We should look ahead at the windscreen instead of the rear view mirror

Today DLTC is the leading platform for creating and developing the ecosystem of blockchain technology in Russia. Here the focus is not only on looking for practical application, but also on developing end products. DLTC specialists have already created ‘CryptoVeche’, an application for corporate voting, and ‘ELORIS’, an application for observers during the elections. And it is much more than that.

DLTC has accumulated unique expert potential due to uniting the knowledge of the leading specialists in the area of ledger systems and the best scientists at St Petersburg University from various fields of study. This enables DLTC not only to provide high quality consulting services, but also to take part in the development of new academic programmes for different stages of the training process.

Here we could continue the story about the advantages and potential of DLTC with the risk that the reader will turn the page over in search of something easier to comprehend. Distributed ledgers, blockchain, bitcoin are words that we have heard a lot in recent years. However, frequent use does not mean that people understand them. Thus, according to the data of Vorhaus Advisors, a consulting company in the field of digital media, only every fourth adult citizen of the USA knows what blockchain is, while over a half consider blockchain and bitcoin to be one and the same thing. We can confidently apply the same data to our country with a correction that in Russia people are probably even less familiar with blockchain than in the home country of this phenomenon.

Maxim Rukinov, Director of the Distributed Ledger Technologies Centre, has taken up the task to educate the readers of ‘St Petersburg University’ magazine. He has explained in simple terms the essence of blockchain technology, its advantages and potential, and the way it is currently changing our life. His story will help to have a better idea of what DLTC does and why its work is so important.

What is blockchain?

Blockchain is the name of a new data base type, which represents a continuous chain of information blocks. This word appeared for the first time in October 2008, when the bitcoin project was described. All the technologies that laid foundation for bitcoin had been developed 10–20 years before it emerged. There were attempts to use them in other projects, but to no avail. Bitcoin was created from a new combination of already existing technologies.

Sometime blockchain is compared to a book of records.

If we consider reflecting financial operations in blockchain, then it can really be compared to a book of records. It is created in such a way that it is simultaneously available for all interested parties. It is automatically renewed and all data is recorded into it synchronously for everyone. If I tear a sheet out of this book, we will see that it has disappeared in the books of all participants. If I cross out a number, everyone will also see it. It is impossible to do anything secretly without telling other users.

Is it possible to hack it?

Blockchain is based on encryption technology. Even with all the power of the state and with all the existing computational capabilities, today it is impossible to hack it in any way. It is based on prime numbers that can be divided only by 1 and themselves. For example, number 17 cannot be divided by any other number except 17 and 1 without a remainder. When you take two prime numbers of 100 digits and multiply them, you will get a third half prime number. With the current development of technologies, if you don’t know the two prime multi-digit numbers, it is possible to find them only by the direct-search method. There is no other algorithm. In other words, in order to hack the technology, one has to search through all possible versions of these multi-digit numbers. It will take so many years that it will cease to be needed, which makes this encryption technology unbreakable. Please, feel free to try and search for those numbers. There are so many options that you might find them only a thousand years later.

Usually, I give another example to those, who want to understand the complexity of this encryption technology in its entirety. Before sorting through the numbers, at first you should make an Excel list of all numerical combination of the first two digits in order to compare if they are right or wrong. So, in order to simply save all possible versions of the code that encrypts the operations in blockchain, the storage space of all hard drives in the world won’t be enough.

How did the cryptocurrency-enabling technology become convenient to use in different spheres of our life?

When we use Yandex services, we trust the company. We choose it as an intermediary and entrust it with storing our data. For example, in order to use car-sharing services of this company we send a picture of our passport and driving licence. All this information is stored on the servers of Yandex. We transfer our data to the company also when we order food or taxi through it.

Now let’s imagine a situation, when a new small company enters the market and says ‘we will do the same thing, please, send your data to our server’. However, we have no idea what is going to happen to this company. Today it exists in the market, and tomorrow it will be gone. Not everyone will trust such an intermediary. In this situation using blockchain turns out beneficial. In this case, this small company will say the following: ‘You don’t trust me and you don’t have to. Let’s use blockchain — a technology where everyone has their own server.’ There is no central intermediary any more, and everyone keeps their data on their own computers. Every participant can keep this database independently. At the same time, all the participants can see each other’s data only if the data owner gives permission. In other cases, the information is stored in an encrypted form. If someone introduces changes, it is depicted in the form of a new block attached to the chain, and the chain is synchronously updated for everyone. In this case, nobody will be able to take and hide the server with all your personal data.

The advantage of blockchain is that with the help of this technology we can avoid an intermediary, while keeping a high level of trust between the participants. All of us are a database. Just one database for everyone. It is not the intermediaries, but mathematics and algorithms that we trust.

Are there any drawbacks to this technology?

There is one important issue that is often forgotten. The same Yandex does not only keep a database, but guarantees that the information inserted into it is true. If the company enters the information about the availability of food in a restaurant or goods in a shop, it confirms that you can really order a certain dish or item.

