Blockchain Technology

A blockchain is a distributed ledger with growing lists of records (blocks) that are

securely linked together via cryptographic hashes. Each block contains a

cryptographic hash of the previous block, a timestamp, and transaction data

(generally represented as a Merkle tree, where data nodes are represented by

leaves). The timestamp proves that the transaction data existed when the block was

created. Since each block contains information about the previous block, they

effectively form a chain (compare linked list data structure), with each additional

block linking to the ones before it. Consequently, blockchain transactions are

irreversible in that, once they are recorded, the data in any given block cannot be

altered retroactively without altering all subsequent blocks.

Blockchains are typically managed by a peer-to-peer (P2P) computer network for

use as a public distributed ledger, where nodes collectively adhere to a consensus

algorithm protocol to add and validate new transaction blocks. Although blockchain

records are not unalterable, since blockchain forks are possible, blockchains may be

considered secure by design and exemplify a distributed computing system with

high Byzantine fault tolerance.

A blockchain was created by a person (or group of people) using the name

(or pseudonym) Satoshi Nakamoto in 2008 to serve as the public distributed

ledger for bitcoin cryptocurrency transactions, based on previous work by Stuart

Haber, W. Scott Stornetta, and Dave Bayer. The implementation of the blockchain

within bitcoin made it the first digital currency to solve the double-spending problem

without the need of a trusted authority or central server. The bitcoin design has
inspired other applications and blockchains that are readable by the public and are

widely used by cryptocurrencies. The blockchain may be considered a type

of payment rail.

Private blockchains have been proposed for business use. Computerworld called the

marketing of such privatized blockchains without a proper security model "snake

oil";however, others have argued that permissioned blockchains, if carefully

designed, may be more decentralized and therefore more secure in practice than

permissionless ones.

History

Bitcoin, Ethereum and Litecoin transactions per day (January 2011 – January 2021)

Cryptographer David Chaum first proposed a blockchain-like protocol in his 1982

dissertation "Computer Systems Established, Maintained, and Trusted by Mutually

Suspicious Groups." Further work on a cryptographically secured chain of blocks

was described in 1991 by Stuart Haber and W. Scott Stornetta. They wanted to

implement a system wherein document timestamps could not be tampered with. In

1992, Haber, Stornetta, and Dave Bayer incorporated Merkle trees into the design,

which improved its efficiency by allowing several document certificates to be

collected into one block. Under their company Surety, their document certificate

hashes have been published in The New York Times every week since 1995.

The first decentralized blockchain was conceptualized by a person (or group of

people) known as Satoshi Nakamoto in 2008. Nakamoto improved the design in an

important way using a Hashcash-like method to timestamp blocks without requiring

them to be signed by a trusted party and introducing a difficulty parameter to

stabilize the rate at which blocks are added to the chain. The design was

implemented the following year by Nakamoto as a core component of the

cryptocurrency bitcoin, where it serves as the public ledger for all transactions on the

network.

In August 2014, the bitcoin blockchain file size, containing records of all transactions

that have occurred on the network, reached 20 GB (gigabytes). In January 2015, the

size had grown to almost 30 GB, and from January 2016 to January 2017, the bitcoin

blockchain grew from 50 GB to 100 GB in size. The ledger size had exceeded 200

GB by early 2020.

The words block and chain were used separately in Satoshi Nakamoto's original

paper, but were eventually popularized as a single word, blockchain, by 2016.

According to Accenture, an application of the diffusion of innovations theory

suggests that blockchains attained a 13.5% adoption rate within financial services in

2016, therefore reaching the early adopters' phase. Industry trade groups joined to

create the Global Blockchain Forum in 2016, an initiative of the Chamber of Digital

Commerce.

In May 2018, Gartner found that only 1% of CIOs indicated any kind of blockchain

adoption within their organisations, and only 8% of CIOs were in the short-term

"planning or [looking at] active experimentation with blockchain".For the year 2019

Gartner reported 5% of CIOs believed blockchain technology was a 'game-changer'

for their business.

Structure and design

Blockchain formation. The main chain (black) consists of the longest series of blocks

from the genesis block (green) to the current block. Orphan blocks (purple) exist

outside of the main chain.

A blockchain is a decentralized, distributed, and often public, digital ledger consisting

of records called blocks that are used to record transactions across many computers

so that any involved block cannot be altered retroactively, without the alteration of all

subsequent blocks. This allows the participants to verify and audit transactions

independently and relatively inexpensively. A blockchain database is managed

autonomously using a peer-to-peer network and a distributed timestamping server.

They are authenticated by mass collaboration powered by collective self-interests.

Such a design facilitates robust workflow where participants' uncertainty regarding

data security is marginal. The use of a blockchain removes the characteristic of

infinite reproducibility from a digital asset. It confirms that each unit of value was

transferred only once, solving the long-standing problem of double-spending. A

blockchain has been described as a value-exchange protocol. A blockchain can

maintain title rights because, when properly set up to detail the exchange

agreement, it provides a record that compels offer and acceptance.

Logically, a blockchain can be seen as consisting of several layers:

 infrastructure (hardware)

 networking (node discovery, information propagation and verification)

 consensus (proof of work, proof of stake)

 data (blocks, transactions)

 application (smart contracts/decentralized applications, if applicable)

Blocks

Blocks hold batches of valid transactions that are hashed and encoded into a Merkle

tree. Each block includes the cryptographic hash of the prior block in the blockchain,

linking the two. The linked blocks form a chain. This iterative process confirms the

integrity of the previous block, all the way back to the initial block, which is known as

the genesis block (Block 0). To assure the integrity of a block and the data contained

in it, the block is usually digitally signed.

Sometimes separate blocks can be produced concurrently, creating a

temporary fork. In addition to a secure hash-based history, any blockchain has a

specified algorithm for scoring different versions of the history so that one with a

higher score can be selected over others. Blocks not selected for inclusion in the

chain are called orphan blocks. Peers supporting the database have different

versions of the history from time to time. They keep only the highest-scoring version
of the database known to them. Whenever a peer receives a higher-scoring version

(usually the old version with a single new block added) they extend or overwrite their

own database and retransmit the improvement to their peers. There is never an

absolute guarantee that any particular entry will remain in the best version of history

forever. Blockchains are typically built to add the score of new blocks onto old blocks

and are given incentives to extend with new blocks rather than overwrite old blocks.

