14 leila Introduction to ’ DLT and CHAPTER 1 | Blockchain University Prescribed Syllabus w.e.f Academic Year 2022-23 Introduction to Blockchain: Technical definition of Blockchain. Elements of a blockchain Features of Blockchain Type of Blockchain, What is DLT . DLT V/S Blockchain CAP theorem Byzantine Generals Problem Consensus Mechanism and its Type Cryptographic primitives and data structure used in blockchain Block in a Blockchain : Structure of a Block, Block Header Hash and Block Height, The Genesis Block, Linking Blocks in the Blockchain, Merkle Tree. Self-learning Topics: Blockchain Demo. Introduction to Blockchait GQ. _ Define blockchain and explain it with a suitable example. 1.1.1. Problems with a Centralized System. GQ. —_ What problems are associated with a centralized system?. GQ. _ Differentiate between centralized, decentralized, and distributed architecture. 1.1.2 An Ideal Solution using Blockchain 1.41.3 Simplified Architecture of a Blockchain .. GQ. Explain with a suitable diagram, the simplified architecture of a blockchain 1.1.4 Technical Definition of a Blockchair Scanned with CamScanner412. Bements ofa book ‘ate an expln ferent components oF elemens ofa Bockchan, co. 121 Bleckina Bocthaln ina Spied Form. 122 Ledger Example: A Change of Ownership Transaction... 4123 How Extemal Applications Interact wit the Blockchain Ledger? 124 Blockchain Events “ GO. Whatareblockchain events? 13. “Features of Blockchain 144 Type Blockchain, 15 WRItSDET nnn 18 DLTVIS Blckeha.... a 17 CAP Theorem. _ a 18 Byzantine Generals Problem Consensus Mechanism = 18 Consensus Mechanism a 140 Type Crptograpicprimitves, iq 131 1.14 Data sructre used in bockehan 1.114 Structure of Boek. 1.112 Block Header 1.118 Block Header Hash and Block Height 1.14 The Genesis Block 1.41.5 Unking Blocks nthe Blckchain..., (Now Syllabus w.o! academic year 22-23)(M8-120) Blockchain and DLT (MU-Sem.8 reduction to DLT and Blokchain) a D_1.1__ INTRODUCTION TO BLOCKCHAIN ET — = aa {[16a.”“Detnebecketn and opin tha eae exo : By definition, blockehain is a decentralized computation and information sharing platform that enables multiple authoritative domains, who do not trust each other, to cooperate, coordinate, and collaborate in a rational decision making process + ‘The keyword that we have in the abovementioned definition is decentralized, whichis ‘an important aspect of blockchain. + Computation and information sharing platform is the next keyword that will help in specifying blockchain broadly to be a decentralized database, which helps in cooperation between multiple authoritative domains. + This technology is useful when multiple partes or individuals want to cooperate with each other and they want to come to a common platform so that they ean share information amongst themselves. cusBig. 11.1 : Structure of a decentralized network «Multiple authoritative domains do not trust each other, o what blockehain does i t combines these multiple authoritative domains in a common platform so that they can seoperate, coordinate and collaborate in application development processor Dusiness {intelligence process. «s Thaditional way of sharing documents, which we do using Microsoft Word. For ceample, Person A wants to share some dacument with Person B. So, ideally what Fear Ts do is belch will write the content ia a Microsoft Word document and ‘then helsbe will share that document with Person B. «Penson B wil ist receive the document sent by Person A and then Person B wit update the document with hisfher content and share the document ‘again with Person A. (how Sytabus w.04 academic our 2:29)ME-180) [Blreceo Pubteaons Scanned with CamScanner, - of cooperation between Person A a sun waste ston! Wg a shared document. In this speciteg Ea ww int Person A and Person B wil mt et ray edit the document ‘The ideal solution where simultaneous i satan Pon wth he hep f shared Goole docs whey ete chanted nang eRe tem sae Gol doe latform is thatthe evra woig. 118 | «me gust re th ype fetid tom hamerw ira tt we 9 irae’ exrrnent fr compra i ‘kind of information sharing platform. ‘a 3 Astat Problems with a Centralized System What robles : a assed wih a contalized 5 ‘od rims, system? 8 ‘The jor problem of centr For example, if suiient b ‘Person will nt beable to, a Team is that it works asa singe pi re Meatith snot avaible to od the Coss de, tat tenement. You wi have to wait ua ema [Goose doc platform. The other problem that ena rivosscton to OLT and Boekchsn)..Page 00 (18 [hate mai ene sous) reiimalad ‘aesreet "Sener + In that case, the entire information gets caaFig. LIA lost or even if you want to take a backup, you rane load the backup and only after loading the backup, you willbe ab © roves it farther. Beause ofthe abovementioned reasons, iti necessarY 10 sift from centralized platform to a distributed platform. In a distributed platform, there are three different types of architecture = @) Centralized architecture (2) Decentralized architecture (@) Distributed architecture > (4) Centralized architecture “There is a central coordination system and every node is connected to the central ‘TeSfination system and whatever information the nodes want to share, the {information shall be shared by the central coordination system. «+ ‘The problem with this architecture is that ifthe central coordination system fils then all of the individual nodes will get disconnected. > (2) Decentralized architecture 4s Here, there aze few coordinators rather than a single coordinator, and all these Cooniinatore cooperate with each other, and the individual nodes, they are connected to these coordinators. «Inthis architecture, ifa particular coordinator fails or multiple coordinators fail, then the individaal nodes whose coordinators have failed can get connected to other coordinators that are working and ean share the information or perform the operation with the available coordinators, (New Sylabus wet cada yar 2225)M8-120) TBirecr neo puriatons Scanned with CamScanner5 Oe saockchan and DLT (MU-Sem. troduction fo DLT and Blockchain)..Page no. (1. + In this type of architecture, ‘lerated until the network becomes disconnected. The advantage is that multiple number of failures eqn yg | DezisinandoLT we-sene Introduction to DLT and Blockchain)...Page no. (1-7) pas the task to ensure that information consistency is maintained between the 'B who hold the documents individually. « Tcnnthtectare works o tp of «network and becaute of multiple simultangy documents ith Person A and Person Tas cnet qn partitioned or the network gets disconnected, then jy ‘ateidal neds il at be able to cooperate with each other. rea «Thisprblem ane saved by a eomplot distributed architecture, | > (3) Distributed architecture «| there eno centralized coordinator and all the nodes participate inthe information Everyone ects onthe lcal copy ofthe document = "Bz intmot shes care of ensuring constancy sharing process or application development where they coordinate with each other tnd aletvely develop the aplication or share the informatio ydevelapthe application or share the information amongst themselves, Fig. 16 can be used. This platform, which ‘this type of coordination where and Person B will keep his/her ‘his is an deal use case where boekcain platform penned over a network, wil help in erating Pesta A wil keep hier own copy ofthe document cape eta aca own apy othe document poietic pete + Decenalue: ue «Both of them can iidependently write their personal copy and then the blockchain — “Tlutform will ensure that they are entering inside the document are getting Pl Fynchronized with each other, and with time, both of them willbe able to see the most ‘pated copy or they will be able to update over the most updated copy. This is the advantage of a blockchain technology over a complete centralized architecture or an architecture where a shared copy exists between multiple parties, 1 Dugtbate: Everyone aia ata ()eminins——_)Dertatng + These are the ad advantages or disadvan distributed pao oer seeing ease Of % Steentralizd platform and However in he todays worl, — pesca . deantlend sabe wo wong consistency upp — ae nt alte and ot oe een er aee architectures are Thr St hat we move fom acne ee aa 4 aniecure | AAS. Shed Arca «Block istributed architecture Ga. Explain wah = Ina typical blockchain architect the blockchain (i.e, a local copy fensure that all these individual copies are consi means that the local copies that every node has a ‘always updated based on the global information. sure, every individual node maintains a local copy of of the global data sheet). The systems task is to stent with each other. Consistency wre identical and these copies are (New Syabus wt academe your 22:23)M8190) TBrecteo Pusiatins Scanned with CamScanneree”~__——sEOe0e_s trrosucion to DLT and Blockchaln)...Pago no (1 plockhain ang DLT (MU-Sems oe +) For instance, if node A wat ated o all the copy ofthe blockchain that very node tered informa Fam Om Sr he architstral platform et iaeeiue tee ae slic ledger works like a databas toseal information can be utilized for fature computation Pubic Ledger casFig. 