Industry 4.0: Blockchain

Industry 4.
Module Blockchain
Session No. I
Version 1.0
Industry 4.0
Material from the published or unpublished work of others which is referred to in the Class
Notes is credited to the author in question in the text. The Class Notes prepared is of 7,140
words in length. Research ethics issues have been considered and handled appropriately
within the Globsyn Business School guidelines and procedures.
Industry 4.0/M3SI/v1.0/101219 Blockchain | Session No.: I

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Table of Contents
1. Introduction ............................................................................................................. 7
1.1. Concept of Blockchain ....................................................................................... 7
1.2. Constituents of the Blocks .................................................................................. 8
1.2.1. Header .................................................................................................................. 8
1.2.2. Body ..................................................................................................................... 8
1.3. Steps encompassing Blockchain........................................................................ 9
1.3.1. Initiation ................................................................................................................ 9
1.3.2. Distribution ............................................................................................................ 9
1.3.3. Validation .............................................................................................................. 9
1.3.4. Blocking ................................................................................................................ 9
1.3.5. Chaining ............................................................................................................... 9
1.4. Traditional Network vs. Blockchain Network ...................................................... 9
1.4.1. Concept of Traditional Databases ......................................................................... 9
1.4.2. Concept of Blockchain Databases .......................................................................10
1.4.3. Differences between Traditional vs. Blockchain Network .....................................10
1.5. Benefits and Drawbacks of using Blockchain ................................................... 11
1.5.1. Benefits of using Blockchain ................................................................................11
1.5.2. Drawbacks of using Blockchain ...........................................................................12
1.6. Application of Blockchain Technology .............................................................. 12
1.6.1. Dispute Management ...........................................................................................12
1.6.2. Imposition of anti-fraud related Policies................................................................13
1.6.3. Management of Tax .............................................................................................14
1.6.4. To create a repository of Market Data ..................................................................14
1.6.5. Carrying out of Financial Transactions .................................................................15
1.6.6. Management of Rules and Regulations ...............................................................15

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1.6.7. On-boarding of New Products ..............................................................................16
1.6.8. Electoral Process .................................................................................................17
1.6.9. Management of Medical Records.........................................................................19
2. Blockchain Components ...................................................................................... 19
2.1. Distributed Ledger ............................................................................................ 19
2.1.1. Overview..............................................................................................................19
2.1.2. Risks associated to DLT ......................................................................................22
2.2. Hashing ............................................................................................................ 23
2.2.1. Overview..............................................................................................................23
2.2.2. Cryptographic Hash Functions .............................................................................24
2.2.3. Features of the Cryptographic Hash Functions ....................................................24
3. Case of Blockchain – Cryptocurrency Transactions ......................................... 25
3.1. Overview .......................................................................................................... 25
3.2. Features of Cryptocurrencies ........................................................................... 26
3.2.1. Decentralisation of Control ...................................................................................26
3.2.2. Carrying out of exchanges with the Fiat Currencies .............................................26
3.2.3. Finite Supply ........................................................................................................27
3.3. Pros and Cons of Cryptocurrencies ................................................................. 27
3.3.1. Pros .....................................................................................................................27
3.3.2. Cons ....................................................................................................................27
3.4. Working of the Cryptocurrencies ...................................................................... 27
3.4.1. Private Keys ........................................................................................................27
3.4.2. Wallets .................................................................................................................28
3.4.3. Miners ..................................................................................................................29
3.5. Exchanges of Cryptocurrencies ....................................................................... 30
3.6. Timeline for Cryptocurrency ............................................................................. 32

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3.6.1. 1980s ...................................................................................................................32
3.6.2. Late 1980s ...........................................................................................................32
3.6.3. 1990s to 2000s ....................................................................................................33
3.6.4. Mid 2000s to 2009 ...............................................................................................34
3.6.5. 2008 to 2009 ........................................................................................................34
3.6.6. 2010s ...................................................................................................................35
3.6.7. 2012s ...................................................................................................................35
3.7. Benefits and Challenges concerning use of Cryptocurrency ............................ 36
3.7.1. Benefits................................................................................................................36
3.7.2. Challenges ...........................................................................................................37
3.8. Examples of Cryptocurrencies ......................................................................... 38
3.8.1. Bitcoin ..................................................................................................................38
3.8.2. Litecoin ................................................................................................................39
3.8.3. Ripple ..................................................................................................................40
3.8.4. Ethereum .............................................................................................................41
3.8.5. Dogecoin .............................................................................................................41
References ................................................................................................................... 43
List of Figures
Figure 1.1: Blockchain................................................................................................................ 7
Figure 1.2: Constituents of Blockchain ....................................................................................... 8
Figure 1.3: Traditional Network vs. Blockchain ..........................................................................11
Figure 1.4: Blockchain use in Dispute Management ..................................................................13
Figure 1.5: Blockchain use in Fraud Detection ..........................................................................13
Figure 1.6: Blockchain use in Tax Management ........................................................................14
Figure 1.7: Blockchain based on Market Data ...........................................................................14
Figure 1.8: Financial Transaction using Blockchain ...................................................................15
Figure 1.9: Management of Rules and Regulations using Blockchain .......................................16

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Figure 1.10: On-boarding of new products using Blockchain .....................................................17

Figure 1.11: Voting using Blockchain ........................................................................................18
Figure 1.12: Management of Medical Records by Blockchain ...................................................19
Figure 1.12: Centralised Ledger ................................................................................................20
Figure 1.13: Distributed Ledger .................................................................................................20
Figure 1.13: Hashing .................................................................................................................24
Figure 3.1: Cryptocurrency ........................................................................................................26
Figure 3.2: Private Keys in Bitcoin.............................................................................................28
Figure 3.3: Cryptocurrency Wallets ...........................................................................................29
Figure 3.4: Cryptocurrency Miners ............................................................................................30
Figure 3.5: Cryptocurrency Exchange .......................................................................................31
Figure 3.6: Cryptocurrency Exchange Mt. Gox ..........................................................................31
Figure 3.7: Cryptographer David Chaum ...................................................................................32
Figure 3.8: DigiCash founded by David Chaum.........................................................................33
Figure 3.9: E-Gold.....................................................................................................................33
Figure 3.10: Ponzi Scheme .......................................................................................................34
Figure 3.11: Satoshi Nakamoto ~ The Father of Bitcoin ............................................................35
Figure 3.12: Litecoin .................................................................................................................35
Figure 3.13: Merchants of Bitcoin ..............................................................................................36
Figure 3.14: Bitcoin ...................................................................................................................39
Figure 3.15: Litecoin .................................................................................................................40
Figure 3.16: Ripple ....................................................................................................................41
Figure 3.17: Ethereum ..............................................................................................................41
Figure 3.18: Dogecoin ...............................................................................................................42

