International Journal of Computer Engineering and Applications, Volume XII, Special Issue, April- ICITDA 18,

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1 International Journal of Computer Engineering and Applications, Volume XII, Special Issue, April- ICITDA 18, ISSN ABSTRACT: BLOCKCHAIN, CRYPTOCURRENCY AND BITCOIN Nurul Hassan, Nishchay Jain, Student, Department of Information Technology, JECRC Foundation, Jaipur Dr. Vinay Kumar Chandna Professor, Department of Information Technology, JECRC Foundation, Jaipur Bitcoin, a new technology has got a lot of attention since it was presented in late 2008 and Started Implementing on 3 January 2009.Bitcoin was the first Decentralized Global Cryptocurrency. Since then Other Crypto-currency like Litecoin, altcoins and many more. The blockchain is continuously a growing list of Records, which is secured by the cryptography Technique. Bitcoin Cryptocurrency Record its own Transaction in a public log called the Blockchain. This Paper Deals with the Description of the Blockchain Technologies and we look beyond the currency and investigate the potential use of Blockchain Technology. Keywords: Blockchain ; Cryptocurrency ; Investigate ; BitCoin; [1] INTRODUCTION Since, after the creation of the Bitcoin in 2009, various Private Cryptocurrency is introduced But Bitcoin is by far the first successful one. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto. Bitcoin has been getting a lot of attention and its total market cap 1 Trillion USD on 7 Dec The Most Important Point is that a number of central banks started recently to explore the adoption of cryptocurrency and blockchain technologies for retail and large-value payments. For example, the People's Bank of China aims to develop a nationwide digital currency based on Blockchain technology. Making 1

2 BLOCKCHAIN, CRYPTOCURRENCY AND BITCOIN a digital payment or currency transfer requires a bank or credit card provider as a middleman to complete the transaction. The transaction System is centralized by, and all data and information are controlled and managed by a third-party organization rather than two people involved in Transaction.to solve this issue Blockchain Technology is developed. The goal of Blockchain technology is to create a decentralized environment where no third party is in control of the transactions and data. However, even though Blockchain seems to be a suitable solution for conducting transactions by using cryptocurrencies. But it has still some technical challenges and limitations that need to be studied and addressed. [2] BLOCKCHAIN AND ITS APPLICATIONS [2.1] HISTORY A Blockchain (Block Chain), is a Continuous growing list of records, which is called Blocks, which are linked and secured by using cryptography. In a blockchain, each block contains a hash of the previous blocks known as a cryptographic hash of the previous Blocks, Transaction data, and a timestamp. As we have studied earlier about Timestamp. A Blockchain represents the Second Greatest innovation from Satoshi Nakamoto. As a Distributive ledger, the blockchain is stored locally on the computer hard drive of every single user running a full version of the Bitcoin Software. The work of a Blockchain ledger is to record the history of every transaction which is sent and confirmed in the Bitcoin Network. [2.2] BENEFITS OF BLOCKCHAIN TECHNOLOGY 1. Immutability: Any transaction which is confirmed cannot be changed in the blockchain. 2. Supply Trade and Chain Finance: For Management of chain supply, the blockchain technology offers the advantage of traceability and Cost-effectiveness. Blockchain can be used to track the movement of goods, their origin, quantity. It brings about a new level of transparency to B2B ecosystems simplifying processes such as ownership transfer, processes such as ownership transfer, payments, and production process assurance. 3. Quality assurance purpose: This makes it easy for a business to carry out investigation and execute the necessary actions. 4. Accounting: Recording Transactions through blockchain virtually eliminates human error and protect data from possible tampering. But remember that the records are verified every single time they are passed on from one blockchain node to next. To the guaranteed accuracy of your records, such a process will also leave highly audit trail. 5. Smart Contracts: Blockchain based smart contracts are those that can be executed partially or fully or enforced without human interactions. Some blockchain implementations could enable the coding of contract that will execute when specified conditions are met. The main Object of the smart contract is automated escrow. 6. Blockchain technology can be used in various areas. [2.3] DISADVANTAGES 2

