THE IMPORTANCE OF BLOCKCHAIN

The innovative technology of blockchain, about which we have already discussed in this article, is now experiencing its best period thanks to bitcoins and more. Nevertheless, there is still a lot of general confusion about the importance of blockchain and net neutrality, and the situation is complicated by the existence of words such as cryptocurrencies, bitcoins, smart contracts and so on.

In fact, the digital revolution of blockchain is only at the beginning and has many applications as well as many potentials yet to be explored. For this reason, we decided to write an article that simply explains how blockchain represents a safe and reliable system and illustrates why, among the new technologies, it offers promising opportunities that bring benefits to different types of business.

THE IMPORTANCE OF BLOCKCHAIN IN SIMPLE WORDS

To do so, we have decided to start from a simple explanation, trying to make order around the concept of blockchain. Follow us!

What are blockchain technologies for?

The blockchain, literally “chain of blocks”, is an IT network of nodes that uniquely and securely manages a public register composed by a series of data and information, such as transactions, in an open and distributed manner, without the need for a central control. This technology is part of the largest Distributed Ledger family, namely those systems that are based on a public register that can be read and modified by multiple nodes on a network. To validate these modifications, however, the nodes must obtain consent, which can come from any node on the network. Being a set of technologies, the blockchain is structured as a chain of blocks containing the transactions and the consent is distributed on all the nodes of the network, each of them must be verified by the system.

The blockchain applications are important in many sectors and allow, at least potentially, to dispense with financial institutions or similar. The relationship between blockchain and bitcoin, for example, is crucial to understand the importance of the blockchain.

Since 2009, bitcoin has marked and stimulated the evolution of blockchain technology, more than all the existing cryptocurrencies. Moreover, bitcoin is the first cryptocurrency that uses a new type of distributed ledger, the so-called blockchain technology. Through bitcoins, every transaction is legitimated by a decentralized network and not by central authorities, such as banks.

Although bitcoin’s media success increased a lot in recent years, there is still confusion about the real fields of application and the sectors that can best exploit the revolutionary benefits of this innovative technology.

Thanks to the immediate commitment of many companies around the world, which have already started experimenting the blockchain solutions, today the application sectors and solutions offered by this new technology are clearer. The most advanced is certainly the finance and insurance sector, initially threatened by bitcoins, but also the agritech sector, advertising, logistics and even the public administration.

Even the world of digital advertising and media can be strongly involved. Just think of advertising, copyright management, identification of fake news and several activities on social media.

Many realities have already understood the importance of blockchain and applied it in different sectors. In Georgia, it was adopted for land control and to ensure that a specific product, such as champagne, is actually produced in that specified area. Even the experiment of Poste Italiane, from the Estonian example, aims to reduce the number of intermediaries in the logistics chains.

To what extent can the blockchain be applied in daily life?

The importance of the blockchain is certainly given by its ability to simplify many actions we usually perform in a traditional way, such as buying and selling products, paying bills, transferring money and storing documents. Many people do not rely on the internet to do all these activities, because of the risky presence of countless frauds, identity theft and phishing. However, the blockchain can really revolutionise the way we store and distribute information on the net. It can also protect information from the multiple attempts to attack it. How? Using multiple security levels, for example the control through a private key, so that only the real owner of a certain amount of bitcoins can create a valid transaction related to that bitcoins, while the previous inputs ensure that the sender really has the number of bitcoins he/she needs for the transaction.

Despite the measures described, the security risk is just around the corner and is linked to the order of transactions. If two transactions are potentially in conflict with each other, because they are linked to the same input, they could be transferred to the network randomly. Thus, the node, that has already received the second transaction, receives also the first one and creates an ambiguity that is difficult to solve.

What are the features of blockchain?

Internet of Value is the constantly evolving context within which the blockchain technology is embedded, namely those systems that allow the exchange of value on the internet as easily as normal information is exchanged today, always on the internet.

This digital network of nodes, which give consent to the changes to be made to the register through a system of algorithms and cryptographic rules, leaves trace of the transfers that have occurred.

There are different platforms and systems based on blockchain. With the permissionless blockchains (bitcoin and Ethereum) anyone can participate in the transaction validation process and become a node of the network. With the permissioned blockchains (Corda and Hyperledger) the access to the network is restricted to some authorized participants. Then there are the so-called “hybrid” blockchain technologies, such as Ripple, which allow anyone to participate in the network, but only some of them can validate transactions.

