Blockchain Structure

Before explaining the characteristics of BCT, we will go through the BCT structure structural, and its core technical order. As stated by Casino, Dasaklis and Patsakis (2018, p. 56), “a blockchain should be considered as a distributed append-only time-stamped data structure”. This is due to its function which allows a peer-to- peer (P2P) network where non trusting members can interact with each other through verified channels that are not regulated by any central authority safely. The network is created to be non- repudiable and to reduce the dependencies of third parties as its operation is based on consensus between the nodes, computers, in the network through its time stamped digital ledger (Niranjanamurthy, Nithya &

Jagannatha, 2018). It is important here to understand that the blockchain is not copies of the transaction data, but thousands of copies of the transaction records. In simpler terms, this means that the original data is recorded with all changes that are made to it in a chronological time stamped manner which is checked against the other nodes, to ensure the immutable record.

As the system is based upon a decentralized structure, the blockchain works the following way when someone requests a transaction – see figure 4 (Niranjanamurthy et al., 2018; Penzes, 2018);

No. 1

GRA 19703 0980903 0993061

Figure 4 - Blockchain transactions, Penzes, (2018)

To further elaborate on this, Dasaklis, Casino & Patsakis (2019) split the basic mechanics of the blockchain into three layers, namely blocks and transactions, consensus and compute interface. Casino et al. (2018) regards these mechanics interconnected, whereas everyone provides a specific feature to the infrastructure.

3.6.1.1 Blocks and Transactions

The lowest layer of these mechanics is where blocks and transactions can be found.

All blockchains contains a set of blocks which are connected to the previous block in the chain chronologically, thereby creating a continuous chain starting from the first block (Novo, 2018). To connect the blocks in a chronological order, each one contains a “hash”, which is a mathematical function that takes an arbitrary input of numbers and letters and changes it into an encrypted fixed length output, of the previous block (Nakamoto, 2008). Due to this function, the blocks contain the transactional history of the entire chan. Transactions was therefore described by Novo (2018) as the transfers between entities, which are transmitted to the network where they are validated by nodes and then collected into the blocs. It was further described that contracts between two entities denotes transactions between peers in the network, to transfer digital assets from one part to the other in order to complete

No. 1

GRA 19703 0980903 0993061

the task. In such transactions, any entity that is connected to the network as a node, will validate requested transactions that are broadcasted out to the P2P network (Casino et al., 2018). The validation of transactions leads to the next layer, consensus.

3.6.1.2 Consensus and Compute Interface

The goal of the middle layer, or the consensus layer, is to guarantee that there cannot be created corrupt branches, nor divergences in the chain, ensuring validity (Casino et al., 2018). Hunhevicz & Hall (2020) called the consensus mechanism the most important component of BCT. Today, there are different measures that can be undertaken in order to reach validity, but the two most utilized ones are “Proof-of- work” and “Proof-of-stake” (Zheng et al., 2017; Casino et al., 2018). The former was the original consensus method proposed by Nakamoto in 2008. It requires large amounts of resources, resulting in other consensus methods surfacing (Hunhevicz

& Hall, 2020). The latter was created by King & Nadal (2012) to solve the energy consumption problem of “proof-of-work”. However, which method one utilizes is not important as long as it fits the use-case.

The compute interface is the upper level of the technology, and enables the technology to store complex digital assets, with dynamic states (Dasaklis et al., 2019). This is a layer that has evolved from the original Bitcoin technology (BlockChain 1.0) released in 2008. As the technology evolved to become more advanced, it embraced applications such as smart contracts, and the ability to transfer digital assets from one blockchain into another (Dhaliwal, 2018).

3.6.1.3 Smart Contracts

The term smart contracts were first introduced in the mid 1990s by Szabo who defined them as “a set of promises, specified in digital form, including protocols within which the parties perform on these promises” (Jani, 2020, p 12). In the paper, Szabo argued that a smart contract could be as analogized as vending machines, where a simple action, such as taking in coins, the vending machine could go through all processes it was pre-programmed to do, in order to serve the desired product. Through this analogy, Szabo explained, and expected, that in the future, such contractual actions could be implemented in a multitude of operations, ensured

No. 1

GRA 19703 0980903 0993061

through digital means. Further, Wang et al. (2019, p. 1) define the term as “the computer protocols that digitally facilitate, verify, and enforce the contracts made between two or more parties on blockchain”. The application of Smart Contracts through BCT is argued to be one of the most transformative adaptations of BCT as it could potentially disrupt how work is organized today (Iansiti & Lakhani, 2017).

Looking at CE, circular initiatives are dependent on lower incomes and more informal economies. Circular models could potentially rely on incentivising through smart contracts in blockchain. This was acknowledged by Kouhizadeh et al. (2019), arguing that smart contracts could enable incentives and “incentivisation can support CE initiatives by offering rewards and tokens to consumers when they return and recycle their wastes'' (Kouhizadeh et al., 2019, p. 13).

3.6.1.4 Tokenization

Tokens are an abstract representation of any physical asset, and could be split into three types, namely payment tokens, such as cryptocurrencies, utility tokens, which provide digital access to an application or service and asset tokens which represent physical assets (Savelyev, 2018). Throughout this paper, all of these will be referred to as tokens. The term tokenization is usually used to describe how any information of value, digital or physical, can be converted into an encrypted digital token. This is arguably one of the most core components of the technology (Nakamoto, 2008;

Li, Wu, Pei & Yao, 2019).