Understanding Japanese Candlestick

Pro traders likely analysed price action and investor emotions by using the candlestick charting style. Although modernized in the late 1800s by journalist Charles Dow, the core principles of candlestick charting remain intact today. Both the modern and historical technical analysts who swear by the style regard price action as more important than earnings, news or any other fundamental principles.

In other words, all known information is reflected in the price, which is precisely displayed in the candlestick. A candlestick represents the price activity of an asset during a specified timeframe through the use of four main components: the open, close, high and low.

The “open” of a candlestick represents the price of an asset when the trading period begins whereas the “close” represents the price when the period has concluded. The “high” and the “low” represent the highest and lowest prices achieved during the same trading session.

Every candlestick uses two physical features to display the four main components.

The first feature, known as the body, is the wide midsection of the candlestick and it depicts the open and close during the observation period (most charts will allow you to set the range for the candlesticks)
The close is represented at the top of the body in the green candlestick and at the bottom of the body in the red candle.
On the opposite is true of the open, which forms the bottom of the green candlestick and the top of the red candlestick.
The final two components, the high and low, are represented in the second feature of the candlestick known as the ‘wick.’ Wicks are simply displayed as the thin lines extended above and below the body.

Cryptocurrency traders tend to take advantage of the inherent market volatility by using charts on the intra-day time frames. Each candlestick typically represents one, two, four or 12 hours. (A longer-term trader will likely choose to observe candlesticks that represent a single day, week or month.)

A candlestick becomes “bullish,” typically green, when the current or closing price rises above its opening price. The candlestick becomes “bearish,” typically red, when its current or closing price falls below the opening price.

It’s important to keep in mind that the longer the duration of the candlestick, the more powerful its effect is on the overarching trend.

For instance, a hammer spotted in a one-hour candlestick will have almost no impact on a 6-month long downtrend, whereas if the hammer formed on a 1-week long candlestick, its reversal impact would be much more significant.

Cryptocurrencies: A Solution To Hyperinflation

This blog explores the possibility of Cryptocurrencies as a solution to hyperinflation, if you haven’t read the previous blog on the Introduction to Hyperinflation, please do so.

The invention of cryptocurrency has added a whole new dimension to the digitization of the global economy. It offers an alternative to conventional forms of central bank money or ‘fiat’ currency. It also offers new approaches to setting monetary policy, free from political interference and the damaging consequences of hyperinflation.

Fiat currency is money that is not backed by an underlying asset or commodity but is given the status of legal tender by law. Legal tender is something that a business is obligated to accept as a means of payment. But the fiat itself is inherently worthless. Its value is based on users’ faith that a given nominal amount of currency – the face value – will entitle them to a certain amount of goods or services in exchange.

Put differently, money enables individuals to supply their labor now in exchange for goods and services later. It serves as a form of deferred payment. It is this fundamental use of money – that it permits payment to be deferred – that really makes money, money. Without a means to defer payment, all transactions would have to be conducted via barter.

It’s easy to see how it might be difficult for say, a physician to provide their services as a medical professional, in exchange for payment in groceries, gas, utilities, clothing, and so on, from their patients. The healthcare industry would be brought to a halt pretty quickly under a barter system. Fortunately, we have money to smooth the process.

It is this aspect of money – that it enables deferral of payment – which is key to understanding why monetary stability, or stability of the value of a currency, is crucial for maintaining the integrity of money and the economic systems it underpins.

Without monetary stability the purchasing power of a given nominal amount of money becomes uncertain. And that, in the extreme, might inhibit individuals and businesses from engaging in supplying goods and services altogether.

In regimes with runaway inflation, money ceases to function effectively as a form of deferred payment. A given amount of cash paid in return for work done today may not be worth anything like the same amount of it is not spent until tomorrow. It is no surprise to observe that in recent years in countries that have recent episodes of hyperinflation, citizens have increasingly turned to other currencies, including cryptocurrency, in order to store wealth.

That’s because, in contrast to fiat currency, which a government can print more and more of every day, thereby undermining its value, cryptocurrencies like Bitcoin have a fixed total possible supply. In the case of Bitcoin, there can never be any more than 21 million Bitcoins. This means that the value of a Bitcoin cannot be debased by increasing the number of them in circulation.