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1. Introduction
1.1. Concept of Blockchain

Blockchain as a technology ideally contributes in enhancing the level of trust between the
parties involved in a transaction. The financial transactions carried out in the day-to-day basis
like transferring money to others needs to be carried out with the involvement of a banking
institution. The banking institution herein tends to work like a third party that takes service
charges for helping in finalising the transaction. Herein, the incorporation of the Blockchain
technology potentially reduces the need to depend on third parties for making of transfers or in
carrying out of other types of financial transactions. The technology helps in carrying out of
transactions like transfer or in carrying out of purchases without the involvement of additional
cost or time. The same also contributes in increasing the level of trust shared between the
parties involved in the transaction (Malik, 2019).
Blockchain is identified as a technology or concept that has helped in revolutionising the

activities carried out in the digital sphere. The concept of Blockchain earned needed popularity
after the release of a paper by Satoshi Nakomoto during 2008 which provided a discussion
regarding Bitcoin or the electronic cash. Blockchain is observed to be a secure chain built of a
network of different blocks. Each of the different blocks contains needed data associated to
digital information (Malik, 2019). Further, each of the different blocks encompasses a unique
identifier and also an identifier pertaining to the previous block. The identifiers act like passports
that help in uniquely identifying and segregating a block from another block. In technical terms,
the identifiers are also known to be “Hashes”. Thus, each of the different blocks encompasses
its own hash and also the hash belonging to that of the previous block. The different blocks are
distributed in an open fashion and are highly secure in nature (Malik, 2019).
Figure 1.1: Blockchain
Data Data Data
Hash Hash Hash
Previous Hash Previous Hash Previous Hash
Block Block Block

(Malik, 2019)
Each of the different data blocks are both secured and also linked to each other based on the
application of cryptographic principles or chains.

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The above aspect makes it highly difficult for the blocks to be altered. Different types of
applications associated to diverse fields like finance and healthcare are carried out based on the
incorporation of Blockchain Technology. Blockchain earns needed popularity in that the same
helps in recording of different types of transactions (Bawa, 2019).
In the word of Don and Alex Tapscott, the author of Blockchain Revolution during 2016 defined
Blockchain as a digital ledger encompassing economic transactions, which are programmed for
not only recording financial transactions but virtually recording everything that has needed
value, and also which is incorruptible in nature. Again, in simple terms, a Blockchain is identified
to be a time-stamped series of data which is immutable in nature and managed by a cluster of
various computers that are not possessed by a single entity (Bawa, 2019).
1.2. Constituents of the Blocks

A specific Block of the Blockchain is essentially divided into two main parts like the Header and
subsequently, the Body. The constituents of two different parts are illustrated as follows:
1.2.1. Header
The Header part of the Block encompasses the timestamp, the block’s identity and also the
previous block’s identity from which the same is created, information of the transactions in a
summarised format and also the unique identification of the block developed based on a
hashing algorithm in a cryptographic format.
1.2.2. Body
Information regarding transaction data is essentially encompassed in a structural form of tree
data containing different types of nodes (Malik, 2019).
Figure 1.2: Constituents of Blockchain
(Greenfield, 2017)

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1.3. Steps encompassing Blockchain

Blockchain is also identified as a series of five different steps that are enumerated as follows:
1.3.1. Initiation
The Initiation phase requires an individual for initiating a request or starting off a particular
transaction.
1.3.2. Distribution
In the Distribution phase, the request made in the initiation phase is distributed along a network
of large number of computer nodes.
1.3.3. Validation
The Validation phase encompasses the validation of the request made by the different nodes
(Malik, 2019).
1.3.4. Blocking
Specific blocks are created in the locking phase for processing of the request. Each of the
different blocks created in the process contains wrappers that encompass additional information
for the different types of transactions. The hash for different sets of information is determined in
this stage for reducing the chances of data alteration.
1.3.5. Chaining
The Chaining stage reflects the chaining of the new blocks with that of the existing blocks
especially in the read-only mode. The chaining of the blocks carried out in the read-only mode
forbids the chances of the same being altered or removed in a subsequent fashion (Malik,
2019).
1.4. Traditional Network vs. Blockchain Network

1.4.1. Concept of Traditional Databases
The Traditional Databases operate based on a client-server based architectural network. The
user or the client involved focus on modifying the data that is stored on a server which is
centralised in nature. The database is ideally controlled by a specified authority. The authority
focuses on identifying and thereby in authenticating the credential of a client before providing
needed access in accessing the database. Thus, in cases if the security associated to the
authority gets compromised the same leads to chances of both alteration and also the total
annihilation of the data (Ray, 2017).

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1.4.2. Concept of Blockchain Databases

The Blockchain Databases are featured with considerable numbers of decentralised nodes.
Each of the different nodes takes part in the administration task. The different nodes contribute
in verifying the noble additions to the existing Blockchain and also contribute in adding new
datasets to the existing database. Regarding the carrying out of additions in the existing
Blockchain it is mandatory for the nodes in arriving at needed consensus. In Blockchain, each of
the different participants involved carries out the polling concerning the validity of the different
transactions. The same is identified to be “Consensus”. The consensus mechanism contributes
in enhancing the security of the network which in turn reduces the chances of the same being
tampered with (Ray, 2017).
1.4.3. Differences between Traditional vs. Blockchain Network

