1. UNIT-1
Introduction: Overview of Block chain, History of Blockchain, Peer to Peer
Network, Smart Contract, Wallet, Digital Currency, Ledgers, Types of Block chain
Platform, Consensus algorithms and their scalability problems, digital cash etc.
2. Disadvantages of current transaction system:
• Cash can only be used in low amount transaction
locally.
• Huge waiting time in the processing of transactions.
• Need to third party for verification and execution of
Transaction make the process complex.
• If the Central Server like Banks is compromised,
whole System is affected including the participants.
• Organization doing validation charge high process
thus making the process expensive.
3. Blockchain
Definition of Blockchain.
• Blockchain at its core is a peer-to-peer distributed
ledger that is cryptographically secure, append-only,
immutable (extremely hard to change), and
updateable only via consensus or agreement among
peers.
(or)
• A blockchain is an open, distributed ledger that can
record transactions between two parties efficiently
and in a verifiable and permanent way without the
need for a central authority.
4. The network view of a blockchain
From a business point of view a blockchain can be defined as a platform whereby
peers can exchange values using transactions without the need for a central trusted
arbitrator. This is a powerful concept and once readers understand it they will realize
the tsunamic potential of blockchain technology.
5. • A blockchain is a chain of blocks which contain
information.
• Each block records all of the recent transactions, and
once completed goes into the blockchain as a
permanent database.
• Each time a block gets completed, a new block is
generated.
• A blockchain can be used for the secure transfer of
money, property, contracts, etc. without requiring a
third-party intermediary like bank or government.
7. Who uses the blockchain?
• Blockchain technology can be integrated into
multiple areas. The primary use of blockchains
is as a distributed ledger for cryptocurrencies.
• Wide range of business applications like
Banking, Finance, Government, Healthcare,
Insurance, Media and Entertainment, Retail,
etc.
8. Introduction to block chain technology:
• Blockchain is the backbone Technology of Digital
Crypto Currency BitCoin.
• The blockchain is a distributed database of
records of all transactions or digital event that
have been executed and shared among
participating parties. Each transaction verified by
the majority of participants of the system.
• It contains every single record of each transaction.
• BitCoin is the most popular cryptocurrency an
example of the blockchain.
9. Key Characteristics to be remembered:
• Open: Anyone can access blockchain.
• Distributed or Decentralised: Not under the control
of any single authority.
• Efficient: Fast and Scalable.
• Verifiable: Everyone can check the validity of
information because each node maintains a copy of
the transactions.
• Permanent: Once a transaction is done, it is
persistent and can’t be altered.
11. • Time reduction: In the financial industry, blockchain
can allow the quicker settlement of trades. It does not
take a lengthy process for verification, settlement, and
clearance.
• Unchangeable transactions: Blockchain register
transactions in a chronological order which certifies
the unalterability of all operations, means when a new
block is added to the chain of ledgers, it cannot be
removed or modified.
• Reliability: Blockchain certifies and verifies the
identities of each interested parties. This removes
double records, reducing rates and accelerates
transactions.
12. • Security: Blockchain uses very advanced cryptography
to make sure that the information is locked inside the
blockchain.
• Collaboration: It allows each party to transact directly
with each other without requiring a third-party
intermediary.
• Decentralized: It is decentralized because there is no
central authority supervising anything. There are
standards rules on how every node exchanges the
blockchain information. This method ensures that all
transactions are validated, and all valid transactions
are added one by one.
13. How Blockchain Technology works?
It uses cryptographic proof instead of third-party
trust for two parties to execute transactions over the
internet. Each transaction protects through digital
signature.
Technology:
Blocks
nodes and
miners.
14. ELEMENTS IN A BlOCK:
• The data in the block.
• The nonce — “number used only once.” A nonce
in blockchain is a whole number that’s randomly
generated when a block is created, which then
generates a block header hash.
• The hash — a hash in blockchain is a number
permanently attached to the nonce.
The data in the block is considered signed
forever tied to the nonce and hash unless it is mined.
15. Nodes Network:
• A node is a computer connected to the Blockchain Network.
• Node gets connected with Blockchain using the client.
• Client helps in validating and propagates transaction on to the
Blockchain.
• When a computer connects to the Blockchain, a copy of the
Blockchain data gets downloaded into the system and the
node comes in sync with the latest block of data on
Blockchain.
• The Node connected to the Blockchain which helps in the
execution of a Transaction in return for an incentive is called
Miners.
16. Miner in Blockchain:
• Miners create new blocks on the chain through a process
called mining.
