KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

INFORMATION SYSTEM MANAGEMENT

TERM PAPER

ON

BLOCK CHAIN TECHNOLOGY

Submitted By: Submitted To:

Sandeep Pandey (17120) Asst. Prof. Sanjay Pudasaini

Manish Sigdel (17131)

 ACKNOWLEDGEMENT

This term paper, as a partial fulfillment for the degree of Master in Business Administration
(MBA), is the outcome of endeavor, suggestions and superior guidance. The purpose of
this work cannot be fulfilled if the people who have supported us throughout the
completion of the project is not remembered and appreciated.

First of all, we would like to express our gratitude to Kathmandu University School of
Management (KUSOM) for helping students to enhance their learning with such exposure.
We would also like to express our deepest gratitude to our faculty Mr. Sanjay Pudasaini for
providing us with this opportunity. It was a great learning experience for us.

Sandeep Pandey (17120)

Manish Sigdel (17131)

TABLE OF CONTENTS

ACKNOWLEDGEMENT .........................................................................................2

INTRODUCTION .....................................................................................................4

BRIEF HISTORY AND DEVELOPMENT..............................................................5

HOW DOES BLOCKCHAIN WORK ......................................................................7

IMPACT OF BLOCKCHAIN TECHNOLOGY .......................................................8

SUCCESS AND FAILURE STORIES .....................................................................9

SCOPE IN NEPAL ..................................................................................................13

RECOMMENDATION AND CONCLUSION.......................................................14

REFERENCES.........................................................................................................15
 INTRODUCTION

Blockchain is a latest promising technology currently in the market attracting lot of attentions
from business houses, start-ups and media. It is essentially a decentralized database of records or
public ledger of all transactions or digital events that have been executed and shared among
participating parties in the network. Each transaction in the shared ledger is verified by
consensus of a majority of the participants in the system and added as a block. This chain grows
as new blocks are appended to it continuously. And, once entered, such data or records can never
be erased. The Blockchain contains a certain and verifiable record of each transaction ever
created.
A Blockchain is a digital, distributed ledger that records transactions in near real time on
chronological order. As each and every block added to the ledger is to be verified by all the
participants, this creates a continuous mechanism of control regarding manipulation, errors, and
data quality. Thus, Blockchain is a mode for exchanging value over the internet without an
middleman or an intermediary.
Current digital economy is based on a certain centralized body and information are disseminated
only across the areas under the control of such authority. A classic example is the use of a bank
which acts as a middleman between two trading entities. Blockchains, with the power of
decentralization, allows two trading parties to transact directly with each other without the need
for a trusted third party.
Bitcoin is the widely known example that is fundamentally tied to blockchain technology.
Bitcoin is a consensus network that enables a new payment system and a completely digital
money. It is the first distributed peer-to-peer payment network that is powered by its users with
no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for
the Internet.
 BRIEF HISTORY AND DEVELOPMENT

Wei Dai's was one of the primary noted researcher to present the proposition of b-money that
presented making cash through solving computational riddles and decentralized agreement,
however the proposition itself was low in usage subtle elements.

In 31st October, 2008, an individual or group composing under the name of Satoshi Nakamoto,
whose identity is obscure till date, released a paper entitled "Bitcoin: A Peer-To-Peer Electronic
Cash System". This paper depicted a shared form of the electronic money that would enable
online installments to be sent straight forward starting with one gathering then onto the next
without experiencing a financial.

