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Leonid Skakovskiy. Blockchain technology: the essence and main spheres of application

In recent years, many states are actively adopting “blockchain” technology, which is applicable in a wide range of spheres of life – from banking and business sector to health care, retirement systems, public administration, etc. In this connection, it is important that Kazakhstan did not fall out of global trends and developed this perspective technology in a timely manner, taking into account all its advantages and possible costs.

 

The essence and principles of blockchain technology

The blockchain technology is extremely simple: it is a “distributed database of general use, functioning without centralized management that allows to permanently storing records of all transactions made in such a way that subsequently these data cannot be deleted or imperceptibly modified” [1].

As noted by A.N. Babko, blockchain technology is a chain of blocks (miners) of transactions created according to specific rules, based on three main principles – transparency, distribution, protection. Each block contains a group of records, and newly created blocks are always added to the end of the entire chain, duplicating the service information about the previous structural elements of the system and recording the data about the transactions made. These data are stored in encrypted form simultaneously at all participants of the system and are automatically updated to the current state with each modification made. Thus, such a system is a computer network in which any of its nodes stores a copy of each of the blocks and acts as a “collective notary”, confirming the truth of information in the data registry and providing protection against any manipulation and abuse [2].

 

The most important areas of application of blockchain technology

Firstly, the blockchain technology made it possible to create a so-called cryptocurrency (bitcoin, ethereum, etc.). More details of this story will be covered by us in a separate article.

Secondly, blockchain technology is widely used in the banking sector, since it minimizes counterparty risks, optimizes payment terms, improves contractual relationships between counterparties and establishes transparency of non-cash payments [3]. With the help of a blockchain, it is possible to ensure the passage of non-cash payments without the participation of third parties, including through «smart contracts» – a programmed code that copies usual commercial agreements, digitizing business transactions between participants and registering them in the blockchain. Owing to this, it is possible to optimize the cost of payments up to the cancellation of the commission [4]. Since the blockchain is of high reliability and security, it is ideal for authentication – i.e. user authentication. Verification confirms that the user has an up-to-date and correct key for accessing the system. Actually, the blockchain cannot protect the user from stealing his key but can protect against intrusion into the system and data theft by hacking, since the distribution of the system makes it impossible to break it [5]. According to S.A.Korchagin, the use of blockchain in the banking industry will facilitate and simplify the audit. As a result, Basel rules in the future can be based on a strict requirement of the use of blockchain technology by banks in their operations. Under such conditions, compliance with capital adequacy requirements will be easily verifiable [6]. According to the Cambridge Centre for Alternative Finance, by 2019, 20% of the world’s central banks (CB) will start using blockchain technology, and in the next 10 years, their number will increase to 40% [7].

Thirdly, it is the economy of joint consumption, the pioneers of which have become such companies as Uber and Airbnb. As experts say, these services eliminate intermediaries and «gatekeepers» in certain areas, allowing people to communicate with each other directly and on an equal exchange of goods and services. The addition of block-payments to such relationships is natural and harmonious. This, in particular, is what the start-up ChronoBank does, which aims to make a revolution in the short-term loan industry, allowing everyone to work in exchange for time tokens that are freely exchanged for goods and services or simply sold for other currencies [8].

Fourthly, the blockchain will develop in the sphere of operations with goods and raw materials. For example, by bringing grain to the elevator, the farmer will not receive a receipt but will receive tokens, which guarantee the availability of his goods at the elevator. Such a mechanism will greatly simplify the procedure for the sale and resale of real goods. In the end, for a typical businessman, the blockchain will mean honesty and transparency in business processes [9].

Fifthly, this is the sphere of energy. As Deputy Minister of Energy of the Russian Federation A.Teksler recently stated, in the future, the blockchain technology will eliminate intermediaries between producers and consumers of electricity, i.e. marketing companies. Digitalization will create compact schemes between manufacturers and consumers [10].

Sixthly, this is the healthcare sector, where with the help of new technologies the problem of information reliability, transparency of contracts for the provision of medical services, electronic medical records, databanks can be solved [11].

Seventhly, this is the creation of the so-called competence profiles. In particular, the working group of the Economic Council under the President of the Russian Federation is developing a system of individual competency profiles that will combine the diplomas and workbooks of citizens. When implementing this project, it is proposed to use blockchain technology for storing profile information. The new system will simplify employers’ access to information about graduates, and also make ratings of educational institutions. It is assumed that blockchain usage will ensure transparency of ongoing transactions. In this case, it is easy to provide a different level of access to blockchain-files protected by the encryption protocol [12].

Eighthly, the blockchain may prove useful in the field of copyright protection and intellectual property. Promising projects have already been created, such as Ascribe, helping to preserve the authenticity of the rights of artists and authors [13].