It is surely no coincidence that in Venezuela, where the IMF anticipates that price inflation could reach 1,000,000% (that’s not a typo, it really is one million percent) in 2018, cryptocurrency use has been on a dramatic rise.

In Venezuela, Dash, which offers low-cost, near instantaneous, transactions, has now surpassed Bitcoin in terms of adoption. Speaking to Bitcoin Magazine, Jorge Farias, CEO of Cryptobuyer, the first platform to list cryptocurrency against the national currency, the bolivar, Dash now accounts for more transactions on the platform than Bitcoin.

Its use is so widespread, in fact, that there is even now an organization called Dash Venezuela which provides Spanish-speaking support to users. Arguably, this emergent institutionalization of Dash makes it a sort of de facto ‘national’ cryptocurrency for the people of Venezuela.

In Zimbabwe, which suffered a similarly extreme episode of hyperinflation around a decade ago, the Dash-powered money transfer system Kuvacash, has been growing in popularity as a means of making peer-to-peer payments via the cell phone network.

Fiat currency may be the legal tender in countries like Venezuela and Zimbabwe, but that does not mean it is fulfilling the essential function of money. People in these countries cannot rely on their respective governments to provide the monetary stability they need, they have looked to cryptocurrency, which offers them a real choice, and real hope.

Fortunately, in some other developing economies where there is a lack of financial inclusion, the technology underpinning cryptocurrency is being looked at seriously. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has produced several thoughtful reports on the opportunities and risks presented by cryptocurrency in the Caribbean.

The government of Montserrat has even gone so far as to enter into a Memorandum of Understanding with Barbados-based fintech firm Bitt to create a digital payments platform for the country. Montserrat Premier Donaldson Romeo said, “The people of Montserrat will benefit from increased financial inclusion, and a reduction in their need for cash to make payments for goods and services, or as a means of saving.” The platform will be based on Digital Eastern Caribbean Dollars. Naturally, the currency symbol has an ‘X’ in it (DXCD)!

Understanding Hyperinflation

Introduction

Hyperinflation is a term to define rapid, extreme, and out-of-control price upsurges in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is swiftly intensifying inflation.

Although hyperinflation is a rare event for developed economies, it has occurred many times throughout history in countries such as China, Germany, Russia, Hungary, and Argentina.

Hyperinflation occurs when prices have risen by more than 50% per month over a period of time. For comparative purposes, the U.S. inflation rate as measured by the Consumer Price Index (CPI) is typically less than 2% per year, according to the Bureau of Labor Statistics. The CPI is merely an index of the prices for a selected basket of goods and services. Hyperinflation causes consumers and businesses to need more money to buy products due to higher prices.

Whereas normal inflation is measured in terms of monthly price increases, hyperinflation is measured in terms of exponential daily increases that can approach 5 to 10% a day. Hyperinflation occurs when the inflation rate exceeds 50% for a period of a month.

Imagine the cost of food shopping going from $500 per week to $750 per week the next month, to $1,125 per week the next month and so on. If wages aren’t keeping pace with inflation in an economy, the standard of living for the people goes down because they can’t afford to pay for their basic needs and cost of living expenses.

Hyperinflation can cause a number of consequences for an economy. People may hoard goods, including perishables such as food because of rising prices, which in turn, can create food supply shortages. When prices rise excessively, cash, or savings deposited in banks decreases in value or becomes worthless since the money has far less purchasing power. Consumers’ financial situation deteriorates and can lead to bankruptcy.

Also, people might not deposit their money, financial institutions leading to banks and lenders going out of business. Tax revenues may also fall if consumers and businesses can’t pay, resulting in governments failing to provide basic services.

Venezuela’s Economic crisis

Venezuela has been gripped by economic collapse and political crisis. After years of financial strife, hyperinflation has reached a devastating level, with the IMF estimating that inflation will reach 10 million percent in 2019. The crippling of a once affluent, oil-rich nation was exacerbated by plummeting oil prices in 2014 — its hard currency lost significant value with the onset of the US fracking industry.

