This thesis addresses the research question of what impact the use of blockchain technology has on improving sustainability in a smart city. For this purpose, first an insight into the emergence of blockchain technology, as well as its structure, characteristics and various consensus mechanisms is given. This is followed by insights into the different types of blockchain and the advantages and disadvantages of blockchain technology in order to create as comprehensive an understanding as possible.
Due to the continuous progress of urbanization and the associated environmental pollution and destruction, it is becoming increasingly important to find innovative solutions to these problems.
The United Nation's 17 Sustainable Development Goals (SDG) offer countries and cities a basis for improving their sustainability. SDG 11 addresses the development of sustainable smart cities and communities. Smart cities use innovative technologies that are interconnected with each other across all areas of a city to drive sustainable and resource-saving urban development and provide citizens with a high quality of life. These technologies use sensors and other devices to collect data from their immediate environment, which is then analyzed to identify problems in their early stages and make improvements. However, the large amount of sensitive and personal data also increases the risk of security vulnerabilities. One of these technologies that could help improve sustainability in smart cities and also reduce risks is blockchain technology.
Table of Contents
List of Figures
List of Tables
List of Abbreviations
1 Introduction
2 Blockchain Technology
2.1 What is a Blockchain?
2.1.1 Structure
2.1.2 Consensus mechanisms
2.1.3 Characteristics
2.2 Types of Blockchains
2.2.1 Public Blockchain
2.2.2 Private Blockchain
2.2.3 Consortium Blockchain
2.2.4 Hybrid Blockchain
2.3 Benefits
2.4 Challenges
2.4.1 Technical Challenges
2.4.2 Legal Issues
2.4.3 Security Vulnerabilities and Threats
2.5 Brief overview on the use cases of a blockchain
3 Smart City Concept
3.1 What are smart cities?
3.2 Challenges of the Smart City Concept
3.2.1 Technical Risks
3.2.2 Technical risks related to Blockchain
3.2.3 Non-technical Challenges
3.3 Sustainability in Smart Cities
4 Research Method
5 Findings
5.1 Sustainable Development Goals
5.2 Smart Environment
5.2.1 Waste, Water and Air Management
5.2.2 Smart Energy
5.3 Smart Living
5.3.1 Smart Home
5.3.2 Smart Health
5.4 Smart Governance
5.5 Smart Economy
5.5.1 Sharing Economies
5.5.2 Supply Chain Management
5.5.3 Agriculture and Aquaculture
5.6 Smart Mobility
5.7 Smart People
5.8 Smart Tourism
5.9 Challenges of blockchain use in Smart Cities
6 Real-life Use Cases
6.1 Brooklyn Microgrid
6.2 HOPU and PlanetWatch
6.3 Medicalchain
7 Discussion & Conclusion
References
Abstract
Due to the continuous progress of urbanization and the associated environmental pollution and destruction, it is becoming increasingly important to find innovative solutions to these problems. The United Nation's 17 Sustainable Development Goals (SDG) offer countries and cities a basis for improving their sustainability. SDG 11 addresses the development of sustainable smart cities and communities. Smart cities use innovative technologies that are interconnected with each other across all areas of a city to drive sustainable and resource-saving urban development and provide citizens with a high quality of life. These technologies use sensors and other devices to collect data from their immediate environment, which is then analyzed to identify problems in their early stages and make improvements. However, the large amount of sensitive and personal data also increases the risk of security vulnerabilities. One of these technologies that could help improve sustainability in smart cities and also reduce risks is blockchain technology.
This thesis addresses the research question of what impact the use of blockchain technology has on improving sustainability in a smart city. For this purpose, first an insight into the emergence of blockchain technology, as well as its structure, characteristics and various consensus mechanisms is given. This is followed by insights into the different types of blockchain and the advantages and disadvantages of blockchain technology in order to create as comprehensive an understanding as possible.
Subsequently, the smart city concept and its challenges are explained, and the concept of sustainability is defined in relation to a smart city. Finally, the results of the literature research are presented.
Based on the results, it can be concluded that Blockchain technology in a Smart City can have a great impact on the sustainability and sustainable development of the city. There are several areas listed in the results where Blockchain technology can be used, including city government, healthcare, or supply chain management. In addition, reference is made to the various SDGs to support the impact of blockchains on sustainability.
Zusammenfassung
Auf Grund der kontinuierlich voranschreitenden Urbanisierung und der damit einhergehenden Luft- und Umweltverschmutzung und -Zerstörung, wird es immer wichtiger innovative Lösungsansätze für diese Probleme zu finden. Die 17 Sustainable Development Goals (SDG) der United Nation bieten Ländern und Städten einen Ansatzpunkt für die Verbesserung ihrer Nachhaltigkeit. Das SDG 11 beschäftigt sich mit der Entwicklung von nachhaltigen, intelligenten Städten und Communities. Smart Cities nutzen innovative Technologien, die über alle Bereiche einer Stadt miteinander verbunden werden, um eine nachhaltige und ressourcenschonende Stadtentwicklung voranzutreiben, und den Bürgern eine hohe Lebensqualität bieten zu können. Diese Technologien sammeln mit Hilfe von Sensoren und anderen Geräten Daten aus ihrer direkten Umwelt, die dann analysiert werden um Probleme frühzeitig erkennen und Verbesserungen vornehmen zu können. Allerdings wächst durch die große Menge sensibler und persönlicher Daten auch das Risiko von Sicherheitsrisiken. Eine dieser Technologien, die zur Verbesserung der Nachhaltigkeit in Smart Cities beitragen und ebenfalls die Risiken verringern könnte ist die Blockchain Technologie.
