INDEX

INDEX PAGE NO.

1. Introduction……………………………………………………………. 3
1.1 History ………………………………………………………………… 3
1.2 technical background of blockchain…………………………………… 4
1.3 basic concept of blockchain……………………………………………. 5
1.4 technical architecture of blockchain…………………………………… 5
1.5 Working principle of Block Chain…………………………………….. 7
1.6 Types of Blockchain Technology……………………………………... 7
2.Developement…………………………………………………………… 10
2.1 Basics of Bitcoin and Blockchain Technology………………………... 10
2.2 Implications of the recent Bitcoin……………………………………... 11
2.3 Redundant Operations…………………………………………………. 13
3.Working………………………………………………………………… 15
3.1 Transaction……………………………………………………………. 15
3.2 Structure of blockchain……………………………………………...…15
3.3 Decentralized Ledger…………………………………………………. 17
3.4 Consensus Mechanisms………………………………………………. 19
3.5 Security of blockchains………………………………………………. .21
4.Application&Currencies……………………………………………… 28
4.1 Application in Healthcare…………………………………………….. 28
4.2 Application in Identity Management……………………………….... 31
4.2.1 Building blocks…………………………………………………….. 31
4.2.2 Architecture………………………………………………………… 32
4.3 What is cryptocurrency………………………………………………. 34

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4.3.1 How does cryptocurrency work…………………………………… 34
4.3.2 Cryptocurrency examples…………………………………………. 35
Conclusion………………………………………………………………. 38
Reference………………………………………………………………… 39

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CHAPTER 1

INTRODUCTION

1.1 History
Origin of Bitcoin in the 1990s: Blockchain principles were invented by researchers and
cryptographers. Stuart Haber and W. Scott Stornetta in 1991 formulated the first blockchain
system that secured the digital information cryptographically. It was aimed at recovering
timestamps from a Hash cash email and saving them as forms of proof for later referencing in
order to prevent it from being tampered.

A whitepaper published by an anonymous individual or group using the alias Satoshi

Nakamoto in 2008 introduced Bitcoin, which were also the first occurrence for this
breakthrough which took place during their time frame (Bitcoin and Satoshi Nakamoto (2008)).
Through mixing together conventional cryptographic tools alongside an innovative solution
regarding decentralized systems this person/group made use of various aspects from different
existing methods which were merged into one thing known as digital cash; hence he comes up
with its protocol i.e., blockchain technology under this context hereby forming what we call
today cryptocurrency market - used within communities globally because it allows any user
anywhere worldwide to process transactions without needing any central authority like banks
or governmental bodies.

The Bitcoin blockchain was started in 2009 and in January of that year,
the “genesis block” was mined (Bitcoin Blockchain, 2009). Its primary purpose was The
Bitcoin blockchain was started in 2009 and in January of that year, the “genesis block” was
mined (Bitcoin Blockchain, 2009). Its primary purpose was to create a public network for
transactions confirmation.to create a public network for transactions confirmation.

Ethereum and Smart Contracts (2015): Ethereum is a blockchain platform launched in 2015,
two years ago, by Vitalik Buterin in late 2013, that introduced the idea of smart contracts to
blockchain technology. On this platform, the creation of decentralized applications (daps) was
made possible by the Ethereum blockchain and enabled the execution of smart contracts which
are contracts that enforce themselves based on coded conditions. Major companies began to
examine the use of blockchain technology for different reasons. This led to the formation of

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enterprise blockchain solutions. Hyperledger and R3 Corda are some of the projects that were
developed by two non-profit groups:

The Linux Foundation and R3 respectively; these initiatives were well-received due to
their capacity to optimize processes, make them more transparent, and increase safety within
different economic niches such as finance, supply chains or medical care. "In what ways are
nurses’ perceptions about patient care influenced by nurses’ role in patient care? “Regulatory
Developments and Challenges:

The rising popularity of blockchain technology has not gone unnoticed by regulators
globally. There have been regulations set in place in different nations in order to deal with
problems related to money laundering, tax evasion, and safeguarding the rights of consumers.
The patterns of regulation differ greatly and are constantly changing in different areas.
Blockchain technology has gone beyond being a mere cryptocurrency and is now being
investigated for multiple uses such as supply chain management, voting systems and many
more. It is explored for many applications including supply chain management, voting systems,
identity verification digital asset ownership.

The founders of cryptographically secured chain of blocks for timestamping digital documents in 1991.

1.2 Technical Background Of Blockchain

The block chain technology may lead to the second revolution of the Internet by
transforming the “information Internet” into “value Internet”. If the Internet, which is known
as the “information superhighway”, processes “information”, then the block chain processes
“value”. In the real-world, one-person transfers money to another via a centre with sufficient

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credibility such as a bank, a payment institution or a witness. Likewise, there must be

intermediaries involved when one transfers money to another in the digital world. For instance,
the process of transferring money via Alipay is as follows: Alipay subtracts a certain amount
of money from one person’s account and then adds the same amount of money to another
person’s account.

However, we need to pay for the credit cost for credit intermediaries such as banks and
Alipay and other, which makes the financial industry the most profitable industry. How to
create decentralized digital cash or a kind of digital cash without credit intermediary has always
been a difficult problem. Digital records can be copied, and the copies are exactly the same as
the original records. Without a centralized database to record the data, how can we prevent the
same sum of money from being spent twice?

This is the so-called double payment or double spending. Before the advent of bitcoins,
the major electronic cash systems, e.g. Alipay and PayPal, relied on centralized databases to
avoid double spending, and such trusted third-party intermediaries were indispensable.

In the real world, behind cash transaction, there is a financial system related to currency:
the central bank, commercial banks and third-party online payment institutions. In the digital
world, to create a kind of disintermediated and decentralized electronic cash, a complete system
should be well designed as well. This system is supposed to solve the following problems: How
can electronic cash be issued impartially and fairly without being controlled by any centralized
organization or individual? How to transfer cash directly to another person without the help of
any intermediary? How can counterfeit electronic cash be prevented? In the digital world, this
can be translated into the following question: how to prevent the electronic cash from being
spent twice? In 2008, Satoshi Nakamoto published a paper entitled Bitcoin: A Peer-to-Peer
Electronic Cash System, where he improved previous centralized and decentralized electronic
cash with his innovative ideas based on former research results, and created bitcoins, a peer-
to-peer electronic cash system, thereby preventing double spending without the participation
of any intermediary in transaction 1.

1.3 Basic Concept Of Block

Block chain can be defined differently from different perspectives. From the
perspective of bookkeeping, block chain is a distributed ledger technology that originates from

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bitcoins, and each data block that contains the information about a network transaction is used
to verify the validity of information and generate the next block.

From a technical point of view, block chain refers to a series of time-stamped data
blocks generated using relevant cryptographic methods, and the node with the accounting right
must be time-stamped in the head of the current data block to indicate the writing time of the
data, thereby guaranteeing that each block is generated chronologically after the previous block
is generated and each block contains the hash value of the previous block, so as to form a chain.

From an economic perspective, block chain is a value Internet to improve cooperation

efficiency, and a technology for “value representation” and “value transfer” in the digital world.
The coin of the block chain is an encrypted digital currency that represents value on one side
and has the distributed ledger and decentralized network for value transfer on the other side.
Since the block chain technology adopts the one-way hash algorithm, each newly generated
block is advanced strictly according to the linear order of time.

Due to the irreversibility and irrevocability of time, any attempt to invade and tamper
with the data information in the block chain can be easily traced, and the counterfeiting is
extremely costly, which restrains relevant illegal acts 2.

1.4 Technical Architecture of Block Chain

Table 1.1: Hierarchical structure of blockchain

Here,

Data layer. The block chain system packages a batch of transactions into blocks and organizes
transaction data in blocks. The words “block” and “chain” describe the characteristics of the
structure of data used in the block chain technology. A “block” is a data unit that records the
transaction information of bitcoins.

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The “chain” of the blocks is accomplished by the hash value of data in the block head,
and this hash value serves as the unique identification of all blocks. The only block linked can
be found in the block chain based on the harsh value of the parent block recorded in the block
head. In this way, a chain tracing from the latest block to the first block is established according
to a sequence of hash values that link each block to its respective parent block, thereby forming
a chained data structure for all blocks. Network layer.