Venezuela has the largest known oil reserves in the world and yet the Venezuelan bolívar has tanked, rendering it essentially worthless. In August 2018, Venezuela’s president Nicolas Maduro devalued the currency, removing five zeros off in an effort to instil stability. Professor and Economist Steve Hanke from John Hopkins University called the move a “scam” at the time on Twitter, adding: “Redenomination will be like going under the knife of one of Caracas’s famed plastic surgeons. Appearances change, but, in reality, nothing changes.” Months on, the currency facelift has done nothing to ease an economy in freefall.

Hyperinflation in Zimbabwe

In 2008, Zimbabwe had the second highest incidence of hyperinflation on record. The estimated inflation rate for Nov 2008 was 79,600,000,000%. That is effectively a daily inflation rate of 98.0. Roughly every day, prices would double. It was also a time of real hardship and poverty, with an unemployment rate of close to 80% and a virtual breakdown in normal economic activity. The hyper-inflation was caused by printing money in response to a series of economic shocks.

In tomorrow’s post we will take a look at how cryptocurrencies feature in these types of economic situations.

Technical Analysis: Types

In the previous blog we went through all the markers that you need to remember while you are technically analysing the market. In this blog we will be going look at two types of Technical Analysis. Read on to find out more.

Elliott Wave Analysis

The Elliott Wave principle is a form of technical analysis that cryptocurrency traders use to analyse market cycles and forecast market trends by identifying extremes in investor psychology, highs and low in prices and other collective factors.

Elliott Wave traders believe that markets are affected by collective investor psychology, or crowd psychology, and that it moves between optimism and pessimism in natural sequences.

It seems to be a discipline suited for cryptocurrency traders because, at this time, they are being solely driven by investor psychology since there are no true underlying fundamentals backing its price rise other than aggressive buying due to limited supply.

The key to success when using Elliott Wave analysis is to get the wave count right. Traders who use this technique believe the market moves in waves and that price action is primarily driven by groups of five waves. It takes years to master Elliott Wave analysis, but some cryptocurrency traders feel they have a good enough grasp of the basics to apply it to markets such as Bitcoin.

Stochastics and Relative Strength Index (RSI)

Stochastics and the Relative Strength Index (RSI) are known in the technical analysis field as oscillators because they move between a low of 0 and a high of 100. Some cryptocurrency traders use them to determine the strength of a trend or to predict tops and bottoms because of overbought and oversold conditions. As Bitcoin prices often trade in an overbought or oversold condition due to its high volatility, RSI indicator signals traders to enter or exit a certain position.

They both work under the premise that prices should be closing near the highs of trading range during upswings and toward the lower end of a trading range during downswings.

During a prolonged move down, the oscillators will near 0, indicating that a bottom may be near. During a prolonged move up, the oscillators will near 100, indicating that a top may be near. In the attached graph, Bitcoin is currently at 81.92 (RSI), meaning that Bitcoin is overbought and a correction is expected.

Aspects of Technical Analysis

Since we are already acquainted with what Technical analysis is, (please read the Introduction blog to get started if you already haven’t) let’s jump right into the aspects of technical analysis that you should definitely pay attention to:

Trend Lines

Trend lines, or the typical direction that a coin is moving towards, can be most beneficial for traders of crypto. That said, isolating these trends can be easier said than done. Crypto assets might be substantially volatile, and watching a Bitcoin or crypto price movement chart will probably reveal a selection of highs and lows that form a linear pattern. With that in mind, Technicians understand that they can overlook the volatility and find an upward trend upon seeing a series of higher highs, and vice versa – they can identify a downtrend when they see a series of lower lows.

Additionally, there are trends that move sideways, and in these cases, a coin doesn’t move significantly in either direction. Traders should be mindful that trends come in many forms, including intermediate, long and short term trend lines.

Resistance and support levels

As there are trend lines, there are also horizontal lines that express levels of support and resistance. By identifying the values of these levels, we can draw conclusions about the current supply and demand of the coin. At a support level, there seems to be a considerable amount of traders who are willing to buy the coin (a large demand), i.e., those traders believe that the currency is priced low at this level and therefore will seek to buy it at that price. Once the coin reaches close to that level, a “floor” of buyers is created. The large demand usually stops the decline and sometimes even changes the momentum to an upward trend. A level of resistance is exactly the opposite – an area where many sellers wait patiently with their orders, forming a large supply zone. Every time the coin approaches that “ceiling”, it encounters the supply stacks and goes back.

