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Real Estate Transactions using Blockchain Technology

Written by M. Hermansson

Paper category

Master Thesis

Subject

Computer Science

Year

2019

Abstract

Thesis: Blockchain technology currency is where citizens in society agree on what currency should be [13]. The value of money lies in the trust given by the society that uses it. Citizens must believe that the central bank is the sole distributor of the new physical currency. The bank's customers need to trust the funds stored by the bank to be transferred. Unlike the system implemented in today's society, the blockchain is decentralized, and it has no centralized power. With blockchain technology, trust lies in everything being transparent [4]. Blockchain technology is accompanied by every transaction that is traceable and visible to everyone who uses it. Each block saves several requested cryptocurrency transactions and is stored in the blockchain [14, p. 14]. 15]. Each block carries information about the previous block in the chain, linking them together. There is a network of users that records the blockchain and requests to add new blocks to it. Users, also called nodes, are located all over the world and verify and accept new blocks [14, p. 14]. 147–148]. Because these blocks are interrelated or based on each other, it is possible to track every transaction that has been made. The system can prevent users from double spending. For example, if user A has 1 cryptocurrency and creates two different transactions, each transaction has 1 coin for both parties, B and C, neither of these two transactions will be accepted by the network. Only the first verified transaction of these two transactions will be accepted, and the second will not be accepted. Before adding a block to the blockchain, the node checks whether all transactions in the block are legal. Any currency in the request transaction can be tracked in the existing blockchain. Oras Satoshi said, "In order to confirm that there is no transaction, we must pay attention to all transactions" [4]. This is where blockchain transparency comes in. Trust is based on the visibility of all blocks and transactions on the blockchain. Once a block is accepted by the network and added to the chain, it becomes immutable. 2.1.1 Blocks The first block on the Bitcoin blockchain is called the genesis block, created in 2009, and it is the common ancestor of all blocks [15]. If you trace any block backwards, in the blockchain explorer, you will eventually reach the genesis block. When a brand new block is requested to be added to the chain, it must match the predefined composition and must contain specific data to be recognized by the network. Since all the blocks are built on top of each other, like a stack, each block has a block height. The block height of the genesis block is 0. As of October 2019, the block height of the latest block on Bitcoin is 596 489. As of October 2019, the height of the Ethereum blockchain is 8,617,293 blocks. 2.2 The transaction encryption currency is hashed by a digital signature and contains a public key, and then adds the receiving public address and creates a transaction to transfer between parties [4]. The new owner can then transfer the coin again by signing the next owner and adding another public key, which creates a chain of ownership. A transaction can have multiple inputs and outputs. Transaction input is indivisible, similar to paper money. If you buy a cup of coffee for $5 and you hand over a $10 bill, you will receive a $5 bill. Cryptocurrencies work in a similar way. Suppose the user wants to buy a cup of coffee from B [14, p. 14] at a price of 0.015 BTC. 16-18]. User A uses the wallet system to create a transaction. User A has 0.1 BTC, transfers 0.015 BTC to B, then signs the transaction, and then transfers 0.0845 BTC back to A. This transaction requires a small transaction fee, in this case 0.0005 BTC. Then put the transaction into the unconfirmed transaction pool. When miners create a new block, they will add unconfirmed transactions, never confirming the transaction pool to the new block. The transaction fee is provided as a reward to the miner, who adds the transaction to the block. Priority transactions for miners are based on the highest transaction fees. The higher the fee, the higher the reward for forming a block. This means that if the transaction fee is high, the transaction will be added to the blockchain faster and thus verified faster. 2.2.1 Public and private keys Even if the blockchain and transactions are transparent, users can still remain anonymous [4]. For example, if user A wants to start buying and selling bitcoin, user A can generate multiple different addresses for sending and receiving currency. Before user A can receive money from user B, user A must generate a private key and a public key pair. Blockchain technology makes extensive use of cryptography. It is not used to encrypt transactions, but to verify the ownership of funds through encryption keys, addresses, and wallets. The keys in the blockchain come in pairs, a public key and a private key. The public key is similar to a bank account number, and the private key is used as a password [14, p. 14]. 61–62]. Therefore, as long as you know the password, you can control the bank account. The cryptography for generating key pairs in Bitcoin uses a system called Elliptic Curve Digital Signature Algorithm (ECDSA) and Secp256k1 [20]. Figure 2.3 shows an example of an elliptic curve. The system spends very little effort in computing time to generate a public key from a private key, but it is extremely difficult to reverse the process. In this case, the private key is decrypted from the public key. The private key k should be generated by a secure source of entropy and can be any number between 1 and 2256. The size of the private key space is huge. Read Less