SMART PORT CITIES

CHAPTER 7 - SECTION 1
BASICS OF BLOCKCHAIN TECHNOLOGY
1. Introduction:
- The year 2009 was a remarkable one when bitcoin was launched based on blockchain
technology. The feature of blockchain technology is that it makes the role of intermediaries
redundant in any type of transaction. Thus elements of security, integrity, immutability, and
transparency get embedded into transactions. These transactions happen in various sectors,
be it the financial sector, healthcare, supply chain, real estate etc., to name a few. Hence the
applications of blockchain technology are vast and are applied in various sectors.
- Key components of blockchain technology include hashing methods, consensus
mechanisms, transactions and blocks. Blockchain technology is evolving. It has evolved
from the first generation of cryptocurrency to second generation finances to the third
generation digital society and is still evolving. No doubt there are associated challenges with
evolution. These challenges get manifested in terms of scalability, loss of privacy and selfish
mining. The impact of blockchain technology can be seen in very diverse sectors. Think of a
sector where intermediaries exist, and you can see the role of blockchain technology. That is
why the financial sector, supply chain, healthcare, tourism, government sector, smart cities,
IoT, energy exchange, and insurance sector are applying blockchain technology to give
security and transparency to the stakeholders.

2. Blockchain Technology And Its Components

2.1. Concept of Blockchain Technology
Cryptocurrency is the first application of blockchain technology. A cryptocurrency is a medium of
exchange, like the Indian Rupee, but is digital and secured by cryptography. Bitcoin was the first
cryptocurrency developed in 2009 by the elusive Satoshi Nakamoto. Since then, many
cryptocurrencies have come into existence to fulfil different needs and purposes. Thus,
cryptocurrency, like bitcoin, is one of the applications of blockchain technology. There are
numerous other applications of blockchain technology, for example, in the financial sector,
government and public sectors, Supply Chain Management, Internet of Things, Healthcare, and
Smart cities.
Businesses that use intermediaries can be disintermediated using blockchain technology, thus
bringing transparency. Blockchain can be used wherever authentication is required. One of the
consequences of disintermediation and authentication will be reflected in lower transaction costs.
Blockchain technology is evolving. Blockchain 1.0, i.e. the first generation of blockchain, refers to
cryptocurrency, i.e. digital currency. Blockchain 2.0, i.e. the second generation of blockchain, refers
to digital finance and Blockchain 3.0, i.e. the third generation of blockchain, refers to digital
society.
Blockchain technology is based on Distributed Ledger Technology (DLT). Ledger is the record of
transactions. These transactions may be financial deals, supply chain management, and copyright
ownership. In a distributed ledger, records of transactions are available on a blockchain network. A
blockchain network is a peer-to-peer network. A peer or node in a peer-to-peer network is a
computer that has software installed in it. Being a peer-to-peer network, it does not require a central
authority or trusted intermediaries to authenticate or settle the transactions.
This feature brings transparency to transactions. Where as in the centralized system, the records of
transactions are available in a central server, and these records are managed by intermediaries, a
role played by institutions like banks. Blockchain technology completely removes the role of
intermediary or the third party. Transactions in Blockchain technology is immutable, i.e. once a
transaction is made, it is permanent and can't be altered.
Transactions in the blockchain are stored in a block. A block is chained to an other block through a
cryptographic hash chain. This chain keeps growing as long as new blocks are created and
maintained.
This way, modern financial systems that track transactions/assets without the need for centralized
parties can be enabled.
In a nutshell, blockchain is a network of devices named nodes connected to each other over the
internet. All nodes on a blockchain are equally important. Anode can play diverse roles like storing
information recorded in a blockchain, storing a copy of all the information recorded on a
blockchain, and processing transactions to add a new block in the network.
2.2. Working of Blockchain
The working of blockchain technology can be illustrated through one of its applications.
Cryptocurrency is one of the applications of blockchain technology, and the working of blockchain
technology can be demonstrated through a transfer of cryptocurrency. Let a user 'X' wants to send
money to user 'Y'. The process of transfer of money from user 'X' to user 'Y' is as shown in Figure
7.1

Once
Requested
Validation of verified, this The new Receiver
Sender (X transaction
requested transaction block is (transaction
requests a is broadcast
transaction is added to is complete
transaction to all nodes
done by all represented the existing between X
with Y) (P2P
nodes as a new blockchain and Y)
network)
block