Therefore, the probability of an entry becoming superseded decreases

exponentially as more blocks are built on top of it, eventually becoming very low. For

example, bitcoin uses a proof-of-work system, where the chain with the most

cumulative proof-of-work is considered the valid one by the network. There are a

number of methods that can be used to demonstrate a sufficient level

of computation. Within a blockchain the computation is carried out redundantly rather

than in the traditional segregated and parallel manner.

Block time

The block time is the average time it takes for the network to generate one extra

block in the blockchain. By the time of block completion, the included data becomes

verifiable. In cryptocurrency, this is practically when the transaction takes place, so a

shorter block time means faster transactions. The block time for Ethereum is set to

between 14 and 15 seconds, while for bitcoin it is on average 10 minutes.

Hard forks

This section is an excerpt from Fork (blockchain) § Hard fork.[edit]

A hard fork is a change to the blockchain protocol that is not backward-compatible

and requires all users to upgrade their software in order to continue participating in
the network. In a hard fork, the network splits into two separate versions: one that

follows the new rules and one that follows the old rules.

For example, Ethereum was hard-forked in 2016 to "make whole" the investors

in The DAO, which had been hacked by exploiting a vulnerability in its code. In this

case, the fork resulted in a split creating Ethereum and Ethereum Classic chains. In

2014 the Nxt community was asked to consider a hard fork that would have led to a

rollback of the blockchain records to mitigate the effects of a theft of 50 million NXT

from a major cryptocurrency exchange. The hard fork proposal was rejected, and

some of the funds were recovered after negotiations and ransom payment.

Alternatively, to prevent a permanent split, a majority of nodes using the new

software may return to the old rules, as was the case of bitcoin split on 12 March

2013.

A more recent hard-fork example is of Bitcoin in 2017, which resulted in a split

creating Bitcoin Cash. The network split was mainly due to a disagreement in how to

increase the transactions per second to accommodate for demand.

Decentralization

By storing data across its peer-to-peer network, the blockchain eliminates some risks

that come with data being held centrally. The decentralized blockchain may use ad

hoc message passing and distributed networking.

In a so-called "51% attack" a central entity gains control of more than half of a

network and can then manipulate that specific blockchain record at will,

allowing double-spending.

Blockchain security methods include the use of public-key cryptography. A public

key (a long, random-looking string of numbers) is an address on the blockchain.

Value tokens sent across the network are recorded as belonging to that address.

A private key is like a password that gives its owner access to their digital assets or

the means to otherwise interact with the various capabilities that blockchains now

support. Data stored on the blockchain is generally considered incorruptible.

Every node in a decentralized system has a copy of the blockchain. Data quality is

maintained by massive database replication and computational trust. No centralized

"official" copy exists and no user is "trusted" more than any other. Transactions are

broadcast to the network using the software. Messages are delivered on a best-

effort basis. Early blockchains rely on energy-intensive mining nodes to validate

transactions, add them to the block they are building, and then broadcast the

completed block to other nodes. Blockchains use various time-stamping schemes,

such as proof-of-work, to serialize changes. Later consensus methods include proof

of stake. The growth of a decentralized blockchain is accompanied by the risk

of centralization because the computer resources required to process larger

amounts of data become more expensive.[42]

Finality

Finality is the level of confidence that the well-formed block recently appended to the

blockchain will not be revoked in the future (is "finalized") and thus can be trusted.

Most distributed blockchain protocols, whether proof of work or proof of stake,

cannot guarantee the finality of a freshly committed block, and instead rely on

"probabilistic finality": as the block goes deeper into a blockchain, it is less likely to

be altered or reverted by a newly found consensus.

Byzantine fault tolerance-based proof-of-stake protocols purport to provide so called

"absolute finality": a randomly chosen validator proposes a block, the rest of

validators vote on it, and, if a supermajority decision approves it, the block is

irreversibly committed into the blockchain. A modification of this method, an

"economic finality", is used in practical protocols, like the Casper protocol used

in Ethereum: validators which sign two different blocks at the same position in the

blockchain are subject to "slashing", where their leveraged stake is forfeited.

Openness

Open blockchains are more user-friendly than some traditional ownership records,

which, while open to the public, still require physical access to view. Because all

early blockchains were permissionless, controversy has arisen over the blockchain

definition. An issue in this ongoing debate is whether a private system with verifiers

tasked and authorized (permissioned) by a central authority should be considered a

blockchain. Proponents of permissioned or private chains argue that the term

"blockchain" may be applied to any data structure that batches data into time-

stamped blocks. These blockchains serve as a distributed version of multiversion

concurrency control (MVCC) in databases. Just as MVCC prevents two transactions

from concurrently modifying a single object in a database, blockchains prevent two

transactions from spending the same single output in a blockchain. Opponents say

that permissioned systems resemble traditional corporate databases, not supporting

decentralized data verification, and that such systems are not hardened against

operator tampering and revision. Nikolai Hampton of Computerworld said that "many

in-house blockchain solutions will be nothing more than cumbersome databases,"

and "without a clear security model, proprietary blockchains should be eyed with

suspicion.
Permissionless (public) blockchain

An advantage to an open, permissionless, or public, blockchain network is that

guarding against bad actors is not required and no access control is needed. This

means that applications can be added to the network without the approval or trust of

others, using the blockchain as a transport layer.

Bitcoin and other cryptocurrencies currently secure their blockchain by requiring new

entries to include proof of work. To prolong the blockchain, bitcoin

uses Hashcash puzzles. While Hashcash was designed in 1997 by Adam Back, the

original idea was first proposed by Cynthia Dwork and Moni Naor and Eli

Ponyatovski in their 1992 paper "Pricing via Processing or Combatting Junk Mail".

In 2016, venture capital investment for blockchain-related projects was weakening in

the USA but increasing in China. Bitcoin and many other cryptocurrencies use open

(public) blockchains. As of April 2018, bitcoin has the highest market capitalization.

Permissioned (private) blockchain

See also: Distributed ledger

Permissioned blockchains use an access control layer to govern who has access to

the network. It has been argued that permissioned blockchains can guarantee a

certain level of decentralization, if carefully designed, as opposed to permissionless

blockchains, which are often centralized in practice.