From the viewpoint of extreme disruption, Blockchain tends to replace the traditional form of
Client-Server based network. In the latter, the ledger is observed to be stored along all the
participating computers or peers which in turn make it difficult for a single entity to both control
the total network and also the different datasets. Further, the judgement concerning the validity
of a specific transaction does not necessarily depend on the hands of a single entity like a
banking institution. Decentralised control significantly reduces the risks concerning that of
centralised control (Ray, 2017). The existence of a centralised database creates potential risk in
that someone that has needed access to the same can tend to both destroy and manipulate it.
Blockchain technology, on the contrary, reflects the existence of data storage units that are
decentralised in nature. The application of data storage units in a decentralised fashion rightly
helps in enhancing the security of the system (Ray, 2017).
Public Verifiability is identified as a key aspect that helps in distinguishing the technology
associated with traditional database with that of Blockchain. The Public Verifiability is generally
enabled by the parameters concerning Integrity and Transparency. In terms of Integrity, every
user can tend to be sure of that the data retrieved is uncorrupted and unchanged from the time
the same is recorded. Regards to Transparency, each of the different users has the authority in
verifying the manner in which the Blockchain is appended over a specific period (Ray, 2017).
Another specific difference between Traditional and Blockchain Technology can be rightly
understood regards to the incorporation of “CRUD” and also “Read and Write Operations”.
Regards to a Traditional Database, a specific client is noted to perform four different types of
functions like Create, Read, Update and finally Delete. The four different functions are known as
CRUD in a collective fashion. On the contrary, the Blockchain is recognised as a structure that

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is ready to be appended. Herein, a user can tend to add more amount of data regards to the
addition of greater numbers of blocks (Ray, 2017). In Blockchain, the previous data tends to be
stored in a permanent fashion such that it cannot be further altered. Thus, Blockchain only
allows two types of operations to be performed. The same are noted as Read Operations and
also Write Operations. The Read Operations are carried out for querying and retrieving of data
from Blockchain. The Write Operations are more concerned of with adding of data into the
Blockchain (Ray, 2017).
Figure 1.3: Traditional Network vs. Blockchain
(Faizod , 2018)
1.5. Benefits and Drawbacks of using Blockchain

1.5.1. Benefits of using Blockchain
The application of Blockchain confers needed advantages. The same are enumerated as
follows:
Transparency
The participants of a Blockchain network have needed access to information regarding the
same.

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Not a single point of Failure

The information tends to be distributed and is not relied only on a single nodal point in the
network.
Collaboration
Large numbers of individuals around the globe apply the Blockchain technology for participating
in knowledge development and dissemination and in sharing of needed information.
Funding
Considerable numbers of investors focus on funding the development of the Blockchain
platform.
Auditing and Reliability

Herein, any individual that promises to deliver information becomes bound to deliver the same
in that the information is accessible to the public and thereby cannot be altered (Ray, 2017).
1.5.2. Drawbacks of using Blockchain

Despite the above stated advantages, the aspects of decentralisation of the information
network, apart from enhancing the level of transparency, also tends to generate some potential
limitations. The same are noted as follows:
One of the principal drawbacks regarding the application of Blockchain technology is associated
with the speed parameters and also the scalability of the datasets. The Bitcoin application is
developed based on Blockchain technology. It is found to process only a minimal of 5 to 10
transactions every second. Compared to the same, the Real Time systems are however noted
to process around 50,000+ numbers of transactions for every single second (Ray, 2017).
1.6. Application of Blockchain Technology

Blockchain Technology earns application regards to different numbers of areas. The same are
noted as follows:
1.6.1. Dispute Management
Blockchain Technology is rightly used regards to the issuance of agreements concerning plots
and other sales agreements.

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Figure 1.4: Blockchain use in Dispute Management
(McKinlay, et al., 2018)
1.6.2. Imposition of anti-fraud related Policies

Blockchain Technology can be effectively used for evaluating and also in ensuring the identity of
the transaction writer as valid in nature (Ray, 2017).
Figure 1.5: Blockchain use in Fraud Detection
(Glucksmann, 2019)

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1.6.3. Management of Tax

Application of Blockchain Technology regards to Tax Management contributes in identifying the
tax payers and the amount that the different tax payers are needed to pay with the amount
already paid by them.
Figure 1.6: Blockchain use in Tax Management
(Digital, 2016)
1.6.4. To create a repository of Market Data

Blockchain contributes in building a huge repository of Market Data that tends to remain
unaltered. The same thus acts for an effective database for future references.
Figure 1.7: Blockchain based on Market Data
(Voshmgir, 2019)

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1.6.5. Carrying out of Financial Transactions

Bitcoin as an application of Blockchain Technology earns utility regards to carrying out of
financial transactions. The same is known as a Cryptocurrency. The use of cryptocurrencies like
Bitcoin earns utility in that the same provides transparency of use and also shields the user from
fraudulent and manipulative activities (Ray, 2017).
Figure 1.8: Financial Transaction using Blockchain
(Bijlipay, 2016)
1.6.6. Management of Rules and Regulations

The application of Blockchain Technology ideally contributes in publicising of rules and
regulations and also in building of consensus among effective stakeholders regarding taking of
potential decisions for bringing about alterations in such. The different types of information that
are publicised based on the application of Blockchain are associated with corporate
governance, goals of the employees, monitoring standards for employees’ performances and
other rules and regulations.

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Figure 1.9: Management of Rules and Regulations using Blockchain
(Rakhmilevich, 2019)
1.6.7. On-boarding of New Products

Blockchain technology potentially helps the manufacturing and marketing firms for updating of
new products onto the system and thereby in publicising the information in a read-only mode.
The same helps the concerned buyers for gaining access to needed information for taking of
purchase decisions while at the same time protects the data from being manipulated and
changed (Ray, 2017).

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Figure 1.10: On-boarding of new products using Blockchain
(UXer, 2019)
1.6.8. Electoral Process

Blockchain technology potentially contributes in ensuring the voting process automatic in nature
and thereby in relying on persons for the fulfilment of their promises.

