Surreal Vision of the Future in the light of Blockchain

Blockchain establishment is a subject of the article published in the reputable economic magazine “The Economist”. Well, you might be curious about the opinion of this expert publication in regard of history, operation mechanism and perspectives of the innovative technology.

The story begins with insignificant from the first sight fact of evicting a modest Honduras resident, Mariana Catalina Izaguirre, from her house in 2009.  A document proving title to the land became a reason for eviction of a resident from a house where she has lived for 30 years. The comic side lies in the fact that according to the country’s Property Institute another person was registered as an owner of a land on which Izaguirre’s house was built on. That person convinced a judge to sign an eviction order. The outcome of this incident was not prosy at all. By the time the disputes were sorted out, the house had been already demolished.

It should be noted that this case isn’t unique. In many countries (including Russia) there are legends on self-will of corrupt officials who use sluggishness of bulky bureaucratic system as a tool for private earnings.
Lack of reliable documents proving interest in the specific land might become a reason for loosing this specific property in our high-tech XXI century. Additionally, imperfection of data base, despite its computerization, prevents from using land and a house as financial backstop. Rather often these problems are revealed only after applying at a bank. Facility agents of financial institutions verify conformity of documents and issue a promissory note after proving that a potential borrower is a true owner of the real estate planned as financial assurance for loan security.
You may question: “How is this case related to the cryptocurrency?” Let’s give a look at the case from another point of view. In fact, staunch Bitcoin supporters can be compared with revolutionary outcast of the beginning of the last century. Those anarchists of economic thinking who support establishment of digital currency based on complex cryptographic schemes were almost set equal to ordinary criminals.

Versatility of the blockchain technology is in diversity of its implementation. Maintenance and renewal of a ledger allows describing with a maximum accuracy who owns what kind of property. It is impossible to change data without agreement of the parties concerned. I believe, blockchain might be compared with a barricade of Paris communards, while Bitcoin – with immortal Marseillaise.

Luckily, among Honduras authorities there were several progressive officials intended to revive the system which was knee-deep in corruption. Having demonstrated its political will the government of the country has empowered American startup Factom to develop an analogue of a traditional state registry based on the blockchain technology. Unsurprisingly, Greece got interested in this project; the country experiences serious problems in legitimate land distribution.

Versatility of the blockchain technology
In a short time there were developed numerous blockchain-based applications efficiently deployed in various fields of activity. NASDAQ has appreciated the true value of the innovation and is going to implement its own system for trading in securities of non-public companies.
Well-known due to its classic British conservatism, Bank of England has appreciated blockchain’s perspectives and called it “the important innovation, capable of changing significantly the modern financial industry.”
Recently, participants of unofficial forum OuiShare held in Paris discussed prospects of widening in opportunities of organizations from lower levels in a financial hierarchy. In the nearest future they might threaten the supremacy of major monopolists in the sector of data storage, for example, . Those who support banning aggressive violence (libertarians) see the future in the light of weakening and then abolishment of the state regulation institute. It will be changed for free-will contracts between individuals without artificial territorial and time restrictions.

The creation of the genius anonym called Satoshi Nakamoto continues to amaze the world. For flawless operation of the system Bitcoin should be accepted worldwide. There should be valid transfer of digital money in the specific direction without duplication of a transaction. Realization of Nakamoto’s concept will allow to get rid of the mediation institute represented by banks.
Blockchain is a huge database. It will store information about any, even very insignificant in terms of volume, transaction. It will be duplicated in the numerous nodes of the cryptocurrency network (a great number of computers distributed worldwide) and will be available to any user.
Surprisingly, this kind of openness will not represent a problem in terms of data security. Embedded in the system a principle of consensus regulates the process of reflection of consecutive Bitcoin-transactions in line with all nodes.

