# Blockchain and Smart Contracts for Insurance: Is the Technology Nature Enough?
## 2 How Blockchain Works  
The blockchain (literally, a \"chain of blocks\") made its first appearance in the research scenario in 2008, in the frame of the Bitcoin initiative [21; 22]. The objective was to transfer online payments from one party to another, without relying on intermediaries. In this context, the blockchain was acting as the underlying ledger recording Bitcoin transfers and guaranteeing, by means of cryptographic operations, the authentication and non-repudiation of payments. Even though Bitcoin is, by far, the most famous cryptocurrency, it is not alone. In fact, since 2008, more than 1300 cryptocurrencies have been created [23], which are being used as exchange tokens in many different blockchain-based applications. The core concepts behind the blockchain technology are reported in the following. * Transactions: each cryptocurrency transfer from one subject to another is represented as a transaction from A to B. Cryptocurrency is neither a physical nor a software object, but the result of incoming and outgoing transactions. For this reason, the blockchain keeps track of all the transactions occurred from its birth. * Blocks: transactions are grouped in blocks. Each block collects all the transactions occurring in a given timeframe and keeps a reference to the preceding block (that is where the concept of \"chain\" comes from). Nodes: instead of being stored in a centralized database, the blockchain is spread over network computers (the \"nodes\"), each containing a local copy of the entire blockchain. * Majority consensus: since a central authority is missing, decisions on the network are made according to a majority consensus. Each node modifies its local copy of the blockchain to make it mirror the status of the majority of the network nodes. * Mining: nodes could either passively store a copy of the blockchain, or actively take part to the maintenance of the blockchain, in the so-called \"mining\" process. During mining, nodes check previous transactions to verify whether a subject is entitled to spend a given amount of cryptocurrency and, each time a block has to be added to the chain, solve a complex computational-intensive mathematical problem. This problem was specifically designed to limit the possibility for a malicious entity to manipulate the blockchain by falsifying transactions. The probability of attacks is extremely low, since adding a new (malicious) block or modify a previously added block to the chain would require control of the majority of the network nodes (to make them agree with the modification). * Wallet: people transfer cryptocurrency using wallets. Cryptocurrency cannot be stored on a physical memory; rather, it is the result of previous transactions. Hence, the wallet only stores credentials (a complex, unchangeable combination of automatically assigned numbers and letters), which enable blockchain users to transfer cryptocurrencies they own. Each wallet is associated to one (or more) unique addresses. Should a user want to send a given amount of cryptocurrency to a peer, he/she would have to specify the recipient's address and the desired amount, and use his/her credentials to validate the transaction. This aspect is particularly important, since in case of credentials loss, the cryptocurrency owned by the user would not \"disappear\", but the user would be no more able to spend it. Moreover, the fact that the user validates the transaction with his/her credentials certifies that he/she was the actual initiator of the transaction. In order to better understand how the blockchain works, it could be worth considering the example shown in Figure 1. In the depicted scenario, [PERSON] wants to send some amount of cryptocurrency from her wallet (with address \"x1z\") to [PERSON]'s wallet (with address \"v4y\"). Figure 1: Performing transactions on the blockchain.