Diese Arbeit beschäftigt mit der Forschungsfrage welchen Einfluss der Einsatz der Blockchain Technologie auf die Verbesserung der Nachhaltigkeit in einer intelligenten Stadt hat. Dafür wird zunächst ein Einblick in die Entstehung der Blockchain Technologie, sowie ihre Struktur, Charakteristika und verschiedene Konsensmechanismen gegeben. Darauf folgen Einblicke in die unterschiedlichen Arten einer Blockchain und die Vor- und Nachteile der Blockchain Technologie, um ein möglichst umfangreiches Verständnis zu schaffen.
Anschließend werden das Smart City Konzept und dessen Herausforderungen erläutert, sowie die Bedeutung von Nachhaltigkeit in Bezug auf eine Smart City definiert. Im Anschluss werden die Ergebnisse der Literaturrecherche zusammengefasst.
Es lässt sich anhand der Ergebnisse sagen, dass die Blockchain Technologie in einer Smart City einen großen Einfluss auf die Nachhaltigkeit und die nachhaltige Entwicklung der Stadt haben kann. Es werden in den Ergebnissen verschiedene Bereiche genannt, in denen die Blockchain Technologie zum Einsatz kommen kann, unter anderem in der städtischen Regierung, dem Gesundheitswesen oder dem Management von Lieferketten. Zudem wird auf die verschiedenen SDGs verwiesen, um den Einfluss auf die Nachhaltigkeit zu untermauern.
List of Figures
Figure 2-1 Merkle Tree (Kim, 2021, p. 57; Panda et al., 2020, p. 155)
Figure 2-2 Block Structure (Christofi, 2019, p. 22)
Figure 2-3 Overview of the Blockchain Challenges (Anita. & Vijayalakshmi., 2019, p. 3). . .18 Figure3-1 The six dimensions of a Smart City (Abraham et al., 2017, p. 11)
Figure 4-1 Literature elimination process
Figure 5-1 Blockchain-based energy trading (Sawa, 2019, p. 14)
Figure 5-2 Traditional and blockchain-based supply chain for drugs (Agbo & Mahmoud, 2020, p. 89)
Figure 5-3 Traditional Supply Chain (Saberi et al., 2019, p. 5)
Figure 5-4 Blockchain-based Supply Chain (Saberi et al., 2019, p. 5)
List of Tables
Table 2-1 Definitions of blockchain technology
Table 2-2 Comparison of consensus mechanisms
Table 4-1 Overview of the selected literature
Table 5-1 Sustainable Development Goals
Table 5-2 Blockchain use in the Smart City dimensions
List of Abbreviations
Abbildung in dieser Leseprobe nicht enthalten
1 Introduction
Urbanization, i.e. the growth and expansion of urban areas, is an important issue in terms of the opportunities it presents for human development but also for the environmental problems it creates and their possible solutions (Hassan Rashid et al., 2018, p. 68).
In 1950, less than a third of the world's population lived in large cities. Today, this figure is already more than half, and according to the United Nations (UN), it is expected to rise to over two-thirds by 2050 (Janson, 2021, para. 1).
This constant urban growth results from the many advantages that cities can offer. People move to big cities and their surroundings in hopes of a better life, thanks to a larger job market and easier access to medical care, as well as a more extensive technical infrastructure (Janson, 2021, para. 3). But also better access to leisure activities, as well as cultural offerings and a wider range of educational opportunities are reasons for the rural depopulation (Statista, 2021, p. 12).
In today's world, cities are more important than ever for global trade and as a place of digital networking and communication. They are centers of productivity and make efficient trade of goods and services possible at low cost (Hansjürgens & Heinrichs, 2007, para. 4). However, urbanization does not only offer advantages. It also brings pollution, the reduction of flora and fauna, and the depletion of natural resources (Hansjürgens & Heinrichs, 2007, para. 5). In addition, it is becoming more and more difficult to maintain sufficient agricultural land and at the same time to develop new housing, as the growth of cities demands more and more land. Furthermore, the expansion of the road network, as well as the water and energy supply and the increasing waste disposal entail increased CO2 emissions and further loss of land (Naumann, 2019, para. "Urbanisierung geht zu Lasten der Umwelt").
The effects of continuous urbanization have been of great concern to our society for several years and will continue to play a major role in the future. It is becoming increasingly important to explore new possibilities for sustainable and resource-saving development in the face of continuing urbanization and to integrate these into our everyday lives and our cities (Rat für Nachhaltige Entwicklung, 2021a; Rat für Nachhaltige Entwicklung, 2021b, para. "Der Beitrag des Nachhaltigkeitsrates").