Here sender 'X' requests a transaction for sending money to the receiver 'Y'. The requested
transaction is broadcasted to the P2P network (it consists of computers known as nodes). This P2P
network containing all nodes validates the transaction. Once verified, this transaction is represented
as a new block. The new block is then added to the existing blockchain. Thus the transaction is
completed, and receiver 'Y' receives the money.
The above was the simplest explanation of the working of blockchain. Now see what happens at
every stage of the transaction in a bit of detail.
When sender 'X' wants to send money to the receiver 'Y', then 'X' should know the wallet address of
'Y'. The transaction gets initiated as user 'X' sends the money to user 'Y'. Every node of the
blockchain will have to verify this transaction. Only then will user 'Y' get money in his/her wallet.
Thus every node will record this money transaction from user 'X' to user 'Y'.
Hence, records will be stored in thousands of computers, but the user may not like his/her
transaction information on many computers. This issue is resolved by blockchain by keeping the
transaction anonymous.
For maintaining transactions' integrity over the network, there is the need for consensus protocol,
cryptographic hashes, and digital signatures at nodes. Consensus protocol guarantees that
transactions recorded in public ledgers are exact copies. No transaction record can be changed
without accessing all the nodes of the network. Thus making transaction records immutable. SHA-
256 (Secure Hash Algorithm of output size 256 bits), a cryptographic hashing algorithm, is used to
assure that any change in transaction leads to a new hash value being computed. Digital signatures
ensure that the transactions are initiated from genuine senders.
2.3. Types of Blockchain
Blockchain can be classified into the following three major types.
- Public Blockchain
- Private Blockchain
- Consortium Blockchain or Hybrid Blockchain
A public blockchain is one in which anyone can join and participate. It means anyone can be a user
or a miner, and anybody can add new blocks. This ensures transparency in public blockchain
networks. A public blockchain is also called permissionless as it permits anyone to take a copy of
the blockchain and involve in block validation. Bitcoin and Ethereum are examples of a public
blockchain.
A private blockchain is a permissioned blockchain suitable for individual organizations. Here an
organization decides who is allowed to participate and maintain a shared ledger. Hyperledger is an
example of a private blockchain. A consortium blockchain is a permissioned blockchain where
several organizations take responsibility for maintaining the blockchain. Consortium blockchain has
the privacy benefits of private blockchain and the transparent nature of public blockchain. A
consortium blockchain is also called a hybrid blockchain.
Feature Public Blockchain Private Blockchain Consortium Blockchain
User access Public Restricted Restricted
User identity Anonymous Approved users Approved users
Permission status Permissionless Permissioned Permissioned
Drag on chain is an example of consortium blockchain. Features of the above three blockchain
types is as shown in Table 7.1:
2.4. Advantages of Blockchain Technology
Following are the advantages of blockchain technology:
- Decentralization
- Transparent and Anonymous
- Less transaction fees and no taxes
- Theft resistant
The above mentioned advantages/characteristics of blockchain technology helped the rapid
evolution of blockchain technology from application in cryptocurrency (bitcoin) to Industry 4.0 in
such a short interval of 10 years.
Security, transparency, traceability, and automation are some of the important concerns for any
business or industry. Blockchain technology can address the above concerns. As records created
through blockchain can't be tampered with and are end-to-end encrypted, blockchain enhances
security for any business or industry. Privacy issues can also be addressed on blockchain by making
personal data anonymous.
Decentralization is the hallmark of blockchain technology. There is no role of an intermediary or
third party in blockchain technology. This feature of blockchain technology provides protection
against corruption and tampering. Further, all transactions in the blockchain are maintained in the
public ledger. This ensures transparency.
2.5. Components of Blockchain Technology
Blockchain technology is based on cryptographic concepts and record keeping principles.
Cryptography is the study of secure communication techniques. Cryptographic techniques use
hashing, asymmetric key cryptography and digital signatures. Some of the key components of
Blockchain technology have been discussed here for a better understanding of blockchain
technology.
2.5.1. Hashing Methods
The most important component of blockchain technology is the cryptographic hashing function. A
hash algorithm is a mathematical function that transforms any input into a fixed size output.
The input can be a text, file or image, and the output is a fixed size alphanumeric string. As shown
in Figure 4.2, the conversion of an input message (Hello world) to hash value using SHA 256
algorithm. You can generate a hash value for any input and see for yourself that the output is always
a fixed size alphanumeric string (you can use python online: colab.research.google.com).
Hashing is a one way function where any input of arbitrary size can be uniquely expressed as a
string of characters. The meaning of one way function is that it is easy to go from the input to the
hash but extremely difficult to go the other way.
Meaning thereby by knowing only the hash, you can't find the original message. In other words,
anyone with the original message and the hashing algorithm will produce the same hash.
What is the purpose of hashing in blockchain? The answer is data integrity and privacy. Hashing
protects data integrity by hiding and encoding the original message (i.e. input) to a unique string.
For the hash function to be cryptographically secure and usable in blockchain technology, it needs
to be collision resistant.
Collision resistant means that it should be practically impossible to find two inputs that produce the
same output. Most blockchain implementation uses Secure Hash Algorithm (SHA) that generates an
output of size 256-bit. Cryptocurrency like bitcoins uses Secure Hash Algorithm 256, also known as
SHA-256
2.5.2. Transaction
A transaction is a digitally signed message authorizing some particular action associated with a
blockchain. For a cryptocurrency, the dominant transaction type is sending cryptocurrency units or
tokens to someone else.
As shown in the Figure 4.3, the five step process of the blockchain transaction. The blockchain
transaction process has been elucidated in the following five steps.
- Transaction initiation: The transaction information contains the Receiver's public address,
the value of the transaction and a cryptographic digital signature.
- Transaction authentication: The nodes in the blockchain network receive transaction
information and authenticate its validity. When the transaction is validated, it is placed in the
 pool of transactions. Transaction pool is the place where all unconfirmed transactions are
placed.
- Block creation: the pool of transactions is then placed on the block by one of the
participating nodes of the network.
- Block validation: the participating nodes begin the validation process upon receiving the
block of transaction.
- Block chaining: the block is chained into the existing blockchain, and an updated blockchain
ledger is broadcast to the network. The entire process takes 3-10 s.
2.5.3. Public Key Cryptography
Public key cryptography is an encryption scheme that uses two mathematically related but not
identical keys: a public key and a private key. A public key is used to encrypt, and the private key to
decrypt.
2.5.4. Address and Wallet
Blockchain addresses are used to send or receive transactions on a network. An address usually
presents itself as a string of alphanumeric characters. A wallet is a file that contains a collection of
private keys and communicates with a blockchain. Wallets contain keys, not coins. Wallets require
back up for security reasons.
2.5.5. Blocks
A block is the most basic unit of a blockchain database. Each block contains are cord of some or all
recent transactions and references to the block that came immediately before it.
As shown in Figure 7.2, the structure of a block. A block consists of Block number, nonce, data,
previous hash and hash. The block number is a unique number assigned to each block by the user
who creates the block. The nonce is a special value mined by the miner algorithms employed by the
creator of the block.
A nonce is a 4 byte field, usually starting at 0, and the value increases with every calculation. This
value calculation is also known as puzzle solving. Nonce ensures that the hash value generated for a
block has a particular format, like starting with three zeros or ten zeros.
The previous hash is the encryption of the previous block. The hash is calculated using the SHA-
256 algorithm on the combination of the nonce, previous hash and data.
A block has only one parent. The first block of a blockchain is called the 'genesis block'. The
'genesis block' has no parent block.
2.5.6. Consensus Features
The consensus protocol is the set of rules and arrangements to carry out blockchain operations.
Consensus algorithms are designed to achieve reliability in a network involving multiple unreliable
nodes. The consensus algorithms ensure that the next block in the blockchain is the one and only
one version of the truth. The most common consensus algorithms include Proof of Work (PoW),
Proof of Stake (PoS), Delegated Proof of Stake (DPoS), Proof of Authority and Ripple.
PoW protocol is one of the first utilized consensus protocols. PoW protocol is based on
computational load, requiring miners to find a solution to the puzzle.
The downside to this method of generating consensus and securing the network is that it requires a
large amount of computing power and, therefore, energy and cost. To reduce the high resource cost
of mining, PoS was proposed. PoS assigns a difficulty value to a puzzle based on how much stake
the owner has in the network.

