BLOCKCHAIN

SEMINAR REPORT

Submitted By: Seminar Co-ordinator:

ABHISHEK BARANWAL Mrs. SAROJ SINGH
Roll No. :1550810001 (ASSOCIATE PROFESSOR)

DEPARTMENT OF COMPUTER SCIENCE AND ENGINEERING

BABU BANARASI DAS ENGINEERING COLLEGE

Dr. A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY, LUCKNOW

SESSION: 2017-2018
 BABU BANARASI DAS ENGINEERING COLLEGE
CONSTITUENT COLLEGE OF

Dr. A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY LUCKNOW

DEPARTMENT OF COMPUTER SCIENCE AND ENGINEERING

CERTIFICATE

This is to certify that this seminar entitled

Blockchain
was presented by:

ABHISHEK BARANWAL

during the year 2017-2018 as a part of curriculum and was found satisfactory.

Mrs. SAROJ SINGH Prof. (Dr.) AVINASH GUPTA

Associate Prof. HOD (CSE)

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 ACKNOWLEDGEMENT

I express my profound gratitude to Professor (Dr.) Avinash Gupta (HOD),

Mrs. Saroj Singh (Associate Prof.) Dept. of Computer Science and Engineering for the
valuable help and guidance in the preparation of this report on “Blockchain”.
I would like to extend my sincere thanks to all Lab Assistants and all other staff members of
B.Tech, Computer Science and Engineering and Information Technology Department.
Finally. I would also wish to record my gratefulness to all my friends and classmates for their
help.

ABHISHEK BARANWAL

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 TABLE OF CONTENTS
S.NO. TOPICS PAGE NO.
1. CHAPTER-1 INTRODUCTION TO BLOCKCHAIN 8-12
1.1 Blockchain: Introduction 8
1.2 Bitcoin 10
1.2.1 Short history 10
1.2.2 Overview & Key Technology 11
2. CHAPTER-2 FUNCTIONING OF BLOCKCHAIN 13-18
2.1 Working of Blockchain 13
2.2 Blockchain Consensus mechanism 16
2.3 Blockchain Protocols 17
2.3.1 Proof of work 17
2.3.2 Proof of Stake 18
3. CHAPTER-3 BLOCKCHAIN TYPES & BENEFITS 19-21
3.1 Types of Blockchain 19
3.1.1 Public vs Private Access 19
3.1.2 Transparent vs Non-Transparent data 19
3.1.3 Mutable vs Immutable data 20
3.2 Benefits of Blockchain 20
3.2.1 Removal of transaction intermediaries 20
3.2.2 Reduced Transaction Time 20
3.2.3 Reduced Record-keeping Cost 21
3.2.4 Reduced risk of fraud & information 21
leakage

3.2.5 Elimination of Single point of failure 21

4. CHAPTER-4 APPLICATIONS OF BLOCKCHAIN 22-28

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 4.1 Global Transfer of Assets 22
4.2 Improving, clearing, settlement & 22
Record keeping process
4.3 Enabling smart financial contracts 22
4.4 Making a payment 23
4.5 Mining 23
4.6 Dapps-Applications deployed on a 24
Blockchain
4.7 Social inclusion 24
4.8 Private data storage 24
4.9 Reputation Management 25
4.10 Banking 25
4.11 Finance-Payroll & settlement 26
4.12 Blockchain For Public sectors 27
4.12.1 Taxation 27
4.12.2 Healthcare 27
4.12.3 Voting 28
4.12.4 Insurance 28
4.12.5 Smart Cities 28
5. CHAPTER-5 CONCLUSION 29
6. REFERENCE 30

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 LIST OF FIGURES

S.NO. DESCRIPTION PAGE NO

1 Figure 1.1 Blockchain with connected blocks 8

2 Figure 1.2 Bitcoin symbol 11
3 Figure 2.1 Traditional online financial 13
transaction using 3rd party system

4 Figure 2.2 Financial transaction using 14

blockchain
5 Figure 2.3 Underlying concepts of blockchain 15
6 Figure 4.1 Composition of use cases of 26
blockchain initiatives

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 ABSTRACT

A blockchain is essentially a distributed database of records or public ledger of all transactions or

digital events that have been executed and shared among participating parties. Each transaction
in the public ledger is verified by consensus of a majority of the participants in the system. And,
once entered, information can never be erased. The blockchain contains a certain and verifiable
record of every single transaction ever made. To use a basic analogy, it is easy to steal a cookie
from a cookie jar, kept in a secluded place than stealing the cookie from a cookie jar kept in a
market place, being observed by thousands of people. Bitcoin is the most popular example that is
intrinsically tied to blockchain technology. It is also the most controversial one since it helps to
enable a multibillion-dollar global market of anonymous transactions without any governmental
control. Hence it has to deal with a number of regulatory issues involving national governments
and financial institutions. However, Blockchain technology itself is non-controversial and has
worked flawlessly over the years and is being successfully applied to both financial and non-
financial world applications. Last year, Marc Andreessen, the doyen of Silicon Valley’s
capitalists, listed the blockchain distributed consensus modelas the most important invention
since the Internet itself. Johann Palychata from BNP Paribas wrote in the Quintessence magazine
that bitcoin’s blockchain, the software that allows the digital currency to function should be
considered as an invention like the steam or combustion engine that has the potential to
transform the world of finance and beyond.