1.18: Simplified Architecture of a Blockchain do example of a pb ledger could be a tanking transaction, You are keeping the banking trnsactons inside a obi liger andthe ol ransacons which are hee shay ned to validate the no transaetions, tna peal banking system, we ually msntin a passbook andthe bank works ike ‘cena! authority nich stern all our transaction inrimation and whenever invita vise a bank nd mking a transaction the bank validate everyting wih Sheetal infra tit Now, in ae o ube lege, ther i ei fom a centralised banking system to @ decentralized banking system where every individual has histher_ in chy of the al anscons which nt oly aynchrnized but alo enistet, ewhevever nid ating toma ey tensa, during that tine te ae teation Sevated gait the ld anaston that sendy there inde peice, (Nien yaoi of cade year 22-23)08-190) WhrecrnooPubteatons (introduction to DLT and Bockchain...Pag ro. (1-8) © Example of # public ledger from a banking sector + Now, Alice wants to make a transaction of Rs. 60 to Bob. In this ease, Public Ledger ube Ledger ‘ralew ci ies: €109] (Aico €100) Aiea 8 soe Pablo Lad ite j tiene ee i cunFig. 11.9 ‘There are four participants Alice, Bob, Eve, and Jane. Assume that Alice has Rs. 100 with here. The public ledger is available to Alice, Bob, Eve, and Jane, which has the initial contentinformation that Alice has (i.e., Rs. 100). —— = sit si ea =f oe t= a cs ea ee i es pd of fve ouoFig. 11-10 Pubic Ledger ‘ane Acs: 100] another information needs to be updated to all the public ledgers available with Alice, Bob, Eve, and Jane. + ‘Therefore, this transaction gets updated in al local copies ofthe public ledger. (Wow Sylabus wet academic yoar 22-23KM8-190) (Bhreci-tieo Pusicatons Scanned with CamScanner‘pur and Blockchain...Pago no. (1-10) Blockchain and DUT (MU-Sem itroduction to DLT and Blockchain)...Page no. (1-1 vonage a IS pase sia nae i 0 is 8 [fice ero] rare] D229 GP (eas fee ica s = — 2 iS Bob Her esa ff wo» 0 ger Pate Ladaet pate awe ae oe eee faa [Hien eco] laeserpes| pogo [rice 3 8] 450 = 005-5 Ee | [= Jane se 141 owaFig. 11.13 ‘+ Now, Alice wants to make a transaction of Ra, 60 to Jane. ore, Bob want ea jon of Eve, 4s Now, Bob wants to make a transaction of Rs. 30 to estate eoas teen] magia maison | es sis Fa 08 rear base his 3S £ eo ; = we [Pe = = 4 Fess Sane ouoFig. 11. Fourie 42 ‘ oFig. L114 . 4s But, from Alice's public ledger, itis evident that she initially bad Rs. 100 out of which peoa Alice, Bob, Eve, and Jane gets updated with this latest she gave Rs, 50 to Bob. So now by combining both the transactions, she has only Rs. seineelalntch ec ysinperde (7 SSRESC Smrute Sot cae ee ee particular transaction isnot valid | 4. ‘Therefore al parties wil xm to know from ther public edger that his transaction isnot valid and itis blocked and i eannot be included in their publi ledger. of the publie ledger. ———— scadorc year 2225)(M8-190) Telrechoo runncarone | (No¥ Sy wt aca your 2-25)M8-190) [Bhrectico Punicatons ED Scanned with CamScannerEe = ——t—e ‘lockchain and LT (MU-Sem (New Syabus wat 9 1 academic year 2223)Me-130) introduction to DLT and Blockchain)...Pagono. (1-12) Pu aor Pubic Ledoer foo = Alice: €100 | Fie 9 [ce e109] ees ws orig Be Tate 12 is Nice Bob Iie able tador eae weed is a ce 19 : Pies 8 fase] 2 See ‘Pooe=st| to i= i oe ono Fig. 1115 In this way a public ledger works incase ofa decentralized system. Blockchain can be viewed as a public ledger. However, there are numerous aspects that need to be considered. () Protocols for commitment : “Ensure that every valid transaction from the lients are committed and included in the blockchain within a finite time’. Whenever someone is making # new transaction, it has to be ensured that this transaction, itis valid, then it should be committed to existing public ledgers or blockchain otherwise that entry will not be there in the blockchain. So, there should bea mechanism for validity checking of every upcoming transactions from the clients and based on those validity checks, the transaction should be accepted and added inthe public ledger/blockchain or deleted or diseard such transaction. (@) Consensus : “Ensure that local copies are consistent and updated.” This is an essential aspect in the concept of blockchain. As discussed earlier, there exists a teal oy ofthe iaformation availabe to every indvidal partes and there is no fr entra plarm the the bank which wil maintain the consistency ofthe cere Suenos mechanism ensures that whatever al copy eee lentical with each other. compromised” The dia that sincera bic lenges ny ean Sees inserted in a public ledger or blockchain needs to Mien ind tamper prot Beene Mockehsin is distributed to individual Pom ae tng Wei lel eopy of their Haken. So 8 Tocca ye ot Inbal ander tomato. But the ober nodes in the network {sltohampere ffomation andthe other hades should a eae i 8 information. ‘odes should not accept euch type of @ ShrecnteoPubiatons Dlockchain and DLT (MU-Sem.8. (introduction to DLT and Blockchain...Page no. (1-1: (A) Privacy and Authenticity: “Data/transactions belong to various clients; and privacy and authenticity needs to be ensured.” The data that is present in the blockchain belongs to several clients, and so, itis essential that both privacy and authenticity needs to be safeguarded. 1.1.4 Technical Definition of a Blockchain ‘A blockchain is an open, distributed ledger that ean record transactions between two parties efficiently and in a verifiable and permanent way. 5 Essential keywords + Open : Accessible to all . ‘+ Distributed or Decentralized : No single party control ‘+ Efficient : Fast and scalable + Verifiable Permanent : Informati ‘A variety of blockchain components are Stato and enpan diferent components or elements of blockchaln. sveryone can check the validity of information is persistent ELEMENTS OF A BLOCKCHAIN, lable in the market. Some of the major components in a blockchain solution are as follows: (a) Ledger : “Tt contains the current world state of the ledger and a blockchain of transaction invocations.” Byery node in the blockchain network will maintain a ledger ofall transactions, and the transactions will maintain the state of the data that is being stored on the blockchain network. In other words, a ledger is a channel's chain and current state data which is maintained by each peer on the channel. The ledger is replicated across all nodes in the network. @ ‘Smart contract ‘Transaction invocations result in gets and sets of ledger state." The smart contract is Te encapsulates business network transactions in code, the business logic. An individual can encode hisher own business logic as ‘odeffunctions and each invocation of this function becomes a transaction on the blockchain. A smart contract is a software running on a ledger to encode assets and the truncation instructions (business logic) for modifying the assets. (8) Peer network : A broader term overarching the entire transactional flow, which serves to generate an agreement on the order and to confirm the correctness ofthe set of transactions constituting a block. we (Wow Sylabus w.0f academic year 22:25)(MB-190) ech Neo Publications TTT Scanned with CamScannertroduction fo DLT and Blockchaln)..Page no. (1-14 ofnetwork data and processing peers forming taining a consistently replicated (a) Consensus network SSostchain nebork 1 Tee. (6) Membership : “It-manages ‘identity ‘aspects of permissioned access.” Am eto trancat nthe ek. ey Eoente: “crates potions of significant operations onthe Blckehain (eg, « vents 1 cen afd to smart contrac, Te eno ined rn, sens on Hockchain, a advidul can ett Vn Ge Mocha wil sei tha a pata trensacien Se ie the det the traceten, which an be ued to integrate wth existing eystems of recard. Events can also be used to trigger other | Creu hat night be internal oan organizatien ¢ Sym manngement : The ockchain network is dstebuted ayer Ua i Soe veal opniatins so i requires new ways lo create, change, ad tontor Deccan eponents (e) Water se ser manages a user’ scuriyerdentils” Each user has digital ina and ging tbe performing transaction using the digtal crite ‘There needs to be a place where a user can securely store that private information. 0, “epee eet erin th al tt ‘hating he fnfrmatin with aba ele, whic securely manage in a wallet, (Sytem intgration +I sees for iterating blckhain Be irection 5 A ledger often consists ofthe following data structures and transaction certificates as well as other cenbership service provides identities forthe jeckn Aina to cs (bath ei). A (a hash chain). Each block describes | Ana i th : cies a set of transactions the inputs toa smart contrat invocation, outpatients cerifests) they backs exnnat be | a Bloctchain (ug. 1.2.1 {Now Syfebus wa Sylabus we! academic year 22-25)M6-190) | Bhermorwicuine | Blockchain and DLT (MU-Sem 6 introduction to DLT and Bockchain)..Page no. (1-15) (2) World state {tis the information that smart contracts can work with. te of smart contracts (ie,, the output of transactions) + Ieatores the most recent stat In biteoin, the world state ean be thought as the account balances. It is stored in traditional database (eg, hey - valde pair) Data clements can be added, modified, deleted, all recorded as transactions on blockehain. uanFig. 