IEEE Consumer Electronics Magazine - July 2018 - 9

Thus, solely for avoiding double spending, Nakamoto was the first to propose
a consensus-based, decentralized cryptocurrency among nontrusted nodes.
This consensus is an agreement among
the nodes that involves block mining,
wherein miners compete to find the
next valid block by computing a cryptographic block hash. Nodes finding the
solution are rewarded with some bitcoins, thereby generating new currency.
This hash value is called the proof of
work, and if all of the transactions and
proofs of work are valid, the nodes
accept it by updating their copy.

* Creates Secured Digital Wallet
* Private Key (Generates Digital
Signatures)
* Public Key (Represents
Pseudonymous User Address)
Asymmetric
Cryptography

Secured
Distributed
Ledger
(Blockchain)

PHASES OF OPERATION
We split the complete block formation
process in the blockchain into two
phases: 1) transaction generation and
verification and 2) consensus execution and block validation.

* Group of Transactions Form Blocks
* Represent Current State of Blockchain
* Conservation of Value Is a Must
Transactions

Consensus
Mechanism
* Common Agreement Protocol,
Validates Blocks
* Updates Ledger
* Block Miners Earn Incentives

FIGURE 3. The core components of the blockchain.

TRANSACTION GENERATION AND VALIDATION
CONTENTS
Users connected within the same network have knowledge of
each other's address before they begin any transfer. When a
new transaction is initiated, it includes input transactions, i.e.,
the amount to be transferred and the recipient's bitcoin
address. For example, if Sheryl needs to transfer 5.0 BTC to
Alice, then the transaction executing this transfer contains
the following:
▼ Input transactions: These are the source/descendant transactions whose unused transaction outputs (UTXOs) serve as
an input in this transaction. In other words, it refers to the
hash of the transaction that supplies the record indicating
from what source Sheryl earned that 5.0 BTC in her bitcoin
wallet she intends to transfer. These can be one or more
transactions whose sum turns out to be 5.0 BTC. Say there
are four transfers received from multiple sources whose sum
is 5.0 BTC, and these have already been published in the
ledger. Then there would be four input transactions for the
next transfer. The outputs of the transaction depend upon all
of the places Sheryl would split and send these 5.0 BTC.
▼ Amount to be transferred: In this case, it would be 5.0 BTC.
▼ Public key hash of the receiver: This is Alice's bitcoin
address, where she would receive the 5.0 BTC. Transactions are uniquely identified by their transaction identity,
which is the SHA-256 hash value of the input transaction
and the public key of the recipient. This is further encrypted
with the sender's private key, for generating digital signatures to assist recipients in uniquely identifying the source.
If any content is changed, it would consequently affect the
transaction identity as well as the signatures, and, in case of
a mismatch, the transaction would be discarded.

CONFIRMATION OF TRANSACTION
When Alice learns about Shirley's transaction crediting funds
to her bitcoin address, she needs to confirm that there is no
double spending by Shirley and that the transaction has been
confirmed by its existence in a valid block of the ledger. Until
the transactions are confirmed, they are not considered trustworthy. Transactions are committed only if, upon receipt of
the transaction, the following take place:
▼ Alice verifies that the referenced input transaction's UTXO
is valid, i.e., there is no double spending. To prevent double
spending in bitcoin, Nakamoto proposed that the output of a
transaction can be redeemed in one subsequent transaction.
That is, only after the successful verification of both transactions via signatures and ledger entry could the output be
redeemed in another transaction.
▼ Since only the user authorized to access the UTXO can use it
in a subsequent transaction, the recipient checks for the valid
signature, which should match the UTXO owner's signature.
▼ The referenced transaction must be published in a valid
block. The existence of a transaction in a block confirms
its validation.
▼ Conservation of value is a must, which means that, during the transfers, it is mandatory that the sum of input
UTXOs equals the sum of output UTXOs, subtracting
the amount of coin base transactions. This is most important in checking a transaction's validity. Figure 4 shows
the transaction broadcast and verification among the network nodes.

CLAIMING OWNERSHIP
Every transaction produces an output redeemable by the
recipient nodes authorized in the public key hash of the transaction. This public key hash authenticates users by uniquely
identifying them in the network while preserving their privacy. Apart from this pseudonymous identity, users need a private
july 2018

IEEE Consumer Electronics Magazine

Table of Contents for the Digital Edition of IEEE Consumer Electronics Magazine - July 2018