Ninthly, it is the maintenance of various registers and cadastres, which will eliminate or minimize abuse by public officials. For example, the government of Japan plans to unite all land registers in a single base on the blockchain-platform. Today, all information about real estate objects is distributed among several registries, each of which stores data on ownership of various types of real estate – farmland, living quarters, forestry. Due to the disparity of data in the registers, there are significant discrepancies. According to a survey conducted by the Japanese Ministry of Justice, 6.6% of ownership records of urban property and 26.6% of data on real estate in small and medium-sized settlements and urban settlements have not been updated in the past 50 years. The transfer of all information on real estate to one blockchain-platform will facilitate the search for property owners and increase the efficiency of real estate transactions. Regulatory bodies will receive more reliable information on the number of vacant residential premises and agricultural land and will be able to more accurately plan their use. The testing of the new land registry will begin in 2018. If the experiment proves successful, the Japanese government will consider fully transferring all real estate registers to the blockchain platform within the next 5 years [14].

Tenthly, this is an electronic vote, which, in the future, will prevent people from having to vote at their place of residence and will eliminate the problem of falsification in elections [15]. There are systems, such as Horizon State, that use blockchain technology to create an electoral system that excludes opportunities to manipulate election results. In this regard, the founder of Horizon State Jamie Skella said: «For the first time in history, we have a ballot box that cannot be hacked. It is impossible to interfere in the voting result; an unprecedented level of trust is achieved between the participants» [16]. Undoubtedly, to introduce the blockchain technology in the electoral system, not only a corresponding technical base is required, but also the political will of the state leadership, because, according to some experts, blockchain technology deprives officials of their main asset – power [17].

 

Conclusions and generalizations

Blockchain technology already today becomes an integral part of the economy and politics. Its development and practical implementation are one of the most important tasks of Kazakhstan. Lagging in this sphere is unacceptable since it can result in severe financial losses for the state, national companies, and private corporations. Urgent government measures are needed to accelerate the process of adopting blockchain technology, and training the relevant personnel. In general, the digitalization of the economy, which incorporates the blockchain technology, can and should become one of the drivers of economic growth and an important lever for diversifying the Kazakh economy in the 21st century.

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[1] Бабко А.Н. Песрпективы ииспользования технологии блокчейн в сфере государственного управления //В сборнике: Тенденции, направления и перспективы развития экономических отношений в современных условиях хозяйствования. Материалы II межрегиональной с международным участием научно-практической конференции. – 2017, с.180.

[2] Ibid., pp. 180-181.

[3] Курьянова И.В. Блокчейн-технология в безналичных расчетах: революция в финансовых услугах //В сборнике: Современные информационные и коммуникативные технологии в глобальном мире: вызовы и возможности. Сборник научных статей по материалам Международной научно-практической конференции. Главный редактор Л.В. Савченко. – с.269.

[4] Ibid., pp. 270.

[5] Мащенко П.Л., Пилипенко М.О. Технология блокчейн и её практическое применение //Наука, техника и образование. – 2017. – №2(32). – с.62.

[6] Корчагин С.А. О текущих трендах в развитии технологии блокчейн //Свободная мысль. – 2016. – № 4(1658). – с.34.

[7] Пятая часть мировых ЦБ начнут использовать блокчейн //http://www.vestifinance.ru/articles/91487.

[8] Тихонов А.В., Тимофеев А.В., Козлов В,В,, Шаврин В.Ю. Способы применения технологии блокчейн и перспективы криптовалют //Перспективы развития информационных технологий. – 2016. – №33. – с.104.

[9] Королева А. Кто возглавил блокчейн //http://expert.ru/2017/08/30/blokchejn-otreguliruyut-kriptovalyutoj.

[10] В Минэнерго заявили, что блокчейн устранит посредников в сделках по электроэнергии //https://russian.rt.com/russia/news/436536-minenergo-blokchein-elektroenergiya.

[11] Кононова А.Ю. Перспективы применения технологии блокчейн в Российской Федерации //В сборнике: Фундаментальные и прикладные исследования: проблемы и результаты сборник материалов ХXXIV Международной научно-практической конференции. – 2017. – с.162.

[12] Цифровая «корочка»: в России предлагают использовать блокчейн для хранения данных о дипломах и трудовых книжках //https://russian.rt.com/russia/article/432847-blokchein-vuzy-diplomi.

[13] Королева А. Кто возглавил блокчейн //http://expert.ru/2017/08/30/blokchejn-otreguliruyut-kriptovalyutoj.

[14] Япония переведет кадастр недвижимости на блокчейн-платформу //http://www.coinfox.ru/novosti/7128-yaponiya-perevedet-kadastr-nedvizhimosti-na-blokchejn-platformu.

[15] Владимирова Л.В. Перспективы применения технологии блокчейн //Фундаментальные и прикладные исследования в современном мире. – 2017. – № 18-1. – с.93.

[16] Пятая часть мировых ЦБ начнут использовать блокчейн //http://www.vestifinance.ru/articles/91487

[17] Воротилов А. Как блокчейн лишает чиновников главного актива – власти //https://forbes.kz/process/technologies/kak_blokcheyn_lishaet_chinovnikov_glavnogo_aktiva_vlasti.