In case of blockchain, all the information is updated synchronously. And if one participant inputs incorrect information, everyone will see it. It is well illustrated by the phrase ‘garbage in, garbage out’. If someone puts in garbage, everyone will have this garbage. Blockchain technology makes it possible to get rid of the central intermediary. However, now we need it on the periphery in order to guarantee that the inserted data is true. Let’s take a simple example of using blockchain to account for newly born babies around the world, so that they never get lost and their parents can always be identified. However, we have to understand that the weakest link in this chain will be the birth attendant that enters the information into the database. If we don’t find certified specialists that will guarantee the identity of data, how can we trust this information? In reality, the intermediary has not disappeared, it has just moved from the central link into the original link. In such scenarios, blockchain without the Internet of Things that inserts information automatically is not that efficient yet. It is efficient, when the data is entered automatically without the participation of people. The devices exchange data without the human factor, and all the data is automatically stored in such a database as blockchain. Bitcoin is a good example of this process. Everything is in digital form, and it is impossible to misrepresent anything there.

Nevertheless, legislators fight in a certain way for the reliability of people that provide for the integrity and authenticity of information inserted into the chain. Thus, for example, according to the Federal Law ‘On digital financial assets...’ certain requirements are imposed on the operators of information systems that issue digital financial assets. Such persons should have no unexpunged or outstanding convictions and should not be on the list of people involved in terrorism and extremism among other things.

If everyone has their own database, where will it be stored? Do we have enough resources to process and store so much information, given the fact that millions of contracts and deals are made every day around the world?

This is another disadvantage of blockchain. When we talk about the central server, we mean one large server. It can take a lot of space, but it should be a single version or there should be two or three such servers to copy data. Such a server usually belongs to a specific company that is in charge of it. In case of blockchain, an equal amount of information is stored with every user of this database, if they opt to download it. There are two types of databases in blockchain: full and thin. The latter consists only of the block names. You can see the changes, but you can’t see the details of the operation like who did it and when. It is as if we could see the list of all books in the library, but had no access to them.

If everyone wants to have a database, the storage of the same amount of information will require 33,000 servers instead of three. There are also territorial restrictions at the legal level. For example, the issue of digital currency in Russia can be performed only with the use of servers located in the territory of the Russian Federation. At the current stage of technological development, it is seen as a disadvantage of blockchain undermining its efficiency. The second drawback arising from the first one is the speed of information processing. For example, in 2018, Visa network could process over 65,000 transactions per second. Bitcoin processes tens of times less. Why? It is made in such a way that a block of data is formed every ten minutes. This results in a time delay. Although new algorithms are being developed, blockchain cannot yet compete in the speed of information processing with the same Visa company. And the third minus worth mentioning is related to the access keys. In classical blockchain, the operation is encrypted with the help of two keys: a public and a secrete key. The public key is the bitcoin address. If you saw it at least once, you know what kind of gibberish it is. The secrete key looks approximately the same. If you lose this secrete key for some reason, as of today, unfortunately there is no possibility to recreate it.

When you use Sberbank services, you don’t worry that you will lose money from your accounts if you forget the password from your mobile application or the pin-code to your cards. You come to the bank, show your passport and the access to the accounts will be restored. It won’t happen in case of blockchain. You will see exactly the block in which the bitcoin got stuck, as well as where it came from. However, you have to know the secrete key to be able to move a bitcoin record from place to place. If you have lost this key, you won’t be able to do anything with the bitcoin, nobody will.

New algorithms are developed to increase the speed of information processing. How do they solve the problem of storing large amounts of information?

The technologies are also developing in this field. We can store the information in a more condensed form. Currently there are enough resources. However, objectively the problem of storing large amounts of information is there. Partially it is solved due to the hash-function or compression function. We can store information not in the form of thousands of digits, but in the form of hashes. This is a special algorithm that makes a line of a certain length — for example, 15 digits — from any amount of information, be it one sentence or all texts from the Library of Alexandria in online format. If you change a single letter in the saved information, this line will change for 90%, and we will understand that the information has been adjusted.

Blockchain is said to have promising future. Where can this technology produce revolutionary changes in the foreseeable future?

Already today there are projects that are actively developing. For example, the project called TradeLens by IT company IBM and shipping giant Maersk on keeping the records of sea containers. They have entered the entire information on the trip of the container from the shipper to the customer into blockchain. Why is it important? In any logistics operation, there is a large number of participants, and they need someone to keep the central database for them. It is hard for so many sides to agree, who will act as a trusted intermediary, since all of them have different interests. They are simply unable to choose such an intermediary. Blockchain is a solution in such a situation. There is no need in an intermediary and no need to agree with each other. Everyone updates their database and everyone knows that the changes are visible to all the participants in the same way. Nobody can change anything and keep it in secret from other parties. For example, one of the parties did not send the container, but decided to enter forged documents into the database. After the incident, everyone will immediately learn about it and will be able not only to find the shipping company that introduced false data into the system, but also to specify the exact time of this operation.

