Networking Application Management

This report explores the architecture, features, and challenges of blockchain technology. It discusses its applications in currency and smart contracts, as well as its socio-technical aspects. The report concludes that blockchain is an emerging technology with advantages and limitations, and is an undeniably ingenious invention.

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Networking Application Management
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Table of Contents
Introduction....................................................................................................................................2
Part 1: Blockchain...........................................................................................................................2
1. Architecture of Blockchain.....................................................................................................2
2. Features of Blockchain...........................................................................................................4
3. Challenges in Blockchain........................................................................................................5
Part 2: Applications of Blockchain..................................................................................................5
1. Application of Blockchain in Currency....................................................................................5
2. Application of Blockchain in Smart Contracts.........................................................................6
Part 3: Socio Technical aspects.......................................................................................................6
Conclusion......................................................................................................................................7
References......................................................................................................................................8

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Introduction
Blockchain can be defined as a decentralized technology that is used by a global network of
computers. The blockchain technology was invented in the year 2008 for powering the Bitcoin.
Blockchain is an underlying technology powering the bitcoin. Blockchain is a digitized and decentralized
public ledger of the cryptocurrencies and transactions. Blockchain is a technology where transactions
are recorded in a chronological order. This technology is particularly used to keep a track on the digital
currency and transaction in absence of a central record keeping [3]. Blockchain is one of the most
significant technological innovations of Bitcoin. In Blockchain and Bitcoin, users are responsible for
validating the transactions while paying for a particular purchased goods or services. This eliminates the
requirement of a third party in payment processing. The transaction completed is publicly recorded into
the blocks of blockchain [4]. Researches prove that on an average, a new block is appended into the
blockchain in every 10 minutes. The report discusses in detail the architecture, feature and the
challenges of Block chain technology are discussed in the following section.
Part 1: Blockchain
1. Architecture of Blockchain
Blockchain is mesh network of computer that are not linked to a central server by are linked
with each other. The connected computers in this network generally agree upon a shared state of data
which is simply a distributed state machine with a number of blocks that records the transactional
details. Block chain is a considerably new technology that is designed as a complete decentralized
system. The “block” represents a set of records saved. These records are chained together for security
purpose with the help of hash function [7]. Block architecture therefore consist of a simple database
that contains the details of the transactions, that are validates by the network community instead of a
single centralized database. In block chain, the validated data that is saved in form of a block is linked to
the previous block, thus creating a blockchain. The technology of block chain has gained its popularity
mainly due to its application in the bitcoin and the ethernum. The figures below represent that
architecture of blockchain.

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Figure 1: Representing the blockchain architecture (consisting of the continuous sequence of blocks)
(Source: Zheng et al. 2017)
Figure 2: Representing a block structure
(Source: Zheng et al. 2017)
Blockchain is a series of stored blocks that records a transaction list including the public ledger.
The Figure one represents a diagrammatic structure of blockchain. The hash of the previous block is
present in the block header, and a block header consists of one parent block. There are certain uncle
blocks as well, which are the children of a particular block’s ancestor, whose hashes will be secured in
the ethereum blockchain. The first or the primary block of a blockchain is also termed as a genesis block
as it generally does not have any parent block.

