Science & blockchain – a great match
By: Dennis Hillemann
Tags: Blockchain, Bitcoin, Science, Ethereum

Science & blockchain – a great match

For years people have been talking about the Bitcoin as an electronic means of payment. The technology on which the Bitcoin is based, the blockchain, offers far more applications than just the “Internet money”. There are already numerous concepts that could decisively influence the life of tomorrow. It is foreseeable that the public administration will also use this trend because the blockchain provides a framework for the simplification of work processes, which are still characterized by high administrative overhead.

Which ideas exist and in which way they have already been implemented or are to be applied soon is shown below. The focus is on projects and ideas regarding blockchain-based applications in science.

What is blockchain?

The blockchain is a decentralized database, which is continuously being extended by the users. In the beginning, there was the first block (creation block). Each new block is checked for validity by a consensus principle, such as “proof-of-work” or “proof-of-stake”, and appended chronologically to the back. The result is a “blockchain”.

The distinctive feature of this database is decentralization. Contrary to our previously known databases, which are usually stored on servers or computers, the database of the blockchain is distributed among its users. It has two advantages: Firstly, the operator’s information monopoly is dissolved in favor of all users. On the other hand, the blockchain is forgery-proof. Within this chain, each block has stored the data of the previous block and the entire chain in the form of their checksums (similar to a checksum).

The chain is firm and unalterable. The information stored in it requires no administration or certification. Such technology, which replaces the middlemen, has the revolutionary potential to simplify processes and procedures for public administration as well.

What are “cryptocurrencies”?

Cryptocurrencies are digital currencies based on blockchain technology. The range of cryptocurrencies is enormous, with the best known today being Bitcoin, Ether, Litecoin, Ripple, and Dash. These currencies have different characteristics and can be changed and traded like traditional currencies. The unique thing about cryptocurrencies is that, unlike traditional currencies, they are not controlled by financial institutions and governments. As global currencies, cryptocurrencies are less dependent on the economy and policies of a state and are accessible to everyone. Cryptocurrencies have other advantages: they can be traded 24 hours a day in the absence of official stock exchange, and they can generate significant profits by trading with them because of their volatility. Also, due to the use of blockchain technology, all transactions are recorded and stored. The recipient receives only the required information about the sender, not all the details. The flip side of volatility, on the other hand, is that the value of the cryptocurrency may fall sharply overnight due to sharp price fluctuations. Besides, the increasing use of cryptocurrencies may necessitate regulation. Central benefits of cryptocurrencies could be lost. It should also be remembered that while cryptocurrencies are becoming increasingly popular and their value is increasing, whether or not cryptocurrencies are long-established and valuable remains uncertain.

The legal classification of cryptocurrencies also appears problematic. In any event, the legal means of payment is, in accordance with § 14 section 1 of the German Federal Bank Act and Article 128 section 1 sentence 3 of TFEU, only the euro. Another means of payment need not be accepted either privately or by the public. Cryptocurrencies are also no book money. It is such money, which is available on banks´ accounts at the bank customer´s free disposal. A similarity between cryptocurrencies and book money exists in the electronics of both procedures. The difference is that there are no claims against a bank by cryptocurrencies. The same applies to electronic money. It would be in accordance with § 1 section 2 of German Supervision on payment methods Act if there were an electronic claim against an issuer. The typical issuer is the bank. Whether holders of a cryptocurrency are to be rated as issuers, seems questionable. It would be conceivable to value the users of the same cryptocurrency as a civil law partnership (in German: GbR). This partnership with legal capacity could act as an issuer to the outside world. There is, however, no individual legal intention of the users to join partnership as a society by using the cryptocurrency and to set the “central issuing point” of the cryptocurrency (Schlund / Pongratz, DStR 2018, 598, 600). The philosophy of blockchain is just the decentralized application. A regulatory authority should not exist. The Federal Financial Supervisory Authority (in German: BaFin) also supports this assessment.