3 International Journal of Computer Engineering and Applications, Volume XII, Special Issue, April- ICITDA 18, ISSN A Researcher N.Hampton pointed out that there is no need of 51 Percent attack on the private blockchain, as the private blockchain already controls 100 Percent of the creation of all block. He also said that there is no race within a private blockchain also there is no motive to use more power or discover blocks faster than the competitors. 2. Bitcoin is not user-friendly. Most of the software to control and transact in bitcoin is complex and difficult to use. 3. Third Party Software and solution can simplify this use involve entrusting bitcoin to thirdparty user. 4. The Bitcoin network is open access. The opening of an account with regulated exchanges require laundering of anti-money and know your client verification and account funding that makes difficult for a new user to acquire bitcoin quickly. 5. Lack of protection against mistakes. Unlike other traditional payments, bitcoin transaction can`t be reversed and no any administrator can restore the transaction. As a wrong bitcoin transaction will result in loss of funds. [2.4] TYPES OF BLOCKCHAIN There are mainly Four Types of Blockchain:- 1. Public: blockchain, where anyone can read and after reading, can submit the transactions to the blockchain. 2. Permissioned: blockchain where the set of trusted parties carry out verification and the verifiers can only be added with an agreement of Central AuthorityAuthority or current members. 3. Private: As a term "private" defines that in this the permission of reading and submitting Transaction is restricted to a user within in a Particular Organisation or group of Organisation. 4. Permission less: In this, a Permission of reading and submitting the Transaction is not required. i.e. no Prior user authorization is required. Anyone can participate in the new transaction verification. [2.5] HOW THE BLOCKCHAIN TECHNOLOGY WORKS Understanding the below points which will help to understand how blockchain blocks:- 1. To send or receive bitcoin, a bitcoin user must do a transaction and the user broadcasts it to every part of the Bitcoin Network. 2. For a successful transaction, the user must be added to the public digital ledger i.e. Blockchain. The network of nodes validates the transaction. 3. Transaction data is collected and verified by the use of Miners against the existing blockchain ledger and it solves a cryptographic puzzle that allows them to add a recent transaction block to the blockchain. 4. It helps to ensure each sequential block of the public ledger is accurate because of the fact that so many users have the same records and they are many to confirm the same transactions. 5. A new block which is created is added to the existing blockchain as mentioned earlier. Once a block is added to the blockchain it is there forever and becomes a public record. 3

4 BLOCKCHAIN, CRYPTOCURRENCY AND BITCOIN 6. The transaction is completed. Figure: 1. How Blockchain Technology works. [3] CRYPTOCURRENCIES [3.1] DEFINITION A Cryptocurrency or cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions to control the creation of additional units and to verify the transfer of assets. Cryptocurrency is the type of a Virtual Currencies. Cryptocurrencies use decentralized control as opposed to centralized money and central banking system. Decentralized Control of each Cryptocurrency works through a blockchain, which is a database of a transaction public transaction, which is functions as a distributed ledger. A Digital Currency Bitcoin, was Created in early 2009, which was the First Decentralized Cryptocurrency. According To J Lansky (Jan Lansky), a cryptocurrency is a type of a system that has all of the following six conditions. 1. This System defines that the new cryptocurrency units can be Created or not. If the new cryptocurrency unit is created, the system defines that the circumstances of their origin and how to determine the ownership of the new units. 2. Central Authorities is not required by the system. 3. The Overview of cryptocurrency units and its Ownership is kept by System. 4. By Cryptographic Method ownership of Cryptocurrency Unit can be proved. In the year 2008, in the month of March, the Word "cryptocurrency is added in the dictionary which is known by the name Merriam-Webster Dictionary. Merriam Webster Dictionary Came in the 19 th Century. [3.2] TIMESTAMPING Timestamping schemes are used by cryptocurrencies to avoid a need a third party to timestamp the transaction. 4

