Page 18 - U4SSC Blockchain for smart sustainable cities

2.3 Features and properties of blockchain technologies

The following subsections introduce essential aspects of blockchain. Combining the following elements
increases the potential of the blockchain technology: (a) the consensus mechanism, (b) the timestamp
of transactions, (c) multiple and distributed nodes, and (d) the smart contract.

To this end, this section will examine how the aforementioned elements contribute to:

(i) increasing the security of the system (with no central point of failure);

(ii) enabling the transactions between entities that do not trust each other without the dependency
of a central authority;
(iii) enabling auditable and tamper-resistant records, with transparency and integrity.

(1) Consensus mechanism

The consensus mechanism (also called consensus protocol) defines strict rules for creating new
blocks and adding new data to them without favoring one participant over another. The consensus
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mechanisms validate transactions that will be bundled with others into a new block that will be added
to the blockchain. Once a consensus mechanism is used, it is possible to have parties not trusting each
other using the same distributed network and expecting the same set of rules to interact in the system. 12

These rules ensure an agreement among participants on the validity of data insertion, the existence
of a consistent set and guaranteed ordering of data to be stored in the distributed ledger. Usually, the
consensus mechanism is adopted according to the type of blockchain being deployed, which defines
who can join the network by setting up a copy of the database and its rights regarding reading and
writing data to the ledger. It is possible to design a blockchain in which only some people or nodes can
participate in the consensus mechanisms, and therefore only certain individuals/entities can validate
the transactions. 13

The Bitcoin was the first use-case of blockchain, and it is public and permissionless. This means that in
this type of blockchain, everybody can participate in the consensus mechanism (See Table 2. Examples
of Blockchain types) and there is no central control of transaction validation. In all the other types of
blockchain, there is the possibility to control who can validate transactions.

The most known consensus mechanism is Proof of Work (PoW), and it depends on the processing
power of the computers or nodes in the network to solve a complex mathematical problem. There are
also other consensus mechanisms, such as Proof of Stake, Proof of Authority, etc. Some consensus
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mechanisms referred to in this report are described in Table 1.

8 U4SSC: Blockchain for smart sustainable cities