CHAPTER TWO

LITERATURE REVIEW

2.1 What Is Blockchain Technology

Blockchain technology is an advanced database mechanism that allows transparent

information sharing within a business network. A blockchain database stores data in
blocks that are linked together in a chain. The data is chronologically consistent
because you cannot delete or modify the chain without consensus from the network
(AWS).

According to (Onyekwere,2023) Blockchain is a shared, immutable ledger that

makes it easier to track assets and record transactions Among a network of businesses.
An asset might be intangible (intellectual property, patents, Copyrights and branding) or
tangible (a house, car, money, or land). On a blockchain network, almost Anything of
value may be recorded while lowering the costs and risk for all parties.

2.2 Types Of Blockchain

There are primarily two types of Blockchains, Private and Public Blockchain. However,
there are several variations too, like Consortium and Hybrid Blockchains. Every
Blockchain consists of a cluster of nodes functioning on a peer-to-peer (P2P) network
system. Every node in a network has a copy of the shared ledger which gets updated
timely. Each Node can verify transactions, initiate or receive transactions and create
blocks.

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2.1.1 Public Blockchain

A public Blockchain is a non-restrictive, permission-less distributed ledger system.

Anyone who has access to the internet can sign in on a Blockchain platform to become
an authorized node and be a part of the Blockchain network. A node or user which is a
part of the public Blockchain is authorized to access current and past records, verify
transactions or do proof-of-work for an incoming block, and do mining. The most basic
use of public Blockchains is for Mining and exchanging crypto currencies. Thus, the
most common public Blockchains are Bitcoin and Litecoin blockchains. Public
Blockchains are mostly secure if the users strictly follow security rules and methods.
However, it is only risky when the participants don’t follow the security protocols
sincerely.

Example: Bitcoin, Ethereum, Litecoin

2.1.2 Private Blockchain

A private Blockchain is a restrictive or permission Blockchain operative only in a closed

network. Private blockchains are usually used within an organization or enterprises
where only selected members are participants of a blockchain network. The level of
security, authorizations, permissions, accessibility is in the hands of the controlling
Organization. Thus, private Blockchains are similar in use as a public Blockchain but
have a small and restrictive Network. Private Blockchain networks are deployed for
voting, supply chain management, digital identity, asset Ownership, etc.

Examples: Multichain and Hyperledger projects (Fabric, Sawtooth), Corda, etc.

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2.1.3 Consortium Blockchain

A consortium Blockchain is a semi-decentralized type where more than one

organization manages a Blockchain Network. This is contrary to what we saw in a
private Blockchain, which is managed by only a single organization. More than one
organization can act as a node in this type of Blockchain and exchange information or
do mining. Consortium Blockchains are typically used by banks, government
organizations, etc.

Examples: Energy Web Foundation, R3, etc.

2.1.4 Hybrid Blockchain

A hybrid Blockchain is a combination of the private and public Blockchain. It uses the
features of both types of Blockchains that is one can have a private permission-based
system as well as a public permission-less system. With such a hybrid network, users
can control who gets access to which data stored in the Blockchain. The hybrid system
of Blockchain is flexible so that users can easily join a private Blockchain with multiple
public Blockchains. A transaction in a private network of a hybrid Blockchain is usually
verified within that network. But users can also release it in the Public Blockchain to get
verified. The public Blockchains increase the hashing and involve more nodes for
verification. This enhances the security and transparency of the Blockchain network.

Example: Dragonchain

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2.2 Literature review
Blockchain is a Distributed database that records digital transactions. It does away with
the requirement for a central Authority by allowing participants to share data that is
subject to verification by other network users (Onyekwere, 2023). Blockchain
technology is emerging as a game-changing invention that might completely change a
lot of different businesses. Blockchain technology has demonstrated potential in a
number of industries, Including voting systems, real estate, healthcare, and supply
chain management among others, in Addition to its most well-known application in
cryptocurrencies. Blockchain technology offers the Ability to eradicate fraud, corruption,
and other inefficiencies that have long beset traditional systems by enabling safe and
transparent record-keeping (Uju & Edoziem, 2023). Meanwhile, it is ironic that despite
blockchain technology’s immense promise, governments and Regulators have had
difficulty adopting it, mainly because they are still debating how best to control this
emerging technology. Notwithstanding, the adoption of this technology continues to gain
traction In Nigeria, with report by Enhancing Financial Innovation & Access (EFInA)
which predicts that Blockchain technology can potentially add Twentynine Billion United
States Dollars ($29,000,000,000) to Nigeria’s gross domestic product (GDP) within a
decade (Uju & Edoziem, 2023).