The idea of ​​cryptocurrency as a form of local money excretes also. Regional funds (like the Chiemgauer or the circulation-secured “Freigeld”) are limited in their area of ​​distribution and are issued in the case of “Freigeld”, according to the philosophy of their conceiver, Silvio Gesell, by the state. Cryptocurrencies, on the other hand, are “market money”. They are distributed decentrally by all users. A regional restriction does not exist.

As an interim result, it remains to be noted that cryptocurrencies cannot be qualified as money under the current legal situation.

What could cryptocurrencies be then? Due to the financial assets of cryptocurrencies, these could be accepted as “performance in lieu” (analogous to § 364 section 1 of German Civil Code), as an “another” performance than money. Also at this point, the question arises, what is this “another”? Cryptocurrencies are not things within the meaning of § 90 of the German Civil Code, because they lack the embodying. Although computer software and data were already qualified as things when they were stored on data carriers. Such a parallel to cryptocurrencies does not exist, as they exist only virtually and the wallets serve exclusively for the storage of the private and public key (Schlund / Pongratz, DStR 2018, 598, 600). Finally, the protection over the copyright law, since cryptocurrencies are neither computer programs within the meaning of § 69a section 1 of German Copyright Act, – there are no instructions sent to an information processing device (OLG Hamburg CR, 332, 333 f.) – nor they are “personal intellectual creations” according to § 2 section 2 of German Copyright Act, since cryptocurrencies arise over a mathematical procedure.

According to the current legal situation, no legal construct could explain cryptocurrencies. The existing legal uncertainty of entrepreneurs will therefore not lead to any implementation of the technology in the state administration. It remains to be seen how the federal government plans the future of the cryptocurrency in Germany in the summer of 2019.

The exploration of blockchain in Germany

Although Germany is currently considered in international comparison as a latecomer in the field of blockchain economy. On the reason of the published working paper of the Federal Government “Digitalisierung gestalten” from November 15, 2018, there is a fair hope that this could change soon. In the summer of 2019, the German government announced that it would publish a Bitcoin strategy aimed at “creating suitable framework conditions for […] blockchain and crypto assets” and “developing the potential of technology”.

German research institutions and universities have long been concerned with the possible application areas of blockchain technology and have initiated and partially implemented innovative projects. A selection of these projects is presented below:

Support for cross-agency communication and cooperation in the asylum process (Fraunhofer Project Group Business Informatics and Federal Office for Migration and Refugees)

Consortium study: “Blockchain for Industrial Applications” (Fraunhofer-Gesellschaft)

Blockchain for International Trade Finance: Development of a prototype for process optimization by blockchain-based letter of credit (Fraunhofer Blockchain Laboratory and Norddeutsche Landesbank)

Cooperative Music Box – Blockchain to touch: Matching music requests within a group by setting “Music Coins” on multiple titles (Fraunhofer Blockchain Laboratory)

Digital infrastructure for Seamless Mobility as a Service: open decentralized mobility system for a wide range of mobility providers (Fraunhofer Project Group Business Informatics with other cooperation partners)

Blockchain competence network: student IT consulting (Leibniz University Hannover)

Blockchain for science (“bloxberg”): prove the authenticity of data, secure research results, forgery-proof certificates and diplomas, easy access to open access publications (Initiative of the Max Planck Digital Library in cooperation with leading Blockchain institutions, for example, University of Copenhagen, University College London, KIT)

Blockchain technology in the energy industry: Micropayments, as an example for charging e-bikes on long bike rides with an innkeeper or other third parties (University of Applied Sciences Ruhr-West)

Blockchain Competence Center Mittweida (“Mittweida showcase region”): cooperation with various research projects sponsored by the Federal Ministry of Education and Research, as an example the master program “Block-Chain & Distributed Ledger Technologies (DLT)”, data transfer in construction, blockchain-based time recording, mileage of motor vehicles in the blockchain (used car market) (City Mittweida, Volksbank Mittweida and University Mittweida).

Blockchain applications in education and science

The areas of application in public administration are extensive. In the future, the life of a child born in 2025 could be entirely stored and “managed” in the blockchain. What sounds like a strange 1984 vision at first, offers a lot of repercussions, which eliminates many annoying bureaucratic procedures and can dramatically simplify life – if, of course, data protection concerns are clarified. So the child of the future could graduate from school and university within the blockchain.

