KING FAISAL UNIVERSITY

College of Computer Sciences and Information

Technology (CCSIT) Communication and Computer
Networking Department

Blockchain and cryptocurrency

Name: Suliman Alsowyigh

ID: 217042095
Table of Contents
Introduction ......................................................................................................................... 2
History................................................................................................................................. 2
Cryptocurrency ................................................................................................................... 3
Blockchain .......................................................................................................................... 3
Decentralized system .......................................................................................................... 5
Blockchain technology in finance ....................................................................................... 6
Smart contracts ............................................................................................ 6
Document and records management: .......................................................... 7
Supply chain management: .......................................................................... 7
How is Blockchain Security................................................................................................ 8
Algorithm based security ............................................................................. 8
Hashing operations-based security .............................................................. 8
The Double Spending Problem.................................................................... 8
Privacy ......................................................................................................... 9
Features of cryptocurrency ................................................................................................. 9
challenges of cryptocurrencies .......................................................................................... 10
Conclusion ........................................................................................................................ 10
References ......................................................................................................................... 11

1
Introduction

Blockchain technology has been receiving a lot of interest in many sectors of the
economy in recent years, and it has emerged in the context of mistrust towards the world
of finance and the ability of countries to maintain their financial stability.
After the financial crisis of 2008 and the failure of banks, financial institutions, and
governments to regain the confidence of financial dealers, following the negative effects
of the crisis, and coinciding with the explosion of the innovations of the Fourth Industrial
Revolution, the signs of the so-called second generation of the Internet appeared, And
then the idea of a new form of trust was developed based on technology and
decentralized exchanges on the Internet, giving birth to the blockchain technology, or
what is known as the chain of trust, which is sometimes incorrectly confined to the
bitcoin currency.
The privacy and integrity of data are subject to several security vulnerabilities due to the
rapid development of Internet technology. A centralized, single trusted entity, such as the
system administrator, is in charge of distributing keys to all system users in the majority
of institutions, including colleges and banks. Since the entire system is controlled by a
single central figure and is non-irreversible, changing the identity information is simple.
A single point of compromise could allow an adversary access to data held in centralized
systems. As a result, data privacy and integrity were frequently not provided by
centralized systems. Without relying on a centralized trusted authority, blockchain
technology offers the ability to guarantee identity information integrity and single-point-
of-failure security. (Odelu, 2019).

History
Bitcoin as a cryptocurrency was first conceptualized by Satoshi Nakamoto in 2008, while
Blockchain was later introduced in 2009. Blockchain is a decentralized, unchangeable
ledger that is implemented in a distributed manner (i.e., a bank, company, or
government). Each participant in the blockchain network is a computer node running a
particular client that enables communication with the blockchain. A node is allowed to
hold a complete copy of the blockchain ledger when it joins the Blockchain network.
(Odelu, 2019)
Mining is the practice of network nodes validating transactions, and these nodes are
referred to as minors. By attaining consensus and utilizing consensus protocols, such as
proof-of-work, proof-of-stake, delegated proof-of-stake, and proof-of-importance, etc.,
minors mine transactions and produce blocks with valid sets of protocols.
Following the introduction of the blockchain by Bitcoin, a variety of blockchains based
on different permission models have arisen. One such form is the public permissionless
blockchain, which is accessible to everyone.

2
Bitcoin and Ethereum; Public permissioned blockchain, Sovrin Permissioned blockchain,
Quorum and Hyperledge; Private permissioned blockchain (fully private or restricted to a
limited set of authorized nodes).
Since the blockchain ledger cannot be changed, integrity is provided. To all members of
the legal network, the ledger is distributed and open to the public. As a result, user
authentication using identity management on the blockchain while maintaining privacy
becomes an intriguing and developing research issue. In order to handle identification on
the blockchain for user authentication, this study provides a revolutionary key
management system. To the best of our knowledge, this is the first identity management
system for user identification on blockchain that protects the privacy and is appropriate
for consortium blockchain. (Odelu, 2019)

Cryptocurrency
Cryptocurrency is one of the most important innovations of the most recent blockchain
technology in finance. Numerous cryptocurrencies have been launched since the creation
of the first cryptocurrency, Bitcoin, in 2009 for a variety of uses and goals.
A global digital payment system that operates online is called cryptocurrency. Traditional
cross-border financial transfers utilize the Single Euro Payments Area (SEPA) system in
the European Union or the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) system globally, both of which provide secure and precise
fund transfers. However, one of the main drawbacks of these methods is the extended
transaction time; international transfers made using the SWIFT system typically take a
few days to complete (up to five days in some situations). Digital payments can be used
for remittances, micropayments, and business transactions. They can be made securely in
under an hour or, in the case of some cryptocurrencies, just a few seconds. (Joo, 2019)