Since block chain is a distributed network, the decentralized and dynamically changing
P2P network is applied. The nodes in the network are geographically dispersed but equal
servers, and there is no central node. Any node can freely join or exit the network. Consensus
layer. The consensus mechanism is the core engine of the block chain system. In a distributed
system without mutual trust, it is difficult for the nodes to reach an agreement, also known as
network-wide consensus, within a very short period. Block chain is exactly such a distributed
network where the nodes reach a consensus via the consensus mechanism, which directly
achieves point to-point transactions without the participation of any intermediate institutions.
Actuator layer.

To encourage more users to participate in the consensus mechanism and improve the
security of the system, an incentive mechanism is set up to reward users who participate in the
consensus mechanism. For instance, in the case of bitcoins, the nodes involved in bookkeeping
are referred to as the miners, and the nodes that successfully gain the bookkeeping right will
receive bitcoins as a reward. Contract layer.

As the “virtual machines” at the bottom of the block chain, the data layer, the network
layer and the consensus layer are responsible for data representation, data dissemination and
data verification respectively, while the contract layer is a programming algorithm established
based on these virtual machines. Taking bitcoins as an example, the contract layer executes a
simple scripting language to control the transaction of bitcoins in the Internet trading market.
Such scripting language is the embryonic form of smart contract, which brings about the first
programmable global currency in human history.

Smart contract can be simply understood as a computer program that executes

automatically under certain conditions. Application layer. The application layer provides
programs and interfaces for a variety of application scenarios, and users interact through
various applications deployed in the application layer, without having to consider technical
details of the underlying block chain. The block chain technology is currently applied in the

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following six typical scenarios, namely digital currency, data storage, data authentication,
financial transactions, asset management and election voting.

Digital currency is the earliest application of the block chain technology, and the most
typical case must be bitcoins. The digital currency can be used to buy goods or services in the
digital currency system.

1.5 Working Principle of Block Chain

As a pioneering work about the application of the block chain technology, bitcoin is
essentially a digital currency generated by the distributed network, and its issuance process
does not rely on the central authority. With the transaction of bitcoins as the case, the working
principle of block chain is illustrated as follows:

Broadcast each transaction to every node of the network to make it valid. Upon
receiving the transaction information, the miner node records this transaction on the ledger.
Once recorded, the transaction information is irrevocable and cannot be deleted randomly. The
miner node confirms the transaction through the bitcoin software running on the personal
computer.

To stimulate the enthusiasm of miners, the system rewards the miners with 25 bitcoins
for the transactions they’ve recorded and confirmed (As set by the system, the number of
bitcoins as a reward will be halved every 4 years). There is only one reward which will be given
to the first miner who solves the problem. The system will provide a problem which is supposed
to be worked out within ten minutes.

The one who can solve this problem using hash algorithm within the shortest time will
be given the bookkeeping right and win the corresponding reward. The miner winning the
bookkeeping right will broadcast the transaction to the whole network, the ledger will be made
public, and the other miners will check and confirm these accounts. If the transaction has been
confirmed by more than 6 miners, it will be successfully recorded.

1.6 Types Of Blockchain Technology

The existing literature identifies blockchain into various categories, Christidis and
Devetsikiotis, 2016, Kravchenko, 2016). We can categorize blockchain into three
types: Public, Private and Consortium. The base layer technology of the above categorized

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blockchain becomes the foundation for choosing the blockchain type. In Public blockchain
anybody in the world can participate, download, read and write the data.

It is like an open field in which the users can come and go and therefore the users
involved in the network needs to be very active. The well knows examples of public blockchain
are given in (Nakamoto and Bitcoin, n.d., Wood, 2018, Ben-Sasson et al., 2014) which include
Bitcoin and Ethereum. In Private Blockchain, all the permissions are kept central to an
organization. The participating users are selected in advance and only those users are granted
access to the network.

The well-known examples of private blockchain are given in (Brown et al., 2016) which
includes Block Stack and Multi Chain. Consortium blockchain are semiprivate blockchain
which means they are permissioned and controlled. It is distributed among common nodes and
privileged members. Ripple and R3 are examples of this type. Table 1 shows the comparison
of the above mentioned blockchain types.

Table 1.2 : Comparison of Blockchain Types.

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Chapter 2

Development

2.1 Basics of Bitcoin and Blockchain Technology

The Bitcoin blockchain was developed to create a decentralized electronic currency
system. The transfer of assets – in contrast to the transfer of information – is not readily possible
bilaterally in electronic form, since electronic objects can be copied practically as often as
desired without effort. Therefore, although the information contained in the electronic objects
may be valuable, no value is transferred by the transmission or storage of the electronic object
itself [Faulkner & Runde, 2019]. Accordingly, for the electronic transfer of values within a
certain group, a so-called ledger that is accepted by all members and contains the ownership
relationships is required. A change in such ownership in an electronic register can therefore be
understood as the electronic transfer of values (“transaction”).

Traditionally, trusted third parties, e.g., banks in the monetary context, have controlled
such digital ledgers in the form of databases. In contrast, the cryptocurrency Bitcoin, which
was presented in a white paper in 2008 [Nakamoto, 2008] and was subsequently implemented
and went into operation in 2009, is based on the decentralized management of the
corresponding ledger by redundant and synchronized (“physically decentralized, logically
centralized”) maintenance of the ledger on all participating computers (“nodes”). This means
that the validity and execution of transactions is now decided by all participants in the Bitcoin
network rather than by a single central authority.

Proving ownership of units of the cryptocurrency (token-based model) or authorizing

payments (account-based model) is done with the help of a public key infrastructure and
corresponding digital signatures. For majority decision making, the Bitcoin network requires a
so-called consensus mechanism whereby the nodes decide which new transactions to include,
and in what order.

In principle, such replicated state machines, which guarantee the security and
functionality of a distributed network even in the presence of system failures or Byzantine
errors, have been intensively researched [Lamport et al., 1982] since 1982 and then practically
implemented with Paxos [Lamport, 1998] and PBFT [Castro et al., 1999]. Consensus could be
found based on elections, following the principle of “one node, one vote”. What is new about

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Bitcoin, however, is that not only predefined nodes can participate in the network and the
consensus process, but anyone who wants to can do so. This is known as a public
permissionless system. In it, the election-based process just described is not possible, because
an attacker who wants to overrule the system would only have to register enough accounts on
the network, which would be possible for them without significant costs (this is called “Sybil
attack”.

A permissionless system like Bitcoin must therefore tie the weight of a vote to a scarce
resource in order to prevent such attacks. With Bitcoin and many other cryptocurrencies this is
done via the so-called “Proof-of-Work (PoW)”, i.e., the weight of the vote is linked to proven,
performed computing work and, thus, energy. PoW involves finding a random number, the so-
called nonce, so that the hash value of the nonce – together with other data – takes on a certain
form. In the case of Bitcoin, this is the requirement that the integer representation of the hash
value is smaller than a certain upper limit. The choice of this upper limit thus defines a measure
of complexity, the so-called difficulty, of this cryptographic puzzle. The difficulty is indirectly
proportional to the probability that a randomly chosen nonce leads to a hash value of the desired
form. This method of proving computation effort has been known for a long time and has been
discussed, for example, in Hash cash for preventing spam [Back et al., 2002].

Participation in the Pow consensus mechanism, i.e. the search for appropriate nonces,
is therefore associated with costs, so that an economic incentive must be created for
participation in mining: Whoever finds a nonce that, together with a bundle of transactions,
leads to a hash value of the required form may also register a reward for themselves, more
precisely, a certain number of new Bitcoins created for this purpose (“block reward”). The
corresponding block can then be communicated to the other participants in the blockchain
network and thus be attached to the existing chain, which means that the corresponding
transactions are executed.

