IEEE Consumer Electronics Magazine - July 2018 - 7

benefits, the blockchain suffers from various disadvantages,
particularly in terms of quickly reaching consensus in a vast
network, energy consumption in computation, and the storage
requirements of the entire chain for verification. This article
discusses the ins and outs of the blockchain fundamentals, its
working, different consensus mechanisms, applications,
challenges, and current trends. This is an extension of our previous
article about the basics of blockchain [1].

THE BEAUTY OF BLOCKCHAIN
Over time, information and communication technology has
undergone numerous transformations for facilitating easier,
quicker, more efficient, and more secure sharing and exchange of data, information, and funds in assorted ways.
With the arrival of the Internet, digital communications
emerged, empowering all forms of data and information
interchange through online transactions, such as financial
transactions for making payments and receiving funds. The
entire transactional and communication system goes through
a trusted intermediary that not only guarantees safe and
secure delivery but, in the case of financial transactions,
also ensures accurate changes being reflected in multiple
accounts. This trusted party is able to be questioned in the
event of any failures in updating data, delays in delivery, or
fraud [2]. But with just a single network controller, multiple
questions arise:
▼ What if this trusted party goes rogue and cannot be trusted?
▼ What if it is hacked and an attacker seizes all of the data?
This intermediary acts here as a single point of failure.
▼ Each time an intermediary is used, additional delay in communication occurs. Why not communicate P2P?
▼ The authenticity and validation of each transaction are very important, but, again, can the intermediary be trusted?
The solution to all of the above problems is provided by the blockchain, the underlying technology
invented by Satoshi Nakamoto (considered a pseudonym) in introducing bitcoin, the first-ever decentralized cryptocurrency [3]-[5]. Bitcoin exchange and
transfer occur by means of a shared distributed ledger that
records the details of every transaction happening among
the network participants without involving any trusted centralized party. The single copy of the ledger resides in synchronization with all of the involved parties, thus reducing the risk of
a single point of failure. Bitcoin works on public key infrastructure in the blockchain for authenticating anonymous users
and controlling access. For source authentication and identification, each transaction is digitally signed by the owner with a
private key.
To keep track of transactions occurring simultaneously,
multiple transactions are grouped together in a structure
called a block, which is uniquely identified by its hash and
timestamp. Validation of transactions and the block among
potentially distrusted users is done using a consensus mechanism, which means that the state of the shared ledger is

The blockchain network utilizes
the capabilities of public key
cryptography for secure operation
of the blockchain.
updated by the agreement or consensus of the majority of
nodes. This updating, in the case of bitcoin, employs the
proof-of-work consensus algorithm, whereby nodes strive to
find a special value to achieve the block's hash, less than a
target value, which is usually set to avoid any conflicts and
establish trust. This target value is set in such a way that
nodes compete to find a unique, one-time number (called a
nonce) in approximately 10 min-hence, the block generation time is 10 min. This process by which nodes perform
rigorous computations, thus devoting their resources (such as
their central processing unit and electricity) to find the nonce,
is called mining, and the nodes doing so are called miners.
Through mining, nodes compute the proof of work, which is
a form of achieving consensus among the distrusted nodes.
The main blockchain characteristics are depicted in Figure 1
[6], [7]. With the above characteristics, the blockchain has
been applied in other sectors as well, not just in cryptocurrencies. A broad overview of blockchain technology is presented
in Figure 2.

WORKING MODEL
In this section, we explain the core components of the blockchain network setup and their importance. Then we discuss
the different phases of blockchain functionality, where these
elements collaborate in performing secure communication
among distrusted nodes by publishing a distributed log of the
committed transactions, using a consensus mechanism. Next,
we give an overview of the stepwise network operation. We
have taken the bitcoin blockchain as an example here to illustrate most of the blockchain functioning.

CORE COMPONENTS
The blockchain setup and network operations are built upon
the core components shown in Figure 3.

ASYMMETRIC KEY CRYPTOGRAPHY
The blockchain network utilizes the capabilities of public key
cryptography for secure operation of the blockchain. To perform any exchange, other than being on the same platform,
users need to possess a digital wallet (functioning like a bank
account) secured with the user's private key and accessible
with appropriate signatures generated using that private key.
This wallet's public key serves as the bitcoin address known
to everyone, which is advised to change with each transaction
for maintaining users' privacy and anonymity. Private keys
are used to digitally sign transactions and are kept secret by
the user.
july 2018

^

IEEE ConsumEr ElECtronICs magazInE

7



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