Blockchain
Blockchain put simply, is a ledger (database) that is shared among all participants in a
network. Blocks are the collective units of recordings that are continuously fed to the
network. Each of these blocks has a timestamp and is connected to the one before it,
forming a chain.
Blockchain uses encryption to prevent tampering with the ledger. Although the ledger is
accessible to all users, only the person who has unique cryptographic keys can ask to add
a new record. Additionally, the new record can be verified, and the ledger's inclusion
decided by other network users. With this method, it is nearly hard to change or fabricate
records. The principles below demonstrate how the Bitcoin network uses blockchain
technology to provide secure and transparent transactions without the need for a financial
intermediary. Everyone who is a part of the Bitcoin network has a wallet. A set of keys
are accessible to each Bitcoin owner: (Joo, 2019)

3
 1. 1. A public key is similar to a bank account number or an email address. The user's
Bitcoin wallet address can be found in this public key. When a user of the Bitcoin
network wants to transmit money to another user's Bitcoin wallet, they can share
their private key with them.
2. A private key enables a user to transfer Bitcoins from their wallet to the wallet of
another user on the network. A private key should be kept secret to prevent
unauthorized use since it can be compared to a password.
A message is broadcast to all users of the Bitcoin network when a Bitcoin owner decides
to transfer a specific quantity of Bitcoin to another user's wallet. To sign the
communication, he or she employs their private key. Through a challenging mathematical
calculation, other network users known as "miners" confirm that the transaction's initiator
is authorized to carry out the transaction. This transaction will be put into the ledger
along with other transactions as a new block.
It typically takes 10 to 20 minutes to validate pending transactions. Since each block
contains information from earlier blocks, it is nearly hard to change the recorded
transactions in a single block. Blockchain technology succeeds in being a transparent,
secure, decentralized, and quick platform for carrying out transactions as a result.

4
The full blockchain procedure in Figure 1 is depicted when A chooses to give the
quantity to receiver B. A network block is used to represent the transaction because
Sender A is still making it (Heilman, 2016).
The block is broadcast over the network and made available to all other network
stakeholders for legal transaction verification.

Figure 1: blockchain mechanism

Decentralized system
One needs to understand how a centralized network functions in order to comprehend the
decentralized network. Many applications use the framework of a centralized network. A
centralized system is employed by financial institutions, corporate network servers, and
online social media networks like Facebook. (Joo, 2019)
In such systems, a central authority has control over the system since it has access to all
the data provided by network participants. A centralized network's security is primarily
its flaw. All network data are vulnerable if a hacker has access to the central authority. In
a centralized network, the entire system becomes unreachable once the central authority
is gradually destroyed.
Because no other members of the network are impacted if one party becomes
compromised, this form of network offers a significantly better level of security.

5
Blockchain technology in finance
While other projects have attempted to apply this recently ground-breaking blockchain
technology in multiple industries, cryptocurrency has so far proven to be its most
successful use.
Although many things contribute to this achievement, value storage capacity is one of the
key features that blockchain technology enables cryptocurrencies to embrace. Due to its
ability to store value, which is one of the main characteristics of commodities,
cryptocurrency is sometimes claimed to be labeled as a commodity item. For instance,
gold can be bought or sold at its value regardless of its shape because it is a physical
object with intrinsic value.
Similar to fiat cash, cryptocurrency has the ability to retain value and may be exchanged
for its market price. Additionally, excessive money printing and supply into the financial
system through open market operations and quantitative easing continuously observed in
several economically powerful countries have increased people's concern for potential
currency value declines since the global financial crisis of 2008.
The restricted supply of crypto coins (such as the 21,000,000 in Bitcoin) became an
appealing feature to protect the value of assets and the stability of the system in the
middle of such an unreliable state.
blockchain technology's incapability to be manipulated by a central authority or other
parties is another distinctive feature.
Blockchain maintains records in a publicly distributed ledger as irrevocable records that
cannot be changed by any users. Additionally, because of the decentralized nature of the
blockchain, no central authority has access to the system's records, eliminating any
possibility of record manipulation. (Joo, 2019)
Below are some of the sectors in which blockchain technology is being developed.
(Tredinnick, 2019)
Smart contracts
Providing a platform for the implementation of smart contracts, which have the potential
for a wide range of applications, is another significant application of blockchain
technology. A self-executing contract known as a "smart contract" was developed by a
computer protocol and kept in a blockchain for the aim of performing digital facilitation,
verification, and enforcement of a contract discussion without the assistance of a third
party.
The importance of a smart contract comes from the user's ability to negotiate the terms of
an agreement under the contract with a wide range of varied conditions. Therefore, he or