Proof of Authority (PoA) is a reputation based consensus approach where the preselected validators
attempt to validate by leveraging the value of identities. Therefore, PoA blockchains are scalable
and secured as the preselected nodes are considered as trustworthy entities to verify transactions.
2.5.7. Smart contract:
Smart contracts are translations of an agreement consisting of terms and conditions into
computational code (or program/script). Smart contracts are self executing digital contracts. In
smart contracts, there are no chances of fraud or intervention of third parties. Ethereum platform
allows the use of the smart contract. Smart contracts can be used in many applications. One of the
applications of the smart contract is crowdfunding. A crowd funding platform is used to raise funds
from multiple investors by a startup company. A conventional case of crowdfunding requires a third
party intermediary to control the fund flow as per conditions of the contract. A smart contract is a
secure alternative to an intermediary.
3. Evolution Of Blockchain
Blockchain technology is continuously evolving with time. In a short span of a decade, it has seen
four generations of its evolution. The first generation of Blockchain, i.e. Blockchain 1.0, originated
from the concept of Distributed Ledger Technology and was meant for cryptocurrency only.
Blockchain 2.0, i.e. the second generation of Blockchain, is based on the smart contract concept and
the Proof of Work consensus mechanism. The smart contract is a programming code embedded in a
distributed ledger. The smart contract gets executed when predefined conditions are satisfied. The
second- generation blockchain network was introduced in 2013.
Blockchain 3.0 overcomes the setbacks of Blockchain 1.0 and Blockchain 2.0. What are the
setbacks of Blockchain 1.0 and Blockchain 2.0? Blockchain 1.0 and Blockchain 2.0 are not scalable
at all. Apart from that, these are mainly based on Proof of Work. Apart from smart contracts,
Blockchain 3.0 mainly involves Decentralized Apps (dApps). A dApp can be thought of as
decentralized software code that gets executed across all the nodes in given blockchain architecture.
Ad App is very similar to the applications already in use today on smartphones, tablets, or
Desktops. Blockchain 3.0 also utilizes the Proof of Stake and Proof of Authority consensus
mechanism.
Blockchain 4.0 means making Blockchain 3.0 usable in real life business scenarios. Blockchain 4.0
makes Blockchain technology usable to Industry 4.0 demands. Industry 4.0 refers to the fourth
revolution that has occurred in manufacturing. Industry 4.0 technologies employ Artificial
Intelligence, the Internet of Things, Big Data etc.
Unibright is the framework for Blockchain 4.0. In other words, the introductory platform for
Blockchain 4.0 utilities is Unibright.
Comparison of Different Generations of Blockchain:
As shown in Table 4.2, the evolution of blockchain technology based upon different parameters.
The consensus mechanism for the first generation blockchain technology is Proof of Work. The
fourth generation of blockchain technology uses Proof of Integrity. When it comes to the application
of blockchain technology, it has achieved many milestones. It began with application in the
financial sector and now heading towards application in Industry 4.0. The fourth generation of
blockchain technology is incorporating Artificial Intelligence. Blockchain technology is moving
from guaranteed transaction authenticity to a faster consensus and transaction confirmation,
removing the initial bottlenecks and hiccups.
Parameter Blockchain 1.0 Blockchain 2.0 Blockchain 3.0 Blockchain 4.0
(2008) (2013) (2015) (2018)
Principle Distributed Ledger Smart Contracts Decentralized Blockchain with
Technology (DLT) Apps (dApps) Artificial
Intelligence
Consensus Proof of Work Delegated Proof Proof of Stake, Proof of Integrity
mechanism of Work Proof of
Authority
Example Bitcoin Ethereum Cardano, Anion Unibright, SEELE
Application Financial Sector Non-financial Business Industry 4.0
Sector Platforms
Features Guaranteed Creating and Compretery Faster consensus and
transaction transferring opensource; transaction
authenticity digital assets autonomous confirmation
operation