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Figure 1.11: Voting using Blockchain
(followmyvote.com, 2019)

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1.6.9. Management of Medical Records

Blockchain Technology finds its use in hospitals and clinics regards to the storing of different
types of medical records for the patients visiting such centres (Ray, 2017).
Figure 1.12: Management of Medical Records by Blockchain
(Blockchain Service Guide , 2019)
2. Blockchain Components
2.1. Distributed Ledger

2.1.1. Overview
The Distributed Ledger Technology in short is known as DLT. The Distributed Ledger is
identified as a database that has its presence across diverse locations and thereby is used by
large number of participants. Currently, however large numbers of companies are found to
employ a centralised database that tends to exist along a specific location. Moreover, the
centralised database is favoured by companies in that it tends to counter failure only along a

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single or specific point (Belin, 2019). The following illustration reflects the differences between
Centralised and Distributed Ledger systems.
Figure 1.12: Centralised Ledger
Clearing House
Ledger
(Belin, 2019)
Figure 1.13: Distributed Ledger
L L
e e
d d
g g
e e
r r
L L
e e
d d
g g
e e
r r
(Belin, 2019)
A Distributed Ledger in comparison to a Centralised Ledger operates based on a decentralised

fashion. It eliminates the necessity of a centralised authority or also the existence of any

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intermediary for validating and authenticating the different transactions. The business
enterprises focus on incorporating DLT for processing, validating and authenticating
transactions and also other types of exchanges concerning datasets. The consensus of the
stakeholders involved in the process is needed for storing of the data in the ledger. The files
stored in the distributed ledger are thereby timestamped and are also embodied with a unique
cryptographically designed signature. The stakeholders involved in the DLT are given access to
view the different types of records. DLT thus acts as a repository of potential datasets that can
both be verified and subjected to audits during subsequent periods (Belin, 2019). In the
Distributed Ledger System, the data in the form of transaction entries are documented in a file
or ledger. Each and every stakeholder of the DL System has ease of access to the data
resources. Thus, happening of any type of transaction in the DL network becomes largely
accessible to the interested parties. The above case reflects a sharp contrast to the Centralised
Ledger System wherein the access to the ledger is had by a single point of authority. In DLT,
the records of different transactions are accessed by three potential stakeholders like the
sender of the information, the receiver of the information and finally the controlling authority
regards to the same. The Controlling Authority existent as a potential party in a DLT is also
identified as an effective intermediary for different types of transactions (Belin, 2019).
Distributed Ledger is favoured by the enterprises in that the burden of responsibility, regards to
the maintaining of the sanctity of the information contained in the ledger, rests upon the different
participants involved in the process. Further, the above aspect removes the need of any type of
intermediary along the total process which in turn makes the same appealing in nature.
The Distributed Ledgers have gained considerable amount of popularity and exposure in the
current period. The stakeholders like the regulators, academicians, consultants and also the
management of technology firms are focusing on promoting the application of DLT mainly
regards to the carrying out of financial services. Different types of financial applications like
trading, generation of payments, carrying out of deposits and lending related functions, identity
management and authentication processes along the digital platforms, risk management
functions and KYC Compliances are all undertaken based on the deployment of DLT (Belin,
2019).
Blockchain is identified as an effective form of distributed ledger. Distributed Ledger differs from
Blockchain in terms of the absence of chains and also in DLT the data stored is not contained in
mere blocks. Rather, Distributed Ledger systems acts as an effective database that helps in
dissemination of data across diverse regions and thereby provides access to participants

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spread along international markets. Blockchain acts like a subset of Distributed Ledger which in
turn acts as a superset in that not all of the distributed ledgers are Blockchains (Belin, 2019).
2.1.2. Risks associated to DLT

Despite the above stated functions and benefits associated with the application of DLT the
incorporation of such by business enterprises however is not free from the emergence of
potential risks. The implementation of the distributed databases is taken to generate potential
risks associated with the undesirable distribution of potential data and even the loss or
manipulation of the protected datasets. The above issues thereby lead to the emergence of
questions concerning the responsibility and also the liability of the concerned parties in both
protecting and enhancing the legitimacy of the datasets. Three different types of risks that are
associated with the deployment of DLT are noted as ledger transparency, cyber and also
operational risks (Madi, 2019). The same are elucidated as follows:
2.1.2.1. Ledger Transparency Risks
DLT is noted to store data and thereby distribute the same along multiple nodal points.
Operators along different nodal points thereby have access to such data. The storage of the
data along the distributed ledger is possible based on first encrypting the same. Thus, the
parties that have access to decryption tools can only help in studying the datasets. Herein,
metadata is widely made available to the different nodal operators. The enhancement of the
transparency levels in turn tends to enable the re-personalisation of the datasets along the
distributed ledger. It thereby enables the node operators for making of informed guesses
regarding the identities of the parties that have been involved in any transaction (Madi, 2019).
Thus, spreading of the data along different nodes provides potential access to personalised
datasets. The dissemination of personalised data along the ledger counters risk in that it affects
the meeting of the requirements concerning data protection. Again, in cases where DLT is
employed for the storing of sensitive and other types of worthy information it would in turn lead
to a large number of financial abuses like insider trading, manipulation of market related
information and tipping. The persons responsible for carrying out the tasks in turn may tend to
face potential amount of penalties both along the civil and criminal categories and other litigation
charges (Madi, 2019).
2.1.2.2. Cyber Risks

In DLT, the system does not spontaneously check and rectify the storage of incorrect datasets.
Thus, in cases, where incorrect data is stored in the system, it remains to be incorrect without
being modified. The users or the participants that tend to rely on the datasets for meeting of

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effective decisions fail to realise the hidden inaccuracies in the data (Madi, 2019). The same
accounts in reducing and affecting the effectiveness of the decisions made by the parties. The
distributed ledgers that tend to be of permission-less nature tend to become potentially exposed
to the emergence of cyber-attacks. The same happens owing to the absence of needed
authority that would monitor the client identification and enrolment process. Likewise, the failure
regards to cybersecurity tends to potentially affect the weaker nodal points thereby leading to
leakage of data (Madi, 2019).
2.1.2.3. Operational Risks

