Turkish Journal of Computer and Mathematics Education (TURCOMAT) ISSN: 3048-4855

Vol.09 No. 3 (2018)1433-1438

DOI:https://doi.org/10.61841/turcomat.v9i3.14965
Published Date:17-12-2018
Blockchain Technology: Architecture, Applications, and Challenges
Goutham Kacheru

Master’s in information systems technologies, Wilmington University, New Castle, Delaware, USA.

Abstract: This, together with the related term Bitcoin, was a revolution in blockchain as envisioned by the mystery
character Satoshi Nakamoto up to 2008. All this changes the very way the foundations of digital exchange and storage
were thought about: decentralized, transparent, immutable, the very fundamentals of Distributed Ledger Technology
enabling safe data exchange without an intermediary. The blockchain is fundamentally a chain of blocks carrying
information about transactions, including times and cryptographic hashes, each of these connecting to the previous
one in one unbroken chain, for which no modification is viable. The whole design of Blockchain has been to solve a
number of issues, including double spending, fraud, and inefficient records, with distributed nodes and consensus
mechanisms such as Proof of Work and Proof of Stake, facilitated by cryptographic keys. Other areas beyond
cryptocurrency where quite a number of innovative uses are cut across include supply chain, healthcare, financial, and
real estate sectors. For example, while the supply chain process is being promoted to become effective and transparent
in order to ensure the origin and quality of the product, adding to the guarantee that the user's personal health
information will not be accessed and tampered with, blockchain uses smart contracts in automating agreement
processes within the contract. All of them are expecting cost reduction, operating efficiencies enhancement, enhanced
securities of many industries. Anyhow, there exist quite a number of serious obstacles standing in the way of the wide
application of blockchain technology. Firstly, the problem of scalability has still been an issue whereby the network
performance tends to be problematic when users are increased. Besides, energy wasting cannot be ignored-apparently
mostly a challenge from the PoW kind of system proved to be consuming too much energy, standing big on the road
to sustainability. Of course, the mere lack of any kind of international rules and standards is already a complication in
making them work. It also underlines failures in the adoption of the system or in decentralizing and is still an open
technical and organizational challenge on how to combine blockchain with traditional structures. Their solutions
require compounding ideas: sharding of blockchain to make it big, off-chain solutions for the blockchain to be many
but thin, and provision of amicable solution consensus mechanisms for environmental conservation. Besides coherent
policy vision, in addition to the existing cornerstones of regulation besides well-laid-out standards of interoperability,
it is important to create confidence and give a road map across different industries. This paper hereby conceptually
reviews the literature with respect to how the blockchain technology was designed to show revolutionary capability
in the different fields and what keeps on tormenting it with its future.KEYS: Blockchain technology; Distributed
Ledger; Decentralization; Cryptographic keys; Consensus mechanisms; Proof of Work; Proof of Stake; Smart
contracts; Supply chain management; Data immutability; Transparency; Scalability; Energy consumption; Challenges
to regulatory bodies; Security vulnerability; Sharding; off- chain processing; Interoperability; Applications using
blockchain; Architecture of blockchain.

Keywords: Blockchain, data, technology

1. Introduction
Of the most revolutionary inventions in the century presently regarded as the 21st, blockchain technology certainly
stands out. Since its explosion into prominence in 2008 as the basic technology behind Bitcoin, a cryptocurrency
devised by Satoshi Nakamoto, it has gone out of that into influencing several industries, including but not limited to
financial, health, and supply chain management. Actually, this blockchain is just one kind of distributed ledge
configuration designed to guarantee data integrity, transparency, and immutability without any central authority. It
has further caused the rise of the combination in a unique suite of features positioning blockchain as a solution for
most conventional challenges that involve efficiencies, fraud, and no transparency in digitized dealings. (Nakamoto,
2008)

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Blockchain architecture comprises a series of transaction data, time stamping, and cryptographic has connected
together via an immutable chain. That got verified by every block through the consensus algorithm- either proof of
work or proof of stake - thus agreeing upon a 'view' amongst the decentralised participants on the network. This very
unique structure solved some of those intractable problems. The first one, double-spending; secondly, tampering
with the records. The chain thus made it robust enough to take up quite a few kinds of use case types. (Antonopoulos,
2014)

