What is Blockchain?
Blockchain technology has been hailed as arguably the most disruptive technology since the emergence of the world wide web based on potential (Janssen et al., 2020). Blockchain, a subset of Distributed Ledger Technology DLT, implements the technology as a ledger of blocks stored sequentially across a computer network. There are three variations of blockchain networks, public (permissionless), private (permissioned), and consortium controlled (permissioned). A public blockchain is completely decentralized. The network has no preconditions for joining and does not validate nodes. Each node has complete access to read, write, and verify transactions on the blockchain. Private blockchains require pre-authorization to become a node on the network. There is a central authority that handles this verification and grants rights to the nodes on the blockchain. Since all nodes are authorized, trust is not a primary concern for this type of blockchain. Consortium controlled blockchains are a subset of private blockchains. In this type of network, a consortium of organizations operates as the central authority. Transactions are validated when a majority of the consortium approves the transaction. For this study, blockchain will refer to public blockchain networks.
All blocks on the blockchain network are immutable. Records can be added but not altered or deleted. The digital ledger is shared across the nodes on the network, each node always storing an identical copy of the ledger, creating a permanent, time-stamped record. Two features of blockchain that have generated attention are how it solves issues with digital transactions. “Duplication Resistance (Double Spend) so that it’s resistant to duplication and Physical Security, so that that physical possession validates ownership” (Hellwig et al., 2020, p. 32).
The Concept of Double spending is the risk that someone can spend the same digital currency multiple times. Double spending is a problem that’s unique to digital currencies because digital information can be reproduced relatively easily. Physical currencies do not have this issue because they cannot be easily replicated. The parties involved in a transaction can immediately verify the authenticity and past ownership of the physical currency.
Blockchain uses consensus protocols when updating the ledger with a new block. Bitcoin, as an example, uses the proof of work (POW) consensus protocol. To add a block onto the ledger using POW, a miner processes the previous added blocks unique id, the NONCE; which is generated by passing the previous blocks NONCE and current blocks data through a SHA-256 hash function to generate a hash value within a specific tolerance range. This new NONCE is broadcast back and verified by other miners. The NONCE is verified by a majority consensus of miners (51%), will be added to the ledger. If multiple miners verify a block simultaneously, the request submitted with the longest blockchain is accepted. Generating this hash is computationally intensive. If a bad actor attempts to alter an existing block, each block that follows must also be changed. Any alteration in the data will produce the “Avalanche Effect”. A small change in the hashed data creates a significant change in the hashed value. Also, the difficulty level of the hash is dynamically increased overtime time. Mining is a competitive process. On average, a miner will generate acceptable proof of work every ten minutes. Adjusting difficulty ensures the time it would take to alter a block would be longer than the acceptance of legitimately mined blocks (Xu et al., 2019).
Identity on Blockchain networks is implemented using asymmetrical encryption. This type of encryption uses a public and private key (PKI) to secure a transaction rather than a password. Valid transactions are signed with a private key and validated with the corresponding public key. The holder of the private key is the established Physical owner of the digital currency and is responsible for the security of the private key address. (Paar & Pelzl, 2010)
The encryptions keys are stored in a cryptocurrency wallet, which is the mechanism blockchain uses to assign ownership and provide access to the blockchain network. Wallets are grouped into two classes, hardware wallets and software wallets. Each wallet type varies regarding security implementation and usability. Any wallet with direct internet access is considered hot, and wallets with no direct internet access are considered cold. (Hellwig et al., 2020).
The configuration of hardware wallets ranges from a private key being printed on a piece of paper to custom hardware solutions with display screens managed by open-source software (e.g., TREZNOR) for their operation. Hardware wallets are typically cold wallets making them more secure at the expense of accessibility. To complete a transaction with a hardware key, you must bring the key to an internet-connected device and manually supply the key. A software wallet is an application stored on your P.C. or mobile device which manages your public key. If your device is internet-connected, then the wallet classifies as HOT. This type of wallet makes completing transactions easier because it is network-connected. HOT wallets are susceptible to security vulnerabilities of the host device and can compromise the private keys risking theft. A third-party crypto exchange operates software wallets which are HOT. Exchange wallets shares the same inherent vulnerabilities of an internet-connected Software wallet and have started holding account in cold storage to prevent theft. Additionally, if the exchange has not set up its software correctly, it can expose your private keys to an unauthorized third party. If the Exchange is compromised, your assets are at risk. Pros of using an exchange is scale. Large exchanges can provide a level of risk management that may not be available to an individual cryptocurrency user, at the expense of turning your data over to a trusted third party.
Bitcoin was the first blockchain application to reach a relatively wide market adoption. It found a niche in transactions where anonymity is preferred, and the risk of exposure outweighed the risk of losing currency (Aste et al., 2017). Satoshi Nakamoto envisioned a world where any individual central authority does not control our finances. That privacy and the ability to transact one to one is of paramount importance. I assert that blockchain’s anonymous, decentralized nature and, by extension, bitcoin limits broad adoption. This study looks to develop a framework that will expand the use of blockchain networks to a user class with a risk profile that weighs trust and security over anonymity.
Cryptocurrency and NFT’s
In the past few years, there has been a lot of buzz around cryptocurrency and non-fungible tokens (NFTs). Bitcoin, Ethereum, Bitcoin Cash, Ripple, Litecoin, Cardano, NEO, EOS, Stellar, IOTA – are just a few of the most popular cryptocurrencies that are currently being traded. Each one has its own unique features and benefits, and there is always speculation about which one will become the next big thing. While it is impossible to predict the future of cryptocurrency with any certainty, it remains an exciting and rapidly-growing market. For those who are interested in investing in cryptocurrency, doing your research and carefully choosing which coins to invest in is essential. With so many options to choose from, it can be helpful to keep up with the latest news and trends in the industry. By staying informed and making smart choices, you can maximize
NFTs, on the other hand, are a type of digital asset that is unique and cannot be replicated. They are often used to represent ownership of digital items such as art, music, or virtual real estate. While NFTs have only recently gained mainstream attention, they have been around for much longer than cryptocurrency. The first NFT was created in 2014 and was used to represent ownership of a virtual piece of land in the online game Second Life. Since then, NFTs have been used for a variety of purposes, including collectibles, gaming items, and even physical art. In the past year, there has been a surge in the popularity of NFTs, with major platforms such as Twitter, YouTube, and TikTok getting in on the action. Even celebrities like Paris Hilton and NBA star Spencer Dinwiddie have gotten involved, selling their own NFTs.
The world of cryptocurrency and NFTs can be complex and confusing, but it is also full of opportunity. With the right knowledge and approach, you can make informed choices and potentially reap the rewards.
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