In cases, an error tends to get implemented in a code; the same tends to get shared along the
total database which affects larger number of nodes than that of a concentrated ledger in a
faster fashion. Governance related deficiencies associated to permission ledgers tend to
become significant issues owing to the happening of poor coding based activities (Madi, 2019).
2.2. Hashing
2.2.1. Overview
Hashing, regards to Blockchain technology, is associated with the generation of an output that
has a fixed dimension irrespective of the length of the input resource. In cases, where the
Blockchain is used in the development of cryptocurrencies, transactions of different lengths are
run based on a hashing algorithm that thereby contribute in the generation of a specific output
having a fixed dimension. The output of fixed lengths that is produced irrespective of the lengths
of the inputs is identified by Hash. The Hashing activity can be essentially studied regards to
Secure Hashing Algorithm 256 which is commonly known as SHA-256. Hashing carried out
based on the employment of SHA-256 contributes in the generation of an output having a length
of 256-bits or 32 bytes (Online Hash Crack , 2019). The size of the output remains the same
irrespective of the size of the transaction that ranges from a single word to that which
encompasses large volumes of complex datasets. The same helps in keeping the track of the
transaction whether someone tends to recall or trace the hash. Again, in another example, the
hashing of a YouTube video of a size of around 50 megabytes based on the application of SHA-
256 will tend to generate an output of 256-bits of hash. The hashing of a text message of the
size of 5 kilobytes would tend to generate an output of 256-bits. In the above two examples
though the size of the output remains the same at around 256-bits yet the hash pattern counters
a vivid change. From the above discussion it can be effectively briefed that Hashing is identified
as the “Umbrella Terminology” for the different types of Cryptographic Hash functions (Online
Hash Crack , 2019).

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Figure 1.13: Hashing
(haseebrabbani, 2010)
2.2.2. Cryptographic Hash Functions

The hash function focuses on incorporating any particular transaction or data and thereby in
rehashing the same for the generation of an output of a particular size. The process involved
regarding the using of a particular hash function for processing of a particular transaction is
called hashing. The transactional output of the concerned has function is known as hash. The
basic feature of a particular hash function is understood based on verifying the size of the
outcome of the hashing process (Online Hash Crack , 2019).
2.2.3. Features of the Cryptographic Hash Functions

The secureness of a specific cryptographic hash function can be ensured of based on studying
the features of the same. The essential features of the hash functions make the same feasible
regarding carrying out of transactions involving cryptocurrencies like Bitcoin and/or Ethereum.
The features are elucidated as follows:
2.2.3.1. Deterministic
The hash functions are such that generate an output of a fixed size. It reflects that whatever be
the number of times an input of a given size is processed based on the incorporation of a hash
function it tends to generate the same size of the output. The number of hashes may tend to be
of a random nature and of diverse patterns but the size or the length regarding such would be
the same. This feature earns significance in that the same contributes in the generation of same
size of an output which becomes easy to record.
2.2.3.2. Quickly Computable

An effective hash function is such that contributes in carrying out quick computations for
different types of data inputs. Herein, though the input data for the hash would be difficult to be
identified yet the computation or the calculation involved regarding the hash is observed to be

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highly fast in nature. It reflects that the hash result of the word, “Hi” and again that of a
significantly large file would be generated within some seconds (Online Hash Crack , 2019).
2.2.3.3. Randomised Hashes

The Hash functions generate a range of different outputs for the single input, even though the
input tends to vary based on a single digit or letter. Thus, hash of “Alpha” would be totally
different from the hash of “Alpha 1”.
2.2.3.4. Collision Resistant

The hash functions of cryptographic nature are also resistant to collisions. Here, collisions tend
to emerge in cases where the hash functions tend to generate the same kind of output for
various types of inputs. So in cases, where the first input is a photo and the second input, a
video, the generation of the same type of output for the two different inputs leads to the
emergence of a collision (Online Hash Crack , 2019).
3. Case of Blockchain – Cryptocurrency Transactions
3.1. Overview
Cryptocurrencies are identified to be virtual currencies that are digital means for carrying out of
financial transactions. The digital currencies are both created and employed by private groups
and other individuals. In that the cryptocurrencies like Bitcoin are not governed by the national
governments the same are identified as alternative currencies. They are also identified as
potential mediums of financial exchange that tend to exist beyond the limits of the monetary
policy of an economy. Bitcoin as a cryptocurrency has wide scale popularity and is also found to
be used on an extensive scale by the international population.
Cryptocurrencies are defined as currencies that tend to incorporate cryptographic protocols. The
cryptographic protocols are code systems that are highly complex in nature and focus on
encrypting the transfers of sensitive data for potentially securing the exchange units. The
cryptocurrency developers focus on building the protocols based on the application of advanced
mathematics and also computer engineering tools which in turn make them quite difficult to be
hacked. The same makes the currencies remain protected from being duplicated or
counterfeited. The protocols also help in covering up the identities of the different
cryptocurrency users which in turn creates problem for attributing the fund flows to different
individuals and also groups.

Industry 4.0
Figure 3.1: Cryptocurrency
(Corindex, 2019)
3.2. Features of Cryptocurrencies

The different features of cryptocurrencies are outlined as follows:
3.2.1. Decentralisation of Control
The cryptocurrencies are such that are identified in terms of decentralised controls. The supply
and also the value of the cryptocurrencies are governed by the activities of the concerned
parties and also the existence of complex protocols that are incorporated along the governing
codes. The cryptocurrencies are however not regulated by the central banks and other financial
authorities. The users of the cryptocurrencies focus on employing considerable amount of
computing power for recording of transactions, receiving of newly developed cryptocurrency
units and also transaction fees from other users. The above type of activities however affects
the stability and the smooth functioning of the currency.
3.2.2. Carrying out of exchanges with the Fiat Currencies

The cryptocurrencies are such that are amenable to be exchanged against fiat currencies along
different online markets. The fiat currencies are such that bear a variable rate of exchange
linked with the different international currencies. The cryptocurrency exchanges are potentially
affected by actions like hacking and also the carrying out of cybercrimes.