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 CHAPTER-1
INTRODUCTION TO BLOCKCHAIN

Blockchain is still an emerging technology, so it is hard to understand how it works

without looking into the code or getting deep into computer science concepts. This chapter
gives information about Blockchain.

Figure 1.1 Blockchain with connected blocks

1.1 Blockchain: Introduction

A blockchain is distributed database, shared by all nodes in the blockchain network. In

practical terms, this means that all nodes run on the same software, have a local copy of
the whole database, and constantly talk to each other to propagate data and validate it.

The Bitcoin blockchain is the most popular public blockchain network, with around 10K
nodes (although these numbers vary wildly on a daily basis). Many cryptocurrencies are
built on top of it, with the most popular being Bitcoin. As a comparison, the Ethereum
blockchain has been growing to around 7K nodes.

Bitcoin is the most popular example that is intrinsically tied to blockchain technology. It is also
the most controversial one since it helps to enable a multibillion-dollar global market of
anonymous transactions without any governmental control. Hence it has to deal with a number of
regulatory issues involving national governments and financial institutions. However, Blockchain

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technology itself is non-controversial and has worked flawlessly over the years and is being
successfully applied to both financial and non-financial world applications. Last year, Marc
Andreessen, the doyen of Silicon Valley’s capitalists, listed the blockchain distributed consensus
modelas the most important invention since the Internet itself. Johann Palychata from BNP
Paribas wrote in the Quintessence magazine that bitcoin’s blockchain, the software that allows the
digital currency to function should be considered as an invention like the steam or combustion
engine that has the potential to transform the world of finance and beyond.

Current digital economy is based on the reliance on a certain trusted authority. Our all online
transactions rely on trusting someone to tell us the truth—it can be an email service provider
telling us that our email has been delivered; it can be a certification authority telling us that a
certain digital certificate is trustworthy; or it can be a social network such as Facebook telling us
that our posts regarding our life events have been shared only with our friends or it can be a bank
telling us that our money has been delivered reliably to our dear ones in a remote country. The
fact is that we live our life precariously in the digital world by relying on a third entity for the
security and privacy of our digital assets. The fact remains that these third-party sources can be
hacked, manipulated or compromised. This is where the blockchain technology comes handy. It
has the potential to revolutionize the digital world by enabling a distributed consensuswhere each
and every online transaction, past and present, involving digital assets can be verified at any time
in the future. It does this without compromising the privacy of the digital assets and parties
involved. The distributed consensusand anonymityare two important characteristics of
blockchain technology.

The advantages of Blockchain technology outweigh the regulatory issues and technical
challenges. One key emerging use case of blockchain technology involves “smart contracts”.
Smart contracts are basically computer programs that can automatically execute the terms of a
contract. When a pre-configured condition in a smart contract among participating entities is met
then the parties involved in a contractual agreement can be automatically made payments as per
the contract in a transparent manner.

Smart Property is another related concept which is regarding controlling the ownership of a
property or asset via blockchain using Smart Contracts. The property can be physical such as car,
house, smartphone etc. or it can be non-physical such as shares of a company. It should be noted

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here that even Bitcoin is not really a currency- Bitcoin is all about controlling the ownership of
money. Blockchain technology is finding applications in wide range of areas—both financialand
non-financial.

Financial institutions and banks no longer see blockchain technology as threat to traditional
business models. The world’s biggest banks are in fact looking for opportunities in this area by
doing research on innovative blockchain applications. In a recent interview Rain Lohmus of
Estonia’s LHV bank told that they found Blockchain to be the most tested and secure for some
banking and finance related applications. Non-Financialapplications opportunities are also
endless. We can envision putting proof of existence of all legal documents, health records, and
loyalty payments in the music industry, notary, private securities and marriage licenses in the
blockchain. By storing the fingerprint of the digital asset instead of storing the digital asset itself,
the anonymity or privacy objective can be achieved.

