MALNAD COLLEGE OF ENGINEERING

Department of Computer Science, Hassan - 573201

Project Synopsis

Topic
Implementation of Blockchain in Banking System using Ethereum

Guided By
Ms. Priya Neelakanth, Assistant Professor

Submitted By:
Poojitha B H – 4MC18CS090

Nida Fathima – 4MC18CS076

K B Srushti – 4MC18CS059

6th Sem ‘B’ Sec

1
Abstract
• Our current banking system is based on a central server where every branch is connected
to each other and if the server makes any changes to the data of one branch then other
branches also get affected.

• In this system, corruption can be easily occurred because of unauthorized access which is
totally insecure in transaction systems.

• But, Blockchain is a secure system where the transactional history regarding crypto-
currency cannot be modified or destructed.

• Every Ethereum based system runs on ‘Smart-Contracts’ which are lines of code and
makes the system automatic.

Introduction
• Blockchain technology is a structure that stores transactional records, also known as
block, of the public in several databases known as “chain”, in a network connected
through peer-to-peer nodes.
• Ethereum is a blockchain based distributed computing platform that enables developers
to build and deploy their decentralized application (Dapp).
• Ether is a cryptocurrency that runs on Ethereum network and it is used to pay for the
computational resources and transaction fees.
• Ether is also used to buy gas. Gas is the execution fee paid by a user for running a
transaction in Ethereum.
• A message is essentially a transaction which transfers ether from account to account.
Each message that is to be sent, specifies an amount of Gas for the message
• If the Gas is completely spent before the code is completely executed, the execution stops
and all changes are reverted.
• Ethash algorithm is used for hashing in Ethereum. As of July 23, 2018, 1 ether is equal to
464 US dollars.

2
Ethereum Features
• Ether: This is Ethereum’s cryptocurrency.
• Smart contracts: Ethereum allows the development and deployment of these.
• Ethereum Virtual Machine: Ethereum provides the underlying technology—the
architecture and the software—that understands smart contracts and allows you to
interact with it.
• Decentralized applications (Dapps): Ethereum allows you to create consolidated
applications, called decentralized applications. A decentralized application is called a
Dapp (also spelled DAPP, App, or DApp) for short.
• Decentralized autonomous organizations (DAOs): Ethereum allows you to create these
for democratic decision-making.
• Mining is the process of creating a block of transactions to be added to the Ethereum
blockchain.

Implementation Tools
The following programming languages are used to build the proposed lending system:

• Solidity for writing smart contracts

• JavaScript for interacting with smart contracts
• HTML for front-end design

The following frameworks, libraries and browser extensions are used:

• React.js for developing front-end
• Node.js JavaScript Runtime Environment
• Mocha JavaScript Framework for testing purposes
• Web3 JavaScript Library Collection
• Truffle as Ethereum Virtual Machine (EVM)
• MetaMask for accessing Ethereum enabled distributed applications.

3
Implementation Details
• The Back-end of the proposed system consists of a smart contract. Starting from
registration, depositing money, sending money, earning interests and all of these tasks
will be managed by the contracts.

• ‘Mocha’ testing framework is used to test whether smart contracts are functioning
properly.

• ‘Solc’ compiler is conducted to compile the contracts and JSON files are created
corresponding to that smart contracts.

• The system is firstly implemented on Ethereum Test Network which is known as

Rinkeby. To implement the system in the Rinkeby network, an account is created in
Infura.cofile.

• After signing up, Infura.com provides a URL which is of Rinke by Test Network. The
byte codes and ABIs of the smart contracts located in JSON files are then deployed to the
URL of the Rinkeby save

• Network by Truffle-HD-Wallet-Provider and web3.

• After deploying the smart contracts to Rinkeby Test Network, the addresses of the smart
contracts are returned and saved. An interactive front-end (GUI) is developed using
React.js.

• The front-end of the proposed system interacts with the smart contracts using the
contracts’ addresses and byte code.

• Web3 works as the interface between the Rinkeby Test Network and Front-End. It creates
a bridge between the test network and the implemented DAPP.

Smart Contracts Vs Traditional Contract Systems

4
Ethereum Virtual Machine

How Does EVM Work?

The miner nodes on Ethereum will validate the transaction—whether the identity of A exists or
not, and if A has the requested amount to transfer. Once the transaction is confirmed, the ether
will be debited from A’s wallet and will be credited to B’s wallet, and during this process, the
miners will charge a fee to validate this transaction and will earn a reward.

Proof of Work

Proof of Work (PoW) is the mechanism that allows the decentralized Ethereum network to come
to consensus, or agree on things like account balances and the order of transactions. This
prevents users "double spending" their coins and ensures that the Ethereum chain is incredibly
difficult to attack or overwrite

Proof of Stake

Unlike proof-of-work, validators don't need to use significant amounts of computational power
because they're selected at random and aren't competing. They don't need to mine blocks; they
just need to create blocks when chosen and validate proposed blocks when they're not. This
validation is known as attesting. You can think of attesting as saying "this block looks good to
me." Validators get rewards for proposing new blocks and for attesting to ones they've seen.

