IEEE Systems, Man and Cybernetics Magazine - October 2022 - 10

specified in such a way that its execution is deterministic.
The effect of the smart contract execution (the world state
and transaction receipts) is stored with the blockchain and
referenced by the block header [5].
Cryptocurrency
The first killer application of blockchain technology is
cryptocurrency. Although not a part of the key building
blocks of blockchain, a wallet is an essential component
for cryptocurrency because it facilitates the usability of
the system. A user could create one or more wallets to
manage private/public keys, corresponding addresses, and
transaction histories as well as to create new transactions.
There are two major types of wallets: hot and cold (also
referred to as hot wallet storage and cold wallet storage). A
hot wallet stores frequently used keys and is online all the
time, while a cold wallet stores infrequently used keys and
is kept offline. While a hot wallet makes it much easier for
a user to engage in cryptocurrency transactions, it risks
being hacked; e.g., the key could be stolen. A cold wallet is
much more secure because it is inaccessible to hackers,
but it is less convenient to use.
A cryptocurrency, such as Bitcoin, works in the following
ways. A user who wishes to engage in cryptocurrency
transactions needs to download a distribution of wallet
software and install it on his or her smartphone or computer.
The wallet software consists of not only the wallet
functionality but all the key blockchain software
Trust
Data
Immutability
Data
Provenance
Decentralization
Cryptography
Consensus
Privacy
Blockchain
(Smart
Contract)
Security
Atomic
Contract
Execution
components (usually, only the headers of the blocks and
the software do not participate in the mining competition).
Then, the user needs to purchase cryptocurrency, either
through a friend who already has some or via an exchange.
The cryptocurrency is deposited in a wallet. If the amount
is small, the user can start spending it for services and
products as soon as the deposit has been verified. If the
amount is larger, the user has to wait until the deposit has
been included in the next block.
Benefits of Blockchain
The benefits of blockchain are highlighted in Figure 1.
They are enabled by the fundamental building blocks of
blockchain technology, which are located at the center of
the figure. They include privacy, security, transparency,
data immutability, fault tolerance, censorship resistance,
data provenance, atomic contract execution, and trust.
We highlight trust at the outermost edge of the circle
because it is a quality-of-service measure enabled by all
the specific benefits.
Privacy
Because cryptocurrency is designed to mimic physical
cash, blockchain adopts a zero-knowledge proof mechanism
in the form of a digital signature on the proof of ownership
of coins (i.e., the presence of the private key
corresponding to the address of the coins). This mechanism
not only greatly simplifies the burden of identity management
but also offers pseudoanonymity
because users can generate virtually
unlimited private-public key pairs and
associated addresses.
Transparency
Fault
Tolerance
Censorship
Resistance
Security
Security means that an asset is properly
protected against various attacks [16]. In
the context of blockchain, security means
that the system has the following two
properties: 1) only the owner of a coin can
spend it and 2) the owner can spend the
coin only once (i.e., no double spending).
As we mentioned, whomever has the corresponding
private key is able to generate
a valid signature and, in turn, spend the
coin. Hence, it is incumbent upon the
owner to properly protect the private key
(i.e., he or she cannot expose it to anyone
else and/or lose it). To satisfy the second
requirement, the history of all transactions
must be protected against modification;
i.e., blockchain must be immutable.
Figure 1. The benefits of blockchain technology.
10 IEEE SYSTEMS, MAN, & CYBERNETICS MAGAZINE October 2022
Transparency
In blockchain, the history of all transactions
is available to every party to
inspect and analyze. In conjunction with
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