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Notes on blockchains

Written by Elina Kettunen (UH)

The best-known applications of blockchain technology are cryptocurrencies, but there is considerable interest in applying blockchains as a data storage method in various different fields. Blockchains can be used to record transactions in a reliable, secure and immutable manner. Transactions are saved to linked blocks that form a digital, encrypted ledger. Each party or node in a blockchain maintains a copy of this immutable ledger. Consensus among the parties is achieved by using, for example, proof-of-work. 

Blockchains can be permissionless or permissioned. Permissionless, public blockchain systems allow anyone to join the blockchain, whereas permissioned, private blockchain systems use membership control to allow only identified parties to join. In public blockchains, anyone can read or write data, but while reading is free, writing to a blockchain requires paying a fee in cryptocurrency. The fee will be paid to a miner who first completes the proof-of-work to secure a new block containing the transaction data. In private blockchains, the owner of the blockchain can decide on the transaction fees. 

Blockchains can be used to eliminate the need for trust among the parties sending transactions to each other. All transactions are visible in the distributed ledger and tampering the transaction history would require the malicious party taking control of the majority (51%) of the blockchain network’s mining hash rate.

Ethereum [1] is the most popular permissionless blockchain that allows writing of smart contracts on the blockchain. Smart contracts consist of contracts or business logic that are installed on the blockchain system. Parties in the blockchain can execute smart contracts to create different transactions that are then validated by other parties and saved to the blockchain.

There are several different platforms for building permissioned, private blockchains. Some of the most widely used are Hyperledger [2] and R3’s Corda [3]. Private blockchains are meant to allow saving sensitive data to a blockchain so that only selected parties are able to view it. However, it is possible to save encrypted, private data also to a public blockchain.  

Since public blockchains use computationally more expensive consensus protocols and have more nodes, private blockchains can potentially offer better scalability and faster transactions. However, private blockchains are not truly decentralized and, for example, Hyperledger Fabric was found at least in 2019 to have issues with network delays causing desynchronization in the blockchain [4]. 

There has been a lot of interest in the possibilities of blockchain technology, and hopes of revolutions in many different areas such as finance and Internet of Things (IoT). Blockchains can provide secure ways to manage confidential data and identity information, and thus provide potential use cases also in health care. 

However, so far there are only a few fully operational blockchains besides systems related to cryptocurrencies and Bitcoin [5] remains the most successful real-world application of blockchain technology. 

Ethereum was the first blockchain to support the implementation of smart contracts, which enable building decentralized applications (dapps) on Ethereum blockchain. There are various potential use cases for dapps and plenty of tutorials on dapp development available online. Despite this, most dapps have practically no users or transactions. On 9th of June 2020 on DappRadar [6], the list of Ethereum dapps showed over 1880 dapps, but only 330 had had at least one user during the previous seven days. All Top Ten dapps (based on user count during the previous seven days), save one, were related to money exchange, high risk investments and decentralized finance. There are some gaming applications on Ethereum (e.g. CryptoKitties, My Crypto Heroes), but most dapps appear to be related to finances and gambling. 

In Deloitte’s Global Blockchain survey 2019, 53% of organizations saw blockchains as critical and being in top five of their priorities [7]. In the same survey one of the top five “organizational barriers to greater investment in blockchain technology” was the lack of in-house capabilities. As the need for blockchain professionals is likely to grow in the future, in Finland a project has been launched to provide education on blockchain technology in universities [8]. 

Supply chains are one area where the use of blockchain technology can potentially streamline the process and reduce paperwork besides creating a transparent, immutable record of the product history. However, Gartner’s report (2019) estimates that “contrary to initial market hype and for the time being, blockchain is not enabling a major digital business revolution, and may not enable one until at least 2028” [9]. This is due to several factors that currently make it challenging for organisations to adopt blockchain technology. 

In a blockchain system, there is overhead from replicating the data. For example, in Ethereum, those users that host the full node need approximately 180 GB disk space [10]. However, not all users need to download the full node, as there are also light nodes that store only the transaction headers and are able to request other information from full nodes. Light nodes can be used, for example, in mobile phones or embedded devices.

For instance, Peker et al. (2020) studied the cost of saving IoT sensor data to Ethereum blockchain. In their experiment the cost of storing 6000 data points (256-bit integers) was approximately 335 – 467 US dollars depending on the method used [11]. According to other informal estimates, the cost of storing 1kB of data to Ethereum blockchain would have been approximately 1.6 US dollars in 2018, and the storage of 1GB was over 1.6 million US dollars. According to Kumar et al. (2020) “the cost of storage on a public blockchain platform can be staggering, a few thousand times higher than on a distributed database system or in the cloud. On a permissioned blockchain system, the cost is likely to be less but still one or two orders of magnitude higher.” [12]

Due to mining being computationally expensive, public blockchain systems consume more energy than regular distributed databases. Bitcoin mining is notoriously energy consuming, and sustainability issues are one area where more research is needed. The popularity of Bitcoin and other cryptocurrencies has also led to different scams related to cryptocurrencies, and for example, infected websites harnessing visitors’ computers to mine Bitcoin.

In their article Kumar et al. (2020) suggest that “blockchain technology should be deployed selectively, mainly for interorganizational transactions among untrusted parties, and in applications that need high levels of provenance and visibility.” For example, tracking the origin and shipping of precious gemstones or other expensive or critical commodities is one area where blockchain systems have been tried. Regarding supply chains, major challenges for using blockchains include creating legislation and standards all parties can agree on, and getting everyone to use blockchain technology despite additional costs. Joining a consortium is usually necessary to properly utilize blockchains.

To conclude, as blockchains are today a high-cost and high-overhead storage method, careful consideration is needed to determine the proper use cases. Also, a decision should be made on what data to store to the blockchain, as it might be feasible to store only the most critical parts of the whole data to save resources. Blockchain technology is being piloted in various different fields, and in the future, blockchains are likely to be utilized in a much wider scale.

References and recommended reading

[1] https://ethereum.org/en/

[2] https://www.hyperledger.org/

[3] https://www.r3.com/corda-platform/

[4] Nguyen, T.S.L., Jourjon, G., Potop-Butucaru, M. & Thai, K.L. 2019, “Impact of network delays on Hyperledger Fabric”, INFOCOM 2019 – IEEE Conference on Computer Communications Workshops, INFOCOM WORKSHOPS 2019, pp. 222-227.

[5] https://bitcoin.org/en/

[6] https://dappradar.com/rankings/protocol/eth

[7] Deloitte’s Global Blockchain survey 2019

[8]https://www.eura2014.fi/rrtiepa/projekti.php?projektikoodi=S22027

[9] Gartner 2019: Blockchain Unraveled: Determining Its Suitability for Your Organization https://www.gartner.com/en/doc/3913807-blockchain-unraveled-determining-its-suitability-for-your-organization

[10]https://medium.com/@marcandrdumas/are-ethereum-full-nodes-really-full-an-experiment-b77acd086ca7

[11] Peker, Y.K., Rodriguez, X., Ericsson, J., Lee, S.J. & Perez, A.J. 2020, “A cost analysis of internet of things sensor data storage on blockchain via smart contracts”, Electronics (Switzerland),vol. 9, no. 2. 

[12] Kumar, A., Liu, R., Shan, Z. 2020, “Is Blockchain a Silver Bullet for Supply Chain Management? Technical Challenges and Research Opportunities”, Decision Sciences 51 (1), pp. 8-37.