1.2.2 Block in a Blockchain in a Simplified Format 4s As can be seen in the Fig. 12.3, every block has a hash, which is being chained together, For instance, Block 16 has a hash value 6TeeBfda71, which is getting stored in Block 16. The same process is observed in Block 16 and Block 17. ‘A lock i a sequence of transactions, ie. each block can have multiple transactions in hom and each transaction can specify which smart contract got invoked or which Specific funtion got invoked and which user invoked the transaction Ge some identity ofthe user will be therein the transaction followed by other details snd some additional metadata”. Note “+ “Bach block can have zero or more transactions a1 thatthe art block that is getting created inthe blockchain is called the genesis block, ive has special information about the configuration of the network itself; who the Farisipant ee, and other configuration information, The genesis beck dows not Nave rey user transaction, but other blocks ia the blockchain can bave ene or more transactions. wt ig. 1.2.3: Simplified view of a block in a blockebain ech eo Publications cuca (Now Syabus wt acadoic year 2223}0M8-190) Scanned with CamScannercession DLT es BO PIG pexscran od TNE! peectien To cotter Now, in the world state, we sce how the myCar chject bas been muied z So benef the fac that blacks ae evtng added Toon cae (refer WWorld state: Hew Contenta), whieh 's getting iced ia the world ate, organizal ly manipulate The transaction that contains this information (dotted circle in the Fig. 124) says to favoke myContract with eetOuzner, myCar, 924 Mat as the argarcncta. Marerer, Ownership Transaction ‘myCar. vin = 126 a transection and how a ledger might work, ee sigh is a smart contract that takes it i . fi tee io ser rinatwevon | i the entra that got written fron the cratract. AD of this eta writen a8 2 . blockchain transaction in the blockehain as one of the blocks. 1.2.3 How External Applications Interact with the Blockchatn Ledger? ‘A Dlockchain developer will develop 2 client application that will interact with the |” mart eotract. The developer also develops the scart onntract. So, this is the ‘business logie that runs inside the blockchain in a decentralized manner. In the previous example, setOwner() was the part of the smart eoatract and there is |” a etient application that will invoke fonctions over a period of time. So, the client application says that Matt is now the new owner ofthe car and then Matt wil be set | A the owner. Note that the client spplication uses an SDK to submit transactions on to the blockchain. «The client application can also access the blockchain directly to see whether the srigitsnecplestatmamiont vorkngotuleiger | _tmnrae areal roid eon ei sins very transaction that is being invoked gets recorded on the blockehain, and all the {nancies epteton ot Berga Sas anid ech oto nae | SSRTSYREISE Se ea ern secre et ae a senso Al is erocts aod Sereiereraenyreerntens contract, the smart of the result of a bash function of the previemy Tee Fig Lod shows x emaele of © Astcenbesees fra the Figl2t x ines on owcer (let's say 262") ‘# Smart contract implementation ee | eontraet gets executed on all the nodes. se «All the nodes simoltancously update their world state and will agree that the output Za fs actually valid and consistent throughout and then the block gets added with the | legitimate transaction oat the blockchain, and once a transaction is committed onto the blockehain, it will be called as the final transaction. «s‘There in an event that gets emitted, as shown in the Fig. 12.5, which means that the cere ction has been simultaneously committed on all the nodes in the blockshain- ‘The penerated events can be used to perform additional proweing within <2 cman (New Syabus wet academi ear 2-25)M8-12) [Bhrecrsico iticatons PA recta yur 22200199) [Brecsteo Pubistons | Scanned with CamScanner + From the aboe code snippet, we hav From we have a setOwner() where it sets the owner of a car to ae aes eae ae ane eee = ore | ‘eps oh acre) are Car aad the newOwner of that cr. We can ae owner is getting modified to newOwner, which will be the final output ofBetcha Beveloer Biegk Bieckesin * Tncompating, an event is an occurrence that can trigger handlers (e.. disk full, fail transfer completed, mouse clicked, message received, ete) ‘+ Events are important in asynchronous processing systems like blockchain, (ow Syabus we acecemic year 22:23)M8-130) ee Applicaton (uasFig. 1.2.6 : Blockehain events BhecracPustetos Blockchain and OUT (MU.Sem 8 rtoducton te DLT and Blockchar)..Page no. (1-19) +A blockehain enn emit events that are useful to application programmers (e.., transaction has been validated o rejected, block has been added, te.) + Events from external systems might also trigger a blockchain activity (eg., exchange rate has gone down below a threshold value, temperature has risen, time period has lapsed, ete) | Integrating with existing systems coral =e 009 Fig. 12.7 DH_13_ FEATURES OF BLOCKCHAIN Blockchain technology has the following main features: FE (1) Decentralization + Decentralization in blockchain refers to transferring control and decision making from a centralized entity (individual, organization, or group) to a distributed network. ‘+ Decentralized Dlockchain 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 ofthe network. 55 (2) Immutabitty + Immutability means something cannot be changed or altered. No participant can ‘tamper with a transaction once someone has recorded it to the shared ledger. + Ifa transaction record includes an error, you must add a new transaction to reverse the mistake, and both transactions are visible tothe network. 5 (3) Consensus + A Dlockchain system establishes rules about participant consent for recording transactions. (Now Syfabus wet academic your 22-25)N8-130) [haere pastes Scanned with CamScanneria 1 ooslneeiiieee Sa aeeeeeees to DLT and Blekchaln)..Page no (1 in sem grotto ond DLT (MU. raat ve Tan only when the majority of pertciranis in + You ean recon new transactions FH a_TYPES OF BLOCKEHAIN ain technologies ‘Ata glance, there are three major (SPSS ofblockchain technolo ‘@) Public Blockehain (2) Private Bockehain (3) Consortium Federated blockchaig > (2) Public Blockchaln less distributed ledger technology where any indi sete ja he blockcain network but alto perform transactions Tt 9 nonrstrictre cals Jocbere each and every peer has a copy of the ledger (Le., anybody can access och typeof blockehain if helshe bas an internet eonnection)- | «One of the 1* public blockchains was bitcoin that permitted anybody connected tothe) insert to carry out transactions in a decentralized manner. Transaction verification takes place through consensus (2, proof ofwork (PoW) and proof-f-stake (PoS)), | + Iisa permission «Note that the partipating nodes need to perform heavy liRing such as validating, transactions to make publie blockchain work. If a public blockchain does not have the ‘required peers in order to participate and solve transactions, then the blockchain ‘becomes non-functional. woh ere es f-O+ ee ee [Ee ee. Z cannenmme? | SG unde, LA1sPoiicHockchaln ‘Examples : Bitcoin and Ethereum | (ew Status wt academe year 2:2)M8.130) BBhroci too puscatos Blockehain nd DUT (uu Sem 81 (rtrodeon to DLT and Blockchain)..Pags ro. {1-21} © Advantages (i) Anybody can join public blockehain. (ii) Everyone feels incentivized to work towards the betterment of a public network.” (i) It brings transparency to the entire network as the available data is accessible for ‘verification purposes (iv) It requires no intermediaries to work. © pisadvantages (Transaction speed of public blockchain is less (ie, within a few minutes or might take several hours) (Gi) It suffers from scalability (Le, the more the number of nodes that join the network, the clumsier and slow it becomes). (Gi) It uses the choice of consensus method (eg, bteoin uses PoW, which consumes a lot of energy). > (2) Private blockchain transaction could be completed + It is type of blockchain that works in a restrictive environment (ie, in a closed network) It is also a permissioned blockchain that is under the control of an entity. + It is suitable for organizations who only want selected participants to access a Dlockchain network. Organizations can set different parameters, such as accessibility ‘and authorization, to the network. + Private blockchain is similar to a public Blockchain, but the only difference is that it allows selected participants to access the network, thereby offering euch participants transparency, trust, and security. A private blockchain is usually centralized (Le., only one authority manages the entire network). 88 (ueiFig. 14.2: Private blockehain ‘Examples : Hyperledger Fabric, Hyperledger Sawtooth, and Corda (Now Sylabus wet academic yoar 22-22)(M8-130) ech-Noo Publications Scanned with CamScannerYEE llrrrr™”C~—™ CO inrodycion to DLT and Blcckche)..Page no. (1-22) Blokchain ang DLT (Mu-Some Blockchain and DLT (MU-Som 8. (nirodscton 1 DLT and lockchaln)...Page ro. (1-23) o a | pores - vty at a compared 1 0 pubic skein. Tig _* A sonetun/eerated Meccan iy managed bby more than one organizations. As a (A private blockchain is relatively fos Mi eh mown that taken | rel thee noone singe feo centralized outcome, In ensrtinmfeerated Se ae tor prt nae neta 4 tse th a vp ach sn On fy | kin there et tr ede ht ot ny ane asin th concen initiates or ervs transactions ‘this is possible because only a few nodes are | ‘The member nodes on the other hand can only receive or initiate transactions. lockchain, the network size doe | -—- Overall, a consortium/federated blockchain offers all the features of a private nis of utmost importance, blockchain, including transparency, privacy, and efficiency, without a single party having the entire power. ‘Examples : Marco Polo and IBM Food Trust, 1] Advantages (ii) They are much more scalable 8 authorized to validate transactions. For a private bl rot matter. Here, centralization aspect for making a deci 1 plsadvantages They are not decentralized ina true sense (Gi) Ina private blockehain, achieving trust is difficult because centralized nodes make the last call. Gi) Security could be an issue in a private blockchain. This could happen when a certain ‘number of nodes compromise the consensus method that is utilized by the private (Better customizability and control over resources. Gi) Better scalability and offers access controls (Gil) More secure and efficient. ace eceneneen ice. . e Se eevee © It isa type of blockchain that is preferred by organizations who require both public as Less transparency, well as private blockchain, Ina consortiumv/federated blockchain, certain aspects of an i si ne ee (Gi) Censorship and enforced regulations might adversely affect network functionality. Note that the cneemns method ina conortiumfederaedblckthain is managed by | (0) Lesh anenymnss compared a pulls ere rest noes ren though such type of Blackchain i ot open to mass people, it stil | _">_ComPANEON PeNween dierent YPES of SSKSRaD holds a decentralized nature. oe ‘Public Private | Consortium/Pederated No.