It should be mentioned that due to the competition in Bitcoin mining, participation with
CPUs has long since become unprofitable, as specialized hardware, so-called ASICs, have been
developed that can calculate hashes by orders of magnitude faster and more energy-efficiently
than CPUs and GPUs [De Vries, 2018]. The difference in Bitcoin is so significant that even the
world’s 500 largest supercomputers taken together can probably only achieve a small part of
the current hash rate of Bitcoin, which is mainly based on ASICs – and can only conduct mining
at a considerable financial loss.

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To prevent undetected manipulation of the system, Bitcoin uses a data structure that
makes it very easy to detect and locate subsequent changes, namely Merkle Trees. To reduce
the effort involved in finding a consensus, transactions, metadata, nonce and a hash pointer to
the previous block are combined in one block.

2.2 Implications of the recent Bitcoin

In the following, a more detailed analysis of Bitcoin’s electricity consumption will be
carried out by analyzing the recent Bitcoin Halving and deriving implications for the long-term
development of electricity consumption. The comparison of the development of Bitcoin prices
and hash rate over the past 12 months, as shown in Figure 1, suggests that the upper bound
described above is indeed a fairly good estimate of actual electricity consumption: With
relatively stable Bitcoin prices until March 2020, the observed hash rate increased
continuously; apparently, the initiation or expansion of mining activities, which is associated
with the procurement of appropriate hardware, was considered worthwhile.

However, a fall in the price of Bitcoin in early March 2020 in the context of a generally
weak stock market sentiment due to the Covid-19 pandemic was accompanied by a slightly
less pronounced but nevertheless significant decrease in the hash rate. This could be explained
by the fact that due to the reduction in the value of Bitcoin and thus the level of the mining
incentive, miners with higher variable costs, for example due to obsolete hardware or high
electricity prices, were forced out of mining here for a short period of time. Thereafter, aligned
with the Bitcoin price, the hash rate also rose back to the previous level.

However, the Bitcoin halving on 11 May 2020, an event that is similarly scheduled in
many PoW blockchains and which takes place approximately every four years in the case of
Bitcoin, caused a permanent halving of the block rewards and a corresponding reduction of the
economic incentive to mine. As Bitcoin prices remained largely constant, the hash rate fell
significantly, like the previous situation.

Surprisingly, however, just one week later, the hash rate rose again significantly,
without Bitcoin prices rising to a similar extent. This could be due to the following reasons: –
A closer look at the expected profits from mining must also include transaction fees received
by the producer of a new block, especially after halving, these fees made up to 20 % of the
reward on some days, and the transaction fees have also increased after the halving.

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Figure 2.1 Hash rate and price deve lopment for Bitcoin. 1 EH denotes 1018 hashes. Data retrieved
from [Blockchain.com, 2020]

The Difficulty is not adjusted in real time, but only around every 14 days. While with
the Difficulty before the halving it might not have been worthwhile to participate in mining,
this might have changed after the Difficulty was adjusted for the first time after the halving and
thus significantly reduced (it takes a while for the system to regain its balance).

In China, the rainy season begins in May and June in some regions, so that much
cheaper electricity is available through hydropower, and some mining pools were offering
electricity for just under 0.03 USD/kWh at that time; especially since competition has become
much fiercer in the face of declining mining revenues [Bloomberg NEF, 2020]. – More and
more modern, energy-efficient hardware is being purchased and used, significantly reducing
variable costs.

Figure 2.2 Hash rate and expected mining rewards for Bitcoin. Data re-thieved from
[Blockchain.com, 2020]

To investigate these relationships, we analyze the relationship between the economic

incentive to participate in mining, in the form of an expected mining revenue in USD per 1018

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calculated hashes, and the actual participation in the form of the hash rate, in the period around
the halving with a more accurate model. This also considers the actual current block time or
difficulty as well as the transaction fees received by the generator of a new block in addition to
the block rewards. The resulting curves are shown in figure 2. The correlation between
expected profits and the hash rate is approx. 0.57.

This suggests that some miners are already deciding in real time or in the short term
whether or not it is worthwhile for them to participate in mining because they have already
operated close to cost neutrality before halving. Apart from the irregularities around halving,
lower correlations have been observed, especially in the last two weeks analyzed, which could
be due to the changes in electricity tariffs in China’s mining pools described above. In order to
analyses the influence of electricity tariffs in more detail, we illustrate in Figure 3 the influence
of mining hardware and electricity prices on the relative margin, i.e., the ratio of mining profits
(i.e. the difference between mining revenues and electricity costs) to the electricity costs of
mining in detail. Only electricity consumption is considered; other variable costs and
investments (e.g. for hardware procurement) are ignored.

Thus, the data shown represents an upper limit of the relative margin. The reference
hardware used was the popular Bit main Ant miner S9 (11.5 Th) for hardware newly launched
in 2016, the Microbat What miner M10S for 2018, and the Bit main Ant miner S19 Pro (110
Th) for 2020 [Asicminervalue, 2020]. At the time of their market launch, these probably
corresponded to the most energy-efficient mining hardware for Bitcoin. The vertical line shows
the time of the Bitcoin halving, as in Figure 1 and Figure 2. In fact, at electricity prices of 0.05
USD/kWh, the halving can force old, less energy-efficient hardware out of the market in the
short term, whereas more modern, more energy-efficient hardware remains profitable and, at
lower electricity prices, mining with older hardware also makes economic sense.

2.3 Redundant Operations

Regardless of the type of consensus mechanisms, all blockchains are characterized by
redundant data storage and operations. Accordingly, the cumulative computing effort and thus
power consumption – except for hardware differences is proportional to the number of
participants in the blockchain network. For small blockchain networks, as they are typically
used in consortia in a permissioned context, the redundancy results in a multiple power
consumption compared to a central system.

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However, this does not necessarily mean that the use of a blockchain must be a
disadvantage from a sustainability perspective. The following rough estimate is intended to
illustrate this: A small, private blockchain network, such as Hyperledger Fabric or Quorum,
with 10 nodes, each with a mediocre hardware configuration (2 CPUs, 8GB RAM) can easily
handle 1000 simple transactions per second, thus each transaction consumes around 1 J. On the
other hand, based on the information provided in VISA’s Sustainability Report 2017, it can be
calculated that the energy consumption of the entire company (i.e. including heating of
buildings, etc.) amounts to approximately 6 000 J per transaction, of which 3 000 J per
transaction are incurred by data center’s [VISA, 2017]. A simple client-server system with a
key-value store, such as Level DB, can process several thousand simple transactions per second
with the above hardware equipment, resulting in a power consumption in the order of 0.02 J
per transaction. Although the power consumption of a blockchain is generally much higher
than that of a corresponding centralized solution (here by a factor of around 50) due to the
redundancy (and to some extent also due to the consensus and generally the more extensive
use of cryptographic methods), it may still only account for a very small part of the power
consumption of the entire IT solution or the entire process, even if clients and backups are
included.

Particularly in scenarios in which processes can be further digitized with the help of
energy-efficient variants of blockchain technology, it is therefore reasonable to assume that
blockchain-based solutions can also save energy below the line. In the best-known
cryptocurrencies, such as Bitcoin and Ethereum, the corresponding blockchain networks
already consist of many thousands of nodes, and with large-scale adoption, their number would
be likely to rise even further in the future. Accordingly, the power consumption of these
networks can be considered problematic because of the resulting high degree of redundancy.
However, research also has promising solution concepts for this challenge:

In principle, a reduced degree of redundancy, i.e. the recalculation of transactions

only on subsets of all nodes, will also reduce the power consumption per transaction. This is
the case, for example, with so-called second layer concepts such as Lightening or Raiden, but
typically involves trade-offs in security, since security essentially stems from the high degree
of redundancy. Similarly, in the Ethereum 2.0 blockchain mentioned above, the network will
be divided into a total of 64 so-called shards, which will be periodically referenced by a main
chain, the so-called “Beacon Chain”, thus inheriting the security of the entire system with
each such referencing. It will be some time before Ethereum 2.0 makes full use of these

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features and processes are distributed among the various shards, so it is difficult to quantify at
this point how much the degree of redundancy will ultimately decrease and what impact this
will have on security and functionality.

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CHAPTER 3

Working

3.1 Transaction
When it comes to blockchain technology, one of the basic units is a transaction that
denote the transmission of data or money among different system users. Here is a little piece
on what transactions entail in blockchain technology.