1.2 Bitcoin

1.2.1 Short History

In year 2008, an individual or group writing under the name of Satoshi Nakamoto published a
paper entitled “Bitcoin: A Peer-To-Peer Electronic Cash System”. This paper described a peer-
to-peer version of the electronic cash that would allow online payments to be sent directly from
one party to another without going through a financial institution. Bitcoin was the first
realization of this concept. Now word cryptocurrencies is the label that is used to describe all
networks and mediums of exchange that uses cryptography to secure transactions-as against
those systems where the transactions are channeled through a centralized trusted entity. The
author of the first paper wanted to remain anonymous and hence no one knows Satoshi
Nakamoto to this day. A few months later, an open source program implementing the new
protocol was released that began with the Genesis block of 50 coins. Anyone can install this
open source program and become part of the bitcoin peer-to-peer network. It has grown in
popularity since then.

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 Figure 1.2 Bitcoin symbol

– 2008

• August 18 Domain name "bitcoin.org" registered

• October 31 Bitcoin design paper published

• November 09 Bitcoin project registered at SourceForge.net

– 2009

• January 3 Genesis block established at 18:15:05 GMT

• January 9 Bitcoin v0.1 released and announced on the cryptography mailing list

• January 12 First Bitcoin transaction, in block 170 from Satoshi to Hal Finney

1.3.2 Overview and key technology

The main parties in the Bitcoin protocol are:

• Sender: the one who initiates the transfer of currency.

• Receiver: the recipient of the transfer

• Miners: Independent nodes which verify and confirm the transactions, also sometimes called
as workers. The security of the system is guaranteed by these nodes.

• Blockchain: Decentralized ledger shared among all miners where all transactions are stored
(the complete history since the Bitcoin creation).

The system has following characteristics:

• Decentralized: The work is done by miners which are located around the world. Moreover, any
individual who possesses a device capable of performing computation can participate.

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• Pseudo-Anonymous: Users are identified via public keys in the system and there is no way to
know to whom the public key belongs unless it is made public by the owner of the key.

As mentioned above the public-key cryptography is used to identify and verify the users, that is
for signing the transactions. Also, cryptographic hash functions play a crucial role. Their unique
properties of one-wayness (there is no way of knowing what is the string that produced a given
hash) and collision resistance (it is highly improbable to find two messages m1 and m2 which
have the same hash or for a given m1 to find m2 with the same hash value) are used in the so-
called proof of work concept. More about this concept in subsequent sections. The last part are
digital timestamps, which can be issued by the 3rd party to specify the time when a transaction is
included in the block.

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 CHAPTER-2

FUNCTIONING OF BLOCKCHAIN

2.1 Working of Blockchain

We explain the concept of the blockchain by explaining how Bitcoin works since it is
intrinsically linked to the Bitcoin. However, the blockchain technology is applicable to any
digital asset transaction exchanged online.

Figure 2.1 Traditional online financial transactions using third trusted party (Banks ,
PayPal, etc.)

Internet commerce is exclusively tied to the financial institutions serving as the trusted third
party who process and mediate any electronic transaction. The role of trusted third party is to
validate, safeguard and preserve transactions. A certain percentage of fraud is unavoidable in
online transactions and that needs mediation by financial transactions. This results in high
transaction costs.
Bitcoin uses cryptographic proof instead of the trust in the third party for two willing parties to
execute an online transaction over the Internet. Each transaction is protected through a digital
signature. Each transaction is sent to the “public key” of the receiver digitally signed using the
“private key” of the sender. In order to spend money, owner of the cryptocurrency needs to prove
the ownership of the “private key”. The entity receiving the digital currency verifies the digital

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signature –thus ownership of corresponding “private key”--on the transaction using the “public
key” of the sender.
Each transaction is broadcast to every node in the Bitcoin network and is then recorded in a
public ledger after verification. Every single transaction needs to be verified for validity before it
is recorded in the public ledger. Verifying node needs to ensure two things before recording any
transaction:
1. Spender owns the cryptocurrency—digital signature verification on the transaction.
2. Spender has sufficient cryptocurrency in his/her account: checking every transaction
against spender’s account (“public key”) in the ledger to make sure that he/she has sufficient
balance in his/her account.

Figure 2.2 Financial Transactions using the Blockchain technology

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Blockchain encompasses three core concepts: shared ledger, cryptography, and consensus.