4. Blockchain Applications
Wherever there is a requirement of trust, security, accuracy, and transparency, there is the
application of Blockchain technology. Blockchain applications can be vividly seen in the
government and public sectors. Governments can use Blockchain in improving record management.
Governments keep people's records like birth and property exchanges. Blockchain can make the
record more secure. Decentralized file storage
protects files from getting hacked or lost.
The financial sector has seen the benefits of
blockchain technology from the very beginning. The
most popular application of blockchain technology is
cryptocurrency.
Other industries and sectors are exploring
opportunities actively for the implementation of
blockchain technology in their fields and domains.
The applications of blockchain technology in the
financial services, Governments and public sectors,
healthcare, Industry and Internet of Things (IoT) have
been discussed here.
4.1. Financial Applications
Banks and other financial institutions are highly susceptible to money laundering, identity theft and
digital transfer of funds. These institutions are highly affected as far as services rendered, and
reputations are concerned. Banking institutions are already using blockchain technology to solve
their traditional problems.
4.2. Blockchain Applications in Government
Typical problems faced by governments in many countries pertain to land registry records. Keeping
track of ownership of hundreds of years of land records is a difficult task. The problems faced by
land registry officials are: discrepancies with paper work, forged documents, and loss of documents.
Blockchain technology can take care of above mentioned problems in a cost effective way.
Blockchain technology provides immutable records and secure access as well as storage.
Governments can use Blockchain in the following areas:
- Record management for secure record-keeping of people
- Identity management for proof of identity
- Government services like public safety and welfare
- Payment infrastructures to collect dues, taxes and other payments fast and safe
- Smart property to digitally record assets
4.3. Blockchain Applications in Healthcare
There has been an increase in the hacking of healthcare records. The year 2018 witnessed the
hacking of medical records of 1.4 million patients from the Unity Point Health hospital network of
the USA. The hacked records included sensitive information, including the patient's social security
number and insurance information.
Blockchain technology provides data security and integrity. Patients, healthcare providers
(hospitals, doctors, lab technicians etc.), data analysts and insurance providers are key stakeholders
of healthcare. The Distributed Ledger Technology/Blockchain technology in healthcare guarantees
the security and privacy of healthcare data of all stakeholders.
These stakeholders can share information without compromising data security and integrity.
4.4. Blockchain Applications in Industry:
Tracking of movements of goods and services is vital in any industry. Be the movement of goods
under process or processed goods, visibility at every stage of production is very much needed.
Blockchain technology can help in tracking the movements of goods and services efficiently.
Almost all business operations, be it purchase management, customer relationship management,
supply chain management or operation management, blockchain technology is there to address
business concerns.
4.5. Blockchain Application in the Internet of Things (IoT)
In IoT applications, smart devices interact with each other using the internet. The biggest concern is
the security of data generated by these smart devices within distributed nature of wireless networks.
As blockchain is distributed public ledger, it will take care of the security of data generated by
smart devices.
5. Limitations And Challenges Of Blockchain
Though blockchain has numerous benefits, it is prone to some technical challenges also. Challenges
in terms of scalability, loss of privacy, selfish mining and energy have been discussed here.
5.1. Scalability
As transactions are increasing in numbers, the blockchain network keeps on growing day by day. As
blockchain network is growing, data and resources are burdening the system. Due to this reason,
nodes will take more time to synchronize data and carry out the complex computation. Thus
affecting the effective working of the blockchain system. Storage optimization and redesigning of
blockchain can resolve these issues.
5.2. Loss of Privacy
In the blockchain, a considerable amount of privacy is maintained by using a public key
cryptography mechanism in transactions to keep the user identity anonymous. However,
transactional anonymity cannot be assured by blockchain because the identities of all transactions
and balances for each cryptographic key are publicly accessible. Thus it is possible to recognize the
user by keeping track of the transactions.
5.3. Selfish Mining
In Bitcoin's blockchain, the process of adding new blocks to the blockchain is called mining, and
the nodes that do the job of generating a new block are called miners. Selfish Mining is a strategy
where an over-ambitious miner secretly keeps his blocks without publishing them. It would be
revealed to the public only if some conditions were satisfied.
5.4. High Energy Consumption
The blockchain network uses Proof of Work (PoW) as a consensus protocol. It requires a lot of
energy and computing resources to calculate the required hash value for a block.
6. Impact Of Blockchain Technology
The impact of blockchain technology can be seen in businesses. The impact may be manifested in
different forms. It may be business models; it may be the business environment. The existing
business models may change or transform in view of the new reality of market requirements. Some
of the impacts of the blockchain in the financial and non-financial sector has been discussed here.
6.1. Impact of Blockchain Technology in Financial Sector
It is the transaction that takes place in the Financial sector like banking, where the introduction of
blockchain technology can make its impact the most. The standard practice of transactions in the
Financial sector like banking is based on a trusted third party.
This role of a third party is the main source of worry for all stakeholders. This trusted third party
can be eliminated by using blockchain technology in the Financial sector like banking. The
architecture of the standard banking system is based on a centralized server/clients model, and
hence a copy of the database is centralized at the server level only. As a blockchain technology
based system gets introduced in the banking system, the peer-to-peer network model will be there,
ensuring multiple copies of transactions in a database. A comparison of existing banking system
models and blockchain-based models are as shown in Table 7.3.
Transaction in Existing Financial sector like Transactions in Blockchain-based Financial
Banking sector like Banking
Trusted third party Trustless
Centralized server/ clients Peer-to-peer network
A single copy of transactions in the database Multiple copies of transactions in the database
Intermediation Consensus mechanism/ Proof of work