Presently word cryptocurrencies is the mark that is utilized to depict all systems and mediums of
trade that utilizations cryptography to anchor exchanges as against those frameworks where the
exchanges are diverted through a brought together confided in substance.
TIMELINE
 HOW DOES BLOCKCHAIN WORK

As we can visualize bitcoin easily, let us understand the concept of blockchain technology from a
basic example of cryptocurrency transaction of 20 bitcoins. Suppose A wants to send 20 bitcoins
to B, now is one transaction is formed into a “block”. Each block has to be checked and
approved by the "nodes" (here, nodes are the other members of the network) or also termed as
"miners" by using complex cryptotechnics which depends upon the kind of blockchain. So, in
our bitcoin exchange example, the miners will check that A is in fact the owner of 20 bitcoins
and once this data is confirmed by the miners, the exchange is approved and made available for
B along with the other network members. Now, after the transaction process is complete, B then
becomes the owner of additional 20 bitcoins. Blockchain security techniques utilize encryption
technology in order to process any transactions or information for optimum security. The miners
are paid for the validation process, either by receiving fees or new cryptocurrencies. On the off
chance that an error is discovered, the block is rejected as it has no significant validation. While
on the other hand, blocks that are approved are time-stamped and added to the chain, in
chronological order, making a chain of exchanges also termed as “the chain of blocks” that
shows each and all exchanges in the historical backdrop of that blockchain.
 IMPACT OF BLOCKCHAIN TECHNOLOGY

Blockchain is regarded as a next-gen technology with several potential uses in a variety of fields
beyond digital currencies. As mentioned earlier, the first application of the blockchain
technology was the digital currency Bitcoin, but the blockchain could be a much bigger prospect
than Bitcoin. Below are the more information is provided for other possible application of
blockchain technology apart from Bitcoin.

a. Digital assets:
In the finance sector, issuance of share certificates can be digitalized and immortalized in the
Blockchain. These are referred as digital assets. In 2015 the NASDAQ unveiled Linq: the very
first platform for the issuance of private equity managed entirely using the Blockchain. Through
this new system, private investors can trade in the stock of private companies.

b. Digital identity & security

With the use of blockchain. there will no longer be any need to memorize numerous user names
and passwords: only a single digital identity will be needed. oneName is an American start-up
using the Blockchain to generate a digital identity which only the user will be able to use to log
on for their various Web services.

c. Insurance
Assets such as real estate, automobiles or any other valuables which can be uniquely identified
by one or more identifiers can be entered in blockchain. This helps to verify the ownership of the
assets and also find out the transfer history if necessary.

d. Smart Contracts
Any agreement between contracting parties can be digitalized. These so-called self-executing
contracts give the various parties the assurance that, once the conditions have been fulfilled, the
contract will be honoured, with no possibility for there being any fraud, bad faith, or interference
with a third party.
e. Health Sector
Another use is in the area of healthcare is for medical records. By digitally recording them,
information about the patient can be transferred more easily from one professional to another.
For example: A person doesn’t need to take multiple X-rays when he goes from one health
professional to another.

f. Supply Chain
Using blockchain in the supply chain help the parties involved in any business provide relevant
information like price, date, location, quality to manage the chain more effectively and
efficiently. For example: Diamond giants De Beer through use of blockchain ensures that the
consumers are buying the genuine item by tracking stones from mining to sales.

SUCCESS AND FAILURE STORIES

Success
Bitstamp is a Bitcoin exchange company which has been in tremendous rise. It serves for the
instant transaction of USD/BTC pair with withdrawals made possible in other currencies than
dollar as well. The company founded by Nejc Kodric and Damijan Merlak was registered in
Luxembourg in 2011 making them the first nationally licensed Bitcoin exchange. It is positioned
in the third largest Bitcoin exchange company and is now licensed across all the 28 European
Union countries. There are also other similar Bitcoin exchange companies namely, Bitfnex,
Coinbase, and Cryptsy which have become really successful.