There is often a situation in which trade-offs can be between support and resistance levels: gathering close to support lines and selling around the resistance level. This opportunity usually takes place when lateral movement is identified.

So what happens during breakout of resistance or support level? There is high probability that this is an indicator which is strengthening the existing trend. Further reinforcement of the trend is obtained when the resistance level becomes support level, and being tested from above shortly after the breakout.

Note: False breakouts occur when a breakout happens, but the trend doesn’t change. Hence, we must use some more indicators, such as trading volume, to identify the trend.

Moving averages

Another technical analysis tool for crypto currencies and technical analysis in general, in order to simplify trend recognition, is called moving averages. A moving average is based on the average price of the coin over a certain period of time. For example, a moving average of a given day will be calculated according to the price of the coin for each of the 20 trading days prior to that day. Connecting all moving averages forms a line.

It is also important to recognize the exponential moving average (EMA), a moving average that gives more weight in its calculation to the price values of the last few days than the previous days. An example is the calculation coefficient of the last five trading days of EMA 15 days will be twice that of the previous ten days. In the following graph we can see a practical example: If a 10-day moving average crosses above a 30-day moving average it might tell us a positive trend is coming.

Trading Volume

Trading volume plays an important role in identifying trends. Significant trends are accompanied by a high trading volume, while weak trends are accompanied by a low trading volume. When a coin goes down it is advisable to check the volume which accompanied the decline. A long-term trend of healthy growth is accompanied by a high volume of increases and a low volume of declines. It is also important to see that volume is rising over time. If the volume is decreasing during increases, the upward trend is likely to come to an end, and vice versa during a down trend.

Introduction to Technical Analysis

Crypto traders have several tools to evaluate the cryptocurrency market. One of them is a method known as Technical Analysis. Using this process, traders can get a improved understanding of the market sentiment and isolate significant trends in the market. This data can be used to make more educated predictions and wiser trades.

Tech Analysis considers the history of a coin with price charts and trading volumes, no matter what the coin or project does. As opposed to technical analysis, fundamental analysis is more focused on establishing if a coin is over or under valued.

To get a better idea of technical analysis, it is crucial to understand the fundamental ideas of Dow Theory that tech analysis is based on:

The market considers everything in its pricing. All existing, prior, and upcoming details have already been integrated into current asset prices. With regards to Bitcoin and crypto, this would be comprised of multiple variables like current, past, and future demand, and any regulations that impact the crypto market. The existing price is a response to all the current details, which includes the expectations and knowledge of each coin traded in the market. Technicians interpret what the price is suggesting about market sentiment to make calculated wise predictions about future pricing.
Prices movement aren’t random. Rather, they often follow trends, which may either be long or short-term. After a trend is formed by a coin, it’s probably going to follow that trend to oppose it. Technicians try to isolate and profit from trends using technical analysis.
‘What’ is more important than ‘Why’. Technicians are more focused on the price of a coin than each variable that produces a movement in its price. Although multiple aspects could have influenced the price of a coin to move in a specific direction, Technicians assertively review supply and demand.
History tends to get repeated. It is possible to predict market psychology. Traders sometimes react the same way when presented with similar stimuli.

Stay tuned for an in-depth explanation of the various nitty-gritties of this type of analysis.

Explained: Margin Trading For Cryptocurrency

Margin trading with cryptocurrency allows users to borrow money against their current funds to trade cryptocurrency “on margin” on an exchange. In other words, users can leverage their existing cryptocurrency or dollars by borrowing funds to increase their buying power (generally paying interest on the amount borrowed, but not always).

For example, you put down $25 and leverage 4:1 to borrow $75 to buy $100 worth of Bitcoin. The only stipulation is that no matter what happens, you’ll have to pay back to $75 plus fees. In order to ensure they get the loaned amount back, an exchange will generally “call in” your margin trade once you hit a price where you would start losing the borrowed money (as they will let you borrow money to trade, but they don’t want you losing that money). A margin call can be avoided by putting more money into the position.

A given exchange will have a range of different leveraging options (2:1, 3.33:1, 4:1, 100:1, etc.). Margin trading can be done short (where you bet on the price going down) or long (where you bet on the price going up). Further, it can be used to speculate, to hedge, or to avoid having to keep your full balance on an exchange.