Disadvantages of permissioned blockchain

Nikolai Hampton argued in Computerworld that "There is also no need for a '51

percent' attack on a private blockchain, as the private blockchain (most likely)

already controls 100 percent of all block creation resources. If you could attack or

damage the blockchain creation tools on a private corporate server, you could
effectively control 100 percent of their network and alter transactions however you

wished. This has a set of particularly profound adverse implications during a financial

crisis or debt crisis like the financial crisis of 2007–08, where politically powerful

actors may make decisions that favor some groups at the expense of others, and

"the bitcoin blockchain is protected by the massive group mining effort. It's unlikely

that any private blockchain will try to protect records using gigawatts of computing

power — it's time-consuming and expensive. He also said, "Within a private

blockchain there is also no 'race'; there's no incentive to use more power or discover

blocks faster than competitors. This means that many in-house blockchain solutions

will be nothing more than cumbersome databases.

Blockchain analysis

The analysis of public blockchains has become increasingly important with the

popularity of bitcoin, Ethereum, litecoin and other cryptocurrencies. A blockchain, if it

is public, provides anyone who wants access to observe and analyse the chain data,

given one has the know-how. The process of understanding and accessing the flow

of crypto has been an issue for many cryptocurrencies, crypto exchanges and banks.

The reason for this is accusations of blockchain-enabled cryptocurrencies enabling

illicit dark market trade of drugs, weapons, money laundering, etc. A common belief

has been that cryptocurrency is private and untraceable, thus leading many actors to

use it for illegal purposes. This is changing and now specialised tech companies

provide blockchain tracking services, making crypto exchanges, law-enforcement

and banks more aware of what is happening with crypto funds and fiat-crypto

exchanges. The development, some argue, has led criminals to prioritise the use of

new cryptos such as Monero. The question is about the public accessibility of
blockchain data and the personal privacy of the very same data. It is a key debate in

cryptocurrency and ultimately in the blockchain.

Standardisation

In April 2016, Standards Australia submitted a proposal to the International

Organization for Standardization to consider developing standards to support

blockchain technology. This proposal resulted in the creation of ISO Technical

Committee 307, Blockchain and Distributed Ledger Technologies. The technical

committee has working groups relating to blockchain terminology, reference

architecture, security and privacy, identity, smart contracts, governance and

interoperability for blockchain and DLT, as well as standards specific to industry

sectors and generic government requirements. More than 50 countries are

participating in the standardization process together with external liaisons such as

the Society for Worldwide Interbank Financial Telecommunication (SWIFT),

the European Commission, the International Federation of Surveyors,

the International Telecommunication Union (ITU) and the United Nations Economic

Commission for Europe (UNECE).

Many other national standards bodies and open standards bodies are also working

on blockchain standards. These include the National Institute of Standards and

Technology (NIST), the European Committee for Electrotechnical Standardization

(CENELEC), the Institute of Electrical and Electronics Engineers (IEEE), the

Organization for the Advancement of Structured Information Standards (OASIS), and

some individual participants in the Internet Engineering Task Force (IETF).

Centralized blockchain

Although most of blockchain implementation are decentralized and

distributed, Oracle launched a centralized blockchain table feature in Oracle 21c

database. The Blockchain Table in Oracle 21c database is a centralized blockchain

which provide immutable feature. Compared to decentralized blockchains,

centralized blockchains normally can provide a higher throughput and lower latency

of transactions than consensus-based distributed blockchains.

Types

Currently, there are at least four types of blockchain networks — public blockchains,

private blockchains, consortium blockchains and hybrid blockchains.

Public blockchains

A public blockchain has absolutely no access restrictions. Anyone with

an Internet connection can send transactions to it as well as become a validator (i.e.,

participate in the execution of a consensus protocol). Usually, such networks

offer economic incentives for those who secure them and utilize some type of

a proof-of-stake or proof-of-work algorithm.

Some of the largest, most known public blockchains are the bitcoin blockchain and

the Ethereum blockchain.

Private blockchains

A private blockchain is permissioned.[53] One cannot join it unless invited by the

network administrators. Participant and validator access is restricted. To distinguish

between open blockchains and other peer-to-peer decentralized database

applications that are not open ad-hoc compute clusters, the terminology Distributed

Ledger (DLT) is normally used for private blockchains.

Hybrid blockchains

A hybrid blockchain has a combination of centralized and decentralized

features. The exact workings of the chain can vary based on which portions of

centralization and decentralization are used.

Sidechains

A sidechain is a designation for a blockchain ledger that runs in parallel to a primary

blockchain. Entries from the primary blockchain (where said entries typically

represent digital assets) can be linked to and from the sidechain; this allows the

sidechain to otherwise operate independently of the primary blockchain (e.g., by

using an alternate means of record keeping, alternate consensus algorithm, etc.).

Consortium blockchain

A consortium blockchain is a type of blockchain that combines elements of both

public and private blockchains. In a consortium blockchain, a group of organizations

come together to create and operate the blockchain, rather than a single entity. The

consortium members jointly manage the blockchain network and are responsible for

validating transactions. Consortium blockchains are permissioned, meaning that only

certain individuals or organizations are allowed to participate in the network. This

allows for greater control over who can access the blockchain and helps to ensure

that sensitive information is kept confidential.

Consortium blockchains are commonly used in industries where multiple

organizations need to collaborate on a common goal, such as supply chain

management or financial services. One advantage of consortium blockchains is that

they can be more efficient and scalable than public blockchains, as the number of

nodes required to validate transactions is typically smaller. Additionally, consortium

blockchains can provide greater security and reliability than private blockchains, as

the consortium members work together to maintain the network. Some examples of

consortium blockchains include Quorum and Hyperledger.

Uses

Blockchain technology can be integrated into multiple areas. The primary use of

blockchains is as a distributed ledger for cryptocurrencies such as bitcoin; there were

also a few other operational products that had matured from proof of concept by late

2016. As of 2016, some businesses have been testing the technology and

conducting low-level implementation to gauge blockchain's effects on organizational

efficiency in their back office.