As for such experience in Russia, today we already have a regulatory framework for a similar introduction of blockchain technologies into a number of industries including transport and logistics. This is the Federal Law ‘On the experimental legal regimes in the area of digital innovations in the Russian Federation’ that allows for digital innovations to be used in the regions within a certain time frame, while receding from the current legislation.

It sounds convincing. However, in our country people are still afraid to conclude an electronic registration of a co-investment agreement, for example, because in this case they ‘will have neither a stamp on the paper, nor the paper to hold in their hands’. It is hard to believe that they will welcome the opportunity of blockchain.

Looking at such people we can stop the progress all together. If you want to move forward, you should look ahead at the windscreen instead of the rear view mirror. The Internet also presents certain risks. A person in the world of atoms closes the door with a key, when leaving home. In the world of bites, everything is the same. It is also full of hackers, threats and risks. For this reason, we install Kaspersky Anti-Virus software, for example, which serves as a lock on our computer. Breaking it is harder than forging or stealing documents in the real world of things.

The systems of signing contracts entirely online are already our present, not future. In the USA, they already have projects that allow for all the documents and agreements to be signed online without personal meetings. Due to such projects, you can be located in Moscow and your vis-avis in Vladivostok. Neither of your will have to travel, and both parties will see all the manipulations with the agreement including the time of opening the agreement by the other party. The protocol of working with the online agreements is being shaped. This protocol is stored in blockchain and no one can secretly change it. In case of a court procedure, the judge will look at the protocol and see the whole history of interactions with the document.

A well-build system of online interaction helps people saving them from incorrect actions and mistakes. We should not be afraid of it. We should use it.

If we talk about blockchain and bitcoin all the time, why aren’t these words reflected in the name of the Centre?

Distributed ledger is a general name similar to the way ‘means of transport’ serve as a generic name for buses, cars, trolleybuses, airplanes and even bicycles. Blockchain is one of the types of organising distributed ledgers in the form of a chain of blocks. DLTC deals with various data bases, and in many cases, they are organised in a different format. For example, directed acyclic graph implies storing information in the shape of a graph instead of blocks.

What other tasks does the Distributed Ledger Technologies Centre have?

One of the tasks is overcoming technological and legislative barriers in using these technologies. For example, there are such agreements that by law cannot be concluded online without an intermediary. Labour contracts (excluding distant workers), the deals that require notarisation, and consequently personal presence at the notary office can be concluded only in person. In a similar way, wills cannot be produced online. Our task is to find such cases and propose solutions enabling people to use blockchain.

We should also develop and offer the ways of eliminating faults related to the speed of operational processing and the safety of storing data on the Internet. This requires applied research.

What distinguishes DLTC at St Petersburg University from similar centres?

The main difference of DLTC at the University is that it has been established as a centre of the national technological initiative. It is funded by the grant provided by the Russian Venture Company (RVC). The RVC established centres on such technology as big data, industrial internet, artificial intelligence, distributed ledgers, quantum calculations, etc.

As a part of the University structure, DLTC can draw upon the knowledge accumulated by the university researchers in various fields of study. With this purpose, DLTC has created an interdisciplinary expert council to develop blockchain at St Petersburg University. We can consult with scientists in search of new viewpoints on the use of the distributed ledger technologies. Their potential is still not entirely discovered and understood even in logistics and finance.

We are still not aware of all the fields of their application. Our task is to look for a place and field where these technologies can be of use. For example, Walmart, the largest wholesale and retail operator in the world, started to use distributed ledger technology in supplying products to its shops. If any of the customers gets poisoned by, say, a tomato purchased in their store, the company can find the provider of the spoilt product and be 100% sure in this finding. And this is just one of the numerous possibilities that the distributed ledger technology presents us with.

What has already been achieved?

DLTC specialists have created several products based on blockchain. One of them is CryptoVeche, an application for corporate voting. This university development has already become popular in the market. Apart from St Petersburg University, sixteen organisations already use it with the licence.

Another product that I should mention is ELORIS, an application for observers during the elections. It was tested on the single voting day of 8 September 2019 in the territory of two municipal districts of the Leningrad region.

DLTC specialists have also developed prototypes for cargo transportation control system Chainbox, information security system Defensor, and intellectual property items management system Edemes. The last system can be of interest to various research and educational organisations, since it provides for technological conditions to transition to the paradigm of controlling all the research life cycles stages based on data.

A consortium uniting companies, organisations and universities involved in development, implementation or promotion of distributed ledger products has been created on the basis of DLTC with the goal to find application for the new technology.

Since DLTC is included into the classical university structure, we appreciate the opportunity to take part in the development of different academic programmes on teaching the fundamentals of blockchain to popularise these technologies. Today, a portfolio of academic programmes with different goals has been formed: from online courses introducing the distributed ledger technology to master’s programmes for future professionals in this field.

The full version of the interview can be found in ‘St Petersburg University’ magazine.