How Margin Trading Cryptocurrency Works – Call Prices and Liquidation

This brings us to the next point. As noted above, you have to have enough funds to cover the bet you are taking. If you don’t have the funds, your position will automatically be closed, “liquidated” or “called in.” As, although the lender will let you use their money for a fee to margin trade, any money lost and any fees paid will come out of your funds. This is like the friend who let you borrow $50 in the Investopedia quote above; the lender is letting you borrow money, not have it to lose.

Specifically, if your balance falls below the “Maintenance Margin Requirement (MMR)” due to the price going the opposite way that you bet on, the exchange will either start liquidating your assets to get its money back or will simply request the funds from you. This is called a “margin call.” TIP: A margin call can be offset by contributing more funds to the order book you have the margin in (ex. BTC/USD). When you deposit more funds, you increase your margin ratio and improve your call price.

In other words, technical jargon aside, the concept here is: margin trading allows you to make bigger bets than you otherwise would at the cost of extra fees and extra risks. When you take a bet, you can use the lender’s money, but if the bet goes the wrong way, the funds come out of your pocket. You take all the risk.

That is the gist of margin trading; with that information, you know just enough to be dangerous.

Should You Use This Strategy?

We strongly suggest staying away from margin trading unless you have done research, are experienced, and are margin trading with a very specific purpose such as hedging. Losing money trading cryptocurrency is stressful enough without borrowing funds plus interest to create leveraged positions. That magnifies your stress level.

Of course, if you are less conservative than we are and want to trade on margin anyway, your next step should be reading all the documentation on margin trading for a given exchange before getting started. Understanding how to open and close margin positions, and making sure you understand margin ratios and calls, as well as brushing up on some margin trading strategy, is part of the next step. We’ll assume you are already well versed in technical indicators.

WARNING ON RISKS, RATIOS, AND BET SIZE: Margin trading cryptocurrency is one of the riskiest bets you can take. Cryptocurrency is risky, and margin trading is risky. Put them together on a highly leveraged moonshot, and you could find yourself owing a great deal of money rather quickly (especially with low volume high volatility altcoins). Unlike with regular trading, you can lose your entire initial investment margin trading. Further, the more you leverage, the quicker you can lose it.

For example, if you go long on a 4:1 margin and the position goes down about 25% from where you opened the position (or a little less since you’ll likely owe fees), the margin will be called in, and you’ll be left with nothing. Think of it this way; you put down $25, you borrowed $75, and thus with fees you only have a little under $25 to lose of the total $100 you are betting. If it goes up, then you can keep the position open as long as you like (as you aren’t risking the lender’s $75), but if it goes down your position will be liquidated based on the rate at which you are leveraged unless you put more funds in. Do an 8:1 leveraged position and it will be called in twice as fast at around 12.5%, do a 2:1 position and it will be called in at around 50%. Yes, you can always add to your position to prevent it from closing, but this is the exact sort of rabbit hole that loses people money. For an obligatory horror story and fair warning of the perks and perils of margin trading, see the Reddit post “How I Lost Nearly 200 BTC trading this past month.”

What Is A Hybrid Blockchain?

It is important to understand what a blockchain system is: a blockchain is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block a timestamp, and transaction data (generally represented as a Merkle tree). By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.

A blockchain is, in the simplest of terms, a time-stamped series of immutable record of data that is managed by cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain). Now that we’ve got a basic understanding of what a Blockchain System is we can dive right into understanding hybrid blockchains.

Hybrid Blockchain

Hybrid Blockchains could lie somewhere in-between private and public blockchains, depending on their architecture. Hence, to get a good understanding of hybrid blockchains, one must first understand the differences between private and public blockchains. As the name suggests, public blockchains are accessible to and managed by the public. Anyone can participate in the upkeep and governance of the blockchain. The most popular blockchain in the world, Bitcoin, is a public blockchain. Participators are typically rewarded in the form of block rewards for their contributions to the network to incentivise good behaviour on the part of network peers. Since millions of users manage a public blockchain across the world in real time, attaining consensus for a public blockchain is time-consuming and expensive.