6.2. Impact of Blockchain Technology Application in Supply Chain:

Supply Chain Management (SCM) is the handling of the entire production flow of goods or
services. SCM takes into account the handling and processing of raw materials to delivering
finished products to the consumers. There are five key components of SCM.
- Planning
- Sourcing
- Manufacturing
- Delivery and logistics
- Returning
When blockchain technology is used in Supply Chain, the following benefits can be had.
- All information pertaining to supply and demand can be captured in real time
- The status of an item in transition/process can be known
- Smart contract management can be done (customized or individual contract can be defined
for each function)
- Operational efficiency in Supply Chain can be achieved
7. Blockchain Platforms/Protocols
The rules that govern a blockchain network are referred to as blockchain protocols. Blockchain
protocols are essentially the common communication rules that the network follows. These rules
include the following:
- Rules for governing and validating transactions
- An algorithm that defines the mechanism for all participating nodes to interact with each
other
- Application programming interface (API)
Some of the blockchain protocols have been discussed here.
7.1. Bitcoin
Bitcoin protocol supports crypto payment transactions over a distributed network.
Characteristics of Bitcoin Protocol:
i. Every node has access to complete information on the blockchain. Therefore, it is a
decentralized one.
ii. Users can conduct a nonreversible transaction without the need to explicitly trust a third
party.
Advantages of Bitcoins:
i. Payment freedom
ii. Control and Security
iii. Very low fees
7.2. Ethereum
Ethereum is a public, open source, blockchain-oriented protocol. Ethereum platform allows the use
of the smart contract.
Ethereum is the first prominent platform that introduced the idea that blockchain technology can be
used in applications other than cryptocurrency.
Characteristics of Ethereum Protocol:
- This protocol enables developers to build and deploy distributed applications
- It allows users to write their own applications
Advantages of Ethereum:
- The energy efficiency is high with the help of Proof of Stakes (POS)
- The uptime of the network is high
- It is used to develop many decentralized applications
7.3. Hyperledger
Hyperledger is an open-source blockchain platform. It supports blockchain- based distributed
ledgers and cross-industry blockchain technologies.
Hyperledger protocol mainly supports business transactions. Hyperledger is used to solve the
problem of enterprise approval of blockchain. In Hyperledger, only trusted entities can join the
network and verify the transactions.
Characteristics of Hyperledger Protocol:
- Hyperledger blockchain technology is mostly used for business applications
- It has a modular and versatile design
- It preserves privacy
Benefits of Hyperledger
- Productivity enhancement
- Handling of intellectual property
- Data on a need-to-know basis
- Rich querying capability
- Performance scalability and levels of trust
7.4. Ripple
Ripple is an open source blockchain platform. Ripple acts as both a cryptocurrency and a digital
payment network for financial transactions.
Characteristics of Ripple Protocol:
- Ripple protocol is known for its digital payment network
- It has its own cryptocurrency XRP (digital asset Ripple)
- Ripple transactions are confirmed in seconds
- Ripple transactions use less energy than bitcoin.
7.5. R3's Corda
Corda is an open source blockchain protocol used for industries such as financial services,
insurance, healthcare, trade finance, and digital assets. This protocol is used for storing,
coordinating, and controlling financial agreements.
Characteristics of Corda:
- Corda allows businesses to transact securely and seamlessly
- This protocol organizes the business operation
Benefits of Corda:
- Privacy
- Agile and flexible
- Interoperability
- Open development
- Open design
 CHAPTER 7 - SECTION 2
BLOCKCHAIN TECHNOLOGY FOR SMART CITIES
1. Introduction
There are certain key aspects that define a smart city. These key aspects are: smart healthcare, smart
grid, smart transportation, smart supply chain management, smart government, smart home, and
smart education. As smart healthcare in a smart city uses a lot of Internet of Things (IoT) devices,
and therefore are vulnerable to cyberattack, blockchain technology is very much essential for the
security of the healthcare systems. Likewise, a smart grid is an essential component in any smart
city. We can discern clearly many aspects of a smart city are dependent upon the smart grid. If
energy is not available for a significant duration, other functions will eventually cease.
Thus smart grid is a very essential part of a smart city. As consumers are becoming prosumers, and
a lot of distributed energy resources are becoming part of the grid, the existing energy market will
have to shift towards a transactive energy market. Electric Vehicles (EVs) will be the part and parcel
of any smart city.
Charging of EVs using distributed energy resources are crucial, apart from that location of charging
infrastructure and payment to charging stations in a decentralized way using blockchain technology
will enhance a lot of efficiency in a smart city. Smart supply change management is crucial for any
smart city. A smart supply chain using blockchain technology can bring full end-to-end visibility for
customers. Other aspects in a smart city like smart government, smart citizen and smart home are
very much essential and blockchain can be utilized to bring transparency and immutability of
information apart from addressing various security related issues.
2. Smart Healthcare
Hospitals, patients and governments are taking threats to vital patient data very seriously. A few
critical concerns in healthcare need to be addressed. First and foremost is the privacy of a patient's
data. And the other important concern is the availability of real-time accurate and trusted data to the
medical practitioner. In any smart city, a doctor attending to a patient should have up to-date data so
as to provide the right treatment to the patient. Data in the health care sector is institution-centric.
There is a need to shift data from being institution-centric to patient-centric. Blockchain-based
smart contracts are used to secure sensitive information and maintain the privacy aspect. Smart
contracts create an environment in which a significant amount of operations become automatic. The
information stored becomes accurate, immutable and requires the approval of proper authorities in
all cases.
The applications of blockchain technology in the following health care areas are discernible.
- Electronic health record
- Biomedical research
- Health insurance
- Remote patient monitoring
- Health data analytics
One of the applications of blockchain technology in healthcare has been discussed here. Remote
patient monitoring is a healthcare delivery method that uses technology to monitor patient health
outside of a traditional clinical setting.
In Remote patient monitoring, patients are monitored through wearable devices like insulin pumps
and data pertaining to health readings is transmitted for diagnosis and treatment. As remote patient
monitoring is growing across the globe, secure transmission of health-related data is increasing. It is
important to prevent access to these vital data from falling into the hands of unauthorized and
unscrupulous elements. Blockchain-based smart contracts can transmit data that can be trusted and
is unalterable too. A blockchain-based smart contract remote patient monitoring system is as shown
in Figure 7.3. Smart contracts are created for loT devices, enrollment of patients and doctors and
patient monitoring. Vital data are continuously monitored and in case of any deviation from set
parameters, the health centre will alert the doctor and patient.