In 2019, it was estimated that around $2.9 billion were invested in blockchain

technology, which represents an 89% increase from the year prior. Additionally, the

International Data Corp has estimated that corporate investment into blockchain

technology will reach $12.4 billion by 2022. Furthermore, According

to PricewaterhouseCoopers (PwC), the second-largest professional services network

in the world, blockchain technology has the potential to generate an annual business

value of more than $3 trillion by 2030. PwC's estimate is further augmented by a

2018 study that they have conducted, in which PwC surveyed 600 business

executives and determined that 84% have at least some exposure to utilizing

blockchain technology, which indicates a significant demand and interest in

blockchain technology.
In 2019, the BBC World Service radio and podcast series Fifty Things That Made the

Modern Economy identified blockchain as a technology that would have far-reaching

consequences for economics and society. The economist and Financial

Times journalist and broadcaster Tim Harford discussed why the underlying

technology might have much wider applications and the challenges that needed to

be overcome. His first broadcast was on June 29, 2019.

The number of blockchain wallets quadrupled to 40 million between 2016 and 2020.

A paper published in 2022 discussed the potential use of blockchain technology

in sustainable management.

Cryptocurrencies

Main article: Cryptocurrency

Most cryptocurrencies use blockchain technology to record transactions. For

example, the bitcoin network and Ethereum network are both based on blockchain.

The criminal enterprise Silk Road, which operated on Tor, utilized cryptocurrency for

payments, some of which the US federal government has seized through research

on the blockchain and forfeiture.

Governments have mixed policies on the legality of their citizens or banks owning

cryptocurrencies. China implements blockchain technology in several industries

including a national digital currency which launched in 2020. To strengthen their

respective currencies, Western governments including the European Union and the

United States have initiated similar projects.

Smart contracts

Main article: Smart contract

Blockchain-based smart contracts are proposed contracts that can be partially or

fully executed or enforced without human interaction. One of the main objectives of a

smart contract is automated escrow. A key feature of smart contracts is that they do

not need a trusted third party (such as a trustee) to act as an intermediary between

contracting entities — the blockchain network executes the contract on its own. This

may reduce friction between entities when transferring value and could subsequently

open the door to a higher level of transaction automation. An IMF staff discussion

from 2018 reported that smart contracts based on blockchain technology might

reduce moral hazards and optimize the use of contracts in general. But "no viable

smart contract systems have yet emerged." Due to the lack of widespread use, their

legal status was unclear.

Financial services

According to Reason, many banks have expressed interest in

implementing distributed ledgers for use in banking and are cooperating with

companies creating private blockchains, and according to a September

2016 IBM study, this is occurring faster than expected.

Banks are interested in this technology not least because it has the potential to

speed up back office settlement systems. Moreover, as the blockchain industry has

reached early maturity institutional appreciation has grown that it is, practically
speaking, the infrastructure of a whole new financial industry, with all the implications

which that entails.

Banks such as UBS are opening new research labs dedicated to blockchain

technology in order to explore how blockchain can be used in financial services to

increase efficiency and reduce costs.

Berenberg, a German bank, believes that blockchain is an "overhyped technology"

that has had a large number of "proofs of concept", but still has major challenges,

and very few success stories.

The blockchain has also given rise to initial coin offerings (ICOs) as well as a new

category of digital asset called security token offerings (STOs), also sometimes

referred to as digital security offerings (DSOs). STO/DSOs may be conducted

privately or on public, regulated stock exchange and are used to tokenize traditional

assets such as company shares as well as more innovative ones like intellectual

property, real estate, art, or individual products. A number of companies are active in

this space providing services for compliant tokenization, private STOs, and public

STOs.

Games

Main article: Blockchain game

Blockchain technology, such as cryptocurrencies and non-fungible tokens (NFTs),

has been used in video games for monetization. Many live-service games offer in-

game customization options, such as character skins or other in-game items, which

the players can earn and trade with other players using in-game currency. Some

games also allow for trading of virtual items using real-world currency, but this may

be illegal in some countries where video games are seen as akin to gambling, and
has led to gray market issues such as skin gambling, and thus publishers typically

have shied away from allowing players to earn real-world funds from games.

Blockchain games typically allow players to trade these in-game items for

cryptocurrency, which can then be exchanged for money.

The first known game to use blockchain technologies was CryptoKitties, launched in

November 2017, where the player would purchase NFTs with Ethereum

cryptocurrency, each NFT consisting of a virtual pet that the player could breed with

others to create offspring with combined traits as new NFTs. The game made

headlines in December 2017 when one virtual pet sold for more than US$100,000.

CryptoKitties also illustrated scalability problems for games on Ethereum when it

created significant congestion on the Ethereum network in early 2018 with

approximately 30% of all Ethereum transactions being for the game.

By the early 2020s, there had not been a breakout success in video games using

blockchain, as these games tend to focus on using blockchain for speculation

instead of more traditional forms of gameplay, which offers limited appeal to most

players. Such games also represent a high risk to investors as their revenues can be

difficult to predict. However, limited successes of some games, such as Axie

Infinity during the COVID-19 pandemic, and corporate plans

towards metaverse content, refueled interest in the area of GameFi, a term

describing the intersection of video games and financing typically backed by

blockchain currency, in the second half of 2021. Several major publishers,

including Ubisoft, Electronic Arts, and Take Two Interactive, have stated that

blockchain and NFT-based games are under serious consideration for their

companies in the future.

In October 2021, Valve Corporation banned blockchain games, including those using

cryptocurrency and NFTs, from being hosted on its Steam digital storefront service,

which is widely used for personal computer gaming, claiming that this was an

extension of their policy banning games that offered in-game items with real-world

value. Valve's prior history with gambling, specifically skin gambling, was speculated

to be a factor in the decision to ban blockchain games. Journalists and players

responded positively to Valve's decision as blockchain and NFT games have a

reputation for scams and fraud among most PC gamers, and Epic Games, which

runs the Epic Games Store in competition to Steam, said that they would be open to

accepted blockchain games in the wake of Valve's refusal.

Supply chain

There have been several different efforts to employ blockchains in supply chain

management.