For example, the consensus mechanism that Bitcoin uses, Proof of Work, relies profoundly on wasteful computations for millions of devices to ensure security. By comparison, a private blockchain allows limited access to entities outside a trusted few who were involved in the creation of the private blockchain. Typically, private blockchains have administrators who can control permissions of adding or modifying data on a private blockchain. The most popular private blockchains include the Hyperledger fabric which is being developed as a competitor to Ethereum by IBM and quorum, which is being developed by J.P. Morgan. Private blockchains are much faster than public blockchains because the network is managed by a handful for trusted nodes whose motives are clearly for the benefit of the network. Such trusted nodes typically belong to financial institutions or universities to maintain fairness and remain unbiased.

Now, it is clear that each type of blockchain has its strengths and weaknesses. Public blockchains while being transparent and resistant to tampering are slow and expensive whereas, private blockchains are somewhat centralised but can deliver much higher throughput and speeds. As a logical step, hybrid blockchains combine the benefits of both of the blockchains while trying to limit the disadvantages. Therefore, with hybrid blockchains, we can employ a public blockchain to make the ledger accessible to every single person in the world, with a private blockchain running in the background that can control access to the modifications in the ledger.

Hybrid Blockchains in the Real World

One of the leading hybrid blockchain platforms, XinFin, has developed a unique network for Ramco Systems for the management of supply chain logistics. XinFin completed its ICO earlier this year and had since developed its public-private blockchain on Ethereum (public blockchain) and Quorum (private blockchain). There are numerous benefits to using a hybrid blockchain like the speed of private blockchains combined with the security of public blockchains. The private blockchain is used to generate a hash of transactions which is later verified using the public blockchain.

Another real-world application of hybrid blockchains includes Ripple network and the XRP token. Ripple has regularly been criticised for its centralised nodes which can arbitrate transactions in the case of a dispute. But by adding a public blockchain to verify the operations of its private blockchain can make the network much more secure for its users.

Private Vs Public Blockchain Systems

The main aim of Blockchain is to create an immutable public ledger to ensure integrity of transactions. In the past few years of its existence multiple different types of blockchain have evolved from the original blockchain. The concepts of public and private blockchains have come into being, these two are often confused together as they both have very similar features. This article ensures to bring out the difference between the two.

Public vs. Private blockchain

Public and private blockchains are equally decentralized, peer-to-peer networks where each member maintains a copy of a shared ledger that stores digitally signed transactions. This ledger can only be affixed to, but not edited. Participants in a blockchain retain this ledger in sync through a consensus protocol. This produces a assurance on the immutability of the ledger which cannot be tainted even if there are some malicious members on the blockchain.

The difference between public and private blockchain is related to the type of members allowed within the network that preserve the ledger and execute the consensus protocol.

Public blockchains

Public blockchains are open networks that allow anyone to participate in the network, hence the name ‘public’. Such a network depends upon the number of participants for its success, and hence encourages more and more public participation through an incentivization mechanism. The best example of a public blockchain is Bitcoin where participants in the network (miners) are rewarded with BTC tokens.

In a blockchain, each block contains a record of numerous transactions on the network. Creating new blocks gives out a reward, also known as the “miner’s fee”. In a public blockchain, where there can be a lot of participants on the network, it becomes necessary to maintain scarcity of the reward tokens, and regulate who gets the right to create the next block. To achieve this, each participant in the network must solve a complex cryptographic problem (also known as “proof of work”). Whoever solves the problem earn the right to create the next block (and gets the reward). The disadvantage to this is, these problems are very resource intensive and take a substantial amount of computational power to solve.

Another disadvantage is the public nature of the blockchain itself. There is little to no privacy for transactions, nor any regulation or criteria for participants to join. Public blockchains might be suitable for projects in the public domain (such as Blockchain), but not ideal for enterprise-level use cases.

Private blockchains

Enterprises can set up private blockchains to protect the privacy and security of their data. Participation in a private blockchain requires an invitation, which itself is also validated by the network starter or a set of rules that can put into place. Such a network is known as a permissioned network, and puts a restriction on who is allowed to join. Private blockchains can also restrict participant activity such that certain transactions can only be carried out by certain participants and not others, despite the fact that they’re on the network. This creates an added layer of privacy.