A transaction usually means that there is interchange of goods and services or financial
values between more than one person. These activities could either be exchange for cash,
products for goods or agreements for various other things with price consideration. Each party
in the transaction must give something valuable e.g., cash/currency notes,
merchandise/goods/services offered under the barter system without using money while the
other provides values that are differently calculated from what they have given away.

Transactions can take place under diverse situations including but not limited to
corporate world, money matters, or even general daily occurrences that require giving out
something in return for another item. They may become possible when there are agreements
present between involved parties through either digital systems or physical ones like papers in
legal terms hence making it necessary to have them done if there are those things needed in
this case could be purchasing property transferring assets and so on.

Definition: –

Blockchain's transaction refers to a digital asset or data transfer from one address to
another. This may involve such things as cryptocurrencies (such as Bitcoin or Ethereum),
digital tokens, smart contracts, among other digital information forms.

3.2 Structure of blockchain:

In a blockchain network, a typical transaction comprises many elements exemplified
below: Sender’s address: This is the address from which assets are being dispatched. Receiver’s
address. This is an address where transferred assets usually go to. Amount: This stands for the
money value transferred. Transaction fee: This is a payment made mostly to miners for
including the transaction in a block. Timestamp: The actual moment of starting any operation
within system time set up; typically used to refer to futures’ time elapsed from certain point of
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time indicated on clock or any other device with similar functions. Digital signature: It is a
cryptographic signature.

Blockchain technology is expected to greatly impact approximately all industries soon.

Financial establishments are developing ingenious ways to start testing and investing in this
technology, making it extremely significant for everyone to understand the structure as well as
the working algorithm of blockchain technology. A blockchain is a continuously growing list
of records called blocks, which are linked and secured using cryptography. Each block typically
contains a cryptographic hash of the previous block, a timestamp and transaction data. The
structure of blockchain data is efficient and the adjoined list of transaction blocks can be
maintained in a modest database or in the form of flat files. These blocks are connected to each
other, with each block referring to the previous one in the chain. The first block in the chain is
called a genesis block. The blockchain is envisioned as a vertical stack and the blocks are
stacked on top of one another with the genesis block being the base of the stack. discusses the
structure of blockchain in detail.

It is pointed out that all blocks are recognized by cryptographic hash values created by
SHA256 algorithm and these hash values are part of the block header. Granting that a block at
any given point has one parent, it can transitorily have multiple children. Every child block in
the chain refers to the same block as its parent and has the same parent hash value. Although
the multiple children situation occurs mainly when a blockchain fork is encountered, as soon
as the fork is resolved and the valid block is determined, the blocks in the fork would be
orphaned and not pursued in the future.

The identity of child blocks depends on the parent block identity and varies accordingly.
Then the hash value of the parent block changes. As a result, the preceding block hash pointer
of the child block is changed. This process continues until reaching each of the grandchild
blocks. The cascade effects make sure that once a block has many generations, it cannot be
meddled without compelling recalculations of all the consecutive blocks.

The structure of the blockchain is illustrated in Figure and described as follows.

a) Data

The data stored in the blockchain depends on the service and the application. It could
be used in a peer-to-peer file system such as IPFS, in distributed databases such as apace
Cassandra, in cloud file storage such as story, and Ethereum swarm, Sia etc. The data stored

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can be used in various applications like recording the transaction details, banking, contracting
and IoT.

Table 3.1 : Blockchain Structure

b) Hash.

A hash function is the one that takes an input of any length and generates the output with
unique fixed length. If a single value in the input is modified, the output is extremely different.
Hash functions are used ubiquitously in the blockchain technology. Each block containing data
is hashed and the changes could be big or small. For instance, a user named Alex tries to change
the data stored in a block.

Then the modified block will have a completely different hash value, assuring that every
node or miner in the network would have knowledge of the modification made by updating the
ledger copy of all users. This can increase the trustworthiness of data stored in blockchains. In
a hash tree or Merkle tree every node is represented as a leaf and is labelled with a block. This
Merkle tree permits the user to store large data structures in a secure and efficient way.

c) Timestamp.

It is necessary to record the time when the block was created. Timestamping is a method
used to track the creation or modification time of a document in a secure way. This method is

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becoming an essential tool in the business world today since it permits the involved parties to
identify the origin and availability of a document on a particular date and time.

d) Other Information.

Other information contains digital signatures, nonce values, nBits and a few other user
defined values. Every user has two keys, a private and public key. A digital signature containing
these two keys is involved in both signing phase and verification phase. The private key is kept
confidential and is used to sign a transaction to encrypt the data. The public key is known by
everyone and is used to validate and decrypt the data in the verification phase of the transaction,
consequentially confirming data authenticity. A nonce value is basically a 4-byte value starting
with 0 and increments each time a hash calculation is performed.

3.3 Decentralized Ledger: -

When a transaction is made, it is registered on a shared ledger called a blockchain. Each

transaction adds to a block that connects to the one before, forming an unbroken series of blocks
that are linked together. This process generates a permanent database containing every
transaction ever executed over the network. A decentralized ledger is a record of all
transactions on a network. This ledger is maintained and updated by many independent nodes,
who collaborate based on a ruleset established by the protocol. Bitcoin uses a blockchain and
a Proof-of-Work mechanism to organize the network and maintain its decentralized ledger.

Traditional banks use centralized ledgers to track balances. Each bank branch
periodically updates this central ledger, but this ledger is neither public nor auditable. The
Bitcoin protocol changes this paradigm by allowing anyone to read and write directly to the
ledger. Anyone can publish a Bitcoin transaction. Miners will add that transaction to the
blockchain, and anyone can query the blockchain to check their balances and transaction
history.

All nodes in the Bitcoin network keep and validate identical copies of the ledger so that
there exists no central point of failure or fraud.

Whereas executives at a traditional bank can conspire to arbitrarily change the ledger
at their own bank, no one is capable of dishonestly altering the Bitcoin blockchain. This gives
Bitcoin ultimate security and trustworthiness.

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a) Bitcoin Node: -

A node is a separate part of a network that connects with other nodes and together they
form the network. A computer that runs an implementation of bitcoin while keeping all the
blockchain data is called bitcoin node.

Nodes validate, advertise, and ask for new blocks and or me pool from their peers over the
network. Should nodes run accordance in their software, the consensus will be reached. Having
a good number of nodes is of utmost importance in safeguarding the network against any
arbitrary or destructive modifications on the source code, reorganizations, among others.

b) Consensus: -

Consensus is an ideal and the method of coordination between individuals in a

decentralized system such as Bitcoin or other open-source projects. Consensus is not a form of
democracy: there are no forms of voting, representation, credentials, or gatekeeping involved
in a consensus-based system. Nor does consensus require 100% agreement. Consensus is an
ideal in the sense that, in most cases, there is no absolute agreement between all parties
involved.

Consensus is required at multiple levels of Bitcoin: consensus must be achieved in

maintaining the Bitcoin source code, and it must be maintained between all nodes storing and
validating the blockchain. At the source code level, consensus is achieved by allowing anyone
to propose, review, and comment on changes. This process is usually slower than centralized
projects because discussion and review is applied intensively to any change before it is
implemented. However, this process ensures that no special interests are served over others,
and no private parties can dictate Bitcoin’s future for their own gain.

At the blockchain level, consensus must be maintained by all nodes running compatible
code. All nodes must agree on core parameters such as how many new bitcoins are created per
block and what blocks and transactions are valid. Additionally, nodes must agree on the exact
state of the network—which blocks comprise the blockchain and which transactions are
included therein. If nodes disagree on these parameters, the network will fracture and the
blockchain will splinter into several chains. Reconciliation between competing chains is
extremely difficult, so maintaining consensus is of utmost importance.

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c) Peer-to-Peer (P2P): -

A peer-to-peer network is one in which members can interact directly with one another
without relying on third parties for approval or support. Bitcoin is a peer-to-peer network
because nodes connect directly to one another and relay transactions and blocks. Additionally,
Bitcoin users can transact in a peer-to-peer fashion because ownership of bitcoin is passed
directly from sender to receiver.