The goal of smart city concepts is to improve the quality of life in cities through sustainable development based on the latest information & communication technologies (ICT) and careful planning (Picon, 2015, p. 24). The areas of application for ICT are highly diverse and are used in smart cities in areas such as the economy, governance, mobility and living. However, a smart city requires not only technologies, but also intelligent people with a wide range of nationalities and cultural influences (Giffinger et al., 2007, p. 11). ICT in smart cities can also reduce CO2 emissions by far more than the amount generated by their use in the production of goods and services (Boccaletti et al., 2008, pp. 2-4).
However, the digitization of cities does not only bring positive effects. For example, smart cities are more vulnerable to cyberattacks targeting sensitive data due to their interconnected cyber-physical systems. In the event of an attack, not only the attacked area could be compromised, but also the areas connected to it (Song et al., 2017, p. 392).
Here, blockchain technology (BCT) can support smart cities. A “blockchain is a type of distributed ledger technology (DLT) and architecture platform launched in 2009”, as described by Sarkar et al. (2021, p. 114). It uses decentralized data structures. Every user receives a copy of the DLT, which gives every user access to the same information (Kim, 2021, p. 50). For changes or transactions, the consent of the majority of users is required (Sabry et al., 2019, p. 1823). Users can also view all past procedures at any time (Kim, 2021, p. 50). The decentralized structures make a cyber-attack virtually impossible, as the attacker would have to attack every existing copy of the DLT (Pöchhacker-Tröscher & Scherk, 2017, p. 14).
In smart cities, blockchains are versatile. For example, they can be used for online elections or to clarify property rights (Pöchhacker-Tröscher & Scherk, 2017, pp. 37-38). Equally interesting are the potential applications in the energy sector and the healthcare industry. Integration will make the authentication of medicines, the secure storage of patient records and also the use and cost of electricity on demand, easier to manage (Shaikh & Mohammad, 2020, pp. 187-189).
Therefore, this bachelor thesis aims to answer the question "How much of an impact can blockchains have on the sustainability of smart cities? /How much of an impact can smart cities have on climate change using blockchains?" based on a literature analysis.
The literature research will be conducted using various scientific digital databases, such as IEEE Xplore, Web of Science, Wiley, and Emerald Insight. Also used will be Google Scholar, as this leads to a much larger data pool of potential sources. After potential sources are collected by their title, they will be read to decide if they are useful or not. If they fit the topic of the bachelor thesis, they will be saved for the future writing process. Once all sources are sorted through, they are read again and the key passages are marked for the writing process, which then begins.
In the foundation section, the topics of blockchain, its characteristics, the different types and the advantages and disadvantages, as well as smart cities and their advantages and disadvantages, and the meaning of sustainability in smart cities are presented in more detail. After that, the research process that has been applied will be explained. Following this, the findings section describes the results of the first part of the research, regarding Sustainable Development Goals (SDGs) that were set by the UN to enhance the global sustainability. Then, the findings of the second part of the research regarding the application areas of Blockchain technology in Smart Cities are presented and linked to the SDGs to illustrate the benefits of BCT in terms of sustainability in Smart Cities. A few real-life application examples are also presented to show that not only do theoretical possibilities for the use of BCT exist, but that it is actually already being used to increase sustainability. Finally, the bachelor thesis is concluded with a discussion and conclusion section.
However, it is not the aim of this bachelor thesis to create new concepts. This thesis will deal with the topic on the theoretical level and reach a conclusion based on the results obtained through the research. The argumentation will be supported by the literature that has been cited.
As far as my current research has shown, there are countless sources in which various possible applications of blockchains in smart cities are discussed in detail. Overall, the literature on these topics is quite diverse in terms of theoretical applications, but mostly limited to governance, supply chain, energy, and healthcare. Similarly, there are many sources on the Sustainable Development Goals (SDGs) that discuss how to meet these goals. However, so far, I have found only a few sources which connect the topics of blockchain and SDGs.
The rest of this thesis is structured as follows:
2. Blockchain
2.1. What is a Blockchain?
2.2. Types of Blockchains
2.3. Benefits
2.4. Challenges
2.5. Brief overview on the use cases of a Blockchain
3. Smart City Concept
3.1. What are Smart Cities?
3.2. Challenges of the Smart City Concept
3.3. Sustainability in Smart Cities
4. Research Method
5. Findings
5.1. Sustainable Development Goals
5.2. Smart Environment
5.3. Smart Living
5.4. Smart Governance
5.5. Smart Economy
5.6. Smart Mobility
5.7. Smart People
5.8. Smart Tourism
5.9. Challenges of Blockchain use in Smart Cities
6. Real-life use cases
6.1. HOPU
6.2. PlanetWatch
6.3. Brooklyn Microgrid
7. Discussion & Conclusion
2 Blockchain Technology
To get a good insight into the blockchain, this chapter deals with the origin, structure, properties, and different types of blockchains. Since DLT is mostly used as a synonym for BCT, the differences between these two concepts are elaborated in this chapter. Then, the challenges and benefits associated with the use of BCT will be addressed, and finally a brief overview on the use cases of a blockchain will be given.
2.1 What is a Blockchain?
Looking at the origin of today's blockchain technology, it becomes apparent that it has been influenced by several different concepts.
