The same thing soon happened to Longfin, which announced the purchase of a blockchain startup and added the word blockchain to the name. The company's shares rose by 1342% in a few days, but the result was the same: withdrawal from trading, the collapse of quotations and the seizure of assets.

Nevertheless, even this madness is bearing fruit, and the development of the industry is becoming more orderly. Recently, there have been increasing calls for the development of ways to globally regulate blockchain and cryptocurrencies. The main activity is shown by the FATF - an international organization engaged in the creation of standards in the field of combating money laundering and the financing of terrorism. In September 2018, Russia decided to postpone the approval of bills on cryptocurrencies and wait for the FATF recommendations, which could become the basis for global regulation of the blockchain industry.

The International Organization for Standardization (ISO) has also formed a working group to create standards in the blockchain space, but the practical results of its work should be expected in 2019. It is possible that the adoption of technical standards will be postponed until the legal issues are clarified. Thus, the blockchain industry will enter its maturation stage relatively soon, and in the 2020s its shape will be determined and the fate of most existing blockchain projects will be decided.

Development directions

Already now, two main directions are gradually being determined, which over time are likely to become more and more separate from each other: decentralized public blockchains and managed private blockchains. Since their differences from each other are fundamental, over time, interaction between projects of different directions will become less and less possible.

In the second half of 2018, there was a lot of writing about the good prospects for managed (i.e. private and public) blockchains. Indeed, solutions based on Hyperledger, Corda, Exonum and other managed blockchain projects can bring all the benefits expected from them. They will reduce the costs of the approval and decision-making processes, provide a safer environment for information exchange and increase trust between counterparties. At the same time, centralized decisions do not allow the anarchy of decentralized systems, leaving the making of key decisions not to a faceless community of anonymous people scattered around the world, but to a clearly defined group or organization that manages the blockchain.

It would be more correct to call such networks not blockchains, but private distributed networks with blockchain elements. Of the three main characteristics of Bitcoin and other public blockchains (immutability, decentralization, openness) in managed blockchains, in fact, only the first is preserved, and then conditionally:

  1. The invariability of data in a controlled blockchain is not guaranteed for ordinary users, since if there is a single control center, such a blockchain can be stopped with a rollback to the desired block, while nodes that do not have administrative authority cannot prevent or cancel such a change. Here comes a partial return to the familiar client-server architecture with load balancing.
  2. The notion of decentralization in a managed blockchain is ruled out at the concept level. It initially contains nodes with different levels of authority, therefore, even with distributed storage and processing of data (for which the blockchain is not required at all), it is more correct to consider its structure as hierarchical with two or more levels.

  3. The principle of openness of a managed blockchain (that is, the ability for any network participant to see the entire transaction history of all users) can be incorporated or rejected during its creation, depending on the functional features. However, corporate networks will always be characterized by a policy of restricting access to information - both reading it and adding to the system and making changes. Full openness is also contraindicated for state services, at least for reasons of protecting personal data of users, the presence of various levels of secrecy, etc.

All this means that the architectural and technical differences between public and private blockchains will intensify and, over time, may lead to their completely separate development, even if standards are adopted to ensure interoperability. At the same time, the exchange of technologies can become one-way - all successful solutions found by developers of public blockchains can be used in private projects on the basis of open licenses. At the same time, corporate developments, no doubt, will be patented, and their third-party use will become possible only upon the conclusion of licensing agreements and corresponding deductions.

However, there probably won't be any conflicts on this side. If public services, due to open source code, are left in the care of informal development teams, as is the practice now, the development of private blockchains will be concentrated in the hands of IT corporations, into which it will be difficult for new players to break through. However, as is the case with Linux and many other open source software, even free open source development is often sponsored by corporations and subsequently used in their products. In fact, this process is already underway: IBM, Microsoft, Oracle, SAP, Intel, Baidu, Cisco, Hitachi and other giants of the industry are participating in the development of private blockchains. Of any serious independent players of the new generation who have become "unicorns", only Bitfury can be noted with their Exonum project. But even this company, even if it manages to bring its product to the market, may lose the battle with the giants or simply be absorbed.

Probably the biggest disappointment for blockchain enthusiasts will be the abandonment of the dream of a "world revolution" that decentralization and transparency of information exchange are supposed to bring. Revolutions take place in the minds of society, and technology only helps to implement them. But public blockchains will not be able to overcome political barriers, and in private technologies they are used quite utilitarian.

In the corporate market, evolutionary processes can be expected from the blockchain, such as reducing costs and moving to a new level of interaction between counterparties, but truly revolutionary changes are unlikely to follow. After all, from a technical point of view, blockchain (or what will remain of it after all the modifications for the needs of the corporate market) is just another distributed database technology, and only for a certain niche. Blockchain technology will be as engulfed in the market as all past technical breakthroughs. The blockchain will gain worldwide recognition and widespread use, but the result is unlikely to meet the expectations of cryptanarchists and cryptocurrency enthusiasts.

The same applies to legal aspects: if private blockchains are introduced into the legal field and properly standardized (without this, no large organization will embark on their implementation), then the pressure on public blockchains will increase. Point bans or restrictions on certain types of activities, such as those existing in China, will be systematized and introduced at the international level. Perhaps the more constructive Japanese model, which is not much softer, will win. Formally, cryptocurrencies in Japan are legalized and equated to foreign fiat currencies, but all transactions with them require registration and user identification. This actually negates most of the previously described advantages of the new type of money.

Regarding regulation of the blockchain technology itself, there is virtually no need for it. There may be some policy and financial aspects of technology that need regulation, but not technology itself. Here, the role of regulators will be played by the development of common world standards.

What problems will have to be solved

In addition to the purely technical problems of scaling and blockchain interoperability described in Chapter 7, there will soon be social issues as well.

In both public and private blockchain platforms, the issue of managing both key changes in the system and daily activity is becoming more and more relevant. The more users are in a decentralized system, the more difficult it is to organize effective decision making. While in private blockchains the ability to control using privileged nodes is initially laid down, in open systems it has to be built “on the fly” and with much less efficiency, since it is necessary to exclude the possibility of the influence of a small group of users. The existing types of governance were described in Chapter 3, however, the issue of the development of governance mechanisms in blockchains of different types and purposes is still open.

Another problem should be considered separately, namely, ensuring the anonymity of transactions on the blockchain. On the one hand, work is underway to increase the anonymity of transactions in public blockchains, on the other hand, attempts are being made to introduce identification mechanisms and KYC procedures in corporate versions of blockchains and other projects seeking to demonstrate to governments the ability to regulate and control transactions. As a rule, the problem of identifying blockchain users is solved by external means. That is, either before creating an account on the blockchain, or, on the contrary, by analyzing the user's transactions recorded in the blockchain (for example, investigations of illegal activities are underway). If blockchains find widespread use, then the identification of user accounts at the blockchain level while maintaining full or partial anonymity of transactions will be in demand in corporate and government projects that use blockchain to one degree or another. Now we can distinguish two projects that have come to grips with combining blockchain and regulatory mechanisms. This is Ontology, associated with the Chinese blockchain platform NEO, and the still unrevealed TON (Telegram Open Network) project, which uses the existing Telegram Passport technology to identify blockchain users. The launch of working products of these two projects should be expected in 2019.

Popular by topic