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The major component of blockchain architecture is the block. A block is generally composed of a
body and a block header as represented in figure 2. A block header can be further divided into different
sun components, which include a block version, Merkle tree root hash, timestamp, nBits, Nonce and
parent block hash. The block body on the other hand consists of a transaction counter and different
transactions. The largest or the maximum number of transaction contained in a block chain can be
calculated based on the block size and the size of each transaction. For validating the authenticity of the
transactions, block chain mainly makes use of asymmetric cryptography mechanism. One of the
applications of asymmetric key cryptography is digital signature.
2. Features of Blockchain
The different features or characteristics of blockchain technology are as follows [1]-
1. Decentralization: decentralization is the key feature of blockchain technology. In a
conventional centralized system of transaction, every said transaction is needed to be checked or
validated with the help of a trusted agency operating centrally, such as central bank. In contrast to the
centralized mode, there is no need of third party in blockchain. In order to maintain the consistency of
data in the distributed network of blockchain, consensus algorithms are often used.
2. Persistency: persistency is another key feature of blockchain technology. This is an integral
feature of blockchain technology where the transactions can be checked very fast while the invalid
transactions can be acknowledged or admitted by the honest miners [5]. This is because it becomes
completely impossible to delete or roll back any transaction once they are included in the blockchain
technology. Therefore, with this feature, the blocks can be discovered immediately.
3. Anonymity: This is another key feature of blockchain technology where every user can access
the blockchain with the help of a particularly generated address. This generated address never revels
the actual identify of that particular user [11]. However, privacy prevention is guaranteed in blockchain
as it makes use of intrinsic constraint.
4. Auditability: This is another key feature of blockchain technology. In blockchain, any
transaction is needed to refer to a certain unspent transaction [8]. After recording a transaction in
blockchain, the state of the unspent transaction changes to spent.
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The above discussed points refer to some key characteristic features of blockchain technology.
3. Challenges in Blockchain
Although there has been an increasing use of blockchain technology over the years, there are
certain challenges and limitations associated with blockchain. These are as follows [6]-
1. Scalability: It is a major challenge associated with block chain as with the increasing number
of transaction, the blockchain becomes bulky. This is because each node of blockchain has to store all
transactions. Furthermore, there is a restriction in the size of the block and the time interval of
generation of blockchain. Blockchain has the capability of processing only 7 transactions per second,
which is much less in comparison to the processing of millions of transaction in real time fashion.
Therefore, it is a major problem associated with the blockchain.
2. Privacy leakage is another major challenge associated with the block chain technology.
Although blockchain is capable of preserving privacy by making use of public and the private key, the
blockchain can certainly not guarantee the privacy of the transaction as all the values associated with a
transaction and balances are visible publicly [12].
3. Another major challenge associated with blockchain is selfish mining as the blockchain
technology is likely to be attacked by the colluding selfish miners.
4. Initial cost of implementation of blockchain technology is high as well. The software required
to run blockchain technology is needed to be developed in a particular firm and therefore, it is very
expensive to purchase.
These are the major challenges associated with the blockchain technology.
Part 2: Applications of Blockchain
1. Application of Blockchain in Currency
One of the major applications of Blockchain in the field of currency is bitcoin. Digital currency or
bitcoin is an application of blockchain technology. Bitcoin is a type of digital currency where the
encryption techniques are generally used to regulate the generation of the different units of currency
for fund transfer. It is a worldwide payment option and is the first application of blockchain. It is a first
decentralized digital currency as it works without a central bank. This is a transaction with no

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middlemen and was developed with a goal of creating a new electronic cash system. In simple words,
bitcoin is a technology that is quite similar to the virtual cash that is stored in the online wallets
However, the concept of online wallets are quite simple and the money stored in this type of wallets are
generally backed by any government body unlike the bitcoin, which is mainly decentralized.
2. Application of Blockchain in Smart Contracts
Smart contract is an excellent example of blockchain technology that has the capability to
replace the lawyers [2]. The main aim of smart contract is to simplify the business and trade between
two identified yet anonymous parties. A smart contract can be described as a computer protocol that
aims to digitally facilitate or enforce the negotiation associated with a contract. These are self
automated or self processing computer programs that are used to run the terms of a particular contract.
Many businesses are making use of smart contracts in order to bypass the need of a lawyer [10]. One
example of a company that makes use of smart contracts is Slock.
Part 3: Socio Technical aspects
Bitcoin can be defined as an open source software project with a commanding presence in the
digital currency space. Bitcoin and blockchain is explored and experimented by a number of
international aid agencies and foundations. The technology itself is complex. However, with the ability of
money transfer globally in form of bitcoin is expected to change the structure of government as well [9].
This is because, bitcoin is effectively untaxable and therefore, if it becomes a standard for online
transaction, it has the capability of destroying the flat currencies worldwide. With the increasing
awareness among the people regarding the bitcoin technology, and the knowledge about the
advantages of bitcoin such as secure and anonymous payment worldwide, encrypted transactions and
absence of tax, will make millions of people accept this technology in a few years. People further believe
that with bit coin technology, the government will crack down eventually. Therefore, it can be said that
the social implication of the bitcoin technology is colossal and is increasingly used for providing financial
services to the high number of people without accessing the banking.
Smart Contracts are agreements that make use of the blockchain, which is a digital ledger and is
distributed across a network [14]. Smart contracts securely record the transaction between the parties
and execute obligations of the smart contract automatically. Smart contract make use of blockchain
technology, which is a secure and it is the technical aspect of smart contracts [13]. Smart contracts are