• Shared Ledger: Blockchain is a distributed ledger that is either open to the public (for
public blockchain) or shared among private consortium (for private blockchain). It often
layers on permissions for different types of users who have access to different levels of
information stored on the blockchain. The fact that the ledger is shared allows several
parties to access the same data, eliminating the need for data reconciliation.
• Cryptography: Blockchain employs cryptography to create a secured and immutable
data structure. When each block of data is created, it is identified by its cryptographic
hash, which is a value that is encoded through a hash function and still refers to the
original data. This hash refers to the previous block of data―called the “parent block” by
including the parent block’s hash in its own hash value. If the data in the parent block is
modified, it will also change the hash values in the subsequent blocks. This means that
the network must re-perform the consensus mechanism to re-verify all the transactions in
the sequence. Any efforts to manipulate the data therefore will likely fail unless such
efforts are blessed by the entire network. This feature establishes security and integrity of
the data stored on blockchain.
• Consensus: Whereas traditional record-keeping systems depend on trusted
intermediaries to verify transactions, blockchain utilizes the power of the network to
achieve data integrity. Each transaction that is added to a blockchain must be verified by
participants in the network who would arrive at the same consensus on the data by
sharing information among each other.

Figure 2.3 Underlying Concepts of Blockchain

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2.2 Blockchain Consensus Mechanisms

Blockchain technology creates a decentralized data structure by using a “consensus mechanism.”

A consensus mechanism is a process by which network participants work together, sometimes in
a competitive fashion, to verify the integrity of the data on the network. There are several
protocols to perform this process, among which the proof-of-work and the proof-of-stake
protocols are the best-known ones. To understand how they work, consider Bitcoin’s proof-of-
work process. When a new Bitcoin transaction occurs, miners―which are certain participants on
the network―compete to add that new transaction to the next block in the blockchain by racing
to solve a difficult cryptographic puzzle. The first to solve the puzzle wins, and after other nodes
on the network have checked and confirmed that solution (which is easy to do), the winner
receives new Bitcoins as compensation, and the new block of data is added to the blockchain and
redistributed throughout the network. This protocol essentially does two things: (1) it ensures
that the next block of data being added to the blockchain is the one and only version, and (2) it
prevents mischievous efforts to manipulate the data and fork the chain. Although a proof-of-
work mechanism is a powerful concept, it also carries some flaws. The main flaw is that it
requires enormous amount of computational energy and therefore does not scale well. Thus,
innovators have sought to improve upon this process. For instance, a distributed ledger
technology company Ripple devised a consensus mechanism in which various nodes in the
network perform different functions in the transaction verification process (in other words, not
all network participants participate as miners to verify each transaction). Moreover, only 70%
(rather than all) of the miners participate in approving a new transaction. Ripple argues that this
process is sufficient to ensure the integrity of the data, particularly among trusted participants,
while improving performance.

Furthermore, other ideas have also emerged as alternatives to provide the consensus mechanism.
For instance, a proof-of-stake concept works by allowing validators (rather than miners) on the
network to validate transactions. These validators are owners of coins in the system, and they
take turns validating transactions in exchange for transaction fees, with validation frequency
depending on how many coins each validator owns. To discourage validators from creating two
blocks simultaneously and thereby forking the chain, the system creates an enforcement
procedure, for instance, by requiring validators to lock their coins in a virtual vault, which will

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be forfeited if these validators behave badly. Ethereum is an example of a blockchain
architecture that plans to move from the proof-of-work to the proof-of-stake protocol in early
2018. Other alternatives also include proof-of-activity (which combine both proof-of-work and
proof-of-stake), proof-of-burn (in which network participants spend their coins to increase their
chance of being selected as miners), proof-of-capacity (in which participants contribute their
storage space to increase their chance of being selected as miners), proof-of-storage and proof-
of-space (which are derivatives of proof-of-capacity), and proof-of-elapsed-time (which relies on
an algorithm running in a specific trusted execution environment). As the technology continues
to evolve, we will likely see more consensus mechanisms designed for specific purposes and
constraints.

2.3 Blockchain Protocols

Blockchain eliminates the need for third party to conduct transactions on one’s behalf. This
implies that the consensus mechanism has to exist in the network itself. How a given blockchain
network implements its consensus mechanism, determines the strength of the network. A
foolproof consensus mechanism, suitable for purpose (of the blockchain in question) is essential
to maintain sanity and coherence of data among the participating nodes of the network. The
consensus mechanisms of blockchain aim to eliminate mainly two known problems with digital
currency - Remove the problem of double spend and Eliminate Byzantine Generals problem.
While much work has been done on blockchain protocols, there are some key algorithms
explained in brief here whose variations are being used and further developed to suit various
applications of blockchain. Cachin et al. have explained blockchain consensus mechanism and
various consensus algorithms in their research paper.

2.3.1 Proof of Work(PoW)

PoW protocol requires all nodes on the network to solve cryptographic puzzles by brute force.
For example, in case of Bitcoin blockchain, the new transactions are tentatively committed and
then based on the PoW output, a selected block created by the winning node is broadcast to all
the nodes, at specific synchronization intervals. Once the block is transmitted using peer to peer
communication to all other nodes, the same is included in the blockchain and any tentative
transactions are rolled back [10]. By rule of probability, the consensus is achieved as 51% of

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power rather than 51% of people count. Effectively the computing power used by all other nodes
except the winning node, is wasted.