The process of transaction confirmation
Let’s consider a situation when two individuals hold Bitcoin-wallets opened via software that allows linking to the blockchain without user’s identification. The wallet of the user А initializes a request to introduce changes into the blockchain offering to reduce reserves in the wallet A in favor of the user’s B wallet. The activation of verifying the changes will take place: the process consists of several stages. Number of nodes entering the verification process increases concurrently with distribution of the information across the network. Nodes working on the principle of harmony check the availability of the cryptocurrency in the wallet A. After data verification the system activates nodes-miners. They unite specific money transactions with a large number of verified transactions of this type which provide the basis for a new block.
The final stage in completion of the transaction is a repeated calculation of the cryptographic hash-function. A block takes a shape of a line of an unspecified length. Hash represents an identifier that contains no data. The most insignificant change in a block leads to a transformation in the hash.
A title of a new block is a complicated symbiosis of specific data and hash values. This is the basis for mathematic calculation on working out a new hash. It’s difficult to imagine intensity of work performed by nodes-miners. Having processed trillions of variants and chosen the most suitable decision, they transfer information to other nodes responsible for instant verification of a block consistency before it will be included into a blockchain. Hash of a block’s title fulfils a function of an identifier and helps it become a part of the system. A payment between users А and B becomes confirmed.
Bitcoin security is based on three important qualities of the decision-making stage:

• The first criterion is impossibility to determine a node-miner. It is impossible to predict which one of nodes will become an initiator of blockchain’s renewal.
• An additional security mechanism is a content of a hash-title of a previous block. Skillfully manipulating initial data, it’s possible to figure out a title of the last block; however, in case of any insignificant alteration at any stage, the network will turn down the entire chain of blocks.
• Let’s imagine, that user А changed his mind and didn’t want to transfer money, so he tried to rewrite the history in order to keep cryptocurrency in his own wallet. Now imagine yourself as a miner decided to generate a new version of a blockchain. It should be noted that when you were thinking on changing your decision, other users have already extended the chain.  Such a mechanism prevents faulty operation in case of revealing different solutions by two different miners simultaneously. The length of a chain and the rate of its formation represent one more, very efficient security mechanism. One specific node cannot overpower the whole system. In theory, to bring a blockchain under control it is necessary to control 51% of computing power of the network.

Perspectives
What is the benefit of joining the process? The answer is quite simple.  A miner who created a new block receives an impressive bonus – 25 Bitcoins. This is an important but not the most assuring argument in favor of growth in popularity of the cryptocurrency. Nevertheless, the system operates flawlessly generating daily 120 thousands transactions totaling to around 76 million dollars. The average length of a chain can reach 380 thousands of blocks with the volume over 45 Gb.
Blockchain is not programmed only for storing information about Bitcoin. It represents an open platform with various functional capabilities which doesn’t require permissions or payments from applications’ developers for using the platform. Blockchain evolves into a database open for general use.
Applications are divided into three categories.
Some of them use an opportunity of transferring various assets using the innovative technology. It stands to mention the startup Colu, which has developed a mechanism for coloring minor transactions. The so-called “Bitcoin-dust” transforms it into precious metals and stocks.
The second category is focused on creating secure registries with the purpose of integrity of information related to interest in land and real estate. Transactions carried out in cryptocurrency contain true information on financial capacity of an owner. Some applications used in other than bitcoin sectors require some level of client confidence.
A separate category is represented by “smart contracts”. They will be executed in automatic mode in the presence of required prerequisites. Bitcoin can be “taught” to give out coins upon fulfillment of specific standards by candidates. For instance, there is a mechanism that forbids miners to spend bonus units of the cryptocurrency until a chain will extend by 99 more blocks.
One of Bitcoin developers, Mike Hearn, has launched a project Lighthouse. A new decentralized crowd-funding platform is a clear proof of implementing “smart contracts” concept. If a project collects a specified amount, its creators will collect dividends. In other case funds will be returned to investors. This new scheme seems appealing due to outright independence from government control. 
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