New electronic transaction system to prevent fraud

If you buy a second-hand TV on the internet or purchase a smart phone from an online store you have never heard of, you obviously want to know whether you can trust the seller. In such cases, an online transaction system that can tell you the seller’s reputation is extremely useful. TU Delft scientists are developing an electronic transaction system that does just this. It will use blockchain technology and will help prevent you from becoming a victim of fraud. 

The system will keep records on whether people and businesses are trustworthy. It will register where they order products and whether they keep their agreements. It also needs to be general and not a separate system that only works in Marktplaats, Airbnb, Uber, TripAdvisor or Facebook. “The reputations in the system will be based on all transactions someone does, enabling the system to assess the trustworthiness of the participants”, says Dick Epema, Professor of Distributed Systems at TU Delft. He works closely together with Johan Pouwelse, who is the driving force behind this research.

The transaction system records the data of transactions on the internet forever, enabling it to assess whether someone can be trusted

Dick Epema

Digital identity

Epema and Pouwelse are developing with their group a transaction system of this kind. It is based on blockchain technology, which is also used by the virtual currency Bitcoin. Although this new system is quite separate from this cryptocurrency, it does involve the smart use of blockchain. It is based on the so-called trustchain, which is an alternative for the blockchain developed in Delft.

A blockchain is a database, a storage system for transactions. It is stored in multiple places rather than in a single, central site. This creates trust, because everyone has access to the data and can verify it. With every new transaction, you add data to the blockchain.

It can also be secured effectively, using the hash function (see box), which makes it possible to verify if everything is correct and no one has tampered with the data. If you store all the transactions of people and companies in it and link them to their digital identities, you get a good picture of how trustworthy they are. “Johan Pouwelse creates with PhD students software that can be downloaded, enabling everyone to use this kind of transaction system. This is certainly something we will perform experiments with”, says Epema.

Port of Rotterdam

Epema emphasises that blockchain also has numerous other applications. These include logistical operations. It can be used to effectively track a product throughout the supply chain. Take a tablet, for example. It is made up of all kinds of components (supplied by various companies) and is made in China. From China, the tablet is shipped to Rotterdam by a transport company. There, it is cleared by customs and is eventually transported to the store by lorry. Throughout this entire process there are numerous steps, the product goes through various places with multiple changes of ownership.

All of this can be recorded in the blockchain. “Different parties in the supply chain can then check whether the data is correct, also across borders. All of this helps prevent fraud. Currently, faxes are used to exchange information, but these are usually

Hash function?

As its name suggests, a blockchain is a chain of blocks. Every so often, a new block is added to the chain. This block contains the transactions that have been carried out within a specific period. It is similar to your regular bank statements with a list of amounts received and spent. But how do you know for sure that somebody hasn't changed the figures in the transactions? Normally, you would trust the banks. With blockchain, a hash function serves this purpose. You use it to check if everything is correct. “You take the data in a block, do a calculation on it, and this produces a result”, says Epema. “We call that result the hash value of the block. If someone has changed something within the block, you can find out by recalculating the hash value. If something has been modified in the block, the hash values will not match, and you know that the data has been tampered with.”

between two parties, such as the manufacturer and the transporter”, says Epema. Blockchain provides much more transparency across the supply chain.

It will also probably reduce administrative overhead, and can be cheaper. The main advantage is that the data is not stored and updated centrally, but in a decentralized way, and is shared by several parties. “Of course, not all parties need to have access to the same information, but thanks to the blockchain and its security, they know that everything is executed correctly”, says Epema. TU Delft is currently developing this kind of system in partnership with the Port of Rotterdam.

Epema also envisions opportunities for mortgages. After all, these also involve numerous different parties, such as the buyer, the seller, the mortgage provider, the Land Registry and the notary. “You would then be able to see the part of the data that is relevant to you. For example, the seller can see that the buyer has paid the agreed upon amount, but does not know which bank provided the mortgage or how the buyer acquired the money. Blockchain is an excellent addition to this kind of transactions, because you know that they can be trusted.”

Text: Robert Visscher | Photo: Mark Prins | January 2018