The first steps toward today's BCT were taken in 1991 when Haber and Stornetta published the paper "How to Time-Stamp a Digital Document" (Sathya & Jena, 2020, p. 38). In it, Haber and Stornetta describe a method of providing digital documents with precise timestamps that cannot be changed, regardless of the properties of the media on which they are stored. For this purpose, the authors propose a sequence of hash functions and digital signatures. Another positive effect that results from using hash functions is the assurance of user anonymity (Haber & Stornetta, 1991). A year later, Haber and Stornetta, along with Dave Bayer, published the follow-up paper, entitled "Improving the Efficiency and Reliability of Digital Time-Stamping" in which they incorporated Merkle trees , into their initial approach to improve the integrity of the data (Bayer et al., 1992).
Another step in the direction of today's BCT was taken by Adam Back in 2002. He developed a Proof-of-Work (PoW) concept for email spam control, which he called Hashcash (Back, 2002).
Three years later, in 2005, Nick Szabo described a concept for a cryptocurrency called Bit Gold. This concept, along with the other concepts mentioned, laid the foundation for Nakamoto's Bitcoin concept (Chohan, 2017, p. 2).
In 2008 Nakamoto describes a system, which he named Bitcoin, for decentralized digital currency in his white paper, that prevents double-spending and does not require an intermediary, using a Peer-to-Peer (P2P) network (Nakamoto, 2008).
With Nakamoto's theoretical concept of the Bitcoin system in 2008 and its implementation a year later, BCT and its underlying technologies, such as DLT, eventually gained prominence (Rieck, 2019, pp. 222-225).
Today, blockchain and DLT are mostly understood as synonyms and used accordingly. However, there are differences between the two technologies, which is why a differentiation appears necessary.
DLT is a system for storing transaction records that is distributed across many computers. The records already stored cannot be modified nor deleted, but new transactions can be added at any time (Xu et al., 2019b, p. 5).
The DLT is a system that uses a decentralized and digitally stored distributed ledger, in which every user, who is part of this network, is in possession of an exact copy of all data stored in the ledger (Romero Ugarte, 2018, p. 1). Unlike a classic transaction, no intermediary is needed to add new records. All users can add and exchange records at any time, which are continuously updated (Natarajan et al., 2017, p. 2).
Blockchain technology is the most well-known use case of the DLT. A blockchain consists of interlinked blocks that contain records of transactions (Deshpande et al., 2017, p. 1). Blockchains are part of DLT, but this does not mean that every distributed ledger with a decentralized data structure is automatically a blockchain, nor that every type of DLT requires a chain of blocks to store data. However, if blocks are chained together with the help of hash functions, then it is a blockchain. (Adam, 2020, p. 5).
To date, a single definition for blockchain or DLT technology has not been agreed upon, as it is still in an active state of development (Deshpande et al., 2017, p. 1).
The following table provides a brief overview of various definitions of BCT by different authors:
Table 2-1 Definitions of blockchain technology
Abbildung in dieser Leseprobe nicht enthalten
This bachelor thesis uses the definitions of Sathya and Jena (2020) and Fill and Meier (2020), provided in the table above, as a basis for the BCT.
Today its usefulness is no longer limited to cryptocurrency. It can, for example, also be found in areas such as healthcare, supply chain and governance. (Adam, 2020, p. 60). A more detailed insight into these areas of application is provided in chapter 5.
2.1.1 Structure
After the emergence of BCT and its differences to DLT have been discussed, we will now take a closer look at how exactly a blockchain and its underlying technologies work.
A blockchain is a, P2P-Network based chain, which consists of individual blocks chained together by hash functions (Mittal, 2021, pp. 2-3). It also uses a distributed ledger to ensure the safety of its data by distributing a copy of the current blockchain to every user on the network (Meinel & Gayvoronskaya, 2020, p. 11). To further strengthen the security of the data, the blockchain uses consensus mechanisms and hash values (Chowdhary, 2020, p. 92; Panda et al., 2021, p. 261).
Consensus mechanisms help users of a blockchain network decide whether to validate a block and add it to the chain or not. The decentralized consensus mechanism replaces the need for a trusted third party to confirm the integrity of transactions (Panda et al., 2021, pp. 6 & 83).
There are many different consensus mechanisms, such as PoW or Proof-of-Stake (PoS), which will be introduced in more detail in chapter 2.1.2.
Hash values are large amounts of data that have been converted by hash functions into a hash value, with which blocks, and the data stored in it can be identified. Each hash value is as unique as a human fingerprint and cannot be changed (Meinel & Gayvoronskaya, 2020, pp. 19-20). Any change to the stored data results in a new hash value being created. This change causes inconsistency in the blocks, since subsequent blocks carry the old hash value, and reveals the tampering (Meinel et al., 2018, pp. 20-21; Meinel & Gayvoronskaya, 2020, pp. 20-21).
A closer look at the structure of a block is helpful to know where and how exactly hash values are used. Each block consists of a block head and a block body. In the block body all transactions of the block are stored, while the block header contains the Merkle tree root, timestamps, a parent block hash, as well as user defined values, such as digital signature, nonce and nBits (A. Kaur et al., 2020, pp. 27-28; Prashanth Joshi et al., 2018, p. 126).