It however appears that the regulatory landscape in Nigeria is evolving as regulatory

agencies are Increasingly embracing the adoption and deployment of blockchain
technology. This shift is evident In the recent approval of the National Blockchain
Adoption Strategy by the Federal Government of Nigeria in May 2023, which indicates a
willingness to explore the potential benefits of blockchain Technology across various
sectors of the Nigerian economy (Afolabi, 2023).

Apparently, traditional database technologies present several challenges for recording

financial transactions across the globe. For instance, consider the sale of a property.
Once the money is Exchanged, ownership of the property is transferred to the buyer.
Individually, both the buyer and the Seller can record the monetary transactions, but

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neither source can be trusted. The seller can easily Claim they have not received the
money even though they have, and the buyer can equally argue that They have paid the
money even if they haven’t.

To avoid potential legal issues, a trusted third party has to supervise and validate
transactions. The Presence of this central authority not only complicates the transaction
but also creates a single point of Vulnerability. If the central database was
compromised, both parties could suffer. But blockchain technology mitigates such
issues by creating a decentralized, tamperproof system to Record transactions. In the
property transaction scenario, blockchain creates one ledger each for the Buyer and the
seller. All transactions must be approved by both parties and are automatically updated
in both of their ledgers in real time. Any corruption in historical transactions will corrupt
the entire Ledger. These properties of blockchain technology have led to its use in
various sectors, including the Creation of digital currency like Bitcoin and other altcoins.

2.3 Background of Blockchain Technology

Blockchain technology has its roots in the late 1970s when a computer scientist named
Ralph Merkle Patented Hash trees or Merkle trees. These trees are a computer science
structure for storing data by Linking blocks using cryptography. In the late 1990s, Stuart
Haber and W. Scott Stornetta used Merkle Trees to implement a system in which
document timestamps could not be tampered with. This was the First instance in the
history of blockchain. However, most people know blockchain as the technology Behind
Bitcoin, and this was indeed its first application, but since then, several innovations in
the System have allowed blockchain to spread far and wide and is now democratizing
and transforming all Kinds of industries, from healthcare to trade and finance (Benard,
2018).Although, the new generation cryptocurrency users often believe that blockchain
began with a man Named Satoshi Nakamoto, who invented Bitcoin and brought

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blockchain technology to the world back In 2009. Bitcoin aimed to be a viable alternative
to fiat currency. A secure, decentralized, global Currency that could be used as a
medium of exchange. In the first year, the currency was worth $0.Now, it has a total
market capitalization of $126 million (Trade Finance Global, 2023).Meanwhile,
Nakamoto built on the foundations laid by those who came before him in the pre-bitcoin
Years as mentioned above such as Stuart Haber and W. Scott Stornetta who had
already begun work On a cryptographically secured chain of blocks but the first
blockchain wouldn’t be truly Conceptualized until Nakamoto’s invention in 2008 (Trade
Finance Global, 2023).The blockchain technology has continued to evolve over these
three generations as mentioned and explained by Benard (2018) as follows:

First generation (Bitcoin and other virtual currencies):

In 2008, an anonymous individual or group of Individuals known only by the name

Satoshi Nakamoto outlined blockchain technology in its modern form. Satoshis idea of
the Bitcoin blockchain used 1 MB blocks of information for Bitcoin Transactions. Many of
the features of Bitcoin blockchain systems remain central to blockchain Technology
even today.

Second generation (Smart contracts):

A few years after first-generation currencies emerged, Developers began to consider

blockchain applications beyond cryptocurrency. For instance, the Inventors of Ethereum
decided to use blockchain technology in asset transfer transactions. Their significant
contribution was the smart contracts feature.