5
Decentralized Applications (Dapps)

In a decentralized application when you log in, the web application gets rendered, but it calls a
smart contract-based API to fetch the information from the blockchain network. So the API is
replaced by a smart contract interface, and the smart contract will bring the data from the
blockchain network, which is its backend.

That blockchain network is a decentralized network in which the participants of the network (the
miners) validate (verify) all the transactions that are happening using the smart contract on the
blockchain network. So any transaction or action happening has now been transformed will be a
decentralized transaction.

A Dapp consists of a backing code that runs on a distributed peer-to-peer network. It is a

software designed to work in the Ethereum network without being controlled by a centralized
system, as mentioned, and that is the primary difference: it provides direct interaction between
the end-users and the decentralized application providers.

An application qualifies as a Dapp when it is open-source (its code is on Github), and it uses a
public blockchain-based token to run its applications. A token acts as fuel for the decentralized
application to run. Dapp allows the backend code and data to be decentralized, and that is the
primary architecture of any Dapp.

6
Resulting DAPP to be

The above figure illustrates the following-

• Getting registered using 10 Ether in Ethereum based Banking System.

• Depositing 3 Ether in Ethereum based Banking System
• Withdrawal of 10 Ether from Bank’s vault to user account in Ethereum Banking System

7
Case Study

The South African Reserve Bank (SARB), in consortium with seven commercial banks,
used Quorum, an enterprise-grade implementation of Ethereum, to create a blockchain-based
interbank system that processed the typical daily volume of payments with full confidentiality
and finality in record time.

Challenge

➢ Central banks need an innovative way to increase the resiliency of interbank payment
systems while maintaining or reducing the overall cost of those systems.
➢ SARB created a simulation to assess if the performance, scale, and confidentiality of
payments were possible utilizing blockchain technology.

Enterprise Ethereum Solution

➢ In consortium with seven commercial banks, SARB partnered with ConsenSys

Solutions and Adhara, to build a proof-of-concept grounded in real-world
performance, confidentiality requirements, and diverse bank hardware on the
blockchain—without a single point of failure.
➢ By harnessing a permissioned blockchain network, the Istanbul Byzantine Fault
Tolerance consensus mechanism, Pedersen commitments, and range proofs,
Project Khokha was able to replicate interbank clearing and settlements in less
than two hours.

Goals Achieved

➢ Exceeded the transaction performance target at 70,000 transactions in less than two
hours.
➢ 95% of block propagation time in less than 1 second and 99% propagation in less than
2 seconds. This demonstrated that acceptable performance is achievable, despite the
geographical distribution of the banks’ hardware.
➢ Achieved privacy while meeting required transaction volumes.

8
Advantages
• Ethereum uses a different blockchain than bitcoin does and it is far more flexible. This
makes Ethereum an investors dream.
• This prevents infinite loops in any smart contracts and also prevents malicious users from
attacking the Ethereum network via excessive computation since the amount of
computation is proportional to the amount paid.
• The hashes on the Ethereum blockchain are not static. From banking apps to storage,
there is no limit to what can be created on the blockchain.
• There is even its own coding language called Solidity. Developers can use this language
to program on the blockchain itself without any third-party interference.
• Businesses are taking advantage of these smart contracts to streamline their operations.
Now, instead of needing to have a document go through various channels to get
approved, a smart contract will take the place of any internal bureaucracy.
• Unlike Bitcoin, ether (ETH) is not capped and has practical utility. Transactions come
with self-executing contracts and fast transaction times.

Disadvantages
• Unlike Bitcoin that has one single function, Ethereum acts as a ledger, a platform for
smart contracts, and so on and on, which can lead to bugs, breakdowns, and hacks.
• Ethereum still has to deal with scaling and network congestion issues in order to attract
more cryptocurrency investors.
• Ethereum’s own language Solidity can be pretty tricky to learn. One of the main
problems is that it’s not easy to find beginner-friendly tutorials.
• Ether’s prices have gone through many ups and downs in the past, which can be a big
drawback for some investors, especially beginners. Just like any other cryptocurrency,
investing in Ethereum can be risky

9
References
• https://medium.com/swlh/building-a-decentralized-application-dapp-on-the-ethereum-
blockchain-with-javascript-and-solidity-503065ccc23b

• https://github.com/thivyavignesh/DApp_Banking_Solidity-smart-
contract#:~:text=Fork%202-
,Web%20based%20Banking%20Decentralised%20Application%20(DApp)%20built%20
on%20Ethereum%20blockchain,sanctioning%20of%20Loans%20and%20Tenders

• https://www.researchgate.net/publication/339329407_The_Implementation_of_Blockchai
n_in_Banking_System_using_Ethereum

10