The Merkle tree root is the combination of all hash values of every transaction in a block. Any changes within the block, no matter how small, can be detected through it (Fill & Meier, 2020, pp. 8-9). Figure 2-1 shows the merging of hash values (Leaves) into a Merkle tree root.
Figure 2-1 Merkle Tree (Kim, 2021, p. 57; Panda et al., 2020, p. 155)
Abbildung in dieser Leseprobe nicht enthalten
In Figure 2-1 the figure has been reconstructed based on the cited papers.
The parent block hash contains the hash value of the previous block with which the new block is added to the chain after validation (Kim, 2021, p. 53).
With the help of timestamps, the creation of each document or transaction in a block can be proven and can thus, for example, show the true owner in disputes over ownership and copyright claims (Brünnler, 2018, p. 21).
For digital signatures and transaction processing, each user has two keys, a private and a public one. The public key is visible to every user in the network and is used to encrypt transactions, while the private key is used to decrypt transactions (Zheng et al., 2017, p. 558). Furthermore, the private key is used for digital signatures, with which documents and other digital files can be signed which make them legally binding (Fill & Meier, 2020, p. 2).
Bits specifies the target threshold that miners have to find to successfully solve the given task (Zheng et al., 2017, p. 558).
The nonce value is required when a blockchain is using PoW for mining cryptocurrency (Panda et al., 2021, p. 4). Nonce generates a value that starts with a certain number of zeros. The number of zeros indicate the level of difficulty of the task that the miners have to solve in order to successfully have a block validated and added to the blockchain (Fill & Meier, 2020, p. 25; Zheng et al., 2017, p. 560).
Figure 2-2 Block Structure (Christofi, 2019, p. 22)
Abbildung in dieser Leseprobe nicht enthalten
In Figure 2-2 the figure has been reconstructed based on the cited paper.
There are also other types of blocks that mostly contain the same properties as the normal type of block that was just described, which are the genesis block, the stale block, and the orphan block. The Genesis block is the very first block of a blockchain and has no parent block hash (Zheng et al., 2017, p. 558). It is thus indirectly the parent of all following blocks, which are therefore all connected to it (Kim, 2021, p. 54).
A stale block is a block that has been validated but has been overridden by a longer chain and is thus no longer part of the longest chain (Kim, 2021, p. 54).
If a blockchain has more than one child block due to a split, only the first validated child block is added to the chain when the split is resolved. The other child block then becomes an orphan block (Prashanth Joshi et al., 2018, p. 125).
2.1.2 Consensus mechanisms
As already mentioned in the previous subsection, there are various consensus mechanisms that can be used in a blockchain. Some of these mechanisms, namely PoW, PoS, Delegated Byzantine Fault Tolerance (dBFT), Proof-of-Elapsed-Time (PoET), and Proof-of-Activity (PoAc) will now be described in more detail.
The PoW consensus mechanism is used in blockchain networks that generate cryptocurrencies, such as Bitcoin (Zheng et al., 2017, p. 559). Users, also called miners, compete against each other in solving complex mathematical puzzles (Meinel & Gayvoronskaya, 2020, p. 55; Zheng et al., 2017, p. 560). The difficulty of the puzzles is adjusted every two weeks, in which 2016 new blocks should have been added to the chain. If the time needed to verify the 2016 blocks is less than the given time frame of two weeks, the difficulty level will be increased and if the time frame is exceeded, the difficulty level will be lowered (Meinel & Gayvor- onskaya, 2020, p. 53).
The miners have to guess a dummy number, called a nonce. This number, when combined with the block's data and passed through a hash function, must produce a result that matches the given conditions, such as the number of zeros with which the hash has to begin (Kim, 2021, p. 59). When a matching result is found, the other users verify the result and the Block is added to each users Blockchain, the miner also receives the block reward for solving the puzzle correctly (Kim, 2021, p. 59; Prashanth Joshi et al., 2018, p. 127).
One problem with PoW is that mining requires a large amount of energy. Even though PoW is not the most efficient solution, it is one of the most popular consensus mechanisms (Kim, 2021, p. 59).
PoS uses an election process, with regards to the size of each user's stakes, in which a user is randomly selected to validate the next block. With PoS, users are no longer referred to as miners, but as validators (Adam, 2020, p. 33). To become a validator, a user must deposit a certain amount of coins into the network as stake (Prashanth Joshi et al., 2018, p. 128). The amount of the stake determines the chances of being selected to validate the new block (Adam, 2020, p. 32). If a user is selected and successfully validates a block he receives the fees associated with each transaction as a reward for his work, but he will lose part of his stake if he approves a fraudulent transaction (Adam, 2020, p. 33). Since PoS doesn’t permit every user to mine new blocks, it does not consume as much energy as PoW (Saleh, 2020, p. 8).