Third generation (The future):

As companies discover and implement new applications, blockchain Technology
continues to evolve and grow. Companies are solving limitations of scale and
Computation, and potential opportunities are limitless in the ongoing blockchain
revolution.

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2.4 Components of Blockchain

1. Node
A blockchain node is an essential component of the blockchain network, typically a
computer or specialized hardware that participates actively in the network’s functions.
These functions include validating, relaying, and storing transaction data, which
contribute to the network’s consensus and enhances its security. Running blockchain
protocol software, nodes are responsible for processing transactions and ensuring the
integrity of the blockchain by validating new blocks. Each node possesses a unique
identifier, facilitating distinct communication within the network.

The architecture of a blockchain network relies heavily on the collaborative effort of its
nodes, which share and maintain a distributed ledger of transactions. This system of
interconnected nodes ensures the decentralization of the network, significantly
increasing its resilience against cyber threats and reducing reliance on any central
authority for governance. The collective operation of nodes across the network
underscores the strength of blockchain technology, offering a secure and transparent
environment for digital transactions

2. Block
Each block contains a list of transactions, a timestamp, and a reference (hash) to the
previous block, forming a chain of blocks.

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 3. Cryptography:
This ensures the security and integrity of the blockchain, using techniques like hashing
and digital signatures to protect data.

4. Consensus mechanism
Traditional financial institutions rely on central authorities to protect their transactions
and keep their systems running. However, in a decentralized system, achieving
consensus can be challenging, which raises questions about how to maintain the
blockchain’s security and preserve all transaction records. To achieve consensus in
blockchain, a stack of protocols, incentives, and systems enable a network of nodes to
agree on transactions and the state of the blockchain, creating a democracy or
governance approach that keeps the blockchain secure and functional. This mechanism
is the foundation of cryptocurrencies like Bitcoin, Ethereum, and Cardano, maintaining
the security of blockchains while validating the authenticity of transactions. Independent
nodes can verify transactions and update the ledger depending on the consensus
system applied by each blockchain. Consensus mechanisms can vary, with some nodes
updating the blockchain records based on work done, others based on stakes, and
some based on authority.

5. Nonce
A nonce is a number that miners must solve to add a new block to the blockchain.
Before adding a new block, a miner must obtain the nonce number, which can only be
used ONCE to create the block. Once a miner adds a block with a valid nonce, they
receive a reward, making it impossible for a previously recorded block to be recorded
multiple times.

Nonce is similar to a one-time password (OTP) that miners must solve, but instead of
being sent by a financial institution, miners must solve for it. The tedious process of
obtaining the number is called “proof of work” in blockchain consensus mechanisms.
Nonce is derived from the phrase “number used only once,” which is a portmanteau of

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two or more words. Other examples of portmanteau include “brunch” (breakfast +
lunch), “alphanumeric” (alphabetic + numeric), “motel” (motorist + hotel), and “internet”
(interconnected + network). The chance of correctly guessing the nonce for each block
is nearly zero, with millions of possibilities for just one nonce. This requires high
computational power from miners, with only one winner emerging from the contest.
Despite its seemingly basic explanation, nonce remains one of the essential security
features of blockchain technology.

2.5 Major Features Of Blockchain Technology

Blockchain technology has the following main features:

Decentralization:
Decentralization in blockchain refers to transferring control and decision making From a
centralized entity (individual, organization, or group) to a distributed network.
Decentralized Blockchain networks use transparency to reduce the need for trust
among participants. These networks Also deter participants from exerting authority or
control over one another in ways that degrade the Functionality of the network (AWS,
2023).

Immutability:
Immutability means something cannot be changed or altered. No participant can tamper
with a transaction once someone has recorded it to the shared ledger. If a transaction
record includes an error, you must add a new transaction to reverse the mistake, and
both transactions are visible to the network.

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Consensus:
A blockchain system establishes rules about participant consent for recording
transactions. You can record new transactions only when the majority of participants in
the network Give their consent.