Even if there are different types of platforms that use blockchain technology, each one with its own configurations, all of them have at least seven common points:

  • Digitization and transformation of data in digital format;
  • Decentralization, whereby images are distributed among multiple nodes in order to guarantee the IT security of the systems;
  • The traceability of transfers, by which each step is traceable and its origin is recorded;
  • Disintermediation, whereby transactions are managed without intermediaries, or without the intervention of trusted central bodies, such as banks;
  • Verifiability, so that every element of the register is transparent and visible to all, thus it is totally available and verifiable;
  • Immutability of the register, so that the data entered in the register cannot be modified without the consent of the network, for this reason it is called net neutrality;
  • Programmability of transfers, thus it is possible to program actions that start only when certain pre-established conditions occur.

Beyond bitcoin

The bitcoin platform created in 2009 the first cryptocurrency that uses cryptographic technologies, computer networks and mechanism design to implement a decentralised and secure value registration and exchange system, not without its criticality. First of all, the limited expressive possibility that reduces the possibilities of automation and from which originates Ethereum, an open source platform based on blockchain technology. Ethereum is very similar to bitcoin and solves the problem of automation thanks to a specific scripting language. Its limit, however, is the high-energy consumption, the poor privacy protection and the low frequency of transactions.

BLOCKCHAIN IN ITALY

Over 1 billion dollars have been invested in blockchain worldwide and as many investments are planned by 2020. Below the new application areas of blockchain in Italy.

Blockchain and finance

Financial services, above all banks, are certainly among the sectors that mainly invested in the blockchain technology. As there are no intermediaries who manage the transactions, the costs of the banks’ commissions are reduced and saving, speed and reliability are ensured. For this reason, both banks and financial institutions try to grab the new market, considering the countless opportunities it offers.

Blockchain and insurance policies

Insurance policies can be supported by blockchain networks because, ensuring safe and decentralised transactions, it enables to avoid frauds and ensures better data and reports. Moreover, thanks to blockchain, the insurances are updated with accurate notifications about the changes in progress. In this way, it is possible to improve the risk management, maximising the opportunities of capital and funds and adopting big data, useful to obtain secure information about customers and third parties. On the technical side, blockchain represents the opportunity to integrate a third-party ecosystem to reduce the costs of management platforms, while improving the customer experience and the market share.

Blockchain and digital payments

Digital payment is one of the most discussed areas of the blockchain, especially with reference to slow transaction processing times, to system performance that should be improved and to clear regulations that analyse technology threats and opportunities.

Blockchain and Agrifood

Agrifood (the PMF Research partner company develops solutions in the agritech sector) is an excellent ally of the blockchain, guaranteeing transparency and traceability for those who want to use technology to appear reliable in its users’ eyes.

Some of the applications of blockchain technology in the agritech sector are: tracking containers and food transportation, decentralization, shared control, information preservation and much more. The benefits of the blockchain are also important for the food certification developments, since they offer the possibility of creating supply chains in which different actors (producers of raw materials, logistics and transport companies, companies that work with raw materials on various transformation levels, companies that handle packaging, marketing and retail) can provide data and, at the same time, verify them in order to make these data available to the final consumer.

Blockchain and manufacturing sector

In the manufacturing sector and in industry 4.0 the decentralized logic of the blockchain can be exploited to produce new technologies that support the production, logistics and supply chain of companies. The preserved data guarantee safety and reliability throughout the production and distribution process. In particular, the processing industries benefit from the blockchain applied to the management of internal and external product logistics and to the supply chain relationships. In this case, the “Trust” logic – typical of digital payments – is also applied to transactions that have as object data packages that represent the identity of certain products.

Blockchain and IoT

In IoT the blockchain is useful because it eases and makes safe the communication exchange between the connected IoT devices. Moreover, it arises solutions of supply chains certification based on data that come from these connected items, especially in the food supply chain sector. In fact, the recognition of virtual or physical objects is important because these objects actually manage the transactions at a later stage.

Blockchain and health

In the healthcare sector, it is possible to manage patients’ medical data through a shared system that allows to share clinical information quickly and safely, giving the possibility of having a patient’s entire medical record under control and administering better and faster medical treatments. Thanks to the blockchain applied in the health field, patients are at the centre of everything because all the medical actions that concern them are cleverly coordinated with each other, optimizing the information management and improving the national health information system. The interaction between interregional health systems and between private parties (analysis laboratories, private healthcare or insurance companies) makes healthcare an almost perfect system. The blockchain secures patients’ data thanks to new authentication methods, guaranteeing a secure, decentralized and immutable document management.

Blockchain and public admnistration

Public administration and citizens can have their own real digital identity, useful to fight against tax evasion and crime and to simplify services in various public administration sectors.