2.3.2 Proof of Stake

Proof of stake protocol of block verification does not rely on excessive computations. It has been
implemented for Ethereum and certain altcoins. Instead of splitting blocks across proportionally
to the relative hash rates of miners (i.e. their mining power), proof-of-stake protocols split stake
blocks proportionally to the current wealth of miners. The idea behind Proof of Stake is that it
may be more difficult for miners to acquire sufficiently large amount of digital currency than to
acquire sufficiently powerful computing equipment. It is also an energy saving alternative. A
variation of POS is the Delegated Proof of Stake (DPOS) algorithm. Delegated proof of stake
(DPOS) is similar to POS, as miners get their priority to generate the blocks according to their
stake. The major difference between POS and DPOS is that POS is a direct democratic while
DPOS is representative democratic. Stakeholders elect their delegates to generate and validate a
block. With significantly fewer nodes to validate the block, the block could be confirmed
quickly, making the transactions confirmed quickly. Meanwhile, the parameters of the network
such as block size and block intervals could be tuned by the delegates.

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 CHAPTER-3

BLOCKCHAIN TYPES & BENEFITS

3.1 Types of Blockchain

Blockchain can be implemented in various ways. In making appropriate design choices,

developers and users of the technology select along these three dimensions: (1) public vs. private
access, (2) transparent vs. nontransparent data, and (3) mutable vs. immutable data.

3.1.1. Public vs. Private Access

As the names suggest, public blockchains (also called “permission-less blockchain”) and private
blockchains (also called “permissioned blockchain”) differ in the levels of permission required
for participants to access and modify the data. Public blockchains grant read and write access to
all users who wish to join the network, while private blockchains only allow permitted parties to
join. The choice between public versus private blockchains lies in the trade-off between access
and control. While public blockchains allow for broader access, they are harder to control for
privacy and harder to apply in a specialized fashion. Private blockchains on, the other hand,
could be designed for specific purposes, thereby enhancing efficiency, but they also limit access,
turning permitted parties on the network into intermediaries for those outside the network.

3.1.2 Transparent vs. Non-transparent Data

While all the data on blockchain is encrypted, blockchain can still be designed for different
levels of transparency and degrees of privacy. Some blockchains—such as Bitcoin—are
designed so that one can still identify the parties engaging in transactions through pseudonyms.
In certain instances, one can then use network analysis to decipher the pseudonyms and reveal
the actual identities of the parties engaging in transactions. On the other hand, other
blockchains—such as Z-cash—allow parties to engage in transactions with “zero-knowledge
security,” which means that the identities of the parties and the nature of the transactions are
completely concealed.

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3.1.3 Mutable vs. Immutable Data

Blockchain databases could be designed such that existing records on the blockchain are either
modifiable or permanent. For example, Bitcoin is an “immutable” blockchain, and once a
transaction has been committed, it cannot be reversed or changed. In other words, one can only
append new transactions to the Bitcoin blockchain. However, other blockchains―such as
Accenture’s blockchain―allow modifications of existing data, which must still be approved in a
consensus process. Hence, an immutable blockchain offers more security given its data rigidity,
while a mutable blockchain offers more efficiency instead.

3.2 Benefits of Blockchain

Blockchain has the potential to revolutionize various industries based on several benefits that the
technology has to offer, including:

3.2.1 Removal of transaction intermediaries

The most unique benefit of blockchain is its ability to facilitate secure, de-centralized
transactions among unrelated parties without going through intermediaries. For instance,
blockchain can facilitate a transfer of money between parties that bypasses banks, or a purchase
of financial securities that bypasses brokers. This has the effect of reducing transaction costs and
expanding the system’s reach. For instance, customers can use a blockchain-based system to
transfer money between each other cheaply relative to using money transfer networks (such as
Western Union) or banks (which may not be accessible to the “unbanked”).

3.2.2 Reduced transaction time

Blockchain can reduce transaction time, particularly for clearing and settlements. Consider the
current financial system: while trading of stocks and bonds is often conducted in nanoseconds,
settlements still take days or even weeks. The delay lies in the time it takes for both parties to
reconcile and confirm their transactions. Blockchain could eliminate these lags since the
transaction is conducted on a shared ledger visible to both counterparties, undoing the need for
transaction reconciliation. As it stands today, Bitcoin transactions can be settled within minutes.