Even though miners process transactions, they never take custody of the bitcoin, and
are never able to redirect a transaction to steal funds from users. Peer-to-peer systems are
usually resistant to censorship and corruption, and Bitcoin is a prime example. Tens of
thousands of peers in the Bitcoin network run nodes to validate the blockchain and maintain
Bitcoin’s decentralization.

A peer-to-peer financial system is fundamentally different from Venmo, PayPal, or ACH or

wire transfers, where corporations, banks, and governments can interfere with, censor, or roll
back payments without a user’s permission. While most users trust these legacy institutions
enough to use them, Bitcoin removes the need to trust a third party at all.

d) Protocol: -

A network is ruled by a group of regulations that determine the behavior of a network.

These regulations are referred to as the Bitcoin protocol, much like the way a constitution
governs a country.

Instead of depending on a central figure such as CEO or Supreme Court, all bitcoin
nodes force each other towards adherence to the entire set of regulations. On the other hand, in
order to create an autonomous system, bitcoin protocol uses both token and blockchain
technology that is based on proof-of-work method.

3.4 Consensus Mechanisms:

Trust algorithms such as PoW, PoS or some other consensus algorithms reaffirm
transactions that have been done in a blockchain network. These procedures help ensure that
transactions are legitimate without any centralized authority.

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a) Concepts: -

As a data structure that stores in chronological order, blockchain can support different
consensus mechanisms. The consensus mechanism is an important component of blockchain
technology. The goal of it is to enable all honest nodes to keep a consistent blockchain view
while satisfying two properties:

1) Consistency. All honesty nodes save blockchain with exactly the same prefix.

2) Validity. The information published by one honest node will eventually be recorded by all
other honest nodes in their own blockchain.

b) Workload Certificate: -

The consistency of blockchain can be achieved by using the workload proof

mechanism. When the blockchain is very long, except for the last few blocks, the rest have
been confirmed by the whole network and the consistency has been achieved.

The node can freely join the blockchain and the addition or withdrawal of the node will not
affect the consistency and security of the blockchain. The probability of each node to complete
the work that is determined by its computational resources, the attacker cannot increase the
probability of completing the proof by creating multiple public key addresses, this can
effectively fend off Sybil attacks.

At the same time, with most computing resources owned by the honest party, it can effectively
resist secondary payments and guarantee the security of the system.

c) Equity Certificate: -

Interest mechanism to a certain extent, solve the workload prove that the problem of
large energy consumption of the mechanism, shortened the time of block and set the time,
improve the efficiency of the system, but there are no perfect blockchain based on interest in
practical application. The equity certificate shows that each round produces multiple verified
representatives, that is, multiple blocks. In the case of poor synchronization of the network, the
system is easy to generate bifurcation and affect the consistency.

If the malicious node becomes the representative, the network partition will be formed
by controlling network communication. Sending different undetermined blocks to different
network partitions will result in network bifurcation, which can be used for secondary payment

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attacks, seriously affecting system security. A malicious adversary can also bribe an honest
representative to undermine consistency. The key of equity certification lies in how to choose
the right equity and construct the corresponding verification algorithm to ensure the
consistency and fairness of the system. Improper rights and interests will affect the fairness of
the system.

PPCoin, for example, USES the currency of age as a factor, rights and interests of in
the if part of the node in the system remain used to pay for part of the small and the currency
of age is big enough, the node is more likely to be selected as the representative, affect system
fairness.

d) Byzantine Agreement of Consistency: -

The Byzantine conformance protocol was originally used for small-scale server
replication problems, and later expanded to dozens of servers. The Byzantine agreement
protocol mainly studies how to achieve the agreement of all the correct nodes to a certain input
value in a distributed system with wrong nodes.

In the case of decentralization, the Byzantine consistency protocol can be used to

achieve the consistency of blockchain, eliminate the redundant computation and avoid resource
waste. In addition, at some point, there is only one master node that can put forward the new
blocks, the other nodes on the block, avoid points again, shortening the time of the transaction
confirmation and block, improve the efficiency of the system.

e) Combination of Consensus Mechanism: -

To the existing blockchain work certificates, certificate of rights and interests and
Byzantine agreement mechanism such as consensus from consistency, security, scalability,
performance, efficiency, resource consumption, etc., this paper compares and analyzes their
application in blockchain on the advantages and disadvantages are shown in table.

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In view of the advantages and disadvantages of each consensus mechanism, we can try to
combine different consensus mechanisms to form a new obstacle of consensus mechanism.

1) Combination of Workload Certification and Equity Certification When the proof of

work mechanism is adopted, the nodes can obtain higher relative benefits through the selfish
mining strategy, which affects the fairness and security of the system.2-hop blockchain tries to
combine workload certification and equity certification and use equity certification mechanism
to reduce system resource consumption and improve fairness and security. The system takes
wheel as the unit; each round contains the workload proof stage and the equity proof stage. In
the proof of work stage, the node tries to complete the workload certification and proposes a
new block. Then, the equity certification stage is entered, and the new block is verified and
confirmed by the node that has completed the equity certification.

Through the alternation of workload proof and equity proof, the security of the system
can be guaranteed even if there is a node with a large amount of computing resources. At the
same time, the influence of nodes with dominant computing resources on blockchain in the
initial state is weakened, and the security and fairness of the system are further improved.

2) Byzantine Consistency and Proof of Interest Algor and system, for example,
consider the Byzantine agreement, poor scalability problems Algor and system combining
proof mechanism and Byzantine agreement, to participate in the Byzantine agreement through
interest in limiting the number of nodes, to improve the scalability of the system. First, the node
verifies whether it is selected as the representative through the equity certification mechanism,
and the verified node can propose the undetermined block. Then, a new round of equity
certification is carried out to select new representatives to verify the validity of the pending
blocks.

After a limited rotation, the question of representation was agreed upon on the highest
priority blocks through the Byzantine agreement. Through interest elected representatives,
effectively solved the Byzantine agreement of scalability and efficiency, at the same time use
the Byzantine agreement to avoid the interest bifurcation weakness, improve the consistency
and security.

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3.5 Security of blockchains:

Cryptographic methods used for authenticating and verifying transactions ensure
secured blockchain transactions. On the blockchain, every transaction is cryptographically
signed so as to make it unforgeable and unchangeable.

Security in blockchain can be defined as the protection of transaction information and

data in a block (whatever form of data) against internal and peripheral, malevolent and
unintentional threats. Typically, this protection involves detection of threat, prevention of
threat, appropriate response to threat using security policies, tools and IT services. Some
important ideas and principles in security are listed below:

a) Defense in penetration. This is a strategy which uses numerous corrective measures to

protect the data. It follows the principle that protecting data in multiple layers is more
efficiently as opposed to single security layer.

b) Minimum privilege. In this strategy the access to data is reduced to the lowest level
possible to reinforce elevated level of security.

Figure 3.1: Pattern Representation of Block chain Types

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Figure 3.2: Aspect of blockchain

c) Manage vulnerabilities. In this strategy we check for vulnerabilities and manage them by
identifying, authenticating, modifying and patching.

d) Manage risks. In this strategy we process the risks in an environment by identifying,

assessing and controlling risks.

e) Manage patches. In this strategy we patch the flawed part like code, application, operating
system, firmware etc. by acquiring, testing and installing patches. Blockchain technology uses
many techniques to achieve the security of transaction data or block data, irrespective of the
usage or data in the block.

Many applications such as bitcoin use the encryption technique for data safety.
explained in detail about using a combination of public and private key to securely encrypt and
decrypt data. The other most secure concept of blockchain is that the longest chain is the
authentic one.

This eliminates the security risks due to 51% majority attack and fork problems. As
the longest chain is the ultimately authentic, the other attacks become null and void as they end
up being orphaned forks. discusses blockchain security enhancement achievements for
blockchain systems like Smart pool, Quantitative framework, Oyente, Hawk and Town Crier.
We will learn about it in the later sections of this paper.

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 Privacy of blockchains.

Privacy is the capability of a single person or a group to seclude themselves or data

therefore expressing themselves discerningly. Privacy in blockchain means being able to
perform transactions without leaking identification information.