Cryptocurrency such as Bitcoin, Ethereum is itself considered as a valuable thing. Now, we can
imagine from the fact that if the exchange company is in the road to success, what implications it
has put to the owners of the cryptocurrency. For example, Mr. Kristoffer Kroch who invested
$26 for 5000 bitcoins while working on this thesis regarding Cryptocurrencies in 2009 by
knowing the benefits of Cryptocurrency. After four years of neglecting the investment, he
revisited his bitcoin account to find out the value of his $26 investment grown to $85000.
Failure
Mt. Gox is a Bitcoin exchange based in Tokyo, Japan. Launched in July 2010, it was
one of the first bitcoin exchanges. By 2013, it was handling 70% of all bitcoin transactions
worldwide and established themselves at the market leader in bitcoin exchanges.
However, in February 2014, Mt. Gox declared bankruptcy. The company’s server was
hacked and almost 745,000 bitcoins belonging to customers, and around 100,000 of its own
bitcoins were stolen. This was 7% of all existing bitcoins and worth around $473 million.
Some 200,000 bitcoins were later found. The Chief Executive of Mt. Gox, Mark Karpeles, is
still facing multiple charges from customers as well as Japanese government.
The reasons for such disappearance are thought to be theft, fraud, mismanagement or
combination of these. This highlights the security issues and risks Cryptocurrencies face.

BENEFITS AND ISSUES OF BLOCKCHAIN

Benefits
In summary, blockchain has following key characteristics.

a. Decentralization
In the current setup there needs to be a presence of a central party who controls or
monitors the transactions or some server which maintains the records of the network
members. With the blockchain technology, there is the absence of requirement of this
central body as the transactions are visible to all and requires validation from the network
members. Consensus algorithms in blockchain are used to maintain data consistency in
distributed network.

b. Persistency
Any changes or transactions through the network are quickly verified and validated.
Those not valid are immediately found and discarded. There exist almost an impossibility
of deleting the transactions or even rollback.
 c. Anonymity
Each user or the member of the network is provided with a unique automatically
generated ID which is anonymous, hence hides the real identity of the user. Nevertheless,
there is no guarantee of the perfect privacy situation for the user in blockchain due to the
intrinsic constraint.

d. Auditability
In case of the cryptocurrency, the blockchain stores data about user balances based on the
Unspent Transaction Output (UTXO) model: Any transaction has to refer to some
previous unspent transactions. Any transaction is traced back to some previous unspent
transaction which changes its status to spent after the current transaction. So, transactions
can be easily verified and tracked.

Risk Associated
BlockChain is a promising leap forward innovation. As we already discussed, there are huge
range of utilizations or issues that can be unraveled utilizing BlockChain based technology. That
ranges from Budgetary, settlement to speculation managing an account, to non-budgetary
applications like Legal official administrations. The majority of these are radical developments.
We all can understand that with radical innovations comes greater risks.

a. Early adoption
The market is always conservative with the new technologies, similar is the case of
blockchain which is in the development or low adoption phase resulting in the policies to
be relatively untrusted. Keeping this in mind businesses are reluctant to use the new
technology without high degree of confidence in the quality and stability of services.

b. Data privacy risk

Data is not completely private in the blockchain, the consensus protocol requires all
network participants to be able to view transactions in the ledger. While the exchanges in
a permissioned system could be put away in a hashed format in order to not uncover the
 contents, certain metadata will dependably be accessible to arrange members. Monitoring
the metadata could reveal information regarding the type and volume of the activity of
any participant that is public on the blockchain that is connected to any participant node.

c. Scaling
Since everyone has to be once a new member on the blockchain. If one has to make a
transaction through the blockchain, the user will need to download the entire set of
existing blockchains and validate other transactions before even executing their own
transaction for the very first time. The process could be time consuming and increase
exponentially with the increase in the number of blocks

d. Bootstrapping
Real problem arises when a business framework is to be transferred to new Blockchain
based methodology, it requires a significant set of migration tasks that needs to be
executed. This process could be time consuming and may also incur cost along with it.

e. Government Regulations
In the new universe of BlockChain-based exchanges, Government organizations like
FTC, SEC, and so forth may back off the reception by acquainting new laws with screen
and control the business for consistency. In USA, this may in a way help reception as
these organizations convey client trust. In more controlled economies like in China, the
selection will confront huge headwind.

f. Fraudulent Activities
With the ease of transfer of money from one user to another, it may give rise to easier
trafficking of illegal money from illegal activities and could also be cross country. That
being a dangerous aspect of this technology, enough regulations and technology
supported law enforcement agencies could be able to monitor and prosecute them.
 SCOPE IN NEPAL