2.6 Benefits Of Blockchain Adoption In Nigeria

The implementation of blockchain Technology can contribute to strengthening Nigeria’s

digital Economy by expanding financial inclusion and enhancing openness and
accountability. The inherent Characteristics of blockchain, such as its immutability and
decentralization enable secure and Transparent transactions and activities through
some of its applications, like smart contracts, which Have the potential to bring several
benefits to the economy (National Blockchain Policy for Nigeria, 2023).

Below are some of the benefits of adopting Blockchain as highlighted in the National
Blockchain Policy for Nigeria (2023):

1. Improved Transparency and Accountability

Blockchain Technology can help to increase transparency and accountability in various
sectors in Nigeria. By using a distributed ledger system, all transactions are recorded
and can be accessed by Anyone on the network. This can help to reduce corruption,
fraud, and other illegal activities

2. Increased Efficiency
Blockchain Technology can also help to improve the efficiency of various processes,
such as payment Processing, supply chain management, and identity verification. By
leveraging blockchain features Like smart contracts, transactions can be executed
automatically, reducing the need for intermediaries and streamlining the process.

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 3. Enhanced Security
Blockchain Technology is highly secure due to its decentralized nature. Transactions are
recorded on Multiple nodes, making it nearly impossible to tamper with the data. This
can help to protect sensitive Data and prevent cyber-attacks across multiple sectors of
the economy.

4. Financial Inclusion
Blockchain Technology can help to increase financial inclusion in Nigeria by providing
access to financial services to those who may not have had access before. By using
blockchain based payment Systems, individuals can send and receive money easily
and securely.

5. Job Creation
Blockchain adoption in Nigeria has the potential to create significant job opportunities
across a range of sectors. With a young and tech-savvy population, Nigeria is well-
positioned to become a Blockchain hub in Africa. The adoption of blockchain technology
creates new job roles, such as Blockchain developers, cyber-security experts, and
smart contract engineers. Furthermore, blockchain technology enables the creation of
new industries, such as cryptocurrency Exchanges and blockchain based payment
systems, which could create jobs across various sectors, Including finance, technology
and manufacturing. The implementation of blockchain Technology in Nigeria shall also
improve transparency and reduce corruption, which boosts investor confidence and
create additional job opportunities. Over all, the job creation benefits of blockchain
adoption in Nigeria have the potential to play a significant role in the country’s economic
growth and development.

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2.7 Challenges Of Blockchain Adoption In Nigeria And Solutions

Even though this technology has good future prospects, there are challenges that if not
Tackled, are likely to hamper positive progress for the technology. Thus, blockchain
adoption in Nigeria has faced several challenges that have impeded its growth and
potential impact on various Sectors of the economy. Some of the key challenges as
highlighted by Uju and Edoziem (2023) Include the following:

1. Lack of awareness and technological know-how:

One of the main challenges associated with blockchain technology in Nigeria is a lack of
awareness of the technology and a widespread lack of understanding of how it works.
Many companies and Individuals alike do not understand what blockchain is or what it
can do, and this lack of Understanding is hampering investment in and adoption of the
technology. Additionally, blockchain is Often associated with cryptocurrency in the mind
of many and the negative press that has shrouded the Use of cryptocurrency has been
extended to blockchain technology generally. It is important to Educate people on the
versatility of blockchain technology and how it can be deployed to solve a variety of
problems in Nigeria (Uju & Edoziem, 2023).

2. Regulations and Regulators

The lack of legislative clarity is a significant obstacle to the widespread use of
blockchain technology In Nigeria. Although the Security and Exchange Commission
(SEC) introduced Digital Assets Rules In 2022, they remain non-operational due to
challenges in implementation and conflicts with the CBN’s stance on virtual currencies.
The absence of clear guidelines and licenses has created Uncertainty, slowing down
innovation and investment in blockchain-based startups. To address this Issue, the

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Nigerian government must develop clear and comprehensive regulatory frameworks for
the Blockchain industry. The government should also collaborate with relevant
stakeholders in the Blockchain industry, including startups, investors, and industry
associations, to ensure that the Regulatory frameworks are practical and effective (Uju
& Edoziem, 2023).