Participation rules can either be set up by existing participants, a regulatory authority or a consortium. All participants in a network play a role in maintaining the blockchain in a decentralized manner.

An example of a private blockchain is Linux Foundation’s Hyperledger Fabric, designed to cater to enterprise requirements. Only entities participating in a particular transaction have knowledge about it — other entities will have no access to it. Because such a blockchain is lighter, it provides transactional throughput that is orders of magnitude higher than in public blockchains.

Advantages of Blockchain for Health Data

The blockchain era has already begun. Taking into account the fast progress in the development of new and more efficient healthcare record systems, wearable devices, and medical examination systems implementing artificial intelligence, cryptography will become an important part of the way hospitals work. There are, however, a few improvements still needed in order for seamless blockchain adoption across the entire medical industry. According to Hyperledger’s survey, 42.9% of healthcare organizations suppose that the interoperability of electronic health records will help for faster blockchain implementation; with 28.6% of respondents ready to use this technology in care settings today. So, what are the benefits of blockchain technology in healthcare?

Data Provenance and Integrity

With an ongoing increase in patient numbers, healthcare providers have to manage more and more health data on a regular basis. As the data volume increases each year, it becomes harder for hospitals and clinics to process and store information.

Data managed by medical organizations includes:

· Patient health information (PHI);

· Electronic health records;

· Data collected from IoT devices (Internet of Things) or monitoring systems; and,

· Medical insurance claims.

Secure information sharing methods, which allow both healthcare providers and their covered entities to verify the correctness of data, are crucial for ensuring proper medical services. This is where blockchain comes in useful, as one of its main advantages is data integrity. When information is recorded and encrypted, it becomes impossible to change or remove.

One of the blockchain approaches that allows for the secure recording and sharing of information is anchoring data to the public blockchain. This method involves generating a proof of data integrity. Using this proof, any user can verify the data timestamp without the need to rely on third-parties. This method allows users to:

· Verify PHI integrity;

· Perform unchangeable medical audits;

· Prove the integrity of clinical research results;

· Reduce audit expenses and ensure regulatory compliance; and,

· Ensure data safety.

HIPAA requires the usage of safe methods of communication between those who deal with PHI stored in electronic form. That is why data encryption plays a crucial role in ensuring data privacy and safety. Our team has a deep expertise in developing digital solutions for the healthcare industry. One of our projects is a HIPAA compliant online communication platform called MDChat that allows patients to securely communicate with medical employees and be sure they are protected from any hacker attacks.

More Secure Standards

Blockchain provides a more secure way to protect data than ordinary encryption. The new technology allows for the implementation of new standards in managing insurance claims, PHI, and medical records. It excludes intermediation in data sharing, when using blockchain. Such consortiums as Hyperledger help increase awareness of the advantages of cryptography and further explain how to use blockchain in healthcare.

According to the survey mentioned above, the main reason why medical organizations hesitate to use blockchain is the lack of knowledge around this technology. A quarter of respondents are still at the stage of education and exploration, which is why responsible state organizations should make the corresponding information more widespread among caregivers. Healthcare providers suppose that this technology must pass several milestones before any adoption is possible, including:

· Technical proof of concept (PoC) (65.4%);

· Security proof (38.5%);

· Privacy proof (34.6%); and,

· Regulatory approval (23.1%).

We can spend a lot of time wondering why caregivers hesitate to implement blockchain in their organization, though the answer is far simpler than it may seem: they simply do not know enough about this technology and its advantages.

Data Transparency

Besides disintermediation, data integrity and provenance, healthcare providers see transparency (55.2%) as one of the top advantages of using blockchain in their industry. To better understand this aspect, let’s consider how it works in the financial sector.

This technology provides a decentralized register of ownership by recording every transaction made through the system. It stores all details starting from the formation of a data block, and ending with any digits related to a specific transaction. Every device that is a part of the system stores a copy of this block. Before making a transaction, the system confirms whether a blockchain version coincides with another in the network. Therefore, each blockchain user can identify the owner of a particular data block at any time. Furthermore, the blockchain is not only a secure way to send money, but a fully protected data sharing method that widens its potential use in healthcare.