On August 13, 2017 Nepal Rastra Bank (NRB) on its official notice stated that the operation of
Bitcoin or any other cryptocurrency is illegal inside the country (NRB Act 2058) as it is not
legally accepted as currency in Nepal. Furthermore, then Finance Minister of Nepal, Krishna
Bahadur Mahara told that the regulations regarding virtual coins will be monitored but termed as
illegal until further notice during his 2017-2018 budget speech. The reason given was due to Anti
Money Laundering risk associated with virtual coins or crypto currency.
Terming Bitcoin trading as criminal offence, Nepal has closed it door to cryptocurrency (as of
now) before it barely started to take off. According to Bitsewa, Nepal-based bitcoin trading
platform, said ‘We worked very hard to bring this revolutionary technology to Nepal, but it turns
out our government have a very different plan altogether and doesn’t want this technology in the
hands of Nepalese citizen.’ Currently, the situation for both bitcoin enthusiasts and
cryptocurrency businesses trying to operate in Nepal looks grim; at least until the government
reveals its regulatory guidelines.
Such decision of NRB also might be a result of illegality of cryptocurrencies in the SAARC
nations like Pakistan and Bangladesh. While India doesn’t have a clear standing for or against
virtual currencies, the government has started to study them. While developed economies like
China, Japan and European Union have already started studies on the use of blockchain, Nepal
could also do a feasibility study on use of bitcoin and blockchain as a whole. Digital currencies
could surely make exchanges and transactions easier.
 RECOMMENDATION AND CONCLUSION
As per news that surfaced on newspaper a year back during NRB restrictions, almost 10,000
Nepali hold 10 billion worth of bitcoin illegally. Thus this shows that despite many people don’t
know what bitcoin is, those who know are highly keen on investing and trading in this currency.
Thus it demands for a need of a regulatory mechanism for digital currencies and for its mining.

In Nepal’s context many households depend on remittance in which the transaction cost is high
and use of Bitcoins in Nepal can reduce the intermediaries and maximize the value of the
service. Also the online service and payment system in Nepal is in its preliminary stage, the use
of blockchain technology can be a challenge. However, the use of bitcoins is rather simple and
can work with basic infrastructure used for cellular communications and mobile phones to make
bitcoin transactions. This will reduce the cost of investment in infrastructure and also reduce the
transaction cost.
Also use of blockchain can be useful for Nepal in foreign payments. As many developed
countries have started using virtual currencies in their banking and payment system, use of such
virtual currencies can help Nepal solve the payment related problems in international trade and
eradicate the delay caused due to intermediary inefficiency.
Bitcoin, being one of the pioneer example of blockchain, is known to many people in Nepal.
However, Blockchain is not only limited to virtual currencies and can have a greater impact on
different sectors of any economy. As of now as the virtual currencies are termed illegal, hence, it
is important for our economy to identify the opportunity of use of blockchain in other fields like
health and medical, insurance, supply chain and wherever blockchain can help simplify the
business process and reduce the cost of transaction and enhance security and trust which is
lacking in the present scenario.
 REFERENCES
Michael Crosby et al (2015), BlockChain Technology Beyond Bitcoin,
http://scet.berkeley.edu/wp-content/uploads/BlockchainPaper.pdf
Deloittee (2017), Blockchain technology in India Opportunities and challenges
https://www2.deloitte.com/content/dam/Deloitte/in/Documents/strategy/in-strategy-innovation-
blockchain-technology-india-opportunities-challenges-noexp.pdf
Bruno Teboul et al, Blockchain: Concept and Application Domain
http://keyrus-
prod.s3.amazonaws.com/Avis%20d%27expert/Blockchain/Avis%20d%27Expert_BLOCKCHAI
N-EN%20COM.pdf
Atit Babu Rijal, The future of cryptocurrencies
http://kathmandupost.ekantipur.com/news/2017-12-27/the-future-of-cryptocurrencies.html