Industry 4.0
3.2.3. Finite Supply

The cryptocurrencies are featured in terms of limited sources of supply. The source codes of the
cryptocurrencies encompass instructions that focus on outlining the specific numbers of units
that can be supplied. The miners of the cryptocurrency units face difficulty in producing the
same over an effective period. The finite supplies of the cryptocurrencies in turn creates a
deflationary trend for the same like that in the case of gold and other types of precious metals.
3.3. Pros and Cons of Cryptocurrencies

3.3.1. Pros
The users of the cryptocurrencies are observed to earn needed benefits compared to the users
of the traditional currencies. The users earn benefits owing to the political independence and
also the difficulty in penetrating the data security concerning the cryptocurrencies. The
government of any region may tend to generate regulations that would tend to freeze or rather
seize the operations of a banking institution. However, the same is difficult to be carried out
regarding fuds associated to cryptocurrency.
3.3.2. Cons
The cryptocurrencies are however observed to suffer from a range of potential drawbacks that
are underlined as follows. The parameters like liquidity and also the volatility of the monetary
value tends to considerably affect the cryptocurrencies compared to other fiat currencies.
Further, the cryptocurrencies are mostly noted to be used regarding the carrying out of
transactions associated to parallel economy or black markets. The above case tends to limit the
acceptance and the use of cryptocurrencies along diverse economies. Again, the financial
professionals and experts discourage the use of cryptocurrencies in that they consider the same
to be operational based on pure speculation.
3.4. Working of the Cryptocurrencies

The manners in which cryptocurrencies operate are elucidated below:
3.4.1. Private Keys
The cryptocurrencies operate based on the existence of a private key which contributes in
authenticating a user and thereby enabling the user in carrying out the transaction like
exchanging of units. The users are also enabled in generating their set of private keys that are
formatted based on the employment of a single to around 78 digits. The users also tend to
employ a generator for formulating a private key. The users on having access to a private key
gain the capability of both obtaining cryptocurrencies and thereby in spending them based on

Industry 4.0
their own accord. In the absence of a private key, a user becomes unable in both spending and
also in converting the cryptocurrency. However, the operational need based on the use of
private keys is noted to suffer from their own set of drawbacks. In case of loss of the private key,
the user can focus on generating another private key for carrying out the accumulation of
cryptocurrencies. The user however would never be able to recover the lost currencies that
were associated with the lost private key (Bitnovosti.com , 2017).
Figure 3.2: Private Keys in Bitcoin
(Bitnovosti.com , 2017)
3.4.2. Wallets
The cryptocurrency users tend to possess “wallets” that contain some unique information which
helps in conforming the users as the temporary holders of the cryptocurrency units. Compared
with that of private keys that help in confirming the authenticity of carrying out a cryptocurrency
transaction, the wallets contribute in potentially reducing the risks concerning the pilferage of
units that are not in use. The wallets that are employed for conducting of exchanges associated
to cryptocurrencies counter a potential threat concerning the same being hacked. The wallets
are cryptocurrency instruments that are stored in the cloud that serves as an internally based
hard drive or a storage device placed externally. Backup for the wallets are highly necessary.

Industry 4.0
Figure 3.3: Cryptocurrency Wallets
(Falk, 2019)
3.4.3. Miners
The miners contribute in acting as the record-keepers for the communities trading on
cryptocurrencies. The miners focus on employing considerable amounts of computing potentials
and also other technical methods for verifying the completeness, accuracy and also the security
of the blockchains associated with currencies. The miners work in a periodic fashion for
developing novel copies of the existing Blockchain. The miners, as the name suggests, thereby
contribute in enhancing wealth based on the generation of brand new types of cryptocurrency
units.

Industry 4.0
Figure 3.4: Cryptocurrency Miners
(Martucci, 2019)
3.5. Exchanges of Cryptocurrencies

The lesser known and used cryptocurrencies are only focused on being exchanged based on
the carrying out of peer-to-peer transfers between private parties. The cryptocurrencies that
tend to be lesser used create disadvantages in that they are not liquid in nature and also are
difficult to be valued compared to most used currencies, crypto or fiat.
The widely used and popularly known cryptocurrencies like that of Bitcoin and Ripple are
generally traded based on the application of special types of secondary exchanges that earn
similarity to the forex exchanges used for fiat currencies. The above platforms allow the holders
for exchanging the cryptocurrency holdings owned by them with significant fiat currencies like
that of US Dollar and the Euro and also with other types of cryptocurrencies both less and more
popular. The exchanges are enabled along the secondary exchanges in terms of a transaction
value that does not exceed 1 percent.
Further, the Cryptocurrency exchanges contribute in developing liquid markets for effective
cryptocurrencies and also in setting a value for them while maintaining relation with the
traditional currencies. The exchange pricing however is noted to be of a highly volatile nature.
Mt. Gox is recognised as a popular exchange for cryptocurrencies. The collapse of Mt. Gox
happened to make the exchange rate for US Dollar to potentially reduce more than that of 50

Industry 4.0
percent. However, during 2017, the explosion of the demand regarding cryptocurrency
happened to increase the exchange rate for US Dollar by around ten times.
Figure 3.5: Cryptocurrency Exchange
(Dillet, 2018)
Figure 3.6: Cryptocurrency Exchange Mt. Gox
(The Cryptocurrency Post, 2019)

Industry 4.0
3.6. Timeline for Cryptocurrency

3.6.1. 1980s
The technical base of cryptocurrency dates back to the 1980 period. The blinding algorithm
developed by David Chaum, a cryptographer based in United States, is considered as a base
for the creation of web-based encryptions. The algorithm developed by David Chaum
contributed in the exchange of information in a secured and unalterable fashion between the
different parties involved in an exchange. It thus lays the background for carrying out of
electronic monetary transfers in a subsequent fashion. Cryptocurrency at that time was
identified as “blinded money”.
Figure 3.7: Cryptographer David Chaum
(Steelmit, 2017)
3.6.2. Late 1980s

During the later period of the 1980s, David Chaum encouraged a large number of
cryptocurrency experts for helping in the commercialisation of the aspect of “Blinded Money”.
Subsequently, Chaum relocated to Netherlands and founded the DigiCash. The company
contributed in the production of large units of “blinded money” based on the incorporation of the
blinding algorithm. The control of DigiCash was centralised unlike that of Bitcoin.