 Precious commodities mining — Blockchain technology has been used for

tracking the origins of gemstones and other precious commodities. In

2016, The Wall Street Journal reported that the blockchain technology

company Everledger was partnering with IBM's blockchain-based tracking

service to trace the origin of diamonds to ensure that they were ethically

mined. As of 2019, the Diamond Trading Company (DTC) has been

involved in building a diamond trading supply chain product called Tracr.

 Food supply — As of 2018, Walmart and IBM were running a trial to use a

blockchain-backed system for supply chain monitoring for lettuce and

spinach — all nodes of the blockchain were administered by Walmart and

were located on the IBM cloud.

  Fashion industry — There is an opaque relationship between brands,

distributors, and customers in the fashion industry, which will prevent the

sustainable and stable development of the fashion industry. Blockchain

makes up for this shortcoming and makes information transparent, solving

the difficulty of sustainable development of the industry.

Domain names

There are several different efforts to offer domain name services via the blockchain.

These domain names can be controlled by the use of a private key, which purports

to allow for uncensorable websites. This would also bypass a registrar's ability to

suppress domains used for fraud, abuse, or illegal content.

Namecoin is a cryptocurrency that supports the ".bit" top-level domain (TLD).

Namecoin was forked from bitcoin in 2011. The .bit TLD is not sanctioned by ICANN,

instead requiring an alternative DNS root. As of 2015, .bit was used by 28 websites,

out of 120,000 registered names. Namecoin was dropped by OpenNIC in 2019, due

to malware and potential other legal issues. Other blockchain alternatives to ICANN

include The Handshake Network, EmerDNS, and Unstoppable Domains.

Specific TLDs include ".eth", ".luxe", and ".kred", which are associated with the

Ethereum blockchain through the Ethereum Name Service (ENS). The .kred TLD

also acts as an alternative to conventional cryptocurrency wallet addresses as a

convenience for transferring cryptocurrency.

Other uses

Blockchain technology can be used to create a permanent, public, transparent ledger

system for compiling data on sales, tracking digital use and payments to content

creators, such as wireless users or musicians. The Gartner 2019 CIO Survey
reported 2% of higher education respondents had launched blockchain projects and

another 18% were planning academic projects in the next 24 months. In

2017, IBM partnered with ASCAP and PRS for Music to adopt blockchain technology

in music distribution. Imogen Heap's Mycelia service has also been proposed as a

blockchain-based alternative "that gives artists more control over how their songs

and associated data circulate among fans and other musicians.

New distribution methods are available for the insurance industry such as peer-to-

peer insurance, parametric insurance and microinsurance following the adoption of

blockchain. The sharing economy and IoT are also set to benefit from blockchains

because they involve many collaborating peers. The use of blockchain in libraries is

being studied with a grant from the U.S. Institute of Museum and Library Services.

Other blockchain designs include Hyperledger, a collaborative effort from the Linux

Foundation to support blockchain-based distributed ledgers, with projects under this

initiative including Hyperledger Burrow (by Monax) and Hyperledger Fabric

(spearheaded by IBM). Another is Quorum, a permissioned private blockchain

by JPMorgan Chase with private storage, used for contract applications.

Oracle introduced a blockchain table feature in its Oracle 21c database.

Blockchain is also being used in peer-to-peer energy trading.

Blockchain could be used in detecting counterfeits by associating unique identifiers

to products, documents and shipments, and storing records associated with

transactions that cannot be forged or altered. It is however argued that blockchain

technology needs to be supplemented with technologies that provide a strong

binding between physical objects and blockchain systems, as well as provisions for

content creator verification ala KYC standards. The EUIPO established an Anti-
Counterfeiting Blockathon Forum, with the objective of "defining, piloting and

implementing" an anti-counterfeiting infrastructure at the European level. The Dutch

Standardisation organisation NEN uses blockchain together with QR Codes to

authenticate certificates.

2022 Jan 30 Beijing and Shanghai are among the cities designated by China to trial

blockchain applications.

Blockchain interoperability

With the increasing number of blockchain systems appearing, even only those that

support cryptocurrencies, blockchain interoperability is becoming a topic of major

importance. The objective is to support transferring assets from one blockchain

system to another blockchain system. Wegner stated that "interoperability is the

ability of two or more software components to cooperate despite differences in

language, interface, and execution platform". The objective of blockchain

interoperability is therefore to support such cooperation among blockchain systems,

despite those kinds of differences.

There are already several blockchain interoperability solutions available. They can

be classified into three categories: cryptocurrency interoperability approaches,

blockchain engines, and blockchain connectors.

Several individual IETF participants produced the draft of a blockchain

interoperability architecture.
Energy consumption concerns

Some cryptocurrencies use blockchain mining — the peer-to-peer computer

computations by which transactions are validated and verified. This requires a large

amount of energy. In June 2018, the Bank for International Settlements criticized the

use of public proof-of-work blockchains for their high energy consumption.

Early concern over the high energy consumption was a factor in later blockchains

such as Cardano (2017), Solana (2020) and Polkadot (2020) adopting the less

energy-intensive proof-of-stake model. Researchers have estimated that Bitcoin

consumes 100,000 times as much energy as proof-of-stake networks.

In 2021, a study by Cambridge University determined that Bitcoin (at 121 terawatt-

hours per year) used more electricity than Argentina (at 121TWh) and the

Netherlands (109TWh). According to Digiconomist, one bitcoin transaction required

708 kilowatt-hours of electrical energy, the amount an average U.S. household

consumed in 24 days.

In February 2021, U.S. Treasury secretary Janet Yellen called Bitcoin "an extremely

inefficient way to conduct transactions", saying "the amount of energy consumed in

processing those transactions is staggering".In March 2021, Bill Gates stated that

"Bitcoin uses more electricity per transaction than any other method known to

mankind", adding "It's not a great climate thing."

Nicholas Weaver, of the International Computer Science Institute at the University of

California, Berkeley, examined blockchain's online security, and the energy efficiency

of proof-of-work public blockchains, and in both cases found it grossly inadequate.

The 31TWh-45TWh of electricity used for bitcoin in 2018 produced 17-23 million

tonnes of CO2. By 2022, the University of Cambridge and Digiconomist estimated

that the two largest proof-of-work blockchains, Bitcoin and Ethereum, together used

twice as much electricity in one year as the whole of Sweden, leading to the release

of up to 120 million tonnes of CO2 each year.