An example of a blockchain undergoing testing is the electronic voting, a disputed method due to its security problems, threats and risks of manipulating public opinion, identity violations, system intrusions, data manipulation and vote sabotage. The solution to the problem seems to be the Unique Digital Assets, which do not allow the duplication of a digital document, but rather attest its uniqueness and associate it to a precise identity, guaranteeing the preservation and secrecy of electronic voting.

Blockchain and music

There has been much discussion on the diffusion of musical tracks in the digital era and on the inadequacies of remuneration for the authors of the musical products. Thanks to the blockchain and to smart contracts, even the music is automated: the remuneration of all the authors and contributors is finally guaranteed for every purchase of a musical track, as long as they are really purchased.

Blockchain and electricity

The smart grid can solve the problem of intelligent management of electricity production and consumption, making the electricity grid more “democratic” by the exchanges between those who have excess of energy and those who have urgent needs of it.

The blockchain is also opening up many new possibilities in the energy sector, such as the introduction of peer to peer exchange network, namely producers or final consumers who choose to produce energy for domestic use. With the growth in the number of microproducers, and thanks to the availability of devices to optimise energy production and consumption, it is possible to forecast an increase in energy production, which can be brought to the market.

The direct advantage, in this case, is a greater intelligence on energy production and consumption and, as a consequence, a greater ability to reduce general consumption and turn the energy machine that feeds our cities less expensive.

This sort of energy transaction between neighbours enables, for example, to make your own excess energy available and manage decentralized productivity and distribution.

Blockchain and CBDC

The major institutions in the world of banking and financial services, like central banks, work to understand how to take advantage of the blockchain, especially as regards the support to the CBDC, the Central Bank Digital Currency. This digital version of a currency, supported by Central Banks, is different from cryptocurrencies, which are not issued by the State and therefore have no legal value. The CBDCs represent an innovative monetary tool in digital format, designed to secure traceability and to reduce the risk of fraud.

Blockchain and companies

The blockchain has a positive impact also on private companies, because it can simplify business processes, reduce costs and increase financial efficiency, above all regarding the shared and constant monitoring of sales assets, as well as, in the purchase and generation of interchange barriers. However, all this should be accompanied by a massive work of information and awareness, to involve the institutions in defining regulatory systems able to match the innovation currently reached.

THE DISADVANTAGES OF BLOCKCHAIN, PAY ATTENTION TO EXPECTATIONS

Due to its characteristic of complex and, at the same time, mainstream technology, blockchain-based systems are the solution to problems that actually have never been solved by traditional technologies. As a result, the expectations of companies and consumers regarding the blockchain have considerably increased, but they are often the result of a sort of misunderstanding of the beneficial effects of this technology.

Thus, if the expectations placed on blockchain are not respected, it happens that this technology is put aside and abandoned. It depends on the technology itself, which is a safe and reliable system, but not as much as people believe. Let’s see why.

In the agritech sector, blockchain networks are very appreciated because they are reliable and transparent, so in this case the blockchain offers a great support, for example in the Made in Italy. This does not mean that the blockchain is the only guarantor of quality nor that it can alone certify the quality of a food product. It can only certify the information, but if this originally does not correctly represent the product in production, the blockchain cannot be aware of it, because it is not responsible for it, consequently it cannot correct such information. Indeed, the blockchain can only reinforce the error, because it guarantees to the system that the information it had at the beginning is kept intact throughout the production and distribution process in the market.

The same applies to smart contracts, which exploit the blockchain technology bringing benefits to both companies and public administration. These are contracts whose clauses are executed automatically when certain previously established conditions occur. However, in a first phase of preparing the contract, the intervention of legal and IT experts is required.

From the interest shown by the various governments towards the blockchain, it emerges the awareness of the authorities on the possibility that the technology is applied in several sectors, after evaluating all the pros and cons. In fact, even in the case of smart contracts, there is no certainty that the correct information will be provided by the subjects or companies involved. The blockchain cannot ascertain that a datum is true, but guarantees its incorruptibility and protects it from possible violations.

Finally, one of the main defects of the cryptocurrency technology is the limited number of movements it can manage, which range on average from 3 to 30 transactions per second, while Visa can manage around 60 thousand movements in the same time period. Moreover, being a decentralised technology without a traditional database, the huge amount of sensitive data can be shared with multiple users and must be protected with the blockchain cryptographic techniques. Each user, however, has its own secure private key and is responsible, therefore, for its memorisation and use, which today still represents a problem, given the little diffusion and familiarity that users have with this technology in constant expansion.

To learn more about new research and development technologies take a look at our JOurnal!

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