Industry 4.0
Figure 3.8: DigiCash founded by David Chaum
(Unlock, 2017)
3.6.3. 1990s to 2000s

In United States, e-gold turned out to be the most noted virtual currency during the period
ranging from 1990 to 2000. The virtual currency was both developed and controlled by an
organisation based in Florida bearing the same name as e-gold. The company basically
operated as a procurer for old gold ornaments that were sold through the use of the digital
interface. The customers of e-gold traded based on selling of their old gold ornaments to the
firm that were used for gaining of US Dollars and also in exchanging of the holdings with that of
other users.
Figure 3.9: E-Gold
(Suresh, 2013)

Industry 4.0
3.6.4. Mid 2000s to 2009

During the middle period of 2000, e-gold was noted to have large number of active accounts
that contributed in the processing of transactions valuing around billions of dollars. The
existence of weaker protocols and security measures in e-gold made it highly vulnerable to be
targeted by hackers and scammers leading to potential amount of financial losses.
Subsequently, the activity of e-gold was termed as identified as legally dubious in nature. The
lack of tight legal operations attracted the growth of money laundering functions and other Ponzi
schemes. Owing to increasing legal pressure, the company had to discontinue its operations
during 2009.
Figure 3.10: Ponzi Scheme
(Kulkarni, 2019)
3.6.5. 2008 to 2009

The period after 2008 can be observed as the period of the most widely known cryptocurrency,
Bitcoin. Bitcoin, as a cryptocurrency, was initially outlined by Satoshi Nakamoto during 2008. Its
emergence happened based on the integration of decentralised controls, anonymity of the users
and also in terms of carrying out of record-keeping functions based on the application of
blockchain. The cryptocurrency, Bitcoin, was first publicised by Nakamoto during 2009 such that
it encouraged a number of different supporters for initially exchanging and in also conducting of
mining functions.

Industry 4.0
Figure 3.11: Satoshi Nakamoto ~ The Father of Bitcoin
(Hoffmann, 2017)
3.6.6. 2010s
The latter half of the 2010 period reflected the emergence of large numbers of cryptocurrencies
like that of Litecoin. Further, the period was featured the initial exchanges of the Bitcoin
currency.
Figure 3.12: Litecoin
(Forbes, 2018)
3.6.7. 2012s
During 2012, WordPress emerged as one of the significant merchants regards to accepting
payments in Bitcoin. Other than Wordpress, retailers like Newegg.com, Expedia and also
Microsoft focused on accepting payments made through the use of Bitcoin. In the current era,

Industry 4.0
large numbers of business corporations are observed to accept Bitcoin as an effective method
for generation of payments.
Figure 3.13: Merchants of Bitcoin
(Visual Capitalist, 2019)
3.7. Benefits and Challenges concerning use of Cryptocurrency

3.7.1. Benefits
3.7.1.1. Offering Inflation Protection
Cryptocurrencies act like that of precious metals than mere fiat currencies. Owing to the stated
attribute, the cryptocurrencies unlike the fiat currencies account to be inflation proof.
3.7.1.2. Reliable instrument of Exchange

People tend to rely on the cryptocurrencies in that they help them in earning the benefits of
exchange compared to the fiat currencies that are subject to be affected by changes brought
about in the monetary and economic policies.
3.7.1.3. Presence of Updated Transaction Records

The miners of cryptocurrencies are financially motivated in keeping of updated financial records
of the different transactions carried out based on the use of such digital currencies. The same
contributes in both enhancing and sustaining the financial system’s integrity and value.

Industry 4.0
3.7.1.4. High amount of Privacy Protections

Privacy and also the use of information in an anonymous fashion are two principal concerns
regards to the use of cryptocurrencies. The cryptocurrency users focus on the employing of
pseudonyms that do not have connection with any type of information, account or even with
stored datasets that would lead the same being identified. The emerging cryptocurrencies along
the post-Bitcoin period are observed to encompass considerable amount of protections that
considerably reduce the chances for the same to become pirated.
3.7.1.5. Free from Government Autocracy

Unlike the Fiat Currencies, the Cryptocurrencies are stored along different regions of the world
which make it highly impractical to be affected by authoritarian and conservative policies of the
governments. Thus, the Cryptocurrency users are free from the threat concerning the freezing
of the accounts and also have unlimited access to several bank accounts globally.
3.7.1.6. Cheaper than that of Traditional Electronic Transactions

The security features of the Cryptocurrencies potentially reduce and eliminate the existence of a
third-party processor for carrying out payments like that of Visa and PayPal for both
authenticating and also verifying the carrying out of financial transactions in electronic formats.
The above fact thereby helps in totally eliminating the need for any type of transaction fees for
conducting the payment processes. The transaction fees for cryptocurrency amount to be less
than 1 percent of the total transaction value while for credit card and PayPal it amounts to 1.5 to
3 percent.
3.7.2. Challenges
3.7.2.1. Supports the growth of the Parallel Economy
The existence of minimal regulatory policies regards to Cryptocurrencies make the same a
haven for carrying out of illegal practices concerning black marketing and also other illicit
activities like trafficking of drugs.
3.7.2.2. Helps in evading the payments for Tax

In that, the cryptocurrencies are failed to be monitored by the national and international
governments and other regulatory authorities the same helps the individuals and groups in
evading the payment of taxes and other duties.
3.7.2.3. Enhances the chances for huge financial losses owing to data losses
The carrying out of financial transactions based on the use of cryptocurrencies make the same
amenable to data losses owing to activities like hacking and also the entry of malware intrusions

Industry 4.0
and viruses in the system. The users that tend to store the transactional data along single
storage devices like a single cloud based service tend to suffer from irreversible financial losses
owing to the damage of the device and its disconnection from the server.
3.7.2.4. Susceptible to potential volatility and manipulation

In that, the cryptocurrencies are held by limited number of people the same accounts for it being
manipulated by them in terms of controlling the supply of such in the market. The reduction in
supply of the cryptocurrencies compared to the demand for such in turn enhances the value of
the same. The value of the cryptocurrency, Bitcoin, is observed to have doubled during 2017
while the same halved during the initial weeks of the 2018 period.
3.7.2.5. Large number of cryptocurrencies can’t be exchanged against Fiat Currencies

The cryptocurrencies that only have increased rate of market capitalisation are supported by
online exchanges that help the same to be exchanged for traditional or fiat currencies. The other
cryptocurrencies not bearing increased rates of market capitalisation do not have online
exchanges for which they cannot be exchanged for that of fiat currencies. They are only
amenable to be exchanged for other types of cryptocurrencies.
3.7.2.6. Cryptocurrency Mining consumes greater electricity

The mining of cryptocurrency, Bitcoin, is observed to require potential amount of electricity. The
mining activity concerning Bitcoin consumes electricity greater than the electric consumption by
the total number of people dwelling in Denmark. The above issue thereby acts as a burden on
the natural environment.
3.8. Examples of Cryptocurrencies

The below provided are the different types of cryptocurrencies that are used by people around
the world.
3.8.1. Bitcoin
Bitcoin is observed as the most used and popular cryptocurrency around the world. The
programmed supply limit of Bitcoin is estimated to be 21 million. Bitcoin is also viewed as a
legitimate means for carrying out of exchanges.