3. Electricity
The epileptic state of the Nigerian power sector is another significant clog in the wheel
of blockchain Adoption in Nigeria. A recent report by the Electricity Think Tank Group
indicates that about 75 per Cent (75%) of electricity consumed in Nigeria, comes from
diesel and petrol-powered generators13 Which account for about 25,000MW, while the
national grid provides about 4,000MW. This poses a significant challenge to the
implementation and adoption of blockchain technology in Nigeria, as Many blockchain-
based solutions require a stable and reliable source of electricity to function Effectively
(Uju & Edoziem, 2023). To overcome these challenges, the Nigerian government and
Relevant stakeholders in the power sector need to invest in improving the country’s
power Infrastructure as well as the adoption of renewable energy sources such as solar,
hydro, and wind Power. Another potential solution is to explore the use of energy
storage technologies, such as Batteries and fuel cells, to store excess power generated
during times of high demand. This excess Power can then be used to supplement the
grid during periods of low supply or power outages.

4. Security Breaches
Another key issue with blockchain technology is security which is one of the significant
ethical Concern especially the use of cryptocurrency for criminal activity (Benjamin et
al., 2022). This was One of the underlying reasons given by the CBN for its prior stance
against the use of cryptocurrencies In the Nigerian financial sector. Despite being more
secure than traditional computer systems, Blockchain based applications, networks, and
organizations are not immune to vulnerabilities (Uju & Edoziem, 2023). In addition, due
to its largely untraceable nature, criminal elements have adopted Cryptocurrencies for

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their criminal activities including money laundering, cybercrimes (such as 419, “yahoo
yahoo’’ as is fondly tagged) drug trafficking, human trafficking, and financing terrorism.
To Address these security challenges, organizations that use blockchain technology
need to implement Robust security measures, such as two-factor authentication,
encryption, and regular security audits.

Additionally, collaboration between blockchain experts, law enforcement agencies, and

regulatory Bodies can also play a significant role in combating criminal activities related
to blockchain Technology.

5. Data Protection
According to Uju and Edoziem (2023), some important tensions between blockchain
technology and Data protection include:

(I) The distributed peer-to-peer network architecture of blockchain technology

often makes it difficult to determine the data controller, especially with respect
to public block; (Mueller, 2019).

(ii) Applying Jurisdictional data protection regulations to decentralized blockchain

which is often multi-Jurisdictional may prove difficult;

(iii) The decentralized nature of the blockchain poses a challenge to the enforcement of
these cross-border restrictions; and

(iv) The immutability of blockchain which

Underpins the technology itself makes it difficult to enforce the data subject’s right to
rectification and the right to erasure (right to be forgotten) under the Nigeria Data
Protection Act (the “DPA”) Without compromising the structure and integrity of the
blockchain. In the absence of regulatory guidance from relevant authorities to reconcile
these issues, organizations Should consider the following to mitigate possible areas of
conflict:

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 (I) Analyzing carefully whether implementing blockchain technology is a good fit
for existing Business and operational goals;
(II) Deploying private or “permissioned” blockchains to enforce Stricter usage
rules;

(iii) Combining on-chain and off-chain data storage mechanisms and using on Chain
transactions as mere pointers or access controls to manage storage solutions off-
chain;

(iv) Limiting the volume of personal data that is stored on the blockchain by design

(v) Adopting Alternative data encryption and destruction techniques e.g. revocation
of access rights, irreversible Data transformations etc., to protect personal data (Uju
& Edoziem, 2023).

6. Environmental Cost
Recent reports have shown that cryptocurrency mining and transaction processes have
resulted in Significant climate damages, with the average cost ranging from 35%
between 2016 to 2021 and increasing to 58% from 2020 to 2021(Benjamin et al., 2022).
This places cryptocurrencies in the Same category as other energy intensive or highly
polluting goods like meat, and electricity produced from gasoline. The authors further
asserted that the growing concerns about climate change in Nigeria may create
challenges with the adoption of blockchain technology. However, the use of Renewable
energy sources for the deployment of blockchain technology could alleviate these
Environmental fears and concerns. Additionally, the use of energy efficient hardware
and mining Techniques could further minimize the energy consumption and
environmental impact of blockchain Technology.

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