To understand the necessity of the dBFT, it is necessary to first explain "The Problem of the Byzantine Generals". The problem describes a group of generals who have surrounded a city with each of their armies and now must agree whether to attack the city or not. The generals can only communicate with the help of messengers and once a decision has been made it cannot be reversed. The decision must also be unanimous to take further actions. However, there may be a traitor among the generals, who could provide false information to the other generals. So if all the generals agree to attack and there is a traitor among them who does not keep the agreement, the attack will fail (Adam, 2020, p. 35).
In terms of the blockchain, this would mean that without consensus, users would not be able to add new blocks to the blockchain. To prevent this, the dBFT was developed. This ensures that only 2/3 of the network users must agree to the validation of a new block even if 1/3 of the users fail or harbor bad intentions (Christofi, 2019, p. 41). However, there must not be a situation where more than 1/3 of the users drop out, otherwise the security and stability of the network would be jeopardized (Adam, 2020, p. 35).
To overcome the limitation of usability of the practical Byzantine Fault Tolerance, which only works for private blockchain networks, the dBFT was developed to fit public blockchain networks (Christofi, 2019, p. 41). In dBFTs there are different roles that can be assigned to the users. These roles are the speaker, the delegate and the consensus users. The speaker users make new blocks, which are then validated by the delegate users and the consensus users take care that all users comply with the consensus (Adam, 2020, p. 36).
In the PoET consensus mechanism developed by Intel, each network user is given a random waiting period and must wait until this period has ended (Panda et al., 2020, pp. 60-61). The user whose waiting period ends first generates a new block and then distributes the information to all other users. This process will be repeated for each new block (Kim, 2021, p. 60). PoET can be compared to a lottery in which each user has the same chance of winning, thanks to the random waiting periods. PoET is used in private blockchain networks and consumes less energy than PoW (Adam, 2020, p. 39).
The PoAc is a mix of the two consensus mechanisms PoW and PoS. It lets users solve a mathematical problem until a block is created and then assigns a random group of users to validate the new block (Adam, 2020, p. 37). Once it has been validated by all selected users, the block is added to the blockchain (Adam, 2020, p. 37). The choice of validators is made by the stake size of the respective users (A. Kaur et al., 2020, p. 36). The combination of PoW and PoS gives the network a higher level of security, as an attacker would not only have to take over more than half of the hashing power of the network, but also the highest stake in order to successfully carry out an attack (Adam, 2020, p. 37; A. Kaur et al., 2020, p. 36).
Table 2-2 Comparison of consensus mechanisms
Abbildung in dieser Leseprobe nicht enthalten
Table 2-2 is a reference to (Alam, 2020, pp. 4-5), (Christofi, 2019, p. 46), (Zheng et al., 2017, p. 560), (Adam, 2020, pp. 37 and 44) and (Chinmay Chakraborty et al., 2021, pp. 9-10).
2.1.3 Characteristics
After outlining the origins and structure of blockchains, as well as the variety of consensus mechanisms, this section takes a closer look at the key characteristics of blockchains, which are transparency, immutability, decentralization, and anonymity.
The transparency of the data within the blockchain network, is created by giving all users access to the data and allowing them to add new data (Niranjanamurthy et al., 2018, p. 14743). However, a distinction is made between public and private blockchains. While the above fully applies to public blockchains, there are restrictions in private blockchains, only certain users have access to the data and can update it, and accordingly the transparency is also only given for these users (Diedrich et al., 2018, p. 3).
All added and approved data in the blockchain is protected from tampering through the use of timestamps and signatures, as well as through linkage to the previous and subsequent block, and will be permanent (Wilkie & Smith, 2021, p. 158). The only way the stored data can be changed is if a user has control over more than half of the blockchain (Lin & Liao, 2017, p. 653; Niranjanamurthy et al., 2018, p. 14744), which is known as 51% attack (see chapter 2.4.3).
Decentralization means that the blockchains data is stored on all users' computers connected to it (Niranjanamurthy et al., 2018, p. 14743). Due to the decentralization of the blockchain, there is no longer a need for an intermediary, as a consensus mechanism is now used to keep the network secured (Wilkie & Smith, 2021, p. 159).
Anonymity in a blockchain is achieved through encryption using private and public keys (Wilkie & Smith, 2021, p. 158). This means that a user's data stored in the blockchain cannot be traced back to him via his name, but only via his blockchain address (Adam, 2020, p. 17; Lin & Liao, 2017, p. 653). Even though the data of a user can be traced back to its origin by using the blockchain address, the identity of a user will still be protected (Sathya & Jena, 2020, p. 45).
2.2 Types of Blockchains
This subchapter takes a closer look at the different types of blockchains, which are the public, private, consortium and hybrid blockchain. Each of these blockchain types has different strengths and weaknesses and can be used for different purposes. The main differences relate to the type of access permission and the size of the user group.
2.2.1 Public Blockchain
Public Blockchains, also known as permissionless Blockchains, are completely decentralized and publicly accessible to everyone (Goranovic et al., 2017, p. 6154). Every user has the right to read the blockchain and carry out transactions. Users can also participate in consensus decision-making processes (Lin & Liao, 2017, p. 655). Consensus mechanisms serve to ensure the integrity of the data, as there is no longer an intermediary due to the decentralization of the system. Public Blockchains are mostly used for cryptocurrency platforms like Bitcoin and Ethereum (Ahmed et al., 2021, p. 276; Pieters & Smith, 2017, p. 87).