2. How Blockchain Evolved

First employed as a platform of Bitcoin transactions, much later it started to reconfigure in order to solve a variety
of problems not strictly dealing with money. Blockchain provided very convenient ways of coming up with new
creative uses, for example, in smart contracts and supply chain management, identifying digital identity. However,
its adoption has not occurred devoid of challenges such as scalability challenges, regulatory uncertainties that are
considerable energy consumers Pilkington, 2016.

Table 1: Evolution in generations of blockchain technology in the arena from being the backbone of cryptocurrency
transactions to generally utopian industries.

Table 1: Evolution of Blockchain Technology

Generation Features Applications

Blockchain 1.0 Cryptocurrency-focused;

decentrali Bitcoin, alternative cryptocurrencies
zed ledger

Blockchain 2.0 Smart contracts; Ethereum, decentralized apps

programmable
transactions
Blockchain 3.0 Scalability, interoperability, and energy Supply chains, healthcare, IoT
efficiency

3. Applications of Blockchain

So, adaptability has given Blockchain a chance to present creative solutions for industry- specific challenges: For
instance, blockchain itself pushes forward supply chain transparency and builds trust among its stakeholders with a
tamper-proof record of goods' movement. The technology cuts the cost of financial transactions due to peer-to-peer
processes in improving efficiency. Secure sharing of patient data will be done in healthcare systems with more
improved data privacy. Tapscott & Tapscott (2016) say that.
Other abilities also include blockchain, which makes automated control of complicated processes possible. Smart
contracts are a sort of self-executing contract since, once specific conditions that are predefined are met, the execution
of the contract enforces agreements directly with the force of law without intermediaries. Further explanation is
warranted for the industries in examples of Table 2.

Table 2: Industry Applications of Blockchain Technology

Industry Use Case Benefits

Finance Cross-border payments Faster transactions, reduced costs

Healthcare Electronic health records Enhanced data security and privacy

Supply Chain Product tracking Increased transparency and accountability

Real Estate Property transactions Simplified processes, reduced fraud

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This, despite the promise, was saddled with a host of challenges to wide-based adoption. The issues related to
scalability whereby generally, as the usage of transactions scale up, the speed and performance actually go down.
Energy consumption arising from PoW systems is notably being hobbled by adverse criticisms of their perceived
environmental impacts. Most importantly, global non uniform regulation leads to many open questions and hence
reduces confidence and acceptance within existing infrastructures (Yli-Huumo et al., 2016).
Another big challenge is interoperability between blockchains. Such an example can be given as the capability of
various blockchain networks to stay in contact with each other and share data. Without protocols that standardize,
with respect to such procedures, all the potential for offering cross-chain interaction capability remains bounded;
it hence limits blockchain from tapping its full capacity. Some active sidechains and protocols concerned with
inter blockchain communications remain ideas in research that have overcome those.
Blockchain has been a revolution in recording, sharing, and affording security to data. While the use cases are
immense and disruptive, scalability, energy efficiency, and regulatory clarity have to be sorted out before large-
scale adoption can take place. The rest of the paper will delve deep into the architectural aspect of blockchain, its
applications, and challenges emerging along with potentials and limitations presented in different studies carried
out.