| Parameters |" Biockchain | Blockehain Blockehain 1 [Definition | Teisopento [It is controled by [It is a combination of Manutactres/Suppiers everyone and | owners and access | public and private fanyoneean | is limited to | blockchain, which means i participate. certain users, | some processes are kept a private and others public. |$_—_.. 2. | Cost of Costly ‘Not 50 costly ‘Not 20 costly ® — Distributors ‘transactions 3. [yCneeded_|[No es Yes sen EE cme) ERS ree ear blockechain | blockehainis | Blockehain ean opt to incentivizes | limited; hence, it | incentivize users if they ‘Seren Companies participants to | hasno similar | wish. woe. 143 : grow the incentives as that i: 143 : Consortium/Federated blockchain network ofa public Dlockchain. (ew Status wot academe year 22.23 a) [Bhrctteo Pubicatons | (Now Sylabus wa academe yor 22-23)(M8-130) BShrecrnioruteatone a Scanned with CamScannerrE i... © Ao tnsoducton tp OUT and Bockchar)..Page m0 (1-24 TPavate | Blockehain, Tr is entirely [It is transparent sfarent [to only those ae teers who are granted access Faster than public blockchain lockchain ang DLT (MU-Sem. Consortium/Federated Blockchain ‘Transparency depends on hhow owners set rules Public ‘St. | parameters | piockchain No. 5. | Transparency Fast & [Transaction | Slow speed JI 1S WHAT IS DISTRIBUTED LEDGER TECHNOLOGY? = pistributed Ledger Technology 4s Adistributed ledger is a decentralized ledger ofall the information that is recorded on | the blockchain by consensus, In other words, a distributed ledger technology is | defined as a decentralized database that can securely record and share financial, physical, or electronic access across a geographical network through transparent updates of information. + A distributed ledger can be considered to be a database similar to an accounting ledger where financial transactions are recorded, except that it is not recorded to financial data. Herein, a transaction refers to any digital data such as text, images, or audio files. ‘+ The database can be distributed to all locations and can be accessed by every single member present in the blockchain network, thereby ensuring incorruptibility as | ‘malicious changes cannot be made when each node has simultaneous access to all records. + Note that a decent s jote that a decentralized system does not be a completely distributed one. The below Fig. 15.1 represents a decentralized network where is Pe 151 rk where processing work is shared with Nodes Sharing ‘he Werkoad (wong. 1.8.1 Blgckchain and DLT (MU-Som 8-1 (introduction to DLT and Blockchain...Page no. (1-25) ‘+ Such decentralization is different from the one that is observed in blockchain. In DLT ‘of blockchain, a database copy is available on every user's computer. This database is independent of a central authority and any changes to the ledger have to be agreed ‘upon by all nodes. ‘+ Such a mechaniem is called as the consensus mechanism. Once consensus is attained, the database is updated to all nodes in the network. At any given point in time, information ie synchronized across all nodes; so, it is referred to as distributed 5 Benefits of distributed ledger technology (1) ‘Transparent and secure : As data is shared and visible to all nodes, it is not easy to make any unauthorized changes. Every node that participates in the network ‘maintains a copy of the ledger, thereby preventing a single point of failure. Any entry hhas to be agreed upon by all parties making a distributed ledger secure and tamper proof. (2) Decentralized : Unlike a centralized system, every node has control over his/her data, Decentralization offers users the power to take appropriate decisions as to what ‘vill be in hisher data record. Consensus methods help in securely adding appropriate © data ina distributed ledger, thereby offering innate trust in a aystem. (@) Efficient : With trustless and distributed nature of blockchain’s DLT, the effort of capturing, validating, and synchronizing individual sets of information by mediators ‘can be eliminated, thereby reducing the chances of human error and improvement of operational efficiency. (A) Cost savings : Disintermediated systems can save on additional/oottom-ine costs while realizing near-time transactions and efficiencies. (ow Sytabus wee academic year 22-29)08-130) lek. ect-Neo Publications conic your 2:29)M8-130) Bec icoPutcatons (Now Syabus w. TT Scanned with CamScannerSogo anus tu Somsty Introducton to DLT on lockchain)...P099 no. (1.3 Wiad er ws oC Noman mis fant the same, desause ofits P 4 Thinketodnn an aatbate ine “oe In the same way not all sticky not and sticky not sconcoption is that blocks ‘The former (blockchain) popularity, las become i ‘Meckehains ~ but al blckehains are DLT +The transactional are sequential chain of time-stamped, en ‘quulable to all parties on the network. By oon lesger are only 2 in blocks or require « sequential chai. + DLs may also simply be ‘The similarities and differences of eee the lattor (DLT) we vactually a type of the latter (DLT) whig cine in people's minds a8 what tho ral Jedgerin the same way one might think of in bundles validated transactions i “tecture of blockchain bundles validates ial _ Tographically hashed blocks that are gba, trast, transactions on a standard Diy sn included partes and data does not need to be struct ‘a distributed system of record (SoR), without facilitating rama exchanges through a form of eryplacurrency as i common with a blockchaia f blockchain versus DLT are summarised in the buted ledger technology argo, rene Poa ity nt all Dy table below. Blockchain DLT a Deceatralized | Yes Yes Immutable | Yes Yes Distributed | Yes, across anyone running anode | Yes, but not everyone has all ‘records Consensus | Same throughout network Pluggable at transaction level Permissions | Open and permissionless| Closed and permissioned EY ot ic Not required Required for all participants Blocks Yee Optional Cryptocurrency [ Maybe Optional Tokens Maybe 5 — Optional Scalability [Lower Higher (iow Status wa academic year 22-29)08-100) These pubisiae Blockchain and DLT (MU-Som 8-1 (nnroduetion to DLT and Blockchain)...Page no. (1-27) ‘When things go wrong, we must prioritize at most two distributed system features ‘and trade-offs between them. (a) ave laity 4s Availability means that all clients who request data receive a response even if one ‘or more nodes are down. In a distributed system, every operational node replies to each valid request made to it, to put it another way. + Example : Imagine you are the customer of a well-known vehicle company in your city because of the incredible deals and services it provides. In addition, they provide fantastic customer servieé, #0 you can contact them whenever you have ‘questions or issues and get answers right away. The car company is able to connect every consumer who phones to one of its customer service representatives. Any information needed by the customer regarding his cars, such 1s the service date, the insurance plan, or other details, can be obtained. Because ‘any customer can connect to the business or its operator and obtain information about the user or elient, we refer to this as availability (2) Consistency ‘+ Consistency means that the duplicated data item will appear in the same copies ‘on all nodes during different transactions. an assurance that each node in a distributed cluster returns the same, most recent, and successful writer. + Every client's perception of the data must be consistent to be considered consistent. Sequential consistency, which is a particularly powerful type of consistency, is referred to as consistency in CAP. + Example : Recently the insurance policy of your car got outdated and you want to update or get a new insurance policy for your ear. You decide to call the bank or the insurance company and update it with them. When you call, you connect with fan agent. This agent asks you for the relevant details of your previous policy. But ‘once you have put down the phone, you realize that you missed one detail. So you frantically call the agent again. But, this time when you call, you connect with a different agent but then also, they are able to access your records as well and now that you are registering for your new insurance policy. They make the relevant changes in the