By distributing public ledgers, the public blockchain offers its users a high level of transparency and data integrity. Another positive aspect of public blockchains is immutability, i.e. protection against tampering with the data, as well as the prevention of censorship due to decentralization and the granted anonymity of the users (Benedetti, pp. 71-72).
However, public blockchains do not only have advantages to offer. The limited transaction rates lead to low transaction speeds, which result in a limitation of use. Due to the high energy consumption of the consensus mechanisms, high costs are also an issue, and the scalability becomes increasingly difficult the larger the network becomes (Benedetti, pp. 72-73).
2.2.2 Private Blockchain
Private Blockchains, also known as permissioned Blockchains, are mostly used when it comes to a smaller group of users who trust each other and want to share information with each other (Pieters & Smith, 2017, p. 86). They are more centralized, offer the ability to set up different levels of access, and have stricter rules for adding and removing users (Pieters & Smith, 2017, p. 86). Private blockchains are always controlled by one party, which can be an individual, a group, or a company (Goranovic et al., 2017, p. 6154; Shrivas & Yeboah, 2018, p. 3). By limiting permissions, the history of the blockchain can only be viewed by a few select users (Meinel & Gayvoronskaya, 2020, p. 58). Higher levels of trust mean that protocols, rather than consensus mechanisms, are sufficient for approval of new data and decision-making, which leads to improved scalability (Pieters & Smith, 2017, p. 87). Private Blockchains are mainly used by companies for internal company processes (Goranovic et al., 2017, p. 6154).
Since private blockchains have a limited set of users, consensus mechanisms and transactions can be completed more quickly and are therefore less expensive (Goranovic et al., 2017, p. 6154). In addition, the blockchain can be altered, allowing transactions to be reversed, for example. Furthermore, one can achieve more privacy with this type of blockchain (Goranovic et al., 2017, p. 6154).
Just like public blockchains, private blockchains also have disadvantages. The insight into the history is only granted to previously defined users, which results in a lack of transparency. Also, only a certain part of the user group is allowed to modify the blockchain and approve transactions. This leads to vulnerabilities, as the appointed users can be manipulated by others (Meinel & Gayvoronskaya, 2020, pp. 58-59).
2.2.3 Consortium Blockchain
A consortium blockchain is a type of private blockchain, which is managed by more than one company (Pieters & Smith, 2017, p. 86; Shrivas & Yeboah, 2018, p. 3). The group or company that has authority over the blockchain can be defined in advance (Niranjanamurthy et al., 2018, p. 14752). It is semi-decentralized and its contained information can be public or private (Lin & Liao, 2017, p. 655). Transactions in a consortium blockchain can only be approved and added by authorized parties, but every member of the network can read the transactions (Kha- zanchi et al., 2021, p. 104).
Consortium blockchains can spread implementation costs, combine technical and human resources, and create protocols to establish industry standards (Pieters & Smith, 2017, p. 86). It also provides industries with a stronger and more unified voice with regulatory entities (Pieters & Smith, 2017, p. 86). Goranovic et al. state that consortium blockchains “are faster and provide more privacy” and that “This type of blockchain is mostly used in the financial sector” (Goranovic et al., 2017, p. 6154).
2.2.4 Hybrid Blockchain
Hybrid blockchains combine the advantages of both the private and the public blockchain (Panda et al., 2021, p. 37). On one hand, they provide the decentralization of the public blockchain, and on the other hand, they preserve the control over the availability and authority of the information contained in the blockchain, which a private blockchain provides (Panda et al., 2021, p. 37; Pieters & Smith, 2017, p. 88). Hybrid blockchains can, for example, be used to share information with external network users such as a main supplier or a key customer (Pieters & Smith, 2017, p. 86).
Some advantages of the hybrid blockchain are “[...] privacy, [...], simplicity, flexibility and transparency [...]” (Panda et al., 2021, p. 37). By combining private and public blockchain features, the hybrid blockchain is resistant to 51% attacks and is also able to generate improved speed in terms of its processes and stored data and information, however, this can only be achieved through the use of centralized control (Khazanchi et al., 2021, p. 105; Pieters & Smith, 2017, p. 89).
2.3 Benefits
In addition to the characteristics mentioned in chapter 2.1.3, which are also considered to be benefits of BCT, there are further benefits, like efficiency, traceability, faster processing, and security, that can be achieved using blockchains. These benefits are explained in more detail below.
Blockchain technology increases the efficiency of transactions, as they can be carried out without going through an intermediary. Furthermore, blockchains can increase business efficiency by managing entrepreneurial activities and smart contracts (Niranjanamurthy et al., 2019, p. 14753).
Blockchain technology offers its users a high level of traceability of the records stored in it. This can help companies with their internal and external processes, such as supply chains and communication between different departments, as well as the government in detecting and dealing with criminal activities (Niranjanamurthy et al., 2019, p. 14753; Wilkie & Smith, 2021, p. 162).
