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History and Applications

of Blockchain Technology
Kate Baucherel

Abstract: Blockchain is a distributed ledger technology, which
has its roots in the development of the Bitcoin cryptocurrency
in 2009. The emergence of Ethereum, permissioned blockchains,
distributed applications, and smart contracts has sparked rapid
development. Blockchains are appropriate for any transaction
or process that features a string of clear transactions and would
benefit from distributed responsibility and disintermediated
operation rather than centralized control. However, there are
challenges and regulatory concerns to be addressed.

Keywords: Bitcoin, Blockchain, Cryptocurrency,
Disintermediation, Distributed blockchain, Distributed
Kate Baucherel is an author, speaker, Ledger Technology (DLT), Ethereum, Permissioned
and digital business strategist. She blockchain, Smart contracts
first worked in the digital sector in
1988, sparking a lifelong interest
in technology and innovation. A
Introduction
qualified accountant with more than Blockchain technology has been hailed as the most im-
25 years’ commercial experience, she portant development since the internet itself. Originally
helps organizations to solve business underpinning cryptocurrencies, starting with Bitcoin,
challenges using new and emerging the concept of Distributed Ledger Technology (DLT) is
technology.
well established in the world of finance (fintech). How-
ever, blockchain has the potential to transform both
business practices and societal challenges, revolutioniz-
ing services in government and the private sector (UK
Government Chief Scientific Adviser, 2016). This arti-
cle examines the different types of distributed ledgers
and their existing and potential applications in, among
other things, digital identity, government, Internet of
Things, accounting and finance, supply chains, and data
security.

Development of Blockchain Technology
and Bitcoin
Blockchain was originally introduced as the technol-
ogy that underpins Bitcoin, the first working cryptocur-
rency. The idea of cryptocurrency has been in fictional
and academic circulation for decades. In fiction, it is an
appealing concept in the operation of futuristic societ-
ies. How else would any character described by authors
from Douglas Adams to Isaac Asimov pay for rented

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History and Applications of Blockchain Technology

ground cars or cocktails on arrival at the has taken place? This is where the block-
spaceport of a new planet? In research, the chain comes into play. A block is created,
concept and workings of digital cash were which contains the original holder’s decla-
suggested by a leading cryptographer in ration that they have sent a sum of money,
the early 1980s, with multiple articles ex- and the recipient’s declaration that they
ploring the mathematical underpinning have received it. The block also contains
of virtual currency (Chaum, Fiat, & Naor, a reference—a hash—that carries the fin-
1988). Two fundamental problems were gerprint of all the preceding blocks in the
clearly defined at the outset. First, double chain. Each of those blocks is itself an in-
spending: there is a need to prevent some- dividual transaction. Once our transaction
one spending the same digital money more is complete, the block closes and cannot be
than once. Second, a cryptocurrency must changed. It is an immutable record at the
be created, supported, and secured with- end of a related chain.
out recourse to physical reserves or central Creation of currency is more complex,
banks. A decade after Chaum et al., a com- but vital to the resilience of the blockchain.
puter engineer (Wei Dai, 1998) suggested To verify the transaction in the block we
solutions for the transfer and the creation have just made, users who are special nodes
of digital money, and also a process for the in the system run a complex algorithm to
effecting of contracts, all of which have ensure that the hash in the block is refer-
now been realized. ring to the previous blocks in the chain.
In 2009, an article was published under As a reward for processing that algorithm,
the pseudonym Satoshi Nakamoto propos- these users receive Bitcoin: they have
ing a “peer-to-peer version of electronic mined currency, creating cash, and they
cash” (Nakamoto, 2009). Nakamoto’s proof have collectively confirmed that the trans-
of concept solved the challenge of double action is real. This is distributed responsi-
spending, and incentivized a huge net- bility for the accuracy of the records: no
work of users to create cash and maintain single entity either controls the records or
the system in perpetuity through the min- unilaterally confirms the legitimacy of the
ing process. A working cryptocurrency, recorded transactions.
Bitcoin, was born.
Extending Blockchain Technology
Operation of the Bitcoin Blockchain A blockchain, therefore, is a series of in-
So how does the Bitcoin blockchain enable dividual transactions, each one refer-
the currency to function? Double spend- encing the previous related blocks in the
ing is a simple concept, and is solved by chain. Why should a distributed ledger ap-
the structure of the blockchain itself. In proach be restricted to financial transac-
real life, if one person has a dollar bill, and tions? There are parallels in many sectors,
hands it to a retailer, the original holder although of course it is important that a
can no longer spend that dollar. A physi- blockchain is not viewed as a fashionable
cal transfer has taken place. If the holder replacement for a database. DLT will be
makes a transfer or payment direct from most effective and disruptive in processes
their bank account, the records held in cen- that feature strings of transactions where
tralized databases at each of the participat- there are multiple interested parties, each
ing banks show that the transaction has with responsibility for elements of the
taken place and ownership of the money chain. As an example, an asset does not
has moved. However, if the currency of this have to be monetary to be involved in mul-
transaction is not part of a traditional bank- tiple transactions. The devices we use, the
ing system and has no physical form, how clothes we wear, and the food we eat are
is it possible to confirm that the transaction all subject to several stages. Organizations