house number and the rest of the address is the same as the one you told the last operator. We call this Consistency because even though ‘you connect to a different customer care operator, they were able to retrieve the same information (ow Sylabus wo scam year 22:23}M8-180) (Blrecrtieo Pubicatons Scanned with CamScannerre nd Blockcha).Pago no. (1 trrotcion 19 OUT 24 Blskchal ang LT MUS (3) Partition Tolerance ry delay oF lost connection bretweq ‘tributed aystem. Partition tolera ied ie he at eae] 1 momentar ai rd wo a 9 pion nades ie rer attr 10 nel roe ee mity fl deere hy ene etdand 4s Beample: Unfortunately you need 0 ell 79uF outdateg ; o boat pd ajo we ey ms snd unt we rand en you ge och th 8 We swoon ar et ae Jor ca an BE wat ere ee fat te tego a cole the ent ihe areont Therefor, we Might dy eu, et ee oe ace ota here mo Fo leans ‘hia ___ Restos utente procese can oly be ated on tw ofthe thre CAP er ether area be-one ofA, CP AP af. ae titer evden avait and consistency among al he oad, Ce ceah thi i thre a prion between ey te a ace tt ue to prove fut tolerance. For exatpg eae aa being and nance denund avaiable and cna = © AP AP database meais that the aystems continues to aperate even in the presence of node failures. AP-ased systems compromise consistency and Evailability, Non- dstrbuted databases like PostgreSQL uses AP-based databace systems ©. CP: CP database mean that the apsem continues to 1m contnves to operate even though setworkfallres are occurring in the databace, CP eystemns are strongly consistent bt they arent propery available ow ‘Theorem or Brewer's ‘theorem states that it is feasible to provide either rasa or aati ht oot ath nthe event ef network fare Gitined dts, & toy fom theneial ompuler ot data stores. In other words .P theore : er words, according to U orem, A dist dattne jie that experiences a parttion mst chose beta Consistency and Availability. a mut choces betwee We must siultaneouly osimuniate ‘nodes ina distributed sys a system. A date ‘over the network and store data among several, re eo a dstebted ystem fequetty falls vietim to network etwork calls in a significant way. Tolerance for 'e must decide, based on our needs, whether to partitions is crucial. In this situation, we Drioritize consistency or availability, Broce pubteaton Dlockchain and DLT (MU-Som 8 + With Dlockchain technology, immediate 4+ Network failures can affect any distributed system, (otruction fo DLT and Blokchain..Page no. (1-29) tency in frequently sacrificed for availability and partition tolerance. By requiring a specific amount of “confirmations blockchain consensua techniques are simply simplified to eventual consistency. hence network partitioning is usually required. There are just two choices remaining in the event of a partition: tconsistency ot availability. The system will return an error or time out if a specific piece of information cannot be guaranteed to be current owing to network egmentation when consistency is chosen above availability. The system will always ‘process the query and attempt to return the most recent version of the data even if it cannot ensure that it is up to date because of network partitioning when availability preferred over consistency. + Blockchain is a decentralized database that manages a shared ledger that cannot be altered. Transactions are what make up the shared ledger. Consensus techniques are tused to record transactions inside the shared ledger. Sharing distributed transactions, naturally raises questions about the CAP theorem. = Consistency is sacrificed in Blockchain due to the priority given to Availability and Partition Tolerance. In this case, Partition tolerance (P), Availability (A), and Consistency (C) on the blockchain are not attained simultaneously; instead, they are ‘acquired over time. DH 1.8) BYZANTINE GENERALS PROBLEM «In 1962, Byzantine Generals Problem was invented by Leslie Lamport, Rabert ‘Shostak, and Marshall Pease. ‘+ Byzantine Generals Problem is an impossibility result to this problem has not been found yet as well importance of blockchain. «It is basically a game theory problem that provides a description of the extent to which decentralized parties experience difficulties in reaching consensus without any trusted central parties “+ Byzantine army is divided into many battalions in this classic problem called Byzantine Generals problem, with each division led by a general. «+The generals connect via messenger in order to agree to a joint plan of action in which ‘all battalions coordinate and attack from all sides in order to achieve success. It is probable that traitors will try to sabotage their plan by intercepting or changing the messages. As a result, the purpose of this challenge is for all of the faithful Commanders to reach an agreement without the imposters tampering with their plans. which means that the solution hhelpa us to understand the (Wow Sylabusw.t acadomle your 2-25)00-190) [Bhrecrtioo Pubicatons ere Scanned with CamScannerPO BOO n).Pago no. (1 Jon OUT ond Blockcha ‘lockchaln and LT uu Sere gown 1 lockchain and OLT (MU-Sem. nroductone DLT and lekchain).. » ‘byzantine Generats Problem 9 CONSENSUS MECHANISM, lye should be same throughout the soci lity wheee ve eof a cortain amount of money, despite aj the voce, precious metals and Fart Goods wey equally throusout the eit: Bath «In order to maintain the sequence of blockchain transaction andthe consistency of of the metas could not be known fe” gnbal state through local transaction replay, consensus messages must pass between relevant peers. vacances reeves seen an ee er oo ne an decided upon to replace ; wrtiy transactions, therefore it was decided upon (0 reP! ‘s More inventive approaches to designing BFT systems will be found and put into ince for the oy ble chosen by the people in ty soe a ecatal party which would be highly trust "practice as more individuals and companies investigate distributed and decentralized croup testa and maintain the system of eney- . Leal 4 putwith ime twas later realized that those central partes, how muchever Nall Systems that use BET are also employed in sectors outside of bockchain, euch at Teely trustworthy as it was 60 simple for them to manipulate thy uctear power, space exploration, and aviation. Proofotwork in blockchain for sree sil not completely data. Byzantine Generals Problem. «centralized systems donot adress Byzantine Generals problem, which requires th Ce ty taueerent way ave otralied esters gve | sane canrats rien 2 Dehua System rrarperency, increasing the ikelibood of data corruption. They forgo transparencyig + sero attain efficiency easily and prefer to avo dealing with the issue entirely + The consensus method determines precise network structure. For instance, BFT has a leader as well as peers who can and cannot validate. In order to address this issue, honest nodes (such as computers or other physical devices) must be able to establish an agreement in the presence of dishonest nodes. «The fundamental issue of centralized systems, however, is that they are open ty * In Byzantine agreement issue, an arbitrary processor initializes a single value that Corruption by the central authority, which implies thatthe data can be manipula must be agreed upon, and all nonflty processes must agre on that value. Every by anyone who has control of the database itself because the centralized systen processor has its own beginning value in the consensus issue, and alll nonfaulty ‘concentrates all power on one central decision maker. processors must agree on a single common value. Byzantine army's position can be + ‘Therefore, Bitesin was invented to make the system of money decentralized using seen in computer networks, blockehsin to make money verifiable, counterfeit-resistant, trustless, and separaig * The divisions can be viewed as computer nodes in the network, and the commanders ‘from a entra} agency. as programs running a ledger that records transactions and events in the order that Byzantine Fault Tolerance (BFT) bare ‘The ledgers are the same for all systems, and if any of them is changed, the other Byzantine Fast Tolerance was developed as an inspiration in order to a ledgers are updated as well ifthe changes are shown to be true, s0 all distributed jyzantine Generals Problem. Byzantine Generals Problem, a logical thot ledgers should be in agreement. ‘experiment where multiple generals must attack a city, is where the idea for BFl crite Bastin Fel rans on . *rance is one of the core characteristics of develoy mL ‘trustworthy blockchain rules or features is tolerance, snes of vei + When twovthirds ofthe network can agree eae alco separ ica afte or reach a consensus and the systom alll Crvotographe Primi ly, it is said to have - ponies aes ni have BFT. Blockehain networks’ mot a ences te nd Inorder to create a decentralized network, BFT is essential 1-10 CRYPTOGRAPHIC PRIMITIVES AND ITS TYPES In blockehain, there are no third parties or government involved. It is completely decentralized and various transactions happen in these networks. So, security is of ‘utmost importance in blockchain. Cryptographic primitives are used for building exyptographie protocols fora strong secured network. ee (New Sabu wt academe yar 22-25(40-120) (ow Syabus wa academic year 22-23)62-120) TBhrcr-eo Pubcon TBhcnncoramannd «ons! yor 22-23)M8-190) Scanned with CamScanner| 1.7 and Blokchaln)...Pagono. (1-9 troduction 00 Blockchaln and DLT (WU-Sem8 ‘to build