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3.2.3 Reduced record-keeping costs
Blockchain reduces record-keeping costs by eliminating the need for reconciliation process and
the risks of a “double-spending.” Since participants in a blockchain network share the same
distributed ledger and since transactions occur practically in real-time, there is no need to
reconcile records among counterparties, and these parties also need not worry that their
counterparties will engage in multiple transactions using the same assets. Blockchain can also
enhance the auditing process and facilitate contract compliances with the use of smart contracts.

3.2.4 Reduced risk of fraud and information leakage

Because blockchain database is encrypted and immutable, writing and accessing data require a
“public key” and a “private key” which help ensure data security. More importantly, any changes
to the data requires verification by participants in the network, making any attempts to
manipulate the data on a blockchain virtually impossible. This makes blockchain fraud-proof,
unlike the existing system where anyone that can hack into the database of centralized
intermediaries can alter records. As an example, the Bangladesh Central Bank lost $100 million
after its network was hacked in March 2016.

3.2.5 Elimination of single point of failure

Because blockchain reduces the role of intermediaries, relying instead on the network of
participants, it eliminates potential risks of failure at intermediary nodes, either due to mass
demand, security attack, or other technical glitches. If some nodes on the blockchain network
fail, other nodes can still maintain the records of and verify all the transactions on the network.
This enhance the overall stability and security of the system.

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 CHAPTER -4

APPLICATIONS OF BLOCKCHAIN

Blockchain provides several potential use-cases within the financial sector, ranging from
facilitating payments to enforcing financial contracts. Exhibit 6 lists potential use-cases of
blockchain and DLT, as compiled by the Blockchain Working Group at the World Economic
Forum in 2016. These use-cases can be grouped into three categories as follows:

4.1 Facilitating Global Transfers of Assets

Blockchain improves upon the existing mechanisms to transfer assets by allowing transactions to
take place directly between parties without going through banks or transfer agents. This has the
potential to reduce cost, increase speed, and enhance security. Currently, several banks―such as
Citi, Bank of America, and Barclays ―are exploring methods to use blockchain to enable
transfers of money among themselves or with customers in a more expedited manner.

4.2 Improving Clearing, Settlement, and Record-Keeping Processes

Using a shared ledger, blockchain can assure the integrity and uniformity of data by allowing
parties to overcome the risks of “double-booking,” whereby a particular asset is transfer to two
different parties at the same time. This can improve clearing and settlement processes by
eliminating the need to reconcile records. Today, brokerages and exchanges are working on
improving slow clearing and settlement processes for certain assets, such as private shares and
commodities. In fact, it is estimated that blockchain could deliver cost savings of nearly $20
billion per year by 2022 by eliminating the manual processes of reconciliation with customers,
trading partners, and exchanges.

4.3 Enabling Smart Financial Contracts

Blockchain enables automation of transactions, as business terms can be recorded in computer
language embedded in blockchain databases. As a result, transaction terms and events can be
executed automatically without engagement with accountants and lawyers. For instance, a loan
default can automatically trigger a process specified in the default clause of the contract. This

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reduces contracting, enforcement and compliance costs and increase efficiency, although it may
also raise concerns regarding bypassing of a dispute settlement process and due-process rights.

4.4. Making a payment

An end user installs a wallet application and generates an account and an address to interact with
the blockchain. He initially pays using a traditional payment method to receive his first coins at
that address. Once these are received, he can create his own payment transactions from the
wallet. Such a transaction contains data and code. The data identifies payer, payee and amount.
The code defines in a script language how to unlock the value the payer wants to transfer to the
payee, and how to lock the value subsequently to the payee. Performing the transaction requires
interaction with a full function node to execute the script code. Upon successful execution, the
transaction output is broadcast to peer nodes, which relay the output to further peers.

4.5 Mining
Upon reception, nodes insert the transaction output they received in the payload of their new
candidate block. In the payload there is room for this output, and there are two reserved
locations. One location is reserved to be filled in by the nonce, the other one can be filled by a
value that represents the creation and allocation of a benefit. All full function nodes insert the
benefit value of their choice (typically a transaction that makes a payment to them self) and start
‘mining’, i.e. searching the nonce that when combined with the rest of the information, yields a
valid hash value. This searching is also referred to as the proof-of-work. The first node to find a
hash value that meets the specified condition broadcasts the newly completed block to all other
nodes, to verify it. This new block contains the benefit value for the miner that was the first to
successfully find the required nonce. If this new block is successfully verified by the network,
the originating miner sees his efforts rewarded by the benefit and the results included in the
payload of the new block are available in all full function nodes. The successful miner created
value for itself, which can be used in future transactions. A competing miner may broadcast his
block just after the first miner, and also link his block to the blockchain. However, the nodes will
notice the time difference and his block will become an orphan block. Partial nodes do not mine,
and may store the entire blockchain, or only parts thereof, i.e. those blocks that contain
transactions relevant to them. Partial nodes can interact with end users, but they are dependent

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upon full function nodes to commit transactions to the blockchain. A wallet can be implemented
on a mobile devices as partial node, maintaining only information about the coins its owner can
spend. The mobile device would not have to store the full blockchain but would still be able to
offer wallet functionality to its user. Making or receiving payments would however require the
wallet on the partial node to interact with a full function node.