Blockchain in Healthcare: Usage

Caregivers feel quite optimistic about fast blockchain implementation, with 37.9% predicting that it will take only five years to adopt it across medical organizations. For now, these organizations and professionals need examples of blockchain, and how it can be helpful in their field. Here, we will cover examples of blockchain use in the healthcare industry, describing existing issues in the sector and considering possible solutions through the use of this technology.

Blockchain in healthcare examples include the following usage issues:

Problem: Drug Traceability

One of the most serious problems in pharmacology is drug counterfeit. According to the Health Research Funding Organization (HRFO), approximately 10%-30% of drugs in developing countries are fake. US businesses lose up to $200 billion annually because of drug counterfeiting; however, the main reason is not in counterfeiting itself, but, rather, that these drugs provide different effects than their traditional medicinal counterparts. They may not help patients at all, or may even be harmful and dangerous to a person’s health.

Blockchain-Based Solution

As all transactions in blockchain are times tamped and immutable, it is easy to detect fraudulent drug dealers. There are two blockchain types: private and public. Trustworthy healthcare blockchain companies have to register their products in the private system to ensure authenticity and the high quality of their medicines. Private blockchains are moderated by central entities, and the fact that a specific producer or distributor has access to the so-called drug blockchain is proof of drug authenticity. This is where blockchain transparency comes in useful. Once a drug is produced and moves from the manufacturer to retailer, the operational data is recorded on the blockchain. It makes it extremely easy to verify the whole path of the drug, and determine all chain links at any time.

Problem: Data Security in Clinical Trials

Clinical trials are used to determine the effectiveness of particular medicines which cure specific diseases. These tests can either prove or disprove an offered hypothesis. During clinical trials, researchers obtain and record a great deal of information concerning statistics, test results, quality reports, etc. Each scientist is responsible for specific research, making it difficult to control everyone. Those data can then be easily modified or hidden in order to change the whole outcome of the research performed. Criminals are interested in recording the results that are beneficial for them, even if the data does not coincide with the reality.

Blockchain-Based Solution

This technology allows users to prove the authenticity of any document registered in the system. It provides proof-of-existence by adding data in the form of the transaction and validating the information by all system nodes. As mentioned above, blockchain records immutable data. This characteristic will allow for the storage of results from clinical trials in a secure way, making it impossible to modify data. Two doctors from Cambridge University conducted a 2016 study to see how blockchain can provide proof-of existence for clinical trials. They found that comparing a unique data code, which is set by the system, with the original makes it possible to verify whether the data of clinical trials has been modified, thanks to the inner SHA256 calculator which generates a unique hash every time a modification is made to the data.

Problem: Patient Data Management

Patient data privacy is strictly regulated by the Health Insurance Portability and Accountability Act (HIPAA), and requires PHI to be totally secure. There is, however, another problem related to PHI: sometimes, patients need to share their medical records with third parties (e.g. with pharmacies when they need to buy specific medicines). So, how can blockchain help protect data while providing partial access at the same time?

Blockchain-Based Solution

The Blockchain creates a hash for each PHI block, together with a patient ID. Using an API, covered entities can receive the necessary information without revealing a patient’s identity. In the same way, a patient can decide whom to provide with access and whether this access will be either full or partial. Furthermore, a patient can set specific third parties that would have to give their permission for sharing the PHI, if the patient is not sure in what he or she is doing.

Blockchain has a tremendous potential of use in different industries, including healthcare. This technology has already become widespread in the financial sector, but medical organizations still hesitate to implement it into their IT systems. This does not mean, however, that there are no healthcare companies currently using blockchain. Below, you will find a short list of startups that have made this technology the base of their operational structure.

Blockchain healthcare startups:

· Guardtime (a blockchain-based system for securing patient healthcare records);

· Gem Health (an initiative that promotes blockchain-based collaboration in healthcare);

· Cyph (a platform for building secure digital identities and ensuring protected communication between healthcare providers);

· MedRec (a blockchain-based system for securing medical records management); and,

· Blockchain Health (a blockchain-based system for medical research management).

Blockchain is an effective technology that can help prevent data breaches in the healthcare industry. It is a secure and reliable method of recording, storing, and sharing sensitive data. Caregivers will definitely benefit from implementing this technology, while remaining HIPAA compliant with this method of trustworthy digital protection.