4. LITERATURE REVIEW
Since its very inception, when blockchain came into the realm of business, amongst others, it received so much
attention. This is because, in principle, it basically originated with Bitcoin, one form of cryptocurrency launched
through Satoshi Nakamoto back in the year 2008. Fundamentally, blockchain is a kind of DLT which supports
secure, transparent, and tamper- proof transactions within the premises of a decentralized environment. This
finally flowered into a powerful technological innovation that has found far more applications other than
blockchain-based and completely decentralized financial systems envisaged by Nakamoto. As great the potential
may be, most scholars have noticed that there is an equally fair share of challenges regarding scalability, energy
consumption, and regulation. This literature review will abstract and be informed by the underlying main
architectural components, practical applications, and challenges Blockchain Technology facing from various
academic studies and scholarly articles. In other words, in root concept form, blockchain is a leaf off this notion
of some sort of distributed ledger. Each block can contain loads of transactional data, a timestamp, and a unique
cryptographic hash linking to the previous block, hence achieving some sort of immutability record. According to
Nakamoto, 2008, blockchain is decentralized in nature since it depends on no kind of central authority but allows
for peer-to- peer transactions. It provides integrity and security for the transactions happening in it, based mainly
on cryptographic techniques in the form of hash functions and public-key cryptography. Or rather, immutability
in a blockchain-here comes a cryptographic hash. Antonopoulos 2014 expounds that each block is crafted in such
a cryptographic hash in previous blocks that any modification in any transaction in previous blocks gets
computationally highly infeasible; thus, the continuity within the chain is maintained. Tamper-proof and high
involvement in business adds extra reliability towards Blockchain systems. It is further concretized in the use of
consensus algorithms such as Proof of Work and Proof of Stake in arriving at consensus among participants on
the state of transactions being valid. This, in other words, ensures that the transactions coming onto the blockchain
are indeed valid through a consensus mechanism.
In Proof of Work, originally designed by Nakamoto 2008, a miner solves some complex mathematical puzzles
that enable him or her to create blocks by validating the transactions involved. This takes enormous computations
and hence a lot of energy; that provides some sort of guarantee regarding blockchain security. Conversely, Proof
of Stake by King and Nadal 2012 introduces a staking mechanism whereby in return for contributing a certain
amount of cryptocurrency owners is given an opportunity to validate blocks by making a stake on any block. Upon
using such mechanisms, energy use will then reduce. These consensus algorithms play, in fact, a very vital role in
the functioning of blockchain and provide a way concerning how blockchain can be secure in a decentralized
fashion. Applications of Blockchain Fundamentally, the motivating factor for its serious research on applications
is that blockchain may disrupt a number of industries. The major strengths of blockchain are in security,
transparency, and decentralization. This is a good fit for sectors in which questions of trust and efficiency have
come into issue. The very first applications and most pronounced uses of blockchain relate to the financial sector,
particularly about digital cryptocurrency transactions. Tapscott and Tapscott, in 2016, again supported such
technology to provide a revolution in cross-border payments around the world because it is going to be faster,
cheap, and highly secure. Other digital currencies, such as Bitcoin and Ethereum, proved to be workable ways of
digital currency, though their applications went a long way beyond just into asset management or the recently
developed DeFi.
Application of Blockchain in Supply Chain Management: It has drawn significant attention in supply chain
management too. The transparency, traceability and accountability are enhanced in case of the movement of goods
with the aid of the technology. According to Kshetri 2017, the blockchain can ensure an improvement in the
supply chain with an immutable record for every kind of transaction and movement of the products. This,
therefore, would mean there is a reduction in fraud and an improvement in the aspects of visibility amongst1t4h3es5e
various stakeholder groups. Indeed, this is quite very important for industries that take in their nature traceability
 Turkish Journal of Computer and Mathematics Education (TURCOMAT) ISSN: 3048-4855

in places of origin, such as even food safety. In fact, Walmart has already adapted to the use of blockchain
technology to track foods from their places of origin. It reduces tracing source contamination that earlier took
several days to occur; it now could be in the span of a few seconds of time. Since Blockchain promises
transparency, business and customers can easily be assured of authenticity in terms of quality at every stage of the
supply chain.
On the other hand, blockchain technology also brings some fantastic prospects for changing the medical
documentation and management of patient data altogether. As Tapscott and Tapscott (2016) gave a good example,
the blockchain can avail security and immutability in the storage of medical records to allow access by concerned
medical experts from different institutions without actual compromise of privacy. It allows equal data sharing
across the organizations while giving assurance in the said sharing for protection of consent and confidentiality
towards the patient. This would prove to be invaluable, as in numerous instances the same information on the
given patient would be wanted by various different caregivers in the case of most of the emergencies. This
therefore makes it possible for blockchain to improve both patients' care and administrative inefficiencies as a
result of safety and transparent data sharing in health systems.
Another important area of application of blockchain is within smart contracts. Buterin 2014 defined a smart
contract as a self-executing contract where the rules of the contract are written on lines of code. When the
conditions of the agreement come into effect, a smart contract will execute the function itself, with no
intermediaries or human failures. Further, Ethereum introduced the use of smart contracts that in very short periods
have become the general standard for developing and deploying DApps in industries ranging from financial and
insurance sectors to a real estate market. In other words, according to Buterin 2014, it can make a business process
easier because difficult transactions can be automated, therefore, speed and accuracy in the implementation of an
agreement.
5. Blockchain Technology Challenges