4.6 Dapps - applications deployed on a blockchain

Applications built on blockchain are called dapps (distributed applications). As a blockchain is
essentially a public ledger of transactions it can be used to develop cryptocurrencies and
distributed applications where ordering of transactions is important. This includes trading in
financial instruments, records of almost any type (loans, mortgages, land titles, business
registries, ...), contracts, signatures, wills, degrees, certifications, patents, trademarks, licences,
proof of authorship and related. Permissioned blockchains are attractive for the regulated
industries, where the nodes need to comply with the regulatory rules. In September 2016, there
were 299 dapps based on Ethereum in various states of maturity available. They cover green
energy consumption tokens, lotteries, digital asset management, and many more topics.

4.7 Social Inclusion

As internet has become an accessible global platform to bring the world together, thanks to the
mobility revolution, it is possible for the people in remotest parts of the world to access internet
resources across the world. Cryptocurrencies enable people with no access to physical banks to
perform global transactions with others across the world. As sited by Pilkington , thanks to
Bitcoin, sellers like Indian handicraft work artisans have now found a global marketplace to sell
their work. This takes away the hassle of fiat foreign currency availability and conversion.
Bitcoins are an easily accessible, usable global cryptocurrency which provides value for their
work.

4.8 Private Data Storage

A generic extension of blockchain transactions to transfer stuff other than cryptocurrency is
suggested by Zyskind et al. In their proposed system, the transactions are used to carry
instructions for storing, queuing and sharing data. With increased number of mobile applications

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seeking complete access to user data such as contacts, messages, photos and a variety of other
personal data, Zyskind et al. have provided the implementation architecture of a system which
uses blockchain along with an offline storage mechanism in order to manage permissions
explicitly for each line item, rather than giving complete access permission indefinitely. Offline
storage such as Level DB or any cloud storage can be used to limit the amount of data stored in
the blockchain. This could however result in a limited third-party dependency but makes the
solution more scalable. Organizations may choose technology upgrade to adopt a more reliable
data privacy solution, for their data.

4.9 Reputation Management

A successful implementation of reputation management can be found in Accenture’s Akshaya
Patra Midday Meal Program Management project. This project used a private blockchain
implementation to gather real time, direct feedback from schools that is not manipulated by
intermediaries. Thus, blockchain has provided the required transparency to the meal chain, to
help in audits and invoicing. This has also saved the manual effort of collecting, collating and
transmitting the feedback.

4.10 Banking
The impact of blockchain as a technology was first felt by the banking and trading sector. So
much so that Bitcoin and its underlying technology, the blockchain, were initially seen as the
biggest threat to banking businesses worldwide. However, in past few years it has been seen that
banks have deep dived to make this technology work for them in a favorable manner and are
experimenting various ways to use blockchain in their business. Some experts however still do
believe that blockchain will lead to the end of several long-standing businesses and professions.
Typical banking processes like approval of a loan or derivative is a time-consuming process due
to multiple back end steps involving contract negotiations with multiple parties. Blockchain
provides the necessary transparency and speed via smart contracts, to this requirement. Multiple
banks are already experimenting Blockchain-as-a-Service offering from technology companies
such as R3, IBM and Microsoft. The potential role of blockchain in banking is dealt with in great
detail in . Panayi et al. discuss automation of various niche aspects of banking like client account

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reconciliations, data loss reporting, Over the Contracts (OTC) contracts/products and clearing
settlement, cash management by government, etc.

4.11 Finance – Payroll and Settlement

Public service transactions may be as trivial as buying a train ticket or more complex ones such
as marriage registration, property buy and sell, patent management, etc. Typically, public service
transactions require a series of actions to validate the authenticity of the transacting party (or
parties), verification of the data provided by the transacting party (or parties), conduct the
required transaction and finally provision of the required service followed by recording of the
end to end transaction. This translates into significant turnaround time for the transacting parties.
A digital blockchain ledger can reduce this turnaround time to minimum as the most important
asset ownership validation and verification is performed taking advantage of the intrinsic nature
of the blockchain. Sestoft proposes a distributed system – Autonomous Pension Fund that would
be a self-sustaining running autonomous contract-based system to manage life-based pension
funds without a central trusted pension fund. Since a large number of activities related to life-
based pension such as receiving payments from active customers, making payments to
beneficiaries and payments of taxes on pensions are mainly processing of contract regulated
payments, that they can be executed using Self Executing Contracts and a cryptocurrency.