According to its press release, the Frankfurt School of Finance & Management is the first university in Germany to issue blockchain-based certificates for a degree program. The first recipients are students of the certificate course “Certified Blockchain Expert”. Forgery-proof credentials and credentials can be digitally issued, administered and made permanently available by using blockchain technology. Waiting times and fees for the certification of documents fall away. For this pilot project, the university cooperates with Consensys; this company is a leader in the blockchain field.

According to its press release, the Frankfurt School of Finance & Management is the first university in Germany to issue blockchain-based certificates for a degree program. The first recipients are students of the certificate course “Certified Blockchain Expert”. Forgery-proof credentials and credentials can be digitally issued, administered and made permanently available by using blockchain technology. Waiting times and fees for the certification of documents fall away. For this pilot project, the university cooperates with Consensys; this company is a leader in the blockchain field.

“Blockchain for Education Platform”

The Fraunhofer Institutes FIT (Fraunhofer Institute for Applied Information Technology), AISEC (Fraunhofer Institute for Applied and Integrated Security) and the Fraunhofer Academy explore the ways how such a blockchain-based system can work for educational certificates. A prototype of the “Blockchain for Education Platform” has already been developed. In the following, the functionality and advantages of such a platform are shown. The project aims to create a system that allows issuing, administering, verifying and sharing certificates using a blockchain.

First, two “Smart Contracts” are deposited by an accreditation body on the Blockchain “Ethereum”. Smart Contracts are automated contracts that perform a specific activity when a particular event occurs (“if-then-rules”). The first of the contracts allows the accreditation body to add, edit and remove certification bodies (as an example universities). The second contract manages the lifecycle of certificates issued through the blockchain. In the first contract, the accreditation bodies register the certification bodies that are to become legitimate issuers of certificates about the blockchain. Blockchain also stores public and non-personal information about the certification body in a profile outside of Smart Contracts and does not include any certifier or learner information. The information of this storage system is publicly available and serve to check the certification authorities. In turn, the registered certification authority can then register certifiers (its employees) in the first contract on the blockchain and authorize them to issue certificates via the blockchain. The Smart Contract ensures that only approved certification bodies can grant these authorizations. The certifier collects all necessary information for a certificate, signs it and saves it in the document management system. The digital fingerprint is stored in the blockchain (“hash”).

The second Smart Contract allows certifiers to create, revoke, or delete certificates. The contract allows this only if the processor is a certified certifier of a registered certification authority. Every manipulative intervention can be traced back to a certifier via the blockchain or it is entirely impossible from the beginning. The second contract stores a certificate entry on the blockchain, which contains the hash and the validity period. It enables an automated validity check as well as an uncomplicated revocation of certificates, for example in the case of plagiarism or an expiring time limit.

“Ethereum address” identifies the registered entities. The return of such an address on the underlying owner of the address is difficult. Certification authorities must be able to access their stored profile information, as otherwise, certificates would remain completely anonymous and therefore unable to present a recognized performance record. The stored data is only publicly available information about the certification authority, which previously just saved the accreditation body. This system protects the anonymity and personal information of individuals, especially certifiers and learners. Not keeping this information on the blockchain itself has the advantages that, according to the data protection regulations, no personal data is stored on the blockchain and, on the other hand, more expensive storage space is saved.

Students can create, manage and provide application portfolios with the assigned certificates to potential employers by using a document management system service. To do this, the learner must register in the document management system. This system is not on the blockchain but in a centralized system.

Companies that receive blockchain-based certificates can then verify their authenticity and validity by using the digital fingerprint on the blockchain. Companies can use an application to upload certificates or enter their hash. The system checks automatically whether the blockchain includes the digital fingerprint of the certificate.

Such a platform has decisive advantages. The work and costs involved in verifying the authenticity and validity of certificates can be significantly reduced on the part of potential employers. If uncertified copies are submitted, without the blockchain technology, they can only be verified by request from the issuing certifying authority. Even if the certifying authority doesn´t exist, authenticity can still be verified by using blockchain-based certificates because the information is stored forever and remains traceable. It would also minimize the cost of certifying authorities for managing registries and database for certificates, and reduce costs. The blockchain-based issuance of certificates is also forgery-proof, allowing automated verification of time-limited certificates, secure access to the platform, and certificate management. Trainees will be able to quickly assemble application portfolios of certificates, certificates, and all other credentials and share them with self-selected third parties such as potential employers. The sending of certified copies becomes superfluous and thus saves administration, time and money.

In addition to the Fraunhofer-Gesellschaft, other institutions have already implemented similar projects, as an example the MIT Media Lab Initiative in partnership with a business software vendor with its open source system “Blockcerts”. However, the Fraunhofer Institutes see in their “Blockchain for Education Platform” the advantages compared to “Blockcerts”. For example, unlike “Blockcerts”, revoked certificates cannot be viewed or verified. Besides, the certifier stays anonymous at the “Blockchain for education platform”, while still being assured that he is a member of an accredited certification body. The platform of the Fraunhofer-Gesellschaft will be further developed in the further phases of the project. Cooperation partners are being searched for further realization.

American universities and cryptocurrencies

While institutional investors have initially kept away from the volatile and risky cryptocurrencies such as Bitcoin, Ethereum, and others, they are entering this world more and more. This development is reflected, among other things, in the investment willingness of well-known American universities in the area of ​​cryptocurrencies.

For example, the endowment fund of the elite Yale University – the second largest after Harvard – made its first crypto investments in 2018. The investments, its exact amount is unknown, flowed into two different crypto funds. One share was invested in the $ 300 million crypto fund of the well-known venture capital firm Andreesen Horrowitz, and a second part went to the newly created “Paradigm” fund. The latter is aimed not only at investments in cryptocurrency but also at blockchain technology in general. Investments in crypto funds are part of a new strategy whereby 60% of the Foundation´s assets will be used for alternative investments in 2019. In addition to participating in cryptocurrencies, venture capital, hedge funds, and other investments are also part of the strategy. The investment of the Yale Foundation Fund is considered trend-setting. The fund´s longtime manager, David Swensen, is viewed as a pioneer in institutional investments. Other foundations have often followed his strategy.

The University of Michigan had already invested around € 2.5 million in 2018 in a cryptocurrency fund run by venture capitalist Andreesen Horrowitz, and in February this year decided to make a follow-up investment. The amount of the follow-up investment is – at least currently – not yet known. A document from the University Foundation states that cryptocurrencies have become an important area of ​​innovation and entrepreneurship, with attention paid to technology.

Also, in October 2018, Harvard University – with the most significant asset of all higher education institutions worldwide – reported having invested in “at least one cryptocurrency fund”. Stanford University, Dartmouth College, Massachusetts Institute of Technology (MIT), and the University of North Carolina are also named as further investors in this report.

Thus, there is a clear trend towards American university foundations entering crypto space and, consequently, an institutionalization of this investment area.

Outloo

Undoubtedly, blockchain offers incredible potential to change our lives on all levels. Many new challenges accompany new opportunities. Data protection, in particular, conflicts with the latest technology. However, with this in mind, we should not rush to abandon a technology that has the potential to change our lives in a (positive) way as the Internet has done recently. Regardless of the possible regulation of blockchain systems, countless programmers work on privacy-oriented solutions. Examples like Monero, ZCash, and Verge are to be mentioned here. They aim to anonymize payment systems within the blockchain. Similar developments are to be expected for the numerous other uses of the blockchain.

What is needed for the development of the new technology, is the willingness of politics and science to delve intensively into this topic. We may be open for the Blockchain strategy of the Federal Government announced for the coming summer — but the comments on blockchain in the coalition agreement are only vague. If the promise made in November 2018 of creating an appropriate legal framework to unlock the potential of technology were to be implemented, it would open the door to inspire the public administration with cryptocurrency and other blockchain-based technologies and make Germany to the next “Crypto-Valley”.