Some cryptocurrency developers are considering moving from the proof-of-work

model to the proof-of-stake model.

Adoption decision

Motivations for adopting blockchain technology (an aspect of innovation adoptation)

have been investigated by researchers. For example, Janssen, et al. provided a

framework for analysis, and Koens & Poll pointed out that adoption could be heavily

driven by non-technical factors. Based on behavioral models, Li has discussed the

differences between adoption at the individual level and organizational levels.

Collaboration

Scholars in business and management have started studying the role of blockchains

to support collaboration. It has been argued that blockchains can foster both

cooperation (i.e., prevention of opportunistic behavior) and coordination (i.e.,

communication and information sharing). Thanks to reliability, transparency,

traceability of records, and information immutability, blockchains facilitate

collaboration in a way that differs both from the traditional use of contracts and from

relational norms. Contrary to contracts, blockchains do not directly rely on the legal

system to enforce agreements. In addition, contrary to the use of relational norms,

blockchains do not require a trust or direct connections between collaborators.

The need for internal audits to provide effective oversight of organizational efficiency

will require a change in the way that information is accessed in new formats.
Blockchain adoption requires a framework to identify the risk of exposure associated

with transactions using blockchain. The Institute of Internal Auditors has identified

the need for internal auditors to address this transformational technology. New

methods are required to develop audit plans that identify threats and risks. The

Internal Audit Foundation study, Blockchain and Internal Audit, assesses these

factors. The American Institute of Certified Public Accountants has outlined new

roles for auditors as a result of blockchain.

Academic research

In October 2014, the MIT Bitcoin Club, with funding from MIT alumni, provided

undergraduate students at the Massachusetts Institute of Technology access to $100

of bitcoin. The adoption rates, as studied by Catalini and Tucker (2016), revealed

that when people who typically adopt technologies early are given delayed access,

they tend to reject the technology. Many universities have founded departments

focusing on crypto and blockchain, including MIT, in 2017. In the same

year, Edinburgh became "one of the first big European universities to launch a

blockchain course", according to the Financial Times.

Distributed ledger

A distributed ledger (also called a shared ledger or distributed ledger

technology or DLT) is the consensus of replicated, shared, and synchronized digital

data that is geographically spread (distributed) across many sites, countries, or

institutions. In contrast to a centralized database, a distributed ledger does not

require a central administrator, and consequently does not have a single (central)

point-of-failure.

In general, a distributed ledger requires a peer-to-peer (P2P) computer network

and consensus algorithms so that the ledger is reliably replicated across distributed

computer nodes (servers, clients, etc.). The most common form of distributed ledger

technology is the blockchain (commonly associated with the Bitcoin cryptocurrency),

which can either be on a public or private network. Infrastructure for data

management is a common barrier to implementing DLT.

In some cases, where the distributed digital information functions as an accounting

journal rather than an accounting ledger, another term is used: RJT for replicated

journal technology.

Characteristics

Distributed ledger data is typically spread across multiple nodes (computational

devices) on a P2P network, where each replicates and saves an identical copy of the

ledger data and updates itself independently of other nodes. The primary advantage

of this distributed processing pattern is the lack of a central authority, which would

constitute a single point of failure. When a ledger update transaction is broadcast to

the P2P network, each distributed node processes a new update transaction

independently, and then collectively all working nodes use a consensus algorithm to

determine the correct copy of the updated ledger. Once a consensus has been

determined, all the other nodes update themselves with the latest, correct copy of

the updated ledger. Security is enforced through cryptographic keys and signatures.
Applications

In 2016, some banks tested distributed ledger systems for payments to determine

their usefulness. In 2020, Axoni launched Veris, a distributed ledger platform that

manages equity swap transactions. The platform, which matches and reconciles

post-trade data on stock swaps, is used by BlackRock Inc., Goldman Sachs Group

Inc., and Citigroup, Inc.

A pilot scheme by the Monetary Authority of Singapore completed its first live trades

using DLT in 2022. The pilot by Singapore's central bank involved DBS and JP

Morgan. The banks traded using smart contracts against liquidity pools

of tokenized Singapore government bonds, Japanese government bonds, yen, and

Singapore dollars. Singapore has set up two more pilots. Standard Chartered Bank

is exploring tokens for trade finance; and HSBC and United Overseas Bank are

working with Marketnode, a digital markets infrastructure provider, on products for

wealth management.

Types

Distributed ledger technologies can be categorized in terms of their data

structures, consensus algorithms, permissions, and whether they are mined. DLT

data structure types include linear data structures (blockchains) to more

complex directed acyclic graph (DAG) and hybrid data structures. DLT consensus

algorithm types include proof-of-work (PoW) and proof-of-stake (PoS) algorithms and

DAG consensus-building and voting algorithms. DLTs are generally either

permissioned (private) or permissionless (public). PoW cryptocurrencies are

generally either 'mined' or 'non-mined', where the latter typically indicates 'pre-mined'

cryptocurrencies, such as XRP or IOTA. PoS cryptocurrencies do not use miners,

instead usually relying on validation among owners of the cryptocurrency, such

as Cardano or Solana.

Blockchains are the most common DLT type, with a 256-bit secure hash

algorithm (SHA). DLTs based on DAG data structures or hybrid blockchain-DAG

decrease transaction data size and transaction costs, while increasing transaction

speeds compared with Bitcoin, the first cryptocurrency.[17] Examples of DAG DLT

cryptocurrencies include MIOTA (IOTA Tangle DLT) and HBAR (Hedera Hashgraph,

a patented DLT).

Cryptographic hash function

A cryptographic hash function (CHF) is a hash algorithm (a map of an arbitrary

binary string to a binary string with fixed size of bits) that has special properties

desirable for a cryptographic application:

 the probability of a particular -bit output result (hash value) for a random

input string ("message") is (as for any good hash), so the hash value can

be used as a representative of the message;

 finding an input string that matches a given hash value (a pre-image) is

unfeasible, unless the value is selected from a known pre-calculated

dictionary ("rainbow table"). The resistance to such search is quantified

as security strength, a cryptographic hash with bits of hash value is

expected to have a preimage resistance strength of bits. A second

preimage resistance strength, with the same expectations, refers to a

similar problem of finding a second message that matches the given hash

value when one message is already known;

  finding any pair of different messages that yield the same hash value

(a collision) is also unfeasible, a cryptographic hash is expected to have

a collision resistance strength of bits (lower due to the birthday paradox).