algorithms. They are thy = They are the lowevel lgyrithms that are wed A develop noe Darie building, Backs of the etyploaystem, Te Po i egerthns with Ue help oferpeogran hi P ees dhe base building bloc forthe development of secur + Cote ef hb ly Seco wa cm oneas eer soni Cele tes ny Ceepton tnd decryption algorithms. Eneryplion algorithms encrypt the data 2 raat po He etna aan Th hen i ee bared yo regi aperenyn nearer aera rr i ee ee cao Se ee eco network oF confidential information, hie primitives are used to develog “Types of Crptographic Primitives | (0) Oneway Hash Panctions :1¢ sa mathematical function used to encrypt variable | length data to fixed binary data It is a one-way function, It means that once the input thas been converted toa binary sequence, there is no scope for reverting back. It is also known as fingerprint or compression function. It isto be noted that a slight change ia input ean also change the hash function. This is known as the avalanche effect. A popular hash function is SHA-256, ‘Symmetric Key Cryptography : This is also known as Symmetric Encryption. Suppose a message is encrypted using a key. The message is now converted to 1.11.3 Block Header Hash and Block acta tae lock is its: exyptographic hash, & al fer ofa Boek puch the SHA2SG algorithm. The resulting gy rep accurately the lock BERGE yg jr is used to compute it +The primary identi by hashing the block Ite hash is called because only the block head + Foresample, ‘0000000001 ALSESHOSSIET itoin Bos . ee ra jentifes a block uniquely and eae and can Jependentl derived by any deb snl basing the Woes Heats } Nanna the Mook bath isnt actualy ictuded inside the Bloek’s data stracan) ae ee de bec is transmitted on the network, nor when itis stored ony tode's persistence stage as part ofthe blockehain, ' «stead the block's ash is computed by each node as the block is received from the ‘network. The block hash might be stored in a separate database table as part “ 2aGe172b3N1D60a8ee266 5s 1e99 47680460 the tag ‘ever created. | ‘loc metadata to facitate indexing and faster retrieval of blocks from disk. «+A second way to identify block is by its postion in the blockchain, ealled the eight. The fist lock ever erated is at block height © (zero) and is tl same Block that wes previously referenced by the following block hash (0990000000184685085ae1 658519347 S3ne60206e172S/Tb6OaSCE2CE. | +A Block can thas be identified two ways: by referencing the block hash or referencing the beck height. Ech subsequent black added “on top” of that first is one positon “higher” inthe blockehain, like boxes stacked one on top of the other ‘The Bock height on January 1, 2014, was approximately 278,000, meaning there 278,000 blocks stacked ontop ofthe first block ereated in January 2009, ‘+ Unlite the block hath the block height is not a unique identifier. Although a si ‘Sock will always havea specific and invariant block height, the reverse i i reverse is not true the block height doesnot always identify a single Block, ‘Two or more blocks might have the same block hei ve the he snpeting for etree eight, competing f a ‘This scenario is discusced in detail in the is / ishnarta purl etn doasooanitnes eee ee ture; itis not stored within the block, | ‘ockchain and DLT (MUSem 8 (rtroayeton fo OUT and Blockchain..Page no. (1 ‘+ ‘The first block in the blockehaia is called the genesis block and was created in 2009. 18 {s the common ancestor ofall the blocks in the bleckchain, meaning that if you start at any block and follow the chain backward in time, you will eventually arrive at the genesis block. : + Every node always starts with a blockchain of at least one block because the genesis block is statically encoded within the biteoin client software, such that it cannot be altered. Every node always "knows" the genesis block's hash and structure, the fixed time it was created, and even the single transaction within. Thus, every node has the starting point for the blockchain, a secure “root” from which to build a trusted blockchain. + ‘The statically encoded genesis block inside the Bitcoin Core client, in chainparams.cpp. The following identifier hash belongs to the genesis block ‘000000000019d6889c0852016583 16934 T763ae16a2a6e172bIAIbEOaSce26e ‘Using the Bitcoin Core reference client on the command line jiegetoek 00000000001 NEEBTCOSae1 S881 OATES aac] TARIMOABE IGT TA L114 The Genesis Block "hask:700000000001 98660: 00Sae 16509 9S TSSac1a2abel IRSA BEDNS PEN, confirmations" 308021, *ine285, "nerblewor""faSeletboah%Gas2S1S558:31beSTIISTESTI«ReeTTALN 2TH Taldeds33V", wt "4aSeLefbaals010452518693 Ibe STHSISTEGTR2C TART afdedaS38" "iiculy1.00000000, = pextblockhah’"0000000083 9586850559510 76E411 7S42Safe9094TeeS2O16IBLELEOIS » ‘+ ‘The genesis block contains a hidden message within it. The coinbase transaction input contains the test “The Times 05/Ja2009 Chancellor on brink of second bailout for fanks.’ This message was intended to offer proof of the earliest date this block was ‘created, by refereneing the headline ofthe British newspaper The Times. 1s It also serves as a tongueinsheek reminder of the importance of an independent ‘monetary system, with biteoin’s launch occurring at the same time as an Tinprecedented worldwide monetary crisis. The message was embedded in the frst ‘block by Satoshi Nakamoto, bitcoin’s creator. eee ee (Now Sylabis weed academic year 2223)M8-130) fech:Neo Pubticatons Scanned with CamScannerre octchan ng DLT MU Som chal TS A145 bly Blocks BRE Sie fe constantly 1 block. The local copy of the bl sd used to extend the chi + Asa mode receives incoming | pe blokchain, starting at the ge maintain Sa ipdated as new blocks arg toad ‘then link them to the existing blockchain. Toesabih Hal ano cxamina Inesmng block heaer ad loo forthe “prevows Pls ol wy that a node bas 27,314 blocks inthe local copy of the + Tc ir aa ih cee rata follows Svenien'2, "previousblockha “o0000000000000277ba6feTbad39faf3b5a8daed76SI05(7d167181632249", "merle "5e049f4030eOah2debb9237853e0a6e095482ea085°S4h25e1 dee] 155¢294", "ime":1980185098, "itieuly"1180023195, 25802612, "nonce"s4215469401, | el "257e149708be66421cb2e7b6O9dbah234881600e7352IOI9e6522cTet6e77", *#{-.manymoretraneactionsomitted, 7 MtacsalS6TAecPPetdTSa4S816S076084725eda41 4010400176634" } At this new block, the node hash ofits parent boc. Te chain a height 2734 + Therefore, this ne lock is 8 child of the last block on the chain and extends the exiting bockhain The ode ul Ponies as this new block tothe en Joager with anew height of 277316, 6 '* om ofthe chain, making the fads the previous Hock hash eld, wich contains wn to the node, that of the last block on the (ow Syabis wa academic eur 72.25448-190) her eo Pusat 13 Blookchain) ig. 1.11.1 shows the chain of three blocks, linked by referenced in the previous block hash field, Nace 4575. Nene Prevalence ae emma mn Sunaccsne one Tieng 015127 78 Dey BOSS ace 160 Tinesang 0191202540 Die TET. Nace: 3370885 MedieRnt owes (Now Sabus wf cadens your 22-23)M-130) Breen nso Puszatons Scanned with CamScannerrovogutiont9 DUT ond Beckehal.Pag0 no ( pockchaln ond DLT MUSE Blockchaln and DLT (MU-Sem.84 we 1.11.6 Merkle Tree ry 1a data structur ash tree, : ‘as a binary bast ' 1 nee, Bown 8 DEY MET oof. eke atretly eumarcng and verge integrity of large se vad ny eee contin eeepc a : to desribo a branching data stray, down with the Toot” at the top ang the examples that follow, “sThe term “tree is used in compar See ‘ot thee trees are usually displayed vpside dow? cranes a the bottom oa diag, 26900 Wil S00 bitsn to sammarie all the transactions in q yy + Merkle used in eaten set of transactions, providing iat ofthe losing en overall ital fingerprint ’ rag dS Torts eantrcted by recursively hashing pais of nodes until there is only one hag calle the ron, or Merle root, The cryptographic hash algorithm used in bitsy, “Merkle trees is SHAS applied twice, also known as double SHAZ56, 4 Whoa V data elements are bashed and summarized in a Merkle tree, you can check y see fay one data element is included in the tre with at most 2*loga(N) calculation, making this a very ecient data structure. | ‘+The Merkle tree is constructed bottom-up. In the following example, we star wih four transactions, A,B, Cand D, which form the eaves of the Merkle tree, as shown ind. ‘The transactions are not stored in the Merkle tre; rather, their data is hashed axd ‘he resulting hash is stored in each leaf node as Ha, Hs, Ho, and Ho: H-A~= SHA2S6(SHA255(Transaction A)) Castine pa of at a ka ed a then summed in ia & para noi, ‘oncatenating the two hashes and hashing them together, For he 4 ‘the parent node Has, the two 32-3 na Goctracted wl pte hashes of the children are tye ag. Ta ng tet eilren ae concatenated tc ‘hashed to produce the parent node's H-AB- « SHARS6(SHA2S6(H-A- 4 H-B-)) Drndoce the parent mes a ‘The process continues until th a r= i enly one node atthe top, the node known as be + That a2byte hash sh is stored in papeaahey (he block header and summarizes all the data inal ee (Newb wat eaten yur 22 2,08-50) Bheoneoriaioe| (Wow Sytabus w.o8 acadomic your 2229)(M2-190) (etroducton to DLT and Blockchan)...Page no. (1-41 11.2 : Calculating the nodes in a Merkle tree Because the Merkle tree is a binary tree, it needs an even number of leaf nodes. If there is an odd numberof transactions to summarize, the last transaction hash will be ‘duplicated to ereate an even number of leaf nodes, also known as a