At the same time, privacy allows a user to remain compliant by discerningly divulging
themselves without showcasing their activity to the entire network.

The goal of enhancing privacy in blockchains is to make it extremely difficult for other
users to copy or use other users’ crypto profile. An immeasurable volume of variations can be
perceived when applying blockchain technology. Some common characteristics are
particularly significant and are summarized as follows:

a) Stored data sorting.

Blockchain provides the flexibility to store all forms of data. The privacy perspective
in blockchain varies for personal and organizational data. Although privacy rules are applicable
for personal data, more stringent privacy rules apply to sensitive and organizational data.

b) Storage distribution.

The nodes in the network that stores complete copies of the blockchain are called full
nodes. The full nodes in combination with the append-only characteristic of blockchain leads
to data redundancy. This redundancy of data supports two key features of blockchain
technology including transparency and verifiability. The compatibility of application with data
minimization decides the level of transparency and verifiability of that network for an
application.

c) Append-only.

It is impossible to alter the data of previous blocks in the blockchain undetected. The
append only feature of blockchain in certain cases does not curtail to the right to correction of
users, especially if data is recorded incorrectly. Special attention needs to be provided while
assigning rights to data subjects in blockchain technology.

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d) Private vs public blockchain.

The accessibility of blockchain is remarkable from the standpoint of privacy. In an

advanced level the restricted data on a block can be encrypted for conditional access by
authorized users as every node in the blockchain has maintains a copy of the entire blockchain

e) Non-permissioned vs permissioned types of blockchain.

With public or nonpermissioned blockchain applications, all users in principle are

permitted to add data. Permitting the restoration of trusted mediators influences the distribution
of control over the network.

 Smart Contracts:-

Smart contracts are a significant development in blockchain. Smart contracts were first
proposed in the 1990s as a digital transaction protocol to carry out the terms of an agreement.
Smart contracts are simply containers of code that encapsulate and replicate the terms of real-
world contracts in the digital domain. Contracts are fundamentally a legally binding agreement
between two or more parties, with each party committed to fulfilling its commitments.
Importantly, the agreement must be enforceable by law, often via a centralized legal body
(organization).

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Nevertheless, smart contracts replace trusted third parties or mediators between

contracting parties. They make use of this with the assistance of code execution that is
automatically disseminated and checked by network nodes in a decentralized blockchain. In
addition, they allow transactions between untrusted parties without the necessity for direct
contact between the parties, reliance on third parties, and intermediary commission costs .

Compared to conventional contracts, smart contracts offer the benefits of reducing

transaction risk, reducing administration and service costs, and enhancing the efficiency of
corporate processes, since they are often placed on and secured by blockchain . Smart contracts
are projected to give a superior solution to the present transaction mechanism in a variety of
businesses in this regard.

Transactions on some blockchain platforms may mean executing smart contracts, which
are written-in code deals capable of self-execution. Once the conditions are met, smart
contracts need no supervision from third parties in order to implement an agreement.

Expert blockchain developers are needed to help clients in identifying the optimal
blockchain platform and method for developing and deploying smart contracts to their
organization’s needs. Different blockchain systems allow for the development and deployment
of smart contracts (e.g., Ethereum, Hyperledger Fabric, NEM, STELLAR, Waves, and Corda).
Because of its restricted scripting language and emphasis on security over programmability,
Bitcoin was rarely mentioned when smart contracts were addressed.

Bitcoin networks cannot support complex smart contracts. Furthermore, basic contracts
that may be carried out on Bitcoin are often difficult to draft and expensive to carry out. For
creating smart contracts, several platforms provide unique capabilities such as security levels,
contract code execution, and contract programming languages. Some platforms enable the
creation of smart contracts using high-level programming languages.

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The Advantages of Smart Contracts: -

a) Savings

Using smart contracts, the time and money often spent waiting for and paying
middlemen to process transactions is eliminated. The method presented by Khatoon utilizes
blockchain to establish a healthcare ecosystem. Through this study, many medical system
stakeholders would be assisted in providing improved healthcare services while reducing costs.

b) Security
The blockchain’s encrypted transaction records are almost hack proof. Additionally,
with a distributed ledger, hackers will need to modify the whole chain to change a single entry.
Pan et al. by developing an Edge Chain model, indicated the security advantages of smart
contracts and blockchain with fair cost.

c) Confidence and openness

There is no need to worry that information has been changed for nefarious purposes
since there is no middleman and participants exchange encrypted records of transactions.
Nugent et al. Demonstrated that blockchain-based smart contracts provide an innovative
technical solution to the issue of data tampering by supplying an immutable record of
experimental history and serving as trusted administrators.

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d) Accuracy, efficiency, and rapidity

As soon as a condition is satisfied, the contract is instantly executed. There is no
paperwork to handle, and no time wasted correcting mistakes that often occur from manually
filling out documentation due to the digital and automated nature of smart contracts. Griggs et
al. Developed a system where the sensors interact with a smart device that executes smart
contracts and logs all occurrences on a private blockchain on the Ethereum platform. Sending
alerts to patients and medical experts, while keeping a secure record of who started these
actions, would enable real-time patient monitoring.

 Public Transparency: -

All transactions in a public blockchain are fully traceable and available for viewing by
anybody and hence participants do not have to depend on any central body in
order to verify them.

One of the best features of blockchain is its transparency. It means that it is entirely
traceable and much easier to maintain, and one of the areas where blockchain technology shows
its transparency is through Bitcoin casino sites. In gambling, there is a saying that the house
will always win. Although, it is not the case with casino sites that operate with cryptocurrencies
like Bitcoin.

Websites such as provably fair games allow users to check the server seeds of the game and
assure that the results, they are receiving are genuine and unbiased. This is a new and game-
changing factor of online gaming. It is something that many casino sites and gaming platforms
are looking to integrate into their systems to develop a new level of trust between the site and
players.

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CHAPTER 4

APPLICATION & CURRENCIES

4.1 Application in Healthcare

Blockchain is a relatively modern and emerging technology that has innovative

applications during its successful healthcare implementation. Smooth, efficient data sharing
and delivery across all the prominent network members and healthcare providers contribute to
developing economical therapies and sophisticated treatments for many diseases. This will
accelerate growth in healthcare in the coming years.

The op-opportunities offered by Blockchain technology in the logistics industry have

been revealed recently and show the healthcare sector's advantages. As this area directly affects
life quality, it is one of the first areas in which digital transformation improves and innovations.
At the same time, Blockchain technology is becoming more common, mainly in the financial
sphere. It offers several important and impressive chances for the healthcare industry, from
science and logistics to relationships among practitioners and patients. Table 1 discusses the
significant ap-plications of Blockchain for healthcare. Blockchain’s function is to document all
sorts of transactions in decentralized record, aside from other healthcare management
structures.

It is accurate and straightforward, saving time, effort, and cost-efficiently and therefore
saves on management effort. The biggest problem faced by the healthcare industry is the
leaking of essential data and used for malicious devices and other special interests, which the
applications of this technology can quickly sort out.

Another area of importance is allowing users and parties to the database access to the
latest up-to-date and authentic patient records and evaluations. Blockchain’s scope of health
care looks super up-and-coming and exciting because it contributes to solving some of the
industry's pressing issues. With Blockchain, we can connect therapy associates and other
services to the network such that everybody has access to the same data. Many methods will
bring positive benefits for businesses as a whole by using Blockchain technologies in health
care. It provides patient information, medical science, clinical trials, the medical supply chain,
and the integrity of medicinal products.

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Store information of an individual patient: -

Before and after the different clinical study phases, a significant amount of patient
information and health data is generated. There are many people's blood tests, quality
assessments, estimates, and wellness polls. It can provide results that show the existence of
some document or record. Healthcare providers traverse the stored data and suspect its validity,
and they will check this seamlessly by matching it to the original records stored on the
Blockchain system. Blockchain is based on existing cryptographic techniques, which include
the appropriate framework for cryptography for data sharing.

The patient's name, date of birth and diagnosis, treatments, and ambulatory history are
recorded in EHR format during patient details by the healthcare provider. This information is
stored in cloud computing or the current databases.