Figure 4.1 Composition of use cases of Blockchain initiatives

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4.12 Blockchain for Public Services

4.12.1 Taxation
Taxation is one area where blockchain can potentially make a big contribution. The report relates
the key attributes of blockchain namely provenance, transparency and traceability to the exact
needs of a modern taxation system. A huge advantage of cutting on administrative cost can result
from the use of blockchain especially in transaction taxes such as VAT, withholding Tax, stamp
duties, etc. In a sharing economy, blockchain could be used to achieve compliance and
transparency for tax payments, thus shifting the responsibility of collecting tax from tax
authorities to participants of the sharing economy. In countries like India which are moving
towards uniform taxation via GST (Goods and Services Tax), blockchain can help in tracking the
end-to-end collection and expenditure of taxes by the government. While the tax provenance
aspect is very important and so also is the utilization of tax earnings. The biggest challenge
however, in this would be to achieve digitization of currently non-digital sellers who rely on
paper records rather than digital ones. Pilots in this area in various countries are likely to be seen
in future.

4.12.2 Healthcare
Over the past decade, healthcare is turning increasingly digital with more and more doctors,
hospitals, healthcare machineries going digital to store their patient records. Digitization of
medical data enables easy retrieval, sharing on need basis for better decision making based on
historic cases and is also very crucial for legal purpose record keeping. However, medical data
digitization also exposes it to a bigger risk of patient privacy violation. A blockchain based
Healthcare Data Gateway (HDG) is proposed by Yue et al. They propose the use of a private
blockchain cloud to guarantee that the medical data cannot be changed by anybody including the
patient himself and/or the physicians. Medical data is diverse in kind, i.e. it could be numeric,
textual, image data (scans, x-rays, photos, etc.), video data (transcripts, recordings, etc.), etc. To
remove the complexity of storing varied data types Yue et al. propose an Indicator Centric
Schema (ICS) based data model. In this model, a single table shall be used to organize all data
for a given patient and would include simple relevant fields like timestamp, indicator, type, value
and category. The ICS also can be extended to include a Purpose Centric Access Control model

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which would include say requestor, indicator, timestamp, purpose and retention duration. Such a
model is extensible for use in other similar applications of blockchains where data of different
types needs to be stored. A segregation of frequent and infrequently accessed data into separate
blocks of the blockchain may also be done. Xia et al. have also proposed a blockchain based
system MeDShare, for sharing medical data among cloud service providers. MeDShare would
provide data access control, provenance and auditing. The proposed system also used smart
contracts for data behavior detection from data access patterns and blocks malicious users.

4.12.3 Voting
In the year 2014, a Danish political party was the first to use blockchain technology for voting.
Online voting platforms such as ‘Followmyvote’ , which enable digitally secure blockchain
based voting have also been created.

4.12.4 Insurance
Cognizant Technology Solutions give an end-to-end view of how blockchain can transform
insurance in their perspectives. Travel insurance, crop insurance, property and casualty insurance
and most importantly health insurance are all set to change with the use of blockchain
technology. A multiparty shared network with insurers, hospitals, funeral homes, a department of
health and the beneficiary forming the nodes of the blockchain, can be created. This setup will
provide the necessary disintermediation and speed required for the insurance and claim process
to be streamlined and to eliminate frauds.

4.12.5 Smart Cities

A possible application of Blockchain to smart cities is suggested by Sun et al. Authors relate a
smart city to a sharing economy where information and communication technologies are utilized
to enhance opportunities of sharing of resources. Author proposes using a blockchain based
framework for sharing of resources across various services to ensure data immutability,
accountability, proper asset utilization and to reduce transaction costs.

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 CHAPTER-5

CONCLUSION

In a plethora of blockchain based applications and experiments, faith on the longevity of

blockchain technology, is increasing. Scalability and consensus algorithms are areas of growing
research in order to make blockchain more adaptable for businesses of larger scale. Areas like
taxation, education, insurance are yet to see a major overhaul via blockchain adoption and these
can be the focus areas of future research in blockchain. Acceptance of cryptocurrency by
governments and establishment of regulations governing them are very important to ensure
ethical use of cryptocurrency. The public blockchains also provide an opportunity of mining
interesting patterns of cryptocurrency usage, user behaviors and monetary networks across the
globe.

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 REFERENCE

Bitfury (2016), “Digital Assets on Public Blockchains” ,p.41-44.

Nakamoto, Satoshi, (2008), “Bitcoin: A Peer-to-Peer Electronic Cash System.” , p.73-75

Oliver, Wyman, (2016) “Blockchain in Capital Markets: The Prize and the Journey”, p.30-31

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