• In a blockchain every block has its own unique nonce and
hash, but also references the hash of the previous block in
the chain, so mining a block isn't easy, especially on large
chains.
• Miners use special software to solve the incredibly complex
math problem of finding a nonce that generates an
accepted hash. Because the nonce is only 32 bits and the
hash is 256.
• When a block is successfully mined, the change is accepted
by all of the nodes on the network and the miner is
rewarded financially.
19. What Is Decentralization in Blockchain?
One of the most important concepts in
blockchain technology is decentralization.
Blockchain nodes can be any kind of electronic
device that maintains copies of the chain and
keeps the network functioning.
22. Distributed Database:
The data is distributed over Millions of Computers around the world
which are connected with the Blockchain.
This system allows Notarization of Data as it is present on every Node
and is publicly verifiable.
23. Building trust with Blockchain
Blockchain enhances trust across a business
network. It’s not that you can’t trust those who
you conduct business with its that you don’t
need to when operating on a Blockchain
network.
24. Blockchain builts trust through the following five attributes:
• Distributed: The distributed ledger is shared and updated with every
incoming transaction among the nodes connected to the Blockchain. All
this is done in real-time as there is no central server controlling the data.
• Secure: There is no unauthorized access to Blockchain made possible
through Permissions and Cryptography.
• Transparent: Because every node or participant in Blockchain has a copy
of the Blockchain data, they have access to all transaction data. They
themselves can verify the identities without the need for mediators.
• Consensus-based: All relevant network participants must agree that a
transaction is valid.
• This is achieved through the use of consensus algorithms.
• Flexible: Smart Contracts which are executed based on certain
conditions can be writteninto the platform. Blockchain Network can
evolve in pace with business processes.
25. Benefits of Blockchain Technology:
• Time-saving: No central Authority verification needed for
settlements making the process
• faster and cheaper.
• Cost-saving: A Blockchain network reduces expenses in
several ways. No need for thirdparty
• verification. Participants can share assets directly.
Intermediaries are reduced. Transaction
• efforts are minimized as every participant has a copy of
shared ledger.
• Tighter security: No one can temper with Blockchain Data
as it shared among millions ofParticipant. The system is safe
against cybercrimes and Fraud.
26. History of Blockchain
•
1980s: Early Concepts and Prototypes
•
1991: Introduction of Cryptographic Timestamps
•Late 1990s: Development of Secure Hash Functions
•
2008: Publication of the Bitcoin Whitepaper
•
2009: Launch of Bitcoin
•
2011: Adoption of Blockchain beyond Bitcoin
•
2014: Emergence of Blockchain Platforms
•
2015-2016: Industry Interest and Blockchain Consortiums
•
2017: Initial Coin Offerings (ICOs) and Blockchain Hype
•
2018: Focus on Scalability and Interoperability
•
2020s: Diverse Applications and Blockchain Adoption
Ongoing Development and Future Prospects
27. Peer to Peer Network
• In blockchain, a P2P network refers to a
decentralized network of interconnected
nodes or computers that collectively maintain
and validate the blockchain's data and
transactions.
• There are three main types of P2P networks:
centralized, decentralized, and hybrid.
28. Characteristics of P2P Network
• The file sharing, instant messaging, and online
gaming.
• P2P architecture where computers communicate
directly with each other, rather than through a
centralized server or hub(Decentralization).
• P2P networks distribute the processing load
across all nodes in the network.
• P2P share resources such as files, bandwidth, and
processing power with other nodes in the
network.
29. Peer-to-Peer Networks function in Blockchain
Technologies:
1. Node Participation
2. Data Distribution
3. Consensus Mechanism
4. Validation and Verification
5. Peer Discovery
6. Interactions and Communication
7. Security and Trust
31. Types of P2P Network
1. Centralized P2P Network
There is a central server or hub that manages
all communication between nodes.
Nodes in the network do not communicate
directly with each other, but instead
communicate through the central server
The centralized server is needed to manage
user authentication, content distribution, and
other tasks.
Example: online gaming and chat rooms
32. 2. Decentralized P2P Network
There is no central point of control or
authority.
Nodes communicate directly with each other.
No hierarchy or structure to the network.
Where users share files directly with each
other without the need for a central server.
Example: file sharing
33. 3. Hybrid P2P Network
There is a combination of centralized and
decentralized elements.
Some nodes in the network act as hubs or servers
that facilitate communication between other nodes,
while other nodes communicate directly with each
other.
The central server is needed to manage transactions
and user authentication, but direct communication
between users is also desirable. Example:
online marketplaces
34. 4. Supernode P2P Network
Certain nodes are designated as supernodes or
superpeers. These supernodes have additional
capabilities and responsibilities compared to regular
nodes in the network.
They serve as intermediaries to facilitate
communication and coordination among other nodes.
Supernode P2P networks are commonly used in some
blockchain platforms to improve efficiency and
provide additional services such as faster transaction
confirmation.
35. Smart Contract
Definition: Smart contracts are self-executing
contracts with the terms of the agreement
directly written into lines of code. These
contracts automatically execute and enforce
themselves once predefined conditions are
met.
36. Key Features of Smart Contract
Automation and Trust
Code-based Agreements
Immutable and Transparent
Decentralized Execution
Conditional Execution
Limitations
They are only as good as the code they are written in, and
vulnerabilities or bugs in the code can lead to security issues.
Additionally, smart contracts cannot access data outside the
blockchain unless provided through external data feeds or oracles.
Standardization: There are efforts to develop standards for smart
contracts to enhance interoperability and compatibility across different
blockchain platforms.
.
37. Wallet
A wallet, in the context of blockchain and
cryptocurrency, that allows individuals to
securely store, manage, and interact with their
digital assets, such as cryptocurrencies.
Wallets can be classified into two main types:
1. Software Wallet
2. Hardware Wallet
38. Software Wallets
The applications or programs installed on computers, smartphones, or other electronic
devices. It is a convenient way to access and manage their cryptocurrencies.
Software wallets can be further categorized into:
1. Desktop Wallets:
These wallets are installed and run on desktop computers or laptops.
They offer a higher level of security compared to mobile or web wallets as they are less
susceptible to online threats.
2. Mobile Wallets:
Mobile wallets are applications designed for smartphones and tablets.
They provide users with the flexibility of managing their cryptocurrencies on the go,
making transactions using QR codes or near-field communication (NFC) technology.
3. Web Wallets:
Web wallets, also known as online wallets, are hosted on cloud-based platforms and
can be accessed through web browsers.
They are convenient as they can be accessed from any device with an internet
connection.
But they may be more vulnerable to security risks compared to other types of wallets.
39. Hardware Wallets
Hardware wallets are physical devices specifically
designed for the secure storage of cryptocurrencies.
They are often USB-like devices that generate and
store private keys offline, away from potential online
threats.
Hardware wallets offer enhanced security by keeping
private keys isolated from internet-connected
devices, making them less susceptible to hacking
attempts.
40. Key features and functions of wallets
• Public and private key management: Wallets generate and store
pairs of cryptographic keys a public key for receiving funds and a
private key for signing transactions and accessing the funds.
• Transaction functionality: Wallets enable users to initiate and sign
transactions, allowing them to send or receive cryptocurrencies to
and from other wallets or addresses.
• Balance tracking: Wallets provide information about the balance of
cryptocurrencies held in the wallet, allowing users to monitor their
holdings.
• Address generation: Wallets generate unique addresses for
receiving cryptocurrencies.
• Security measures: Wallets employ various security measures, such
as encryption, password protection, two-factor authentication, and
backup options, to safeguard the private keys and funds stored
within them.
41. Digital currency
Definition:
Digital currency refers to any form of currency
or medium of exchange that exists purely in
electronic or digital form.
It is not issued or controlled by any central
authority, such as a government or financial
institution.
42. Functions of Digital Currency
• Decentralization : Transactions verified and maintained by a
network
• Cryptography : Integrity and privacy of transactions(Fraud)
• Peer-to-Peer Transactions : Transactions without the need for
intermediaries(Low cost Expenses)
• Limited Supply : Many digital currencies have a limited supply
• Tokenization : Transfer and trade of assets in a digital form.
• Global Accessibility : Internet connection, regardless of
geographic location or access to traditional banking services.
• Transparency : public ledgers.
• Programmable Money : smart contracts
• Evolving Landscape : Market dynamics play role in shaping
43. Digital Ledgers
Digital ledgers, also known as distributed
ledgers
Create decentralized and transparent records of
transactions.
Blockchain-based ledgers & ensure multiple
participants to maintain and verify the ledger.
Immutability
security
Consensus
44. Types of Blockchain
There are 4 types of blockchain:
• Public Blockchain.
• Private Blockchain.
• Hybrid Blockchain.
• Consortium Blockchain.
46. 1. Public Blockchain
• It follows the idea of decentralization.
• No restrictions, anyone having a computer and
internet & hardware can participate in the
network.
• Not owned by anyone.
• All the computer in the network hold the copy
of other nodes or block present in the
network
• Publically performs verification of transactions
or records.
47. 2. Private Blockchain
• Only selected nodes can participate in the
process, making it more secure than the
others.
• They are open to some authorized users only.
• These blockchains are operated in a closed
network.
• In this few people are allowed to participate in
a network within a company/organization.
48. 3. Hybrid Blockchain
• It is a combination of both public and private
blockchain.
• Where some part is controlled by some
organization and other makes are made visible
as a public blockchain.
• Permission-based and permissionless systems
are used.
• User access information via smart contracts
• Even a primary entity owns a hybrid blockchain
it cannot alter the transaction.
49. 4. Consortium Blockchain
• It is a creative approach that solves the needs of
the organization.
• This blockchain validates the transaction and also
initiates or receives transactions.
• Also known as Federated Blockchain.
• Its an innovative method to solve the
organization’s needs.
• Some part is public and some part is private.
• In this type, more than one organization manages
the blockchain.
50. Consensus algorithms and their scalability
problems
Consensus algorithms are mechanisms used in blockchain
networks to achieve agreement on the validity of
transactions and the state of the distributed ledger.
Types of Consensus algorithms :
1. Proof of Work (PoW)
2. Proof of Stake (PoS)
3. Delegated Proof of Stake (DPoS)
4. Practical Byzantine Fault Tolerance (PBFT)
5. Sharding
51. 1. Proof of Work (PoW):
PoW is the consensus algorithm used by Bitcoin and
some other cryptocurrencies.
It requires participants, known as miners, to solve
computationally intensive puzzles to validate
transactions and add blocks to the blockchain.
PoW can suffer from scalability issues due to the
resource-intensive nature of the algorithm.
As the network grows, the time and computational
power required for mining increase, resulting in longer
confirmation times and higher energy consumption.
52. 2.Proof of Stake (PoS)
PoS is an alternative consensus algorithm used by
various blockchain platforms like Ethereum 2.0.
In PoS, validators are chosen to create new blocks
based on the number of tokens they hold and are
willing to "stake" as collateral.
PoS can be more energy-efficient than PoW, it can face
scalability challenges in terms of participation and
security.
Large stakeholders may have a disproportionate
influence, and ensuring a sufficient number of
participants can be challenging.
53. 3. Delegated Proof of Stake (DPoS)
DPoS is a variation of PoS used by platforms like EOS
and Tron.
DPoS introduces a smaller group of elected delegates
who validate transactions and produce blocks on
behalf of the network.
DPoS can provide faster transaction speeds and higher
throughput, it introduces centralization concerns.
The power to validate transactions is concentrated in
the hands of a limited number of delegates,
potentially leading to governance and security risks.
54. 4. Practical Byzantine Fault Tolerance (PBFT)
PBFT is a consensus algorithm used in permissioned
blockchain platforms.
It requires a predefined set of nodes to agree on the
order and validity of transactions through a series of
rounds and voting.
PBFT can offer fast transaction finality and high
throughput, but it may face scalability challenges as the
number of nodes increases.
The consensus process becomes more complex and
time-consuming, impacting scalability in large
networks.
55. 5. Sharding
Sharding is a scalability solution that aims to divide
the blockchain network into smaller partitions,
called shards, to process transactions in parallel.
Each shard maintains its subset of the blockchain,
reducing the computational and storage
requirements for each node.
While sharding can improve scalability, it
introduces additional complexities, such as cross-
shard communication and maintaining consistency
across shards.
56. DIGITAL CASH
Definition:
Digital cash is a digital representation of traditional
cash that can be stored, transferred, and spent
electronically. It aims to replicate the characteristics
of physical cash, such as anonymity, fungibility,
divisibility, and ease of use.
57. Key Functions of Digital Cash
1. Cryptocurrencies as Digital Cash
2. Decentralization
3. Anonymity and Privacy
4. Peer-to-Peer Transactions
5. Instantaneous Transactions
6. Programmability
7. Volatility
8. Regulatory Considerations
9. Evolving Landscape
58. Advantages of Digital cash/ecash
• Higher Flexibility and ability: Transaction through eCash can be
done flexibly from anywhere around the globe easily. It removes
all the difficulties which take place during transactions through the
ordinary method.
• High Security: It is highly secured as it is traveling in the peer-to-
peer network which involves cryptography keys. It is fully
encrypted and can’t be modified without a decryption algorithm.
• Time Efficient: It saves the user time in the procedure of payment,
the user can easily make payments with just a single click from its
mobile or PC, just requiring internet service.
• No hard copy is required: No hard copy is required as the medium
or as the prop it digitally travels from one system to another
system.