Though the above list is promising, potentially, there are lots of big challenges on the way to wide acceptance of
Blockchain technology. These include scalability whereby increased users and transactions are supposed to reduce
performance on a blockchain network. Because of this, the proof-of-work consensus algorithms are extremely
expensive in computational power for the validation of transactions and thus reduce the ideal speed of the
transaction with more extensive use of the network. This is an issue noted by Narayanan et al. (2016). Compared,
for instance, to the Visa or Mastercard systems, each of which can process thousands of transactions per second
today, the Bitcoin blockchain can manage a few. In that direction, off-chain transactions, sharding, and several
other consensus algorithms such as Proof-of-Stake have been proposed by the researchers who, in due course,
may do away with scaling up of the blockchain network by reducing computation overheads in the process.
The other most pressing question about blockchains pertains to energy consumption- particularly in chains like
Bitcoin that are based on PoW for consensus. Yli-Huumo et al. (2016) further postulate that energy consumption,
occasioned in the proof of work systems in the generation of mining activities, has raised debate on the
environmental sustainability of blockchain. The aftermath this created would reach and touch on the fact that such
mining in Bitcoin uses much electricity in solving complex cryptography; hence, it concerns carbon dioxide
emissions. This has also become a talk factor against blockchain since the growth in the environmental impact of
the network began. For this reason, other consensus mechanisms that use less energy have been put into
consideration by researchers including PoS among other innovative approaches such as PoA and hybrid consensus
models, which effectively combine PoW and PoS in a balanced manner with a view to achieving security with
energy efficiency, King & Nadal, 2012).
The next important barrier to the diffusion of blockchain technology is regulatory uncertainty. The other point
relates to the legally blurry frameworks and standards on the blockchain technology itself-thus raising uncertainty
on the business investor side. According to Yli- Huumo et al. (2016), this was supposed to be a job for the
governments around the world to establish legislation which would balance consumer protection with innovation.
Even in the case of DeFi, blockchain integrations into a full, integrative development challenge mainstream
regulatory environments in traditional finance. A lot of regulatory issues with data privacy and possibilities for
several criminal activities, such as money laundering and fraud, are performed in decentralized systems.
Interoperability remains another major problem besides security issues: different chains of blockchains must be
able to work in a coordinated way and share information. That is so true, considering the fact that as much as
blockchain technology has improved at an unprecedented rate, various blockchain networks came on board, each
with their unique protocol and standards. This would organically turn present blockchain ecosystems into regions
of interoperability in transferring user assets and data between different blockchain ecosystems. This, according
to Cachin (2016), solves interoperability through the go-ahead development of standardized protocols and
solutions, including cross-chain communication protocols or side chains that will raise frictionless interactions
among various blockchain networks, thus enabling cooperation not to stop in chains of blocks.
It has come into consideration that blockchain might be one of the most innovative technologies that could bring
revolutions into industries ranging from finance to healthcare. Whereas it does share a number of similarit1ie4s3i6n
characteristics, the architecture of Blockchain has gone forward as a decentralized system-a system in which,
 Turkish Journal of Computer and Mathematics Education (TURCOMAT) ISSN: 3048-4855