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History and Applications of Blockchain Technology

in the chain and even end users have an such as a house? There is a hierarchy of
interest in the origins of the components, multiple simultaneous transactions that
the fabric, or the raw ingredients. Respon- feed into the ultimate transfer of owner-
sibility for quality and regulatory compli- ship. Surveys and searches must be com-
ance is distributed. However, it’s likely pleted, remedies applied, and completion
that the manufacturers want to keep this can be a complex affair with many trans-
ledger out of the public domain to protect actions closing simultaneously, and settle-
commercially sensitive information. Addi- ment being made through a complex web
tionally, one of the features of the Bitcoin of banks and legal representatives. The
blockchain is the monetary incentive to development of Ethereum addresses these
maintain its integrity. How can the ledger complex scenarios.
be protected, and how could users be in- “A next generation smart contract and
centivized to carry out transaction verifica- decentralized application platform” was
tion, which is costly in terms of processing proposed by Vitalik Buterin in a white pa-
capacity and electricity, in a distributed led- per (Buterin, 2013), which traced the evo-
ger that is not related to a cryptocurrency? lution of the Bitcoin blockchain, identified
possible security concerns, and introduced
Permissioned Blockchains the Ethereum blockchain. Ethereum allows
To solve the problems of privacy and for multi-block decentralized applications
verification, a more private variant of DLT or distributed apps (dapps), and is already
(Jayachandran, 2017) has started to emerge: making DLT significantly more accessible
the permissioned blockchain. This takes all as a base for new projects. It also changes
the benefits of blockchain as a transpar- behavior around the transaction, incorpo-
ent, immutable record, but eliminates the rating smart contracts and the use of tokens
anonymity of the users, which is a feature to provide evidence of the events that are
of public blockchains. There is no need to recorded. The speed at which Ethereum
create value, as no currency is involved, so dapps are being developed is a good indica-
there are no miners. The transaction ver- tor of the scale and rapidity of disruption
ification comes through controlled inputs that is expected from DLT.
from a known group of distributed partici-
pants who have a vested interest in the ac- Smart Contracts
curacy of the records stored in the shared Both permissioned blockchains and Ethe-
blockchain. The ability to include smart reum include the use of smart contracts.
contracts in the chain incentivizes partici- Smart contracts were the third feature of
pation. Enterprise applications, which are the hypothetical cryptocurrency system
built on a private (permissioned) block- suggested by Wei Dai (1998) in his article.
chain, use technologies such as Hyperledger A smart contract is not a legally binding
(Linux), Fabric (IBM), Sawtooth (Intel), contract as we would understand it. In-
and Corda (R3). Where there are clear se- stead, it describes a feature of blockchains
quences, such as a series of supply chain where the completion of a transaction au-
transactions, a permissioned blockchain tomatically triggers an action. This could
combines the clarity and security of re- be settlement of an invoice in the supply
cording with the privacy required in a com- chain, or the creation of a new transaction
mercial organization. that must be carried through. A real-world
comparison might be a discharge from hos-
Ethereum pital treatment that triggers the creation of
In many business settings, a single chain a follow-up appointment.
sequence is not appropriate to all scenar- The significance of smart contracts is their
ios. What about the transfer of a large asset, ability to disintermediate any transaction.

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