5 International Journal of Computer Engineering and Applications, Volume XII, Special Issue, April- ICITDA 18, ISSN (i) Proof of Work Schemes:- Proof of work was the first time stamping scheme invented. Most widely proof of work she, is used are based on scrypt and SHA-256. Other Hashing algorithms that are used for proof of work are CryptoNight, Blake, X11, and SHA-3. (ii) Proof of Stake scheme and combined Schemes:- Some of the cryptocurrency use a combined proof of stake or proof of work schemes. The Proof of Stake scheme is a method of keeping a cryptocurrency Network Secure and achieving consensus by requesting the user to show ownership of a finite amount of currency. It is totally different from the other scheme i.e. proof of work scheme that runs hashing algorithm which is difficult to validate electronic transactions. (iii) Economics:-As on January 2018, there were over more than 1383 and growing Digital currencies in existence. (iii).1 Cryptocurrency Transaction Fees:- Transaction Fees of the Cryptocurrency mainly depends on the Two Components i.e. Demand and Supply. It depends on the demand from the Currency Holder for fastest transaction and supply of network Capacity at a time. Figure: 2. Cryptocurrency Market. (iii).2 Darknet Market:- Cryptocurrency is also used in the controversial things in the form of Online Black Market, like Silk Road. Silk Road was shut down in the month of October in the 2013 year. These Markets are still present growing Challenges in legality. Bitcoin and the other form of cryptocurrency used in darknet markets are not legally classified in almost all parts of the world. In the United States, bitcoins are known as Virtual assets. Since most dark Markets run through a tor, they can be found at public ease. It means that their addresses can be found easily. Customer review and open Sforums related to the drugs being sold on the Market, without blaming any form for the user. This type of lack of understanding enables users on both sides of darkness markets to get free from the reaches of law enforcement. 5

6 BLOCKCHAIN, CRYPTOCURRENCY AND BITCOIN [4] BITCOIN [4.1] SHORT HISTORY OF BITCOIN Bitcoin is a collection of technologies that form the basis of a digital money ecosystem. Units of currency called bitcoins are used to store the value and also for the transmission among Participants in the bitcoin network. Bitcoin users communicate with each other using the protocol which is known as bitcoin Protocol through the Internet, but other transport networks can also be used. The Word Bitcoin has first occurred in the Year 2008, a group under the name Satoshi Nakamoto published a paper which was entitled Bitcoin: A Peer-To-Peer Electronic Cash System. This Paper described a peer-to-peer version of the electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution. Bitcoin was the First Realization of this concept. Bitcoin was the First Decentralized Global cryptocurrency and worldwide payment Systems. After those many digital currencies like Dash, NuBits, Coinye etc. are created. In this digital system works without a central bank or a single administrator. The Network is peer-to-peer and transactions take place between users directly, without any intermediate. These Transactions are verified by network nodes through the use of Cryptography and released as open-source software in Bitcoin is created as a reward for a process known as mining. Japan has recently accepted Bitcoin as a payment mode. [4.2] BITCOIN VALUES AND UNITS The unit account of the bitcoin system is the bitcoin. Symbols used to represent BTC and XBT. The small amount of bitcoin is used as alternative units like millibitcoin (mbtc), bit and Satoshi. A Satoshi is the smallest amount of bitcoin representing bitcoin that is one hundred millionth of a bitcoin. A bit equals bitcoin, one-millionth of a bitcoin or 100 satoshis. A millibitcoin equals bitcoins, one-thousandth of a bitcoin or 100,000 satoshis. As on 15 th March 2018, in India value of 1 bitcoin is 5, 32, Indian Rupee. And in America on this same day, the value of 1 Bitcoin is 8, US Dollar. [4.3] TO BUY BITCOIN Steps to buying a bitcoin online are:- Step 1: Find a good Bitcoin wallet. Digital wallets are used to store Bitcoin until you are ready to spend them or exchange them for another currency. Step 2: Choose the right Bitcoin trader. Step 3: Select your payment method. Step 4: Buy some Bitcoin and store them in your wallet. Step 5: Get ready to use it. 6