alongside cryptographic techniques, some kind of consensus mechanism is there, forcing security, transparency,
and immutability of network transactions. While the concept of Blockchain holds huge potential to overcome a
number of concerns coming from a different field, many have yet to get through all problems at complete
scalability, energy consumption, and regulatory uncertainty, interoperability-wise This therefore gives a clear
platform for further research and development on blockchain literature, as the background insight has been built
on architecture, applications, and challenges. This presents the arguably high record in terms of definition
regarding how the digital transactions or decentralized systems are to proceed at this current possibly final stage
of technology.
6. DISCUSSION
The possibility of blockchain technology being disruptive in finance and health care amongst other domains is
huge. It is a type of decentralized, transparent, and tamper-proof literature that has identified the types that would
have given one an upper hand in reducing middlemen and in security. More specifically, hash functions and
consensus algorithms have been considered as some major cryptographic mechanisms in blockchains when
expecting the integrity and trust of a system. Whereas the blockchain technology is enveloped with enormous
benefits, several challenges still occur and may impede the wide adoption of the technology. Scalability has been
pointed out in literature as one of the most worrying challenges. Most blockchains, including Bitcoin, make use
of the Proof-of-Work consensus algorithm, which has very low throughput in transactions. This is because, though
the volume of the transactions is growing, it makes the network slower, more expensive hence less practical in
large-scale environments.
Other research such as Narayanan et al., 2016 finds that other consensus algorithms like the proof of stake avoids
the scalability problem because it reduces computational cost in transaction validation. Solutions developed
around those do not come up with widespread acceptance, as their own particular sets of problems regarding
security and decentralization abound. Energy Consumption: The last problem with Blockchain. Where there is
high consumption mode considered, the ecological interference happens in a PoW-based network system,
including Bitcoin. As explained by Yli-Huumo et al. 2016, the ecological footprint of the blockchain ecosystem
keeps on growing day by day, and alternatives that are energy- efficient need to be driven by priorities. The
probable solution might be to shift to either proof- of-stake consensus models or combined consensus models, but
each of these is being polished besides being subjected to resistive attacks for their standing and scalability. Most
of the large growth impeding factors related to blockchain technology deal with regulatory uncertainty. This might
be further exacerbated by the absolute lack of clearly set legal frameworks on the application of blockchain,
especially in DeFi and cryptocurrency markets. A number of governments and regulators are still debating ways
of protecting consumers without stalling innovation. This leads different jurisdictions to act toward more stringent
regulations, while others prefer the path of nurturing innovation. According to Yli-Huumo et al. (2016), globally
harmonized regulatory standards will ensure clarity is brought about while reducing risks implicated in illegal
activities across blockchain systems.
That also touches on another big challenge: interoperability among all the different blockchains themselves. In
fact, all the blockchain ecosystems to date exist today, standing alone like islands that cannot peer-communicate
with each other relative to this point in time. The budding topic of its use would be with things like cross-chain
technologies or side chains; even so, that has not attained that degree of full production implementation either for
the needs an application of such nature will call for.

7. Conclusion
It evolved into an innovative achievement and great opportunity that emerged from financial areas to very health
care and supply chain management industries. Its decentralized nature is highly transparent and secure; it enables
data processing and its upkeep with the confirmation of the transactions on blockchain with much-reduced reliance
on intermediaries. Consensus algorithms, including Proof of Work or Proof of Stake, and methods of cryptography
provide for the consistency of blockchain.

While some promising applications existed, serious problems running in parallel prevented this technology from
wide adoption. Among the most vital issues, scalability remains open and presupposes in the first place some
inability of PoW-based blockchain systems to process large volumes with high efficiency. Moreover, these
systems are highly consuming and create some environmental problems. This has been a factor of regulatory
uncertainty, partly because some lacuna exists in the legal framework that makes full integration into full use
difficult. Interoperability between different blockchain networks also presents an added barrier to the full
workability of blockchain.
While blockchain technology gives pathbreaking solutions, solving these challenges completely defines full
capability. Generally speaking, scalability, energy efficiency, and regulatory concerns are the areas that will need
continuous R&D to enable further strides in the field of blockchain.

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