6
she is given the option to arrange for the contract to be executed only in the event that all
necessary criteria are satisfied.
One of the biggest advantages of employing a smart contract is that there are no third
parties involved in the execution process. Other excellent qualities include automatic and
digital recordkeeping, cost-effectiveness, and fraud reduction.
Document and records management:
The peer-to-peer architecture of blockchains arguably streamlines this process, adds
security, and reduces reliance on third parties, despite the fact that proprietary systems
frequently include version management and auditing capabilities that mirror the potential
role of blockchains in document and records management. (Tredinnick, 2019)
Such systems, which incorporate blockchain and distributed ledger technology, enable
individuals or groups to share and work together on records or documents while
maintaining confidence in the accuracy of those records, even when the identities of those
who update or add to those records are unknown.
Patient health records in medical contexts are one area where blockchain methods to
records management are being researched.
The Massachusetts Institute of Technology's MedRec project is a proof-of-concept that
pools medical data under the patient's control utilizing the smart contract capabilities of
the Ethereum network. (Tredinnick, 2019)
Blockchain technology is being used by Medical Chain to create the MyClinic service in
the UK, enhancing the security, openness, and privacy of patient records.
Supply chain management:
Another killer application for the blockchain has been supply chain management. By
their nature throughout the twentieth and twenty-first centuries, supply chains in
manufacturing and retail have tended to become increasingly extended, extended across
multiple national borders and implying complex and expensive administrative and
auditing practices.
It can be challenging to determine the reliability of transactions throughout a chain due to
the complexity of many supply chains. Blockchains offer a natural solution that enables
stakeholders in a complicated and disjointed supply chain to share reliable records,
creating a comprehensive record of transactions that gives more transparency, robustness
regarding fraudulent transactions, and increased efficiency. Through the use of smart
contract applications, blockchains could potentially automate payments throughout
supply chains. (Tredinnick, 2019)

7
How is Blockchain Security
Algorithm based security
Blockchains typically operate on a decentralized, peer-to-peer network where all
participants follow the same protocols. This prevents any one body from having control
over the underlying infrastructure. (Dasgupta, 2019)
This open, decentralized, permissionless design should make it impossible for any
authority to impose regulations or interfere in any other way with blockchain operations.
DSA is an asymmetric key cryptography technique where messages can be digitally
signed with a private key and verified with the associated public key. (Dasgupta, 2019)
Hashing operations-based security
Because it offers the integrity necessary to guarantee that the entire blockchain is
unchangeable, cryptographic hashing is essential to blockchain implementations.
Blockchains employ hashes in a variety of other ways in addition to the Hashcash PoW
method and the hashing of the public key to represent addresses.
A hash of the previous block is kept in each block. All transactions are hashed and
represented in a Merkle tree, a binary tree in which each parent node is a hash of the
concatenated hashes of its child nodes. (Dasgupta, 2019)
Each block header stores the Merkle root hash value, which serves as a representation of
all the transactions contained in that block. A previous transaction hash is referred to in
each transaction input. Any one of these procedures could have severe consequences if a
faulty or flawed hash algorithm is applied. (Dasgupta, 2019)

The Double Spending Problem

In developing ledgers, especially traditional ledgers, double spending—where the same
money is spent twice—has always been a worry. Double spending assaults, in which an
attacker purposefully spends twice, are a serious problem for public blockchains,
nevertheless, as the consensus process is the only safeguard against them. Public
blockchains do not support conventional safeguards like identity management and
centralised control. (Li, 2020)