Cryptographic hash functions have many information-security applications, notably

in digital signatures, message authentication codes (MACs), and other forms

of authentication. They can also be used as ordinary hash functions, to index data

in hash tables, for fingerprinting, to detect duplicate data or uniquely identify files,

and as checksums to detect accidental data corruption. Indeed, in information-

security contexts, cryptographic hash values are sometimes called

(digital) fingerprints, checksums, or just hash values, even though all these terms

stand for more general functions with rather different properties and purposes.[2]

Noncryptographic hashes are used in hash tables and to detect accidental errors,

their construction frequently provides no resistance to a deliberate attack. For

example, a denial-of-service attack on hash tables is possible if the collisions are

easy to find, like in the case of linear cyclic redundancy check (CRC) functions.[3]

Properties[edit]

Most cryptographic hash functions are designed to take a string of any length as

input and produce a fixed-length hash value.

A cryptographic hash function must be able to withstand all known types of

cryptanalytic attack. In theoretical cryptography, the security level of a cryptographic

hash function has been defined using the following properties:

Pre-image resistance
 Given a hash value h, it should be difficult to find any message m such

that h = hash(m). This concept is related to that of a one-way function.

Functions that lack this property are vulnerable to preimage attacks.

Second pre-image resistance

Given an input m1, it should be difficult to find a different input m2 such

that hash(m1) = hash(m2). This property is sometimes referred to as weak

collision resistance. Functions that lack this property are vulnerable

to second-preimage attacks.

Collision resistance

It should be difficult to find two different messages m1 and m2 such

that hash(m1) = hash(m2). Such a pair is called a cryptographic hash collision.

This property is sometimes referred to as strong collision resistance. It

requires a hash value at least twice as long as that required for pre-image

resistance; otherwise collisions may be found by a birthday attack.[4]

Collision resistance implies second pre-image resistance but does not

imply pre-image resistance.[5] The weaker assumption is always preferred

in theoretical cryptography, but in practice, a hash-function which is only

second pre-image resistant is considered insecure and is therefore not

recommended for real applications.

Informally, these properties mean that a malicious adversary cannot

replace or modify the input data without changing its digest. Thus, if two

strings have the same digest, one can be very confident that they are

identical. Second pre-image resistance prevents an attacker from crafting

a document with the same hash as a document the attacker cannot

control. Collision resistance prevents an attacker from creating two

distinct documents with the same hash.

A function meeting these criteria may still have undesirable properties.

Currently, popular cryptographic hash functions are vulnerable to length-

extension attacks: given hash(m) and len(m) but not m, by choosing a

suitable m′ an attacker can calculate hash(m ∥ m′), where ∥

denotes concatenation. This property can be used to break naive

authentication schemes based on hash functions. The HMAC construction

works around these problems.

In practice, collision resistance is insufficient for many practical uses. In

addition to collision resistance, it should be impossible for an adversary to

find two messages with substantially similar digests; or to infer any useful

information about the data, given only its digest. In particular, a hash

function should behave as much as possible like a random function (often

called a random oracle in proofs of security) while still being deterministic

and efficiently computable. This rules out functions like

the SWIFFT function, which can be rigorously proven to be collision-

resistant assuming that certain problems on ideal lattices are

computationally difficult, but, as a linear function, does not satisfy these

additional properties.

Checksum algorithms, such as CRC32 and other cyclic redundancy

checks, are designed to meet much weaker requirements and are

generally unsuitable as cryptographic hash functions. For example, a

CRC was used for message integrity in the WEP encryption standard, but
an attack was readily discovered, which exploited the linearity of the

checksum.

Degree of difficulty

In cryptographic practice, "difficult" generally means "almost certainly

beyond the reach of any adversary who must be prevented from breaking

the system for as long as the security of the system is deemed important".

The meaning of the term is therefore somewhat dependent on the

application since the effort that a malicious agent may put into the task is

usually proportional to their expected gain. However, since the needed

effort usually multiplies with the digest length, even a thousand-fold

advantage in processing power can be neutralized by adding a dozen bits

to the latter.

For messages selected from a limited set of messages, for

example passwords or other short messages, it can be feasible to invert a

hash by trying all possible messages in the set. Because cryptographic

hash functions are typically designed to be computed quickly, special key

derivation functions that require greater computing resources have been

developed that make such brute-force attacks more difficult.

In some theoretical analyses "difficult" has a specific mathematical

meaning, such as "not solvable in asymptotic polynomial time". Such

interpretations of difficulty are important in the study of provably secure

cryptographic hash functions but do not usually have a strong connection

to practical security. For example, an exponential-time algorithm can

sometimes still be fast enough to make a feasible attack. Conversely, a

polynomial-time algorithm (e.g., one that requires n20 steps for n-digit

keys) may be too slow for any practical use.

Illustration

When a user creates an account on a website, they are typically asked to

create a password. Rather than storing the password in plain text, which

would make it vulnerable to theft in the event of a data breach, the

website will typically use a cryptographic hash function to generate a

unique hash of the password.

An illustration of the potential use of a cryptographic hash is as

follows: Alice poses a tough math problem to Bob and claims that she has

solved it. Bob would like to try it himself, but would yet like to be sure that

Alice is not bluffing. Therefore, Alice writes down her solution, computes

its hash, and tells Bob the hash value (whilst keeping the solution secret).

Then, when Bob comes up with the solution himself a few days later, Alice

can prove that she had the solution earlier by revealing it and having Bob

hash it and check that it matches the hash value given to him before.

(This is an example of a simple commitment scheme; in actual practice,

Alice and Bob will often be computer programs, and the secret would be

something less easily spoofed than a claimed puzzle solution.)

Applications

An important application of secure hashes is the verification of message

integrity. Comparing message digests (hash digests over the message)

calculated before, and after, transmission can determine whether any

changes have been made to the message or file.