2.1. Handling of Medical Prescription

When a family doctor or general practitioner writes a prescription for the patient, the issue of
genuine medicine by the pharmacy or medical store is an important concern for the doctor and the
patient both. Blockchain technology can eliminate any mismanagement and possible fraudulent
practices involved in delivering medicine to the patient.
A doctor will write a prescription and will put the patient's record in the blockchain using a smart
contract. The pharmacy or medical store will access the prescription through blockchain after
getting permission from the doctor and patient. Pharmacy issues medicine after checking the expiry
date and prescribed dosage of the medicine to the patient. Thus a patient will not have to show
prescribed medicines to the doctor again for confirmation of the genuineness of the medicine, thus
saving time for both and bringing an element of satisfaction between doctor and patient. Blockchain
based prescription handling process is as shown in Figure 7.4.
2.2. Healthcare Data Sharing, Storage and Access
A simple model of blockchain-based healthcare management is as shown in Figure 7.5. The
interaction between patient and doctor results in data generation. This data and other relevant data
(laboratory reports) are part of the electronic health record (HER) created for the patient. The
patient is the owner of the electronic health record. Other entities can request for accessing the EHR
from the owner i.e. the patient. Blockchain provides the necessary privacy of data. Healthcare
providers may access data as per the patient's permission.

3. Smart Grid
A smart grid performs three important tasks.
- Modernization of power systems
- Empowering consumers to use energy smartly
- Safe and secure Integration of Renewable Energy Resources
What is the meaning of modernization of power systems? Automation, remote monitoring and
control and self-healing designs are at the centre of the modernization of power plants. How
consumers can be empowered? Information is the key here. Consumers must know their energy
consumption patterns, cost of the energy, alternative options of energy they can use. Given this
information, consumers should be able to take decisions of their own on using the energy of their
choice at different time intervals.
Further, the integration of renewable energy resources is a challenging task. If renewable energy
resources happen to be variable in nature like wind energy and solar power, grid balancing needs to
be taken into account. Thus it can be seen that the smart grid makes energy infrastructure safe,
secure, reliable and resilient.
There are many aspects of a smart city. Some of these are: Smart health care, smart grid, smart
transportation, and supply chain management. We can discern clearly many aspects of a smart city
are dependent upon the smart grid. If energy is not available for a significant duration, other
functions will eventually cease. Thus smart grid is a very essential part of a smart city.
3.1. Elements of Smart Grid
Following are important elements of the smart grid.
- Smart Metering
- Prosumers
- Microgrids
- Virtual Power Plant
- Vehicle to Grid (V2G)
These elements of the smart grid have been explained here. The smart meter records the power
usage of the consumer and communicates this data in a timely manner to the utility centre.
For a smart meter, it is very essential to collect precise and appropriate data in a timely manner
which includes gathering data, its communication and storage. The smart meter allows the bi-
directional flow of information from consumer to utility and vice versa.
Prosumers are the consumers who also produce and share surplus energy with the grid and other
users. Prosumers are an important stakeholder of the smart grid and they have a vital role in peak
demand management. A prosumer can generate electricity through the solar rooftop, by
participating in demand response and using storage batteries.
The DOE defines the microgrid as "a group of interconnected loads and distributed energy
resources within clearly defined electrical boundaries that acts as a single controllable entity with
respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in
both grid connected or island mode."
A virtual power plant (VPP) may be defined as a group of distributed energy sources (like solar,
wind, storage battery) that combine to function as a dispatchable unit. In other words, remotely
control scattered energy sources such as distributed power sources and storage batteries with loT
devices to make them function as if they were one power plant.
By adjusting the balance between demand and supply using VPP, renewable energy can be used
stably.
Vehicle to Grid (V2G) supports two-way power flow to and from the grid. An Electric Vehicle
owner can take electricity from the grid when charging is needed and can provide electricity to the
grid.
3.2. Blockchain-based Transactive Electricity Market
A simple model of a blockchain-based transactive electricity market is as shown in Figure 7.6. In
any power system, power producers generate electricity.
The generated electricity is delivered to consumers through transmission and distribution networks.
In conventional power systems, electricity market, e.g. IEX (Indian Energy Exchange) in India,
provides a platform for the physical delivery of electricity. The seller submits the offers to sell the
energy and the buyers submit the bid to buy the energy. After accepting the offers and bids from the
sellers and buyers, the market operator does the needful to arrive at the market clearing price
(MCP).
A blockchain-based decentralized transactive energy auction system consists of four key entities.
These entities are: bidders, sellers, smart meters, and smart contracts. Sellers initiate new auctions
and advertise the available energy to the blockchain. Bidders monitor the new auctions and submit
bids. Smart meters are used to report how much energy is sold or consumed during a time period.
The auction data from bidders, sellers and smart meters are stored on the blockchain. Finally, price
auction and payment functions are executed automatically via smart contracts.

