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Blockchain For Government | Bitfury

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Nowadays no one would deny that blockchain technology has a great potential. Considering just its cryptocurrency application would be like thinking about a mobile phone exclusively for texting. Nonetheless, there is a reason why the management of ownership of digital goods is the most discussed application of blockchain. The use of blockchain to transfer ownership of digital goods is the one with most impact on the economy. Managing ownership is a core element of every human society and this becomes clearer if we think about all the stakeholders involved in most ownership transfers: banks, insurance companies, lawyers, courts and so on. Hence, every innovation that concerns management of ownership will have a huge impact on the society. In this way Bitfury has positively affected Georgia’s society.

The most disrupting innovations come from a need. In 1991, the Soviet Union went through dramatic changes, which led to its fall. Many states declared their independence and many families lost their houses because of conflicts between borders. All the records were on paper and therefore easily corruptible. Valery Vavilov has been among the people who lost his property and after many years, he was not able to get his house back. In 2011, he decided to establish the Bitfury Group together with his friend Valery Nebesny.

At the beginning, the project was just about mining. The two guys decided to found the company in Ukraine because of the low cost of energy. After several funding rounds, in 2014 the Group opened one of the biggest Bitcoin computing datacenters in Georgia, because of relevant tax incentives for high tech companies.

At the end of 2015, the company expanded its business from mining and chip manufacturing to developing blockchain services for governments. Since the beginning of Bitfury project, Georgia government demonstrated a high level of interest in the blockchain technology.

Georgia has been a member of the Soviet Union until it obtained its independence in 1991 and since then it has always put all its efforts to fight corruption.

Before 2004 property registration and land management were centralized functions in Georgia and it took about 40 days to register a property transfer. After the foundation of the National Agency for Public Registration (NAPR), the government created a digitalized database accessible to everyone in order to reduce the timing of the registration process and make it more transparent. This reform made it possible to register a property between one and four days. The third step was passing to a blockchain based registration system. As Bitfury Group started offering Blockchain as a Service (BaaS) products, Georgia’s government decided to collaborate with the company to make its registration system more secure.

With blockchain, protection and integrity are constantly granted. This is because all blocks in the network are connected to each other through a hash reference which detects every single attempt to tamper data. A malicious attack that would take control of the consensus algorithm (a 51% attack) in a public blockchain like the Bitcoin one would cost about $2 billion dollars.

In April 2016 Bitfury started the collaboration with NAPR and launched a one-year pilot project, supporting the property registration with Bitfury’s blockchain, named Exonum. Of course, the risks of losing tracks of properties were high and therefore the two entities decided to keep both the old and the new system active. Bitfury would only provide the blockchain layer to reduce the registration timing, while all data would continue to be collected in parallel on NAPR’s digitalized databased.

The pilot project reduced the service delivery time from three business days to several seconds. The big change was that citizens did not have to go to NAPR’s offices anymore. They would just use one of their devices (even a phone) in order to send the application to register a change of ownership. Once the smart contract checked the identities of both individuals involved in the exchange and the money availability on the buyer wallet, the trade could take place. Costs went significantly down thanks to the possibility to avoid many steps and disputes that involved lawyers and courts. Now everything is digitalized and automatized, so once both parties give their confirmation on the contract terms, the consensus protocol registers the exchange on the blockchain. Exonum blockchain is supported by the Bitcoin network, so once a day a hash digest of the entire Exonum blockchain would be published on the Bitcoin blockchain.

Exonum works as a private blockchain. Different kinds of distributed systems exist. Choosing between private or public, permissioned or permissionless depends on the kind of need that the implementation layer is trying to satisfy. A blockchain is defined as private if only authorized nodes can write blocks and permissioned if the same restriction is applied in order to read the information contained in each block. A completely opened system where everyone can participate in the consensus process and validate transactions is more secure than one in which transactions are approved by authorized peers only. On the other hand, this game becomes slower because it takes more time for all nodes to reach consensus and needs more energy to run the mining process. These dynamics have brought many entrepreneurs to develop hybrid forms of networks in order to overcame the trade-off between security and scalability.

Bitfury group has proposed one of the best hybrid solutions for Government application. Two types of servers compose Exonum blockchain: validators and auditors. The former ones participate in the consensus algorithm and validate transactions while the latter ones have access to data but do not participate in the consensus process. The trade-off here is the same we mentioned previously, speed against security. The aim is guaranteeing enough speed by making the blockchain private and at the same time as much secure as possible, introducing many external auditors even from different entities, like Bank of Georgia, for example.

The land titling in Georgia has now completely moved on Exonum blockchain, substituting the database system with a smart contract network that enables citizens to apply for property registration from their smartphones. By 2017, Bitfury had become one of the most important private blockchain platform providers in the world.

Many governments face common challenges like the luck of trust, funds and speed. Bitfury case is just one testimony of the positive impact that the blockchain technology can have on human society. Many other organizations like Hyperledger Fabric are collaborating with governments to find more efficient solutions in the public sector. The paradigm is changing and blockchain technology offers many opportunities. If legislations would accept hashes as legal proofs, probably many public services could move on blockchain based systems, gaining relevant advantages in terms of costs, speed and security. Nonetheless, the regulatory side of the coin has always been an issue for the development of this technology. The blockchain lifecycle is on the track for its maturity, but resistance to its adoption in many countries make us thinking that it is not the time yet.

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