8
In proof-of-work systems, Nakamoto (2008) demonstrates that an attacker who controls
less than half of the hash rate has a very low probability of successfully launching a
double spending assault, whereas an attacker who controls more than half of the hash rate
has a very high probability. According to Nakamoto, it is exceedingly expensive for an
entity to control more than 50% of the hash rate. Even if this were true, a double
spending attack would be detrimental to the entity's investment in the coins and mining
equipment. (Li, 2020)
Privacy
Due to the varied ways that they record ownership and validate transactions,
cryptocurrencies can typically provide their users more anonymity than traditional
currencies. Cryptocurrencies work with the digital keys of their users. Cryptocurrency
wallets create and store these pairs of keys, each consisting of a public key and a private
key.
While the private key is never disclosed, each public key is made available to the public
and is used to create an address where the ownership of a coin is registered. A digital
signature is created with the private key to confirm ownership of the coin linked to the
public key and approve a transaction. The public key can be used by the authors to
validate this signature, but it is currently mathematically impossible to retrieve the private
key from the public key. (Li, 2020)
Traditional currencies, on the other hand, are linked to their owners' private information
rather than such cryptographic keys. Traditional currencies are registered with the
owners' personal information in financial institutions like banks unless cash is used.
These personal details are also used to authorize transactions made through banking
institutions. (Li, 2020)

Features of cryptocurrency
Despite the fact that each currency has its own distinctive traits, cryptocurrencies often
offer four key benefits over traditional currencies.
First, neither domestic nor international money transfers nor payments made with
cryptocurrencies must pass through financial intermediaries or money transfer operators
(MTOs), who provide services like currency conversion or transaction settlement.
Second, Payments made with cryptocurrencies are processed and settled more quickly
than payments made with other means, such as conventional digital payments. In addition
to quicker transaction times, users can save time by avoiding the need to physically visit a
financial institution, which is required when using the SWIFT system, because any
transfer request made using a cryptocurrency can be made using a digital device like a
smartphone or a tablet.

9
Thirdly, digital money transfers may afford to charge lower transaction fees than
traditional ones, or often perhaps none at all. Using blockchain technology, transactions
can be processed in a network for faster, less expensive, and more effective processing.
Finally, the fact that cryptocurrencies come with built-in inflation protection is one of
their most important features. Any fiat currency can be created at the central bank's
discretion, making it inflationary. Because cryptocurrencies have a restricted supply that
is capped, no financial institution can influence the quantity issues with them. Fiat
currencies are unable to offer this kind of security in value.

challenges of cryptocurrencies
First and foremost, understanding the workings of blockchain technology takes some
technical expertise. Additionally, a lack of laws may make users and investors hesitant to
engage in this technology due to concerns about the security and privacy it provides,
limiting people from taking benefit of this useful system.
Second, the non-recovery feature that is built into blockchain technology may be seen as
a drawback. If cryptocurrency is lost, it cannot be replaced, and if it is stolen through
hacking, it cannot be recovered. (Joo, 2019)
Third, despite the high level of security is another advantage of using blockchain
technology, it makes it easier for money to be laundered or used on the black market
because the data linked to each cryptocurrency (such as the user's name, the location of
usage, and the purpose of usage) cannot be identified in most cryptocurrencies.

Conclusion
While blockchain technology was initially created to enable cryptocurrencies like
Bitcoin, there is significant desire across many industry sectors to use it for their
objectives (such as secure contracts, financial transactions, sharing health information,
etc.). It is important to note that Bitcoin is currently considered as a stock on Wall Street
and in the financial sector even if its purpose, genuine value, and future are all still
unknown. It is acknowledged that Blockchain is a computer algorithm that enables
distributed communication in a subscriber network that operates on a peer-to-peer basis
and ensures that all parties involved in a transaction can see it. Concerns about the
security, privacy, and limitations of blockchain technology must also be addressed in
terms of their fundamentals. Rapid technological advancements have undoubtedly
improved many parts of life, but they have also attracted more speculators to the market.
The upshot is that the market for cryptocurrencies is now more erratic than the stock
market or any other commodities markets.

10
References
Dasgupta, D. J. (2019). "A survey of blockchain from security perspective." Journal of
Banking and Financial Technology 3.1: 1-17..
Heilman, E. B. (2016). Blindly signed contracts: anonymous on-blockchain and off-
blockchain bitcoin transactions. In Financial cryptography and data security (pp.
43–60). Berlin, Germany: Springer.
Joo, M. H. (2019). Cryptocurrency, a successful application of blockchain technology."
Managerial Finance.
Li, X. a. (2020). Analyzing cryptocurrencies. Information Systems Frontiers. 17-22..
Odelu, V. (2019). IMBUA: identity management on blockchain for biometrics-based user
authentication." International Congress on Blockchain and Applications.
Springer, Cham,.
Tredinnick, L. (2019). Cryptocurrencies and the blockchain. Business Information
Review, 36(1), 39–44.

11