7 International Journal of Computer Engineering and Applications, Volume XII, Special Issue, April- ICITDA 18, ISSN Exchange Fees ID Required Countries Localbitcoins 1% Sometimes Global BitQuick 2% Yes USA Wall of Coins 1% (Approx.) No 12 Countries LibertyX 1.5-8% Yes USA [4.4] BITCONS WALLET : A PRIVATE KEY The Most Common Assumption is that Bitcoins are Stored in a wallet which technically incorrect. Bitcoins are not stored anywhere. Bitcoin Balances are kept using the private and Public Keys, which are long strings of numbers and letters linked through the mathematical encryption algorithm that we use to create them. The Public Key (Like a Bank Account Number) Serves as the address published to the world, by which others may send Bitcoins. The Private Key (Such as ATM Pin) is meant to be guarded secret and only used to authorize Bitcoin transmission. Thus, it`s a Private Key that is kept in a Bitcoins Wallet. Some safeguards for a Bitcoin wallet include: encrypting the wallet with a strong password and choosing the Cold Storage option, which means storing it offline. In the case of Coinbase wallet, they offer a secure "multisig vault" to host your keys, which you can sign up for. As a user, you are free to use these Bitcoins using the private keys to make a payment for a service or send money to a friend or family. These Bitcoins are sent using the address of the recipient. Selling Bitcoins on the exchange will earn you its selling amount in the local currency, which can be withdrawn by you. Although Bitcoin is homogenous (the same everywhere in the world), its price varies across countries and even exchanges within the same country, giving a rise to arbitrage opportunities. The Bitcoin Price in South Korea has been trading at a 35% premium while in India it has been at a 20-25% premium. The number of Areas, Places where Bitcoins can be spent is increasing rapidly and includes some big retail players as well as many Small businesses. The increased acceptance is boosting its footprint across the globe and is helping it secure an official recognition as a mode of payment. [4.5] COUNTRIES WHERE BITCOIN IS ILLEGAL AND LEGAL LEGAL : The European Union (EU), Canada Australia, The United States ILLEGAL : Iceland,Vietnam,Bolivia,Kyrgyzstan,China,Russia,Ecuador [4.6] MINING 7

8 BLOCKCHAIN, CRYPTOCURRENCY AND BITCOIN In simple term, "mining" is the validation of transaction. For this, successful miners obtain new cryptocurrency as a reward. Mining is the process by which new bitcoin is added to the money supply and it also serves to secure the bitcoin system against fraudulent transactions or transactions spending the same amount of bitcoin more than once, known as a double-spend. Miners provide processing power to the bitcoin networks in exchange for the opportunity to be rewarded bitcoin. Miners also validate new transactions and record them on the global ledger. [5] CONCLUSION So what next? The banks still didn`t plan for blockchain, but the direction is clear. Bitcoin and Blockchain technology is an important development in this economy. Few people fully understand the blockchain within the bank. Now what to do is to take a fresh look at the blockchain technology, and the bank is to think how to adopt it. The blockchain is a heart of a bitcoin or it is a bitcoin backbone`s technology. The ledger functionality is coupled with the blockchain security which makes it a very attractive technology which helps to solve a current financial and non-financial problems. [6] REFERENCES 1. Crossby, Nachiappan, Pattanayak, Sanjeev,Vignesh Blockchain Technology: Beyond Bitcoin 2. Gregory E.Xothalls, Robert Claassen, H.Morlarty, B.Levy An Introduction to Bitcoin and Blockchain Technology 3. Narayanan, Joseph, Edward, Andrew, Steven Bitcoin and Cryptocurrency Technologies Draft-Feb 9, Satoshi Nakamoto Bitcoin: A Peer-to-peer Electronic Cash System 5. Ittay Eyal, Adem Gencer, Emin, Renesse Bitcoin-NG Cornel University 6. Marc Gronwald The Economics of Bitcoins Published December Jonathan Chiu, Thorsten Koeppl The Economics of Cryptocurrency April,