balanced tree. This is shown in Fig. 1.11.3, where transaction C is duplicated, Fig. 1.11.3 : Duplicating one data clement achieves an even number of data ‘elements ‘The same method for constructing a tree from four transactions can be generalized to construct trees of any size, In biteoin itis common to have several hundred to more than a thousand transactions in a single block, which are summarized in exactly the [hectic pbteaton Scanned with CamScanner‘and Blockchaln)...Pa soon to DLT and 8 too he eingle Merkle root, In the root looks bi just 32 bytes. Whethey the block, the Merk, lcckchnin and DLT (MU-Sem ame wn. profi 7 sae rete il fom 1 rt soe nde inte gras ON ae he eam ore a mnie the it 2B ecaware . Te pro that pei rananton in Te oe ax ay hashes, consi ripe peices 08 et as the numberof transactions SOT lowly. This allows biteoin nodes t9 eicienty SEeemnecon increases 9 m4 mnt Fo nich ean provide proof sing ans an 1 hashes (20-864 ten hi precept 1 0 burn anata in a mepabtesiz Bleek ithe exact am Vand transactions i ijed in a block, node only needs jg) te authentication path or Merkle pak is especially importany Fig. 1.11.4: A Merkle tree summarizing many data elements + In Fig. 1.115, a node can prove that a transaction K is included in the block by producing a Merkle path that is only four 32-byte hashes long (128 bytes total). ra Fig. 1.11.5; A Merkle path used to prove inclusion of a data element (how Satis wa Rs semei Bheors ronan Noo Publeatos Blockhain are DLT vse (rirauction to LT and Bockchan ‘+The path consists of the four hashes Ht, Hu, Hvor and Hapcorrost. With those four hhashes provided ns an authentication path, any node can prove that Hix is included in the Merkle root by computing four additional pair-wvise hashes Ht, Hunt, Huraaevor, fand the Merkle tree rot, 29. (1-83) + ‘The code in Example 1-1 demonstrates the process of erenting a Merkle tree from the Teaf-norle hashes up tothe root, using the libbiteoin library for some helper functions. Example 1-1 : Building a Merkle tree Hinclude Deshash_digestereate_merkle(be:shash_list&merkle) ( U Stop iC hash let emp. iffmerkle-empty()) U/White there is more than I hash in the list, keep looping. while(merkle.size)>1) { WU lkeiamber of hashes is odd, deplicate last bash inthe list. iffqerkle-sizeQ%2!=0) :merkle.push_back(merkle.back [List see is now even. assert(merkle-size(%% 1 New hash list be:thash_listnew. //Loop through hashes 2ata tine. for(autoit=merkle.be; rklecend sit = { ‘Wein both eucrent hashes together (concatenate). sh_sive*2); De:sdata_chunkeoncat_data( ‘autoconcat=be: coneat.write_hash( it); hash(*Gt+)) (New Sylabus w.04 academic year 22-28)(M8-130) ) e_serializer(concat_data.begin()); Scanned with CamScanner hecho Puieatonspoten LT MU Sens ecteect ie) = Eee tt. ch ofthe shes ' tectonics th a istothe newt ex-pats hacen 0 } This ins new wetle=ne_ mele; DEBUG oxtpat ————— ‘ubsoout<<"Curent mete ash ist"<- =e security and reliability in payments. (A) Permissionless : BTC is completely open access and reads to use far everrane- Shee ‘are no complicated rules of entry. Any transactions that fsllow the sez slewsition wal bbe processed with certainty. Bitcoin is a decentralized digital currency that is mot regulated by sy coal bak and has no set rules on how transactions are processed. (Wow Sylabus wt academic year 22:23)M8-130) Scanned with CamScanner(8) Publie : All Biteoin trans Blokchia ond OLT MUS ‘Transactions are processed by & bl processing. There's no fee to convert oe Teed one neon’ eta.) oe ame ply accel, NE tH hei | tc si te i me ma lockehain algorithm that provides cortnin, Bitcoin to dollars oF vieo VOrsA, making 2A.2 History of Blecoln registred although today, privacy. The domain was regis Bitoin eryptocurreney and promating its use, Th resource for te Bitein enmmonity, providing news, es of sino wen domi MANE W nal registrar’ ident is protected by Whois Gy tered with the aim of providing information aboat & August 2008 marked e website has since become a information and resources abou Bitonin network. ‘in October 2008, someone using the pseudonym Satoshi Nakamoto posted a aad on metzdowd com, introducing what would become known as Biteoin. i ‘With their paper “Bitevin: A Peer-to-Peer Electronic Cash System,” the ermine ‘was laid for what is now the foundation of Bitcon's operations. This document ow be considered the Magna Carta of Bite. “ ‘The mining ofthe frst Biteoin block, called Block 0 or the “genesis block,” occurred, sian. 8, 2009, This block contains the text: “The Times 03/Jan/2009 Chancellor brink of second bailot for banks,” which may indicate that it was mined either on After this date and potentially provides commentary about relevant political event the time ‘The Bitcin block reward is halved every 210,000 blocks. ‘To illustrate this, wh Bitcon launched in 2009, the reward fora block discovery was 50 new coins SERS Ith 2020, the third halving ocurred which reduced the reward per Hoc Bitoin has the capability of divisbil ight dec i i ibility up to eight decimal places (100 millionths ¢ ‘one Bitesn), commonly referred to asa Satoshi — 1k may be possible for miners to accept a modification in the future, increasing tht ‘numberof decimal places beyond eight (Nom Slabs waco ie meee hesr eo puis lock and DT (MU-Sem 6-1 (Btcoh,.. Pogo no. (2-6) 1 + Tho receiver must then wait for the transaction to be verified by the mining network, which ean take up to 20 minutes as transactions are queued in a mining pool ealled the mempool, ‘+ Tho mempool in where transactions waiting to be verified are stored. The network typically confirms a block of transactions every ten minutes; however, not all new transactions are included in the newly ereated block. ‘+ This is because blocks ean only hold a limited amount of data, and ench transaction ‘comes with a mining fee. Consequently, not all new transactions are guaranteed to be included in the next block ‘+ Tobe processed, transactions must meet with the highest fees are processed first. Thus, the issue With Bitcoin's popularity, demand for transactions has also grown, giving miners the opportunity to charge higher fees, When the fee is paid, the transaction is added to a block. Miners then vs transaction information inthe block and close + Al receivers can then collect their bitesin. Afterward, both wallets display the ‘updated balance and the next transactions are processed. late the DH _2.3 _BITCOIN CONCEPTS ‘When it comes to addresses, keys, and wallets, there are a few Key differences that are important to understand. Lets break down each one so that we can have a better understanding ofeach, . ‘A biteoin is simply data with ownership assigned. When transactions are made, the ‘uunership of that data is transferred in a similar way to when you use your debit card to make an online purchase. You use « digital wallet, usually in the form of « mobile ‘application, to send or receive biteoin. RATA Key Bitcoin is transferred to an owner through a blockchain transaction. The owser then ‘receives a mumber, which is their private key. + You hve a public ress called your publi key, that is wed when somenne sends you bitoin, Is similar tothe way they would enter your emall address when sending you an email ‘There are two types of keys in eryptocurrency: public end 3 numbers and can be shared with anyone. private, Public keys are (New Syfabus w.e adic year 22-29)M8-190) Scanned with CamScannerse, ahold be Rep confident They work Tig are so ‘ + Pa The eoresponing PIE KEY, roves i hat, together Wil ’ x verieation on the boeken. . a vd abaya keep your pele Hee) safe and secure. The best way to doy, + opera orto nae Instead, they aF0 saved in R52 Address m letters which represents, «am adress sa sandy generated tof murbers saa le bp typeof unique number similar to bank eecount number. For example, the Bite genesis address =the ist Bitoin adress ever If {TATAP1eP5QGeS2DMPINTLASL aw TDN. «the eiference is that an address can be created for free by anyone and within veer af seende without needing a third party. You ean create as many pub addresses as you lik or need Rememt stored on a blockehain. : per, your keys are not st A cneyped fie. This een be seve anywhere, of “sYou ean frely share your public address with others. That way, people can sea ‘exyptocurrencis to your adress, W253 Wallets | + A wallet isa piece of software that allows you to send and receive bitcoins a well ay sonia yor bnlane The wallet searches the Hckcbain network fr your bitin yourbebal + Bitesn i stored in epments on the blokchain, which functions asa ledger. Sin ‘tennis made up of data inputs and outputs, itis dispersed across the blockchain i ‘fragments from prior transactions. Your wallet app locates them all, adds up the value, and then shows " 4 + Thre ret main type of mallets: usta and noneusta one where trate ety, Ihe an exchange, 31 A custodial wallets told our kay for you, For example when you sgn up for Crnkese for a Coinbase exchange aceoun Sra pe pee arcncasent em=bnee nesunt, you san elect to have them ey + Noveustoiial wales are wal vallets where the user keys, such a euser takes responsibility f | in your wallet application ve for securing the solenon canted tothe inet i eed tap hs one Aa 2 ferred to as ho tymontcRenexpateds St Moree: However, bt (ow Siebus was scademicyear22-23)08-130) Bhecniesroteaioe DLT (MU.Som 8 yw 2.3.4 Bitcoin Transaction Lot's use the following scenario to introduce biteoin transaction procedures: 4+ Bob, businessman who operates online, chooses to accept bitcoins as payment. 