MD5, SHA-1, or SHA-2 hash digests are sometimes published on

websites or forums to allow verification of integrity for downloaded files,

[8]
including files retrieved using file sharing such as mirroring. This

practice establishes a chain of trust as long as the hashes are posted on

a trusted site – usually the originating site – authenticated by HTTPS.

Using a cryptographic hash and a chain of trust detects malicious

changes to the file. Non-cryptographic error-detecting codes such

as cyclic redundancy checks only prevent against non-

malicious alterations of the file, since an intentional spoof can readily be

crafted to have the colliding code value.

Signature generation and verification

Main article: Digital signature

Almost all digital signature schemes require a cryptographic hash to be

calculated over the message. This allows the signature calculation to be

performed on the relatively small, statically sized hash digest. The

message is considered authentic if the signature verification succeeds

given the signature and recalculated hash digest over the message. So

the message integrity property of the cryptographic hash is used to create

secure and efficient digital signature schemes.

Password verification

Main article: Password hashing

Password verification commonly relies on cryptographic hashes. Storing

all user passwords as cleartext can result in a massive security breach if

the password file is compromised. One way to reduce this danger is to

only store the hash digest of each password. To authenticate a user, the

password presented by the user is hashed and compared with the stored

hash. A password reset method is required when password hashing is

performed; original passwords cannot be recalculated from the stored

hash value.

Standard cryptographic hash functions are designed to be computed

quickly, and, as a result, it is possible to try guessed passwords at high

rates. Common graphics processing units can try billions of possible

passwords each second. Password hash functions that perform key

stretching – such as PBKDF2, scrypt or Argon2 – commonly use repeated

invocations of a cryptographic hash to increase the time (and in some

cases computer memory) required to perform brute-force attacks on

stored password hash digests. A password hash requires the use of a

large random, non-secret salt value which can be stored with the

password hash. The salt randomizes the output of the password hash,

making it impossible for an adversary to store tables of passwords

and precomputed hash values to which the password hash digest can be

compared.

Proof-of-work

Main article: Proof of work

A proof-of-work system (or protocol, or function) is an economic measure

to deter denial-of-service attacks and other service abuses such as spam

on a network by requiring some work from the service requester, usually

meaning processing time by a computer. A key feature of these schemes

is their asymmetry: the work must be moderately hard (but feasible) on

the requester side but easy to check for the service provider. One popular

system – used in Bitcoin mining and Hashcash – uses partial hash

inversions to prove that work was done, to unlock a mining reward in

Bitcoin, and as a good-will token to send an e-mail in Hashcash. The

sender is required to find a message whose hash value begins with a

number of zero bits. The average work that the sender needs to perform

in order to find a valid message is exponential in the number of zero bits

required in the hash value, while the recipient can verify the validity of the

message by executing a single hash function. For instance, in Hashcash,

a sender is asked to generate a header whose 160-bit SHA-1 hash value

has the first 20 bits as zeros. The sender will, on average, have to

try 219 times to find a valid header.

File or data identifier

A message digest can also serve as a means of reliably identifying a file;

several source code management systems,

including Git, Mercurial and Monotone, use the sha1sum of various types

of content (file content, directory trees, ancestry information, etc.) to

uniquely identify them. Hashes are used to identify files on peer-to-

peer filesharing networks. For example, in an ed2k link, an MD4-variant

hash is combined with the file size, providing sufficient information for

locating file sources, downloading the file, and verifying its

contents. Magnet links are another example. Such file hashes are often

the top hash of a hash list or a hash tree which allows for additional

benefits.
One of the main applications of a hash function is to allow the fast look-up

of data in a hash table. Being hash functions of a particular kind,

cryptographic hash functions lend themselves well to this application too.

However, compared with standard hash functions, cryptographic hash

functions tend to be much more expensive computationally. For this

reason, they tend to be used in contexts where it is necessary for users to

protect themselves against the possibility of forgery (the creation of data

with the same digest as the expected data) by potentially malicious

participants.[citation needed]

Content-addressable storage

This section is an excerpt from Content-addressable storage.[edit]

Content-addressable storage (CAS), also referred to as content-

addressed storage or fixed-content storage, is a way to store information

so it can be retrieved based on its content, not its name or location. It has

been used for high-speed storage and retrieval of fixed content, such as

documents stored for compliance with government regulations. Content-

addressable storage is similar to content-addressable memory.

CAS systems work by passing the content of the file through a

cryptographic hash function to generate a unique key, the "content

address". The file system's directory stores these addresses and a pointer

to the physical storage of the content. Because an attempt to store the

same file will generate the same key, CAS systems ensure that the files

within them are unique, and because changing the file will result in a new

key, CAS systems provide assurance that the file is unchanged.

CAS became a significant market during the 2000s, especially after the

introduction of the 2002 Sarbanes–Oxley Act which required the storage

of enormous numbers of documents for long periods and retrieved only

rarely. Ever-increasing performance of traditional file systems and new

software systems have eroded the value of legacy CAS systems, which

have become increasingly rare after roughly 2018. However, the

principles of content addressability continue to be of great interest to

computer scientists, and form the core of numerous emerging

technologies, such as peer-to-peer file sharing, cryptocurrencies,

and distributed computing.

Hash functions based on block ciphers

There are several methods to use a block cipher to build a cryptographic

hash function, specifically a one-way compression function.

The methods resemble the block cipher modes of operation usually used

for encryption. Many well-known hash functions,

including MD4, MD5, SHA-1 and SHA-2, are built from block-cipher-like

components designed for the purpose, with feedback to ensure that the

resulting function is not invertible. SHA-3 finalists included functions with

block-cipher-like components (e.g., Skein, BLAKE) though the function

finally selected, Keccak, was built on a cryptographic sponge instead.

A standard block cipher such as AES can be used in place of these

custom block ciphers; that might be useful when an embedded

system needs to implement both encryption and hashing with minimal

code size or hardware area. However, that approach can have costs in
efficiency and security. The ciphers in hash functions are built for hashing:

they use large keys and blocks, can efficiently change keys every block,

and have been designed and vetted for resistance to related-key attacks.

General-purpose ciphers tend to have different design goals. In particular,

AES has key and block sizes that make it nontrivial to use to generate

long hash values; AES encryption becomes less efficient when the key

changes each block; and related-key attacks make it potentially less

secure for use in a hash function than for encryption.