Analyze the effects of a particular procedure: -

Researchers can effectively analysand procedure on a large part of the patient

population through verified access to the patient data. This produces significant results that
enhance the mode of management of these patient groups. With the Blockchain infrastructure
in place, pharmaceutical firms will gather data in real-time to deliver a wide range of precisely
adapted prescription drugs or services for patients.

Blockchain makes the job of the pharmacies simpler since it has all the data on top of
it. They will efficiently instruct patients on how to take the medication from these results. It
will update the clinicians on the present stage of the patient with the wearable data gathered in
real-time and alert them to any emergency.

Health record keeping: -

Blockchain can be a perfect technology for record-keeping in the medical world. Its
applications include sharing healthcare data, keeping electronic healthcare records, managing
insurance, and performing administrative tasks. Patients can send their health information via
an app to a Blockchain network. The collaboration of sensors and intelligent devices is
facilitated based on digital Blockchain contracts.

In most cases, electronic health records are spread through various care institutions.
Blockchain will unify all details and provide patients with historical access. The connection of
all data in the same place will give us new perspectives on a patient's health status. Therefore,

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the Blockchain paradigm would ensure the information is authentic and legitimate and preserve
users ‘privacy.

Clinical Trial: -

In clinical trials, Blockchain Technology is used to address problems of false results

and data disintegration that do not match the purposes and objectives of the research.
Blockchain will strengthen trust in clinical trials. The business analysis platform investigates
the evolving market dynamics so that the healthcare sector understands the possibilities.

The management of medicines on the Blockchain is just another chance of building and
monitoring the chain from the manufacturer to the customer by incorporating Blockchain
credibility.

Patient monitoring: -

A Blockchain's trust allows medical professionals to ensure they have access to medical
equipment when necessary. Doctors may also be more time-consuming to watch patients and
react distantly to health-related incidents. Via Blockchain and healthcare, monitoring
temperatures inside patient rooms, beds use, and supply availability are improvable. A
Blockchain healthcare network to build a stable digital identity for healthcare institutions and
providers.

Combines Blockchain with IoT technologies to improve the responsiveness and

traceability of the supply chain, thus making healthcare logistics more transparent for the
proper monitoring of the patient.

Improves safety: -

Blockchain increases overall safety in the health treatment of patients, addresses

medication validity and drug traceability problems, and allows for safe interoperability. It is
the only way to replace the existing supply chain management scheme and prevent counterfeit
drug manufacturers from bringing their drugs into the market with better safety.

Regardless of the medical entrées and organizations. Blockchains would allow all data
to be stored centralized location. The interoperability of Blockchain technology will enable
doctors to conveniently view the detailed medical records to help diagnose their diagnosis and
develop a better and more precise operation.

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Figure 4.1: Applications in blockchain

4.2 Application in Identity Management

As previously discussed, identity management (IdM) is also known as identity and
access management (IAM) in the literature. Broadly speaking, IdM refers to a framework of
policies and technologies for ensuring that only authorized individuals can access the
associated resources in an organization IdM is a relatively mature topic, given the large number
of standards and frameworks , such as the Security Assertion Markup Language (SAML) , the
Web Services Federation (WS-Fed) , the Identity Federation Framework (ID-FF) , and the
Identity Web Services Framework (ID-WSF) . Examples of IdM criteria include the Cosign
Protocol, the Open Authentication (OAuth) citehardt2012oauth, and the OpenID Connect
(OIDC) .

However, as our society becomes more interconnected and digitalized, with a

significant increase in the number and types of systems and identities that need to be managed,
there is also a need to revisit our conventional IdM paradigms. For example, as discussed
earlier, there have been attempts to leverage the characteristics of blockchain (e.g.
decentralization, openness, trustworthiness, and security) in the next generation IdM design.

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4.2.1 Building blocks:

For simplicity, let’s consider the scenario where a user requests for proof of identity
from an identity provider, and the identity provider responds to the token. In this simplistic
setting, there is exchange of information between both entities (e.g. real individual or some
entities). If the identity providers are separate entities, then this becomes a three-party identity
management model of comprising users, identity providers and identity dependents.

In such a model, since the identity provider is a separate entity, the identity resource
used for authentication only stores in the identity provider, and the identity dependent can only
verify the authentication of the user’s identity by querying the identity provider. In addition to
providing user identities, identity providers should also have identity management, identity
reset, identity revoke, and other related functions.

User

Users are the primary enablers of the system, enjoying the various services offered by
the service provider and identity provider. Not all users have the same privilege.

Identity provider

Identity provider, the core of the system, is tasked with providing users with identity
services (e.g. registration, authentication and management). This entity also provides user
authentication.

Service provider

Service provider is an important part of the system and is mainly responsible for
providing services for users (once they are successfully authenticated). The flow-chart of the
system is presented in Fig. 1 and explained below: In order to enjoy the desired service, a user
must submit a request for an identity from the identity manager. The identity manager then
generates a unique identity based on the information provided by the user and replies to the
user.

The user requests a specific service from the service provider, and the service provider
requests for identity information from the user. The user receives the request and replies with
the corresponding data.

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Figure 4.2: A typical operation of an identity management system

The service provider requests the identity provider to verify the validity of user’s
identity. The identity provider returns the authentication results, and the service provider
provides the service based on the received validation results.

4.2.2 Architecture:
There are many different identity management systems and architectures in the
literature, which can be broadly categorized into independent identity management
architecture (IMA), federated identity management architecture, and centralized identity
management architecture.

Independent IMA

In this architecture, each service provider has its own user identity data. In other
words, the identities of different service providers are not interoperable. Although the
structure is simple, it is not scalable as the number of service providers increases (e.g.
implications for storage requirements at the service providers).

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Also, it is not practical for the users to remember their identity information for every
single service provider, without reusing or recycling their user credentials.

Centralized IMA

The centralized IMA has only one identifier and identity provider in the trusted
domain. This means that all service providers in the same trusted domain will share the users’
identity. Hence, the identifier should be carefully selected, and the unique identity in the
trusted domain is a typical choice.

Federated IMA

The federated IMA establishes a trusted domain and comprises multiple identity
providers in the federation. A trusted domain consists of multiple service providers within the
federation that recognizes users’ identity from other service providers. For example, a U.S.-
based academic can choose to sign in to Research.gov using either their National Science
Foundation (NSF) identity information or their organization credentials.

Figure 4.3: Identity Management Architecture: An Overview

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4.3 What is cryptocurrency?

Cryptocurrency is a digital payment system that doesn't rely on banks to verify
transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive
payments. Instead of being physical money carried around and exchanged in the real world,
cryptocurrency payments exist purely as digital entries to an online database describing specific
transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public
ledger. Cryptocurrency is stored in digital wallets.

Cryptocurrency received its name because it uses encryption to verify transactions.

This means advanced coding is involved in storing and transmitting cryptocurrency data
between wallets and to public ledgers. The aim of encryption is to provide security and safety.

The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the best
known today. Much of the interest in cryptocurrencies is to trade for profit, with speculators at
times driving prices skyward.

4.3.1 How does cryptocurrency work?

Cryptocurrencies run on a distributed public ledger called blockchain, a record of all
transactions updated and held by currency holders.Units of cryptocurrency are created through
a process called mining, which involves using computer power to solve complicated

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mathematical problems that generate coins. Users can also buy the currencies from brokers,
then store and spend them using cryptographic wallets.

If you own cryptocurrency, you don’t own anything tangible. What you own is a key
that allows you to move a record or a unit of measure from one person to another without a
trusted third party.

Although Bitcoin has been around since 2009, cryptocurrencies and applications of
blockchain technology are still emerging in financial terms, and more uses are expected in the
future. Transactions including bonds, stocks, and other financial assets could eventually be
traded using the technology.

4.3.2 Cryptocurrency examples

There are thousands of cryptocurrencies. Some of the best known include:

Bitcoin:

Bitcoin was built with a distributed digital record in mind called a blockchain.
Blockchain is a type of public ledger -- a digital system for recording transactions and related
data in multiple places at one time. Blocks in a blockchain are units that contain data about
every transaction, including the date, time, value, buyer and seller, and an identifying code for
each exchange. Bitcoin is stored in a digital wallet application on a computer or
smartphone. Cryptocurrency wallets is among one of the best ways to keep bitcoin secure.