4. Smart Transportation
Smart transportation is one of the important components in the development of smart cities. Smart
transportation can provide solutions to many issues that relate to traffic on the road. Thus smart
transportation is an important building block in the development of smart cities. The goal of smart
transportation is to enhance road safety for vehicles. Traffic and travel efficiency is also a very
important part of smart transportation. In smart transportation, a vehicle usually has multiple
network interfaces to communicate with Road Side Units (RSUS) and vehicles in the vicinity.
In smart cities, the transportation sector will be driven mainly by electric vehicles. With the use of
information communication technologies (ICT), these vehicles will be smart vehicles. ICT based
road transport is an Intelligent Transport System (ITS). But ITS faces issues like centralization, trust
and data integrity. Data generated from the vehicles may be intercepted, manipulated and corrupted.
With the help of blockchain, a decentralized, trusted and secure smart transportation system can be
established. Some of the solutions using blockchain technology in smart transportation has been
dealt with here.
4.1. Electric Vehicle Charging Management
An electric vehicle is an important means of transportation in smart cities. Deployment of charging
infrastructure is a must for charging electric vehicles. Payment to the charging station after getting
recharged is an important process. So finding a charging station at the appropriate time at an
appropriate place is important. Blockchain technology and smart contract can take care of electricity
trading between electric vehicles and charging stations. Block chain based EV charging
management is as shown in Figure 7.7.

Blockchain-based electric vehicle charging management can take place in four stages. First of all,
an electric vehicle will send a request for charging to the blockchain. Blockchain will have
parameters like amount of energy, time interval and geographic location. Nearby charging stations
will send bids for this request at the bidding stage. Then the electric vehicle will select a charging
station based on optimal bid. Finally, the agreed transaction is executed by the selected charging
station to provide a certain amount of energy at a specified price at a particular time interval.
The transaction information between electric vehicles and charging stations is stored in blockchain.
Smart contracts can be employed to execute an automatic trading process.
4.2. Vehicular Adhoc Networks (VANETs)
Vehicular Adhoc Networks (VANETs) are the most prominent enabling network technology for
Intelligent Transportation Systems. VANETs are networks formed by fast moving vehicles which
come in contact momentarily and exchange momentarily. That is why these are adhoc networks.
Through VANETS, vehicles can communicate with the roadside unit or with each other without
involving any central authority. As VANETs are adhoc network, it is difficult to maintain trust,
security and authenticity of information exchanged in the network. Inaccurate messages shared by
malicious vehicles may impact traffic safety and efficiency.
That is why there is a need for vehicle authentication so as to guarantee secure data exchange
between vehicles. Blockchain technology can be deployed for securing message transmission.
How the task of secure message transmission will be done in a decentralized environment? Each
vehicle will first generate a rating for neighbouring vehicles as per received messages, and will
upload the rating results to its connected Road Side Unit (RSU).
Based on the rating results from vehicles, each RSU calculates the trust values of its involved
vehicles and puts the sedata into a block. The consensus mechanisms to add the block into the
blockchain may be Proof of Work or Proof of Stake. Thus all RSUs maintain a reliable and
consistent public ledger to store the trust values of all vehicles. Each vehicle can easily get other
vehicles' trust values from RSUs enabling vehicles to assess the trustworthiness of received
messages.
4.3. Ride Sharing
Cabs services provided by startups like Uber and Ola follow a centralized approach. As the process
of booking is done by an intermediary, there is a lack of transparency. With blockchain, users can
connect directly to the drivers. The absence of a third party will reduce the cost of the cab service.
HireGo is a startup that provides a decentralized P2P car rental platform based on blockchain
technology. HireGo utilizes a technology based on the Ethereum blockchain.
5. Supply Chain Management
Supply chain management is crucial for any organization because doing it well can introduce
several benefits to the organization; however, poor supply chain management can result in very
expensive delays, quality issues, or reputation. In supply chain management, the blockchain can be
utilized to track the detailed information of products as well as business information sharing among
parties or entities.
In supply chain management, the blockchain can be utilized to transform many practices. Some of
these have been listed below.
- Enhancing product safety and security
- Improving quality management
- Reducing illegal counterfeiting
- Improving sustainable supply chain management
- Advancing inventory management and replenishment
- Reducing the need for intermediaries
- Impacting new product design and development
- Reducing the cost of supply chain transactions.
5.1. Supply Chain Traceability
Traceability is defined as the ability to trace the history, application, use and location of an item or
its characteristics through recorded identification data (ISO 9000). The main features of blockchain
technology include transparency, irreversibility of records and peer-to-peer-transition. This makes
blockchain technology suitable to trace the physical flow information of products from producers to
end consumers.
5.2. Compliance with Standards
Blockchain technology can be used for real-time monitoring and tracking of data for complying
with different standards with the help of installed sensors throughout the supply chain. The medical
industry has a strict requirement in terms of temperature and humidity during the shipment of
medical products. Blockchain technology can help in complying with this requirement through
installed sensors throughout the supply chain. Modum, a startup company in the domain of smart
supply chain, utilizes blockchain technology for full end to- end visibility for customers, from
manufacturers to patients.
5.3. Supply Chain Finance
Blockchain technology can be utilized to trace and monitor the financial flows and allocation of
financial resources in the supply chain. In supply chain finance, blockchain technology can be used
to share and monitor financingrelated information, such as the latest invoice status, check credit
limit and payment in a trusted and transparent manner.
5.4. Pharmaceutical Supply Chain Management Using Blockchain
A block diagram of a pharmaceutical supply chain using blockchain technology is as shown in
Figure 7.8.