Industry 4.0
Figure 3.14: Bitcoin
(Martucci, 2019)
3.8.2. Litecoin
Litecoin was issued during 2011. It tends to work based on the same structural aspect of
Bitcoin. In terms of market capitalisation, Litecoin earns the second or third rank after Bitcoin. It
differs from Bitcoin regards to the encryption algorithm and on the basis of programmed supply
units of 84 million.

Industry 4.0
Figure 3.15: Litecoin
(Idowu, 2019)
3.8.3. Ripple
Ripple was developed during 2012. The most noted feature of Ripple is the existence of a
“Consensus Ledger” that accounts for speeding up the level of transaction confirmation and also
the creation times for the blockchains. Moreover, the existence of an in-house currency
exchange actively contributes in helping Ripple get easily converted to other types of Fiat
currencies. Ripple however is criticised to be largely susceptible to manipulation carried out by
hackers in comparison to other types of cryptocurrencies.

Industry 4.0
Figure 3.16: Ripple
(Cryptocolumn, 2018)
3.8.4. Ethereum
The cryptocurrency, Ethereum, was launched during 2015. The existence of “smart contracts”
contribute in enforcing the performance of a specific transaction and also help in generating of
refunds in cases of violation of agreements by concerned parties.
Figure 3.17: Ethereum
(Medium , 2019)
3.8.5. Dogecoin
Dogecoin is identified to be a variation of the Litecoin. The same is featured to contain a shorter
creation time for generation of blockchains by around a minute.

Industry 4.0
Figure 3.18: Dogecoin
(Ryan, 2018)

Industry 4.0
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Industry 4.

Industry 4.0/M3SI/v1.0/101219 Blockchain | Session No.: I

1.1. Concept of Blockchain ....................................................................................... 7

1.2. Constituents of the Blocks .................................................................................. 8

1.2.1. Header .................................................................................................................. 8

1.2.2. Body ..................................................................................................................... 8

1.3. Steps encompassing Blockchain........................................................................ 9

1.3.1. Initiation ................................................................................................................ 9

1.3.2. Distribution ............................................................................................................ 9

1.3.3. Validation .............................................................................................................. 9

1.3.4. Blocking ................................................................................................................ 9

1.3.5. Chaining ............................................................................................................... 9

1.4. Traditional Network vs. Blockchain Network ...................................................... 9

1.4.1. Concept of Traditional Databases ......................................................................... 9

1.4.2. Concept of Blockchain Databases .......................................................................10

1.4.3. Differences between Traditional vs. Blockchain Network .....................................10

1.5. Benefits and Drawbacks of using Blockchain ................................................... 11

1.5.1. Benefits of using Blockchain ................................................................................11

1.5.2. Drawbacks of using Blockchain ...........................................................................12

1.6. Application of Blockchain Technology .............................................................. 12

1.6.1. Dispute Management ...........................................................................................12

1.6.2. Imposition of anti-fraud related Policies................................................................13

1.6.3. Management of Tax .............................................................................................14

1.6.4. To create a repository of Market Data ..................................................................14

1.6.5. Carrying out of Financial Transactions .................................................................15

1.6.6. Management of Rules and Regulations ...............................................................15

Industry 4.0/M3SI/v1.0/101219 Blockchain | Session No.: I

1.6.7. On-boarding of New Products ..............................................................................16

1.6.8. Electoral Process .................................................................................................17

1.6.9. Management of Medical Records.........................................................................19

2. Blockchain Components ...................................................................................... 19

2.1. Distributed Ledger ............................................................................................ 19

2.1.2. Risks associated to DLT ......................................................................................22

2.2. Hashing ............................................................................................................ 23

2.2.2. Cryptographic Hash Functions .............................................................................24

2.2.3. Features of the Cryptographic Hash Functions ....................................................24

3. Case of Blockchain – Cryptocurrency Transactions ......................................... 25

3.1. Overview .......................................................................................................... 25

3.2. Features of Cryptocurrencies ........................................................................... 26

3.2.1. Decentralisation of Control ...................................................................................26

3.2.2. Carrying out of exchanges with the Fiat Currencies .............................................26

3.2.3. Finite Supply ........................................................................................................27

3.3. Pros and Cons of Cryptocurrencies ................................................................. 27

3.3.1. Pros .....................................................................................................................27

3.3.2. Cons ....................................................................................................................27

3.4. Working of the Cryptocurrencies ...................................................................... 27

3.4.1. Private Keys ........................................................................................................27

3.4.2. Wallets .................................................................................................................28

3.4.3. Miners ..................................................................................................................29

3.5. Exchanges of Cryptocurrencies ....................................................................... 30

3.6. Timeline for Cryptocurrency ............................................................................. 32

Industry 4.0/M3SI/v1.0/101219 Blockchain | Session No.: I

3.6.1. 1980s ...................................................................................................................32

3.6.2. Late 1980s ...........................................................................................................32

3.6.3. 1990s to 2000s ....................................................................................................33

3.6.4. Mid 2000s to 2009 ...............................................................................................34

3.6.5. 2008 to 2009 ........................................................................................................34

3.6.6. 2010s ...................................................................................................................35

3.6.7. 2012s ...................................................................................................................35

3.7. Benefits and Challenges concerning use of Cryptocurrency ............................ 36

3.7.2. Challenges ...........................................................................................................37

3.8. Examples of Cryptocurrencies ......................................................................... 38

3.8.1. Bitcoin ..................................................................................................................38