With the help of BCT, transactions between users can be carried out much faster. In banking, transactions usually take several days to be processed, with BCT this time can be reduced to a parr minutes or even just seconds (Golosova & Romanovs, 2018, p. 4). Likewise, transactions in the Blockchain network are not bound to service hours, they can be executed around the clock (Niranjanamurthy et al., 2019, p. 14753).
By storing the data of a blockchain on each user's computer, data loss can be avoided and its security can be ensured (Diedrich et al., 2018, p. 3). Also, due to the cryptographic methods used in BCT, its stored data is largely protected from manipulation and other attacks. Users must have each transaction verified by multiple users with their digital signatures for it to be accepted, and once stored on the blockchain network, it cannot be altered or deleted (Golosova & Romanovs, 2018, p. 4).
2.4 Challenges
Of course, blockchains, like any other technology, are not without flaws, so the following section will discuss potential security risks and issues that can impact blockchain technology.
2.4.1 Technical Challenges
Challenges at the technical level can include scalability, energy consumption, signature verification, and loss of privacy.
Scalability generally expresses the ability of a system to grow. Trying to adapt a blockchain network to new needs and changes can lead to losing the decentralization or the security of the system (Meinel & Gayvoronskaya, 2020, p. 63). Blockchain technology is unable to adequately respond to and keep up with the growing number of users and the constantly increasing amount of data within the network. This leads to problems with the transfer rate of transactions and its verification, which slows down considerably as a result (G. Kaur & Gandhi, 2020, p. 378; Shaikh & Mohammad, 2020, p. 190).
Due to the application of certain consensus mechanisms, especially PoW, the use of BCT usually results in high energy consumption (Shaikh & Mohammad, 2020, p. 191). The extensive energy consumption is due to working on a large amount of mathematical problems that need to be successfully solved in order to mine new coins, and because each new transaction needs to be verified by all network users (Niranjanamurthy et al., 2019, p. 14755; Sarmah, 2018, p. 27). Therefore, efforts are constantly being made to develop new consensus mechanisms in order to solve this problem (Shaikh & Mohammad, 2020, p. 191).
In order to identify the origin of transactions, each transaction must be digitally signed using cryptography (Niranjanamurthy et al., 2019, p. 14754). However, this leads to high energy consumption (Golosova & Romanovs, 2018, p. 4).
Due to the publicly accessible transaction data and the digital signatures of the users that are included in it, the users are never completely anonymous in a blockchain network (Shaikh & Mohammad, 2020, p. 190).
2.4.2 Legal Issues
Legal difficulties, in terms of regulation, confidentiality, accountability and jurisdiction, may also arise when using blockchain technology.
It is important that organizations have clear, consistent, and implementable regulatory standards and guidelines. Without these, the adoption and use of blockchain projects may come to a halt and slow down the implementation of BCT even further in the future, even though this could have been prevented by establishing uniform standards at an early point in time (Wilkie & Smith, 2021, p. 168). So-called regulatory sandboxes are a great way to create these standards for compliance. In regulatory sandboxes, industry and regulators can work together to test and, if necessary, adapt existing regulations under realistic conditions without fear of regulatory consequences (Salmon & Myers, 2019, p. 6).
The public nature of BCT makes it also difficult to ensure confidentiality of information within the network. However, confidentiality can be maintained through a private blockchain that allows access and viewing only by specified users (Salmon & Myers, 2019, p. 19).
In blockchain networks, especially if they are public blockchains, it is difficult to identify a responsible party who can be held accountable for violations of laws and regulations within the network (Salmon & Myers, 2019, p. 5). However, proof of identity can be required to determine the identity of a specific user, if necessary (George et al., 2019, p. 19).
The users of a blockchain network can be spread all over the world, so it is difficult to determine which country has jurisdictional authority and which laws apply (George et al., 2019, p. 20). It may happen that transactions fall under all jurisdictions and laws that exist due to the users' locations (Salmon & Myers, 2019, p. 2).
2.4.3 Security Vulnerabilities and Threats
Various security risks and threats exist in the application of blockchain technology, in the following section four of the most prevalent threats, namely double spending, the 51% attack, the Sybil attack and the selfish mining attack, will be explained.
In double spending, two almost identical transactions, the only difference being the recipient address, are placed in the blockchain network with the same fund for verification (Singh et al., 2021, p. 13943). Since the blockchain only accepts the first verified block and ignores the second identical block, the attacker has to get the duplicated block verified before the original block (Li et al., 2018, pp. 9-10). The seller receives the original transaction so that he doesn't suspect a thing. Since the duplicated block was added before the original block, the money goes to the recipient entered in the duplicated block and not to the actual seller (Hasanova et al., 2019, 3).
In a 51% attack, one miner or a group of miners commands more than half of the total mining hash rate or computers on a blockchain's network (Anita. & Vijayalakshmi., 2019, p. 2). Thus, by preventing verification of transactions, the majority owner, or owners, could stop payments between some or even all users (Singh et al., 2021, p. 13943). In addition, they could reverse transactions that occurred while they were in control, thus creating double spending for their own benefit (Hasanova et al., 2019, 5).
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- Citation du texte
- Anonyme,, 2022, Green Blockchain and Improvement of Sustainability in Smart Cities, Munich, GRIN Verlag, https://www.grin.com/document/1340009
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