Seven steps depicted in Figure 7.8 are:

i. Patent of new medicine after Research & Development
ii. Mass production and packaging of medicines
iii. Keeping medicines in a warehouse for onward journey
iv. Transportation of medicine
v. Warehouse out signifies third party distribution network
vi.Healthcare providers like hospitals and clinics use medicines and Retailers also sell
medicines
vii.Medicine reaches patients
Information at every step is recorded in the blockchain.
6. Other Aspects
6.1. Smart Government
Whenever any transaction or information exchange takes place, this transaction or information
exchange may be made more secure by using blockchain technology. A lot of transaction takes
place between the government and citizens. Some of the processes for which blockchain can be
introduced have been enumerated below:
- E-voting
- Passports
- Business licenses
- Digital identity
- Storing of judicial decisions
- Property titles
- Storage of academic certificates
Traditional e-voting solutions may not be easily auditable or sufficiently transparent. Blockchain-
based e-voting can make e-voting transparent and auditable. There are various use cases of
blockchain technology in egovernance.
Georgia uses blockchain technology (Smart contracts) for the registration of property titles. Estonia
has implemented e-Residency allowing anyone in the world to have a government backed digital
identity.
6.2. Smart Home
A smart home is an Internet of Things (IoT) integrated residence. Smart TV, smart phone, smart
lock, wearable devices, CCTV and smart meter constitute the loT ecosystem. A smart home
facilitates independent living for people.
But smart home is also prone to cyber attacks that may compromise the security and privacy of
users. Blockchain technology is capable of addressing the security and privacy of user data.
The hallmark of any smart city is the fast and secure communication between smart home and city
authorities. But security threats to these communication channels exist. This unknown security
threat can be eliminated by utilizing blockchain-based systems.
6.3. Digital Rights Management
Digital rights management tries to control the use, modification, and distribution of copyrighted
works (software and multimedia content). Digital rights management is very important for the
protection of intellectual properties. In general, the blockchain can promote copyright management
by storing copyrights information on the blockchain. The immutable information stored on the
blockchain can solve copyright disputes. Furthermore, smart contracts can be used to control
copyrights transactions automatically.
7. Challenges Of Applying Blockchain to Smart City Applications
7.1. Data Storage:
A huge quantity of data is generated by millions of devices in smart cities. It is a challenge to
process this immense volume, variety, and velocity of data. In the traditional blockchain systems,
each node must be capable of processing all transactions and maintaining the complete transactions
back to the first block(i.e., genesis block). Therefore, it is a challenge to directly apply blockchain
technology to smart city scenarios where devices have limited storage resources. One of the
possible approaches is storing only the pointers on the blockchain and the rest of the blockchain for
catering to the volume of data.
7.2. Throughput and Latency:
Throughput and latency are important issues to address when applying blockchain technology to
smart cities. Throughput is the maximum number of transactions within a certain predefined time
whereas latency represents transaction processing time. Throughput for bitcoin blockchain is 7
transactions per second and for Ethereum blockchain throughput is 15 transactions per second. As
the throughput of blockchain systems depend upon the number of transactions and block interval
time, throughput can be increased either by increasing block size or reducing block interval time.
Increasing blockchain size will make the generation and propagation of blocks cumbersome.
Likewise reducing block time intervals may cause the production of stale blocks. Therefore, to
support millions of devices in smart cities, it is necessary to introduce ways to increase the
throughput of blockchain systems without compromising security.
7.3. Scalability:
Every full node in a blockchain network stores all records and participates in the validation process.
So blockchain is difficult to scale due to its decentralized nature. As the number of smart devices
would grow substantially in smart cities, it will be a challenge to implement blockchain-based smart
city infrastructure.
7.4. Identity and Privacy:
In public blockchain transactional details and encrypted keys are open and visible to everybody in
that network. Each participating device can be identified using its public address. Thus, any
adversary can infer critical information of users from this public infrastructure. Various ways have
been suggested to tackle this challenge.
7.5. Regulation:
In smart cities, data is generated in different formats for different devices. For sharing and
exchanging data among various entities in smart cities, data format and standards should be
considered.