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mainly designed as a self enforced contract and therefore, it is being undertaken by a number of
organizations. It is therefore described as a positive social innovation.
Conclusion
Therefore, it can be concluded that blockchain is an emerging technology with a number of
advantages and certain limitations. It can be described as a digital ledger in which the transactions are
made in bitcoin and are recorded chronologically. The report discusses the architecture, key features
and the different challenges associated with the bitcoin technology. The application of the blockchain
technology is further discussed in the report. The two main applications of blockchain are in the field of
currency and smart contracts. In the later part of the report, the social technical aspects of Bitcoin and
smart contract, the two major applications of bitcoin are discussed. Blockchain therefore can be termed
as an undeniably ingenious invention.

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References
[1]. Zheng, Zibin, Shaoan Xie, Hongning Dai, Xiangping Chen, and Huaimin Wang. "An overview of
blockchain technology: Architecture, consensus, and future trends." In Big Data (BigData Congress),
2017 IEEE International Congress on, pp. 557-564. IEEE, 2017.
[2]. Omohundro, Steve. "Cryptocurrencies, smart contracts, and artificial intelligence." AI matters 1, no.
2,2014: 19-21.
[3]. Crosby, Michael, Pradan Pattanayak, Sanjeev Verma, and Vignesh Kalyanaraman. "Blockchain
technology: Beyond bitcoin." Applied Innovation 2,2016: 6-10.
[4]. Pilkington, M., 2016. 11 Blockchain technology: principles and applications. Research handbook on
digital transformations, 225.
[5]. Atzori, Marcella. "Blockchain technology and decentralized governance: Is the state still
necessary?.",2015.
[6]. Lemieux, Victoria Louise. "Trusting records: is Blockchain technology the answer?." Records
Management Journal 26, no. 2 ,2016: 110-139.
[7]. Mattila, Juri. The Blockchain Phenomenon–The Disruptive Potential of Distributed Consensus
Architectures. No. 38. The Research Institute of the Finnish Economy, 2016.
[8]. Malinova, Katya, and Andreas Park. "Market Design with Blockchain Technology.", 2017.
[9]. Scott, Brett. How can cryptocurrency and blockchain technology play a role in building social and
solidarity finance?. No. 2016-1. UNRISD Working Paper, 2016.
[10]. Ammous, Saifedean Hisham. "Blockchain Technology: What is it good for?." Browser Download This
Paper ,2016.
[11]. Ouaddah, Aafaf, Anas Abou Elkalam, and Abdellah Ait Ouahman. "Towards a novel privacy-
preserving access control model based on blockchain technology in IoT." In Europe and MENA
Cooperation Advances in Information and Communication Technologies, pp. 523-533. Springer, Cham,
2017.

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[12]. Heires, Katherine. "The risks and rewards of blockchain technology." Risk Management 63, no. 2,
2016: 4.
[13]. Gabison, Garry. "Policy Considerations for the Blockchain Technology Public and Private
Applications." SMU Sci. & Tech. L. Rev. 19, 2016: 327.
[14]. Watanabe, Hiroki, Shigeru Fujimura, Atsushi Nakadaira, Yasuhiko Miyazaki, Akihito Akutsu, and Jay
Kishigami. "Blockchain contract: Securing a blockchain applied to smart contracts." In Consumer
Electronics (ICCE), 2016 IEEE International Conference on, pp. 467-468, 2016, IEEE