There are also multiple types of wallets. Software wallets enable users to keep only a
small amount of bitcoin on a computer or mobile phone for everyday use, with the balance kept
in a separate offline wallet. This safeguards the majority of a user's bitcoin from malware trying
to intercept the password used to access a wallet.

Offline wallets are wallet software that is installed on a USB or a live CD rather than
on the internet, so it can be kept physically secure. Hardware wallets, another form of offline
wallet, are physical devices such as a flash drive that store a user's private keys. Even when
connected to another device, the private keys are never exposed, as signed transactions are
completed on the device. Multi-signature wallets require two or more private keys to authorize
transactions.

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This greatly decreases the chances of a wallet being accessed if lost or stolen. One key
is stored in a secure location as a backup, another is stored on the user's mobile device and a
third key can be stored with a multi-signature provider.

People can send bitcoin to others via bitcoin wallet-to-wallet transfer. Bitcoin can be
sent by initiating a transfer request from a bitcoin address in the customer's wallet to a bitcoin
address, or alphanumeric string, in the vendor's wallet. Senders can select the amount to transfer
either as bitcoin or in their local currency. Each bitcoin transaction is charged a small fee, which
is paid to a bitcoin miner. This fee can vary, depending on factors including how quickly the
bitcoin transaction needs to be confirmed.

Ethereum:

Vitalik Buterin, credited with conceiving Ethereum, published a white paper

introducing it in 2014. The Ethereum platform was launched in 2015 by Buterin and Joe
Lubin, founder of the blockchain software company Consensus.The founders of Ethereum
were among the first to consider the full potential of blockchain technology beyond just
enabling a secure virtual payment method. Since the launch of Ethereum, ether as a
cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is
outranked only by Bitcoin.

Ethereum is a decentralized global software platform powered by blockchain

technology. It is most known by investors for its native cryptocurrency, ether (ETH), and by
developers for its use in blockchain and decentralized finance application
development.Anyone can use Ethereum—it's designed to be scalable, programmable, secure,
and decentralized—to create any secured digital technology. Its token is designed to pay for
work done supporting the blockchain, but participants can also use it to pay for tangible goods
and services if accepted

Litecoin:

Litecoin (LTC) is a cryptocurrency created from a fork of the Bitcoin blockchain in

2011. It was initially designed to address the developer's concerns that Bitcoin was becoming
too centrally controlled and to make it more difficult for large-scale mining firms to gain the
upper hand in mining. While eventually unsuccessful in preventing enterprise miners from

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taking over the lion's share of Litecoin mining, the cryptocurrency has reworked itself into a
minable coin and a peer-to-peer payment system.

In 2011, Bitcoin was becoming more popular with enterprise-sized miners because of
its potential price appreciation. It appeared that businesses were going to take control of
mining because it was quickly becoming computationally unfeasible for individuals to
participate. To some, this looming centralization went against one of the original concepts
behind the cryptocurrency, that it would remain decentralized.

In a project led by Charlie Lee, a former Google engineer, Litecoin was released to the
public in 2011. Like Bitcoin, Litecoin is an open-source global payment network designed to
be decentralized. Lee referred to Litecoin as "the silver to Bitcoin's gold."1 This statement
inferred that Litecoin was not intended to act as a replacement for Bitcoin but rather
supplement it. Like silver, it would never be as valuable as gold, but it would still maintain a
place as a payment method and be used more.

Litecoin was designed to be inaccessible to the growing network of application-specific

integrated circuit (ASIC) miners who were beginning to dominate cryptocurrency mining. By
implementing a different hashing algorithm that required more memory than processing
power, it was believed that profit-minded miners would be discouraged from attempting to
centralize the cryptocurrency's network. However, its ASIC-resistant setup didn't last long:
the world's first Litecoin ASIC miners were released in 2014.

Ripple:

Ripple was first founded back in 2004 as Ripple Pay in Vancouver, Canada by Ryan
Fugger as a way of securely moving money around the world. In 2012, Fugger sold the
company to Jed McCaleb, Arthur Britto, and David Schwartz, who transformed the company
into a digital currency network and renamed it Open Coin. McCaleb, who was the former
founder of failed cryptocurrency exchange, Mt. Gox, left the company and forked Ripple into
Stellar in 2013.The company was renamed Ripple Labs in 2013 and, in 2015, was finally
shortened to just “Ripple.”

Ripple is a blockchain-based digital payment network and protocol that uses its
own cryptocurrency, XRP. Ripple's main focus is as a payment settlement asset exchange and

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remittance system, similar to the SWIFT system for international money and security transfers
used by banks and financial intermediaries dealing across currencies.

The token used for the cryptocurrency is premised and uses the ticker symbol XRP. Ripple is
the name of the company and the network, and XRP is the cryptocurrency token. The purpose
of XRP is to serve as an intermediate mechanism of exchange between two currencies or
networks—as a sort of temporary settlement layer denomination. Ripple was first released in
2012 and was co-founded by Chris Larsen and Jed McCaleb.

Dogecoin:

Dogecoin (DOGE) is a peer-to-peer, open-source cryptocurrency. It is considered an

altcoin and was launched in December 2013 with the image of a Shiba Inu dog as its logo.
Dogecoin's blockchain has merit with its underlying technology derived from Litecoin.
Notable features of Dogecoin—which uses the Crypt algorithm (pronounced ess-crypt)—are
its low price and unlimited supply.

Jackson Palmer, a product manager at the Sydney, Australia, office of Adobe Inc.,
created Dogecoin with Billy Markus, a software developer at IBM. The intent behind the
cryptocurrency was to be a way to satirize the hype surrounding cryptocurrencies.1

2013–2014

Palmer and Markus launched the coin on Dec. 6, 2013. By Dec. 19, the value of
Dogecoin jumped 300%, bolstered by China's policy to forbid its banks from investing in
cryptocurrency. Markus and Palmer based Dogecoin's code on Lucky coin, derived from
Litecoin (a Bitcoin fork). Initially, they used a randomized block mining reward, but that was
changed to a static reward in March 2014. Dogecoin uses Litecoin's Scrypt technology and
uses proof-of-work (PoW) on its blockchain.2

2015–2023

In the summer of 2019, Dogecoin enthusiasts celebrated when the crypto

exchange Biance listed the coin.3 As of December 2023, Dogecoin's market capitalization
was nearly $13.1 billion.4 Dogecoin's infrastructure is slowly gaining traction with fans and
developers and continues to operate and trade due to its active community of miners.

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CONCLUSION

Blockchain technology is a sophisticated, interesting, and emerging technology. It

provides a reliable way of confirming the party submitting a record to the blockchain, the time
and date of its submission, and the contents of the record at the time of submission, eliminating
the need for third-party intermediaries in certain situations. However, it is important to consider
that blockchain technology does not verify or address the reliability or the accuracy of the
contents, and additionally blockchain technology provides no storage for records, but instead
the hashes thereof.

Regarding economic advantages to legal recognition of blockchain technology,

Vermont is currently a hospitable environment for commerce related to blockchain technology
even though the State has not recognized this technology in statute at this time. The study
committee has not identified any specific legal or practical benefits from the legislation set
forth in Appendix B. However, the group has also not identified any risk inherent in blockchain
technology that would warrant withholding the recognition of validity set forth in the
legislation. While the committee does not doubt that blockchain technology and the industry
forming around it demonstrate significant economic activity and interest, it is unclear what
steps Vermont could take to lure any of that activity to the state.

Blockchain technology is already in use in the private sector, though clearly in the early
stages of adoption, the most prevalent example being virtual currency known as Bitcoin.
Further study is required before considering it for the regular business of the State, and
moreover, any application would certainly need to support rather than replace the existing
records management infrastructure. It is the belief of the study committee that the benefits of
adoption of blockchain technology by state agencies is, at this time, not outweighed by the
costs and challenges of such implementation.

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