4+ Alice, 0 buyer, wants to buy things from Bob with bitcoins. ‘nits ard watson ob Aico Bab and hice bat have ‘icon at on er compute Fig. 23.4 + Multiple biteoin addresees can be accessed through files known as wallets, “s Bach bitevin address has its own balance, which is a string of letters and numbers like IHULMwZEPIjEPech43BeKILIybLOWetDpN. «The addresses function somewhat differently than bank accounts. Users of Bitcoin can establish as many addresses as they like. 7) Grainy enew addres (@)Submiting payment (@) Cryptographic Hashes (8) Nonoes (5) Miner Awards (6 Transaction Sequence {(2) Creating a new address 2.===a (New Sylabus wet academic year 2223)M8-490) Scanned with CamScannercoi Page re peste ens Tyo ein et ava poderan and DLT (MY Som (Gece Page a. (2-1 Ten aes oe A pen DIE 0 apg, 7 We ig iin poche i Bo i acta evating eae iA ey Hh nly YOU know qngt| * TO he tern traning wit tbe ates. ‘This “cryptoeraphic bey _ + Inorder to spend biteins, the current owner mast provide their public key and digital bic ke that everyone nos, signature in a biteoin transaction. ae obs key canbe asd to very a message sened WN 8 Prvate ky, fc Key, and his wallet contai = ‘ost ow biein addres isa oneofarkind publi Kem 00 TP ni ccociated private es. Angone can check the valid age signed with iy) = 5 — private hey using the pubic Be. a aca vers vere pe. a2 28 A peat hey tht iar shri tome the ands refered the traction sed iil sgn the rasan Tats the pulley nd th compstrond entre, reboy ia he a Spann ean ck andesite exhange a obsanti imingtht {Tenn moving teen clnted the te hour oft eg Soy Vues A, Ur B and ae © ar Bits ier Ther conyers ble the ransom fe pt 10 nino beware” om | > ey erates asite + A-set of data is transformed by cryptographic hash fanetions into an alphanumeric + | string of a predetermined length, or hash value. Fig 233 _ > (a) Submitting a payment ‘Sib a payer | ae rete esa | paaweresreeni7. corserincy sazusSeserebaeseeDNATEDSICSES scasseeet pooeor 2ascreBe7szerenASrOSsSABTT Cnpcumend EASBasQDBZE0DBEEISSSICTEA2AZG oToF 1490205135907 A41257:99607EOEABD Cryptocurensy “OC apBDEESCACTIBAEAASCIICII2 Fg 236 (New Sabu waste yar 2-2)08-19) TBhrecrtico Pstcatons Scanned with CamScannerpanel by even the tiniest modi sr be eit Fata ect wll produce @ partcula > (4) Nonces sedis has values fom the same date py) win esl oe ener 0 BETH TT changed ‘bash vale is drastically difierest in view of a mix of the past hash ta 7 ee is a sizple comapatatinal task, the Bitenin a ene ta St ST fom, ci «Cro preea ave no real way ta ees wbich nonce will deliver @ hash eee wig ERE canter ef érvng rere. Asa reslt, they are compelled to genera, Sits bates ung varias numbers until they find one that works. iexuchain srt DLT OU roan > (6) Transaction Sequence «The transaction is broadcast oa the bite network, where it is validated by each participant and spread to nearly every node in the network. «+ Amining note verifies the transaction aad records it in a block of transactions on the blockehain. + The transaction beormes 2 permanent part of the biterin open Givtributed ledger aad is accepted aa valid by all participants once it is recorded on the bleckshain and confirmed by enwragh subsequent blocks. «After the transaction, the new owner can spead the biteria in a new transaction 25.5 UTKO(Unspent Transaction Ontpat) Prior to presenting UTKO, we really want to know the information and result in bitenin exchanges. Input + Avreference to an outpat from a previous transaction is an input. The sum of all of the new transaction’s input values (that is, the total ecix value of the previous extpats that were referenced by the new transaction’s inputslis added up, and the new ‘transaction’s outputs use the entire eum(less any transaction feeslin their entirety. in each block, and the winner, Gary in ‘wallet is updated with a new address for ie “+ Numerous inputs are frequently ininded in a transectisn, output : Instructions for sending bitenins are contained in an outyut. The value thet this output will be worth when claimed will be incinded in transaction output UTXO (Unspent Transaction Output) ‘The outputs of all of the transactions that are inciaded in the blockshain can be categorized aa ether Unspent Transaction Outputs (UIXOs) or spent transaction outpats (due to the fact that each output of a particular transaction can enly be spent ence. A payment must oaly use UTXOs as inputs in order to be valid. +A transaction output that ean be used as input in a new transaction is referred to as ‘gn unspent transaction output (UTXO). In essence, UTXOs specify the starting and fading points of each blockchain transaction. A fandamental component of Bitsoin ‘and numerous other eryptocurrencies is the UTKO model. «To put it another was, inputs and outputs are the components of exyptocurrency transactions, A user uses one or more UTKOs as the inputs whenever a transaction is made. (ten Spas wed ander yar 2-25)MB 190 Bhecrtto rescasers Scanned with CamScannerBodchan eS OLE fy ownership of the inputs, whjg, |) Seckchenert OUT OU Sere _Page 0.(2-14) ‘ Jered “spent” an SSS : The ws Sd a ennsidered “Pe 4 ene JH_24_ VALIDATION OF TRANSACTION produce e oe x become ne UTXOS- hich 1s from the exch When receiving transactions every node ensures that they adhere to the network's \ ules. Transaction validation is the name of this procedure. Here are the primary things Te iin transaction are depicted 1 the figure aby, | that a hub checks | Tremere ha) Sn i ie di saat are sent hy each int adjust to explicit guidelines to consider it as substantial. After na tech output acts as an Unspent ‘Transaction Output (UTXO) yyy) (2) As part of the validating proces, validators check to see if transactions meet protocol + Ar ha en ito walt hs It os eV gg eure ii sing te er ine robert ps sane ht yo bave 10000 sates non og) a) Nan that hep compete cape f the Bckhsin do this validation process. A UTXOs waiting for you. 4 transaction is added to the mempool once it has been approved by nodes (short for «cate emcder that you have 05 BTC and need to pay somebody 03 py memory poo. Fe mil be divided into to separate outputs during the transaction Meeting 02 BTC in aditon tothe 0.3 BTC you paid. The 0.2 BTC is returned Tea tainted and eonvertd into a UTKO that can be used as input in subsequg (4) Ina proof of work network, trancaction fees are used to encourage miners to confirm these transactions by adding them to a block inthe blockehain. ve (8) This creates a clear chronological record of when the transaction took place so that & ee em eee aewl An example probably provides a better explanation for this. Alice's wallet conti, “ transaction = starting Es their is equal as BG Wem Wink Ui ra ration of, but it. Rater jg] ©” Nm be ends of wane tt mtn Cosa ema group of UTKOs. More specifically, two UTXOs with a value of 0.05 BTC and 0.4 BI, babe apelipartatarra? es oa 7 ‘ora mite ‘each—results of previous transactions. Now, let's suppose that Alice needs to pay Bj eremaerereiony sa on i parce cet a —— Pay | ‘protocols, while other rules may exist based on the particular protocol in n. «nc ee 0 el a ==> ly in this situation. Due to mining fees, she would typically reclaim 7 ato tater tig otersacaeen a 4 ae aa ‘transaction, Alice basically communicates with the network: Break: hs ernest etn Ba are Ae eens ner wat sal ns noon ge ot vats talanea> 1 8TC . Fig. 24 (1) The so-called doublespend attack is an illustration of a situation in which a transaction should be rejected by a eryptocurrency system. In this situation, the first transnetion isa legitimate transaction in which coins are spent from an address with ‘ulficient funds to cover the transaction amount. (6) ‘The malevolent actor in this instance then attempts to block the inclusion of this legitimate transaction on the distributed ledger. (ow Syabus wt acadeic yor 2:2)08-120) [BdrecrticoPunicatons _ Scanned with CamScanner(eon) Pogo ro. (2-18 Blockchin and DLT (MU-Sen the majority of | Tho econ ity cee mew an ry nine Ue blckchan'sanget tration Sse Caan Cee re agate tere Wil at a at smite a pnderying exchange a second time in what might be an invalig ne ge ea legitinate ‘exchange had been remetabered for the record, ‘the network's mining power, which i chain according se ester cnn wo You wil receive a private key” to use when making a request for-Bitcoin each time, mee oes neipiiee vinwaeaiac Ser i oon eer A ee eee initial miner's proposal. Your transaction hes been confirmed as a result of being | included as a block in the blockchain. | MH 2.5 BITCOIN KEYS Srna mma cy, teal ase area uae eee ee exyptography ‘means “encryption,” but the field of cryptography encompasses more than | Fataet ace zeny fl rent moms ore demonstrate knowledge of a secret without divulging it (dig ital signature). Ti nate iu el beso cena applications are these kinds of eryptographic proofs. 17 non i on (0 Dia hye, ttn adres, and digital ignntures are the means by which ‘ownership of bitcoin is established. Users create anc the digtal vege a sil dase valle, which ot cally ted nate ©) A users walle’s digital keys (G) The decentralized trust and control of biter comogrpticprweinty motel aneal ie ‘Tobe included in the blockchain for the majorit ie ‘signature that can only be gen sed ; red wit eb int manent ownership attestation, and the sible by keys, of bitcoin transactions, a valid