Bitfury: Private Blockchains Are Intermediate Step for Governments

Bitfury was one of the first companies built around the process of bitcoin mining, but the startup also now works on private blockchain software. Some would assume this might have a negative impact on the bitcoin-focused aspects of their business. But, while it’s true that the development of private, permissioned ledger systems means there could be less activity on public blockchains over the short term, Bitfury views private blockchains as an intermediate step for governments and other large entities to use public blockchains like Bitcoin.

Bitfury CEO Valery Vavilov and Executive Vice Chairman George Kikvadze recently discussed their use of private blockchains for the advancement of public blockchains on an episode of Laura Shin’s Unchained podcast.

Why Should Governments Use Blockchain Technology?

During their interview with Shin, Vavilov and Kikvadze covered the reasons why it’s important for governments and other large organizations around the world to move a large portion of their activities onto the blockchain.

“You could put the government as one of the biggest service providers for the citizens because every government provides thousands of different services to its citizens,” said Vavilov.

In Bitfury’s view, these services provided by governments tend to be inefficient. Vavilov pointed to land-title systems as a specific example, where various third parties are used to prove ownership over the course of a few days or a few months (depending on the country).

“Why [are the delays and other inefficiencies] happening? Because you don’t trust the systems. You don’t trust the data in the systems. And every time you do this transaction, you need to do these checks again and again and again,” added Vavilov. “Once you place data on a blockchain, it cannot be deleted and it cannot be altered. [With] this, you don’t need to check the same operation again and again once the data is on the blockchain.”

While government services work quite well for most Western countries, there are parts of the world where this is not the case. As an example, Vavilov discussed how his parents lost everything after the collapse of the Soviet Union when he was a child.

“In the majority of the countries in this world — and in the part of the world where I am from — people can lose properties and land titles just because somebody changed the records in a database,” said Vavilov.

Over the past few years, Bitfury has been building an alternative land-titling system anchored to the Bitcoin blockchain for the Republic of Georgia.

While it’s, as of yet, unproven that blockchain technology will offer the right solution for this use case, Bitfury was definitely right about the potential profits in bitcoin mining back when the company was first founded. And, according to Kikvadze, the company would now be sitting on over $6 billion worth of bitcoin (roughly 5 percent of the total supply in circulation) had more big-money investors believed in them in the early days.

Private Blockchains Are the Intranets of Bitcoin

So what about the debate over private versus public blockchains? During the recent interview, Vavilov analogized private blockchains to intranets, which were popular among governments before the internet became more widely trusted.

“There will be no fast move of institutions and governments to public blockchains,” said Vavilov. “The same happened 20 years ago when [the] internet was created. These institutions and governments didn’t switch to [the] internet immediately. Yes, they thought the technology is okay, the technology is perfect, but we don’t know who is using this technology, we don’t know who owns this technology, we will use this technology and create our own intranets.”

For those who aren’t aware, an intranet is basically a private network of computers used only by those who are granted access to it (usually a government, business or other organization). This is in contrast to the open internet, which anyone is able to access.

Bitfury Created a Private Blockchain Framework to Promote Bitcoin

In Vavilov’s view, private blockchains are the first step toward getting governments to use public blockchains. He used the history of government adoption of the internet to make his case.

“After a lot of intranets were created, they interconnected it using [the] internet when they became more comfortable with the technology,” explained Vavilov. “The same is happening in the blockchain space. There are public blockchains, but to move to public blockchains, institutions need to become more comfortable, and to become more comfortable, they need an intermediary step. An intermediary step is the private blockchain. So that’s why, in 2015, we decided, ‘Okay. There is a need for such a solution, and this solution also will help to expand the awareness of public blockchain.’ We decided to put some money and create a framework for private blockchain.”

Having said that, Bitfury’s private blockchain software, known as Exonum, also uses the Bitcoin blockchain for added security through a process called anchoring. According to Bitfury, anchoring the state of a private blockchain to a public blockchain like Bitcoin, by way of a cryptographic hash, lowers the level of the trust required in the administrators of the private chain.

“Using Exonum, you can use it to blockchainize any government services,” said Vavilov.

While bitcoin is the only crypto asset mined by Bitfury right now, they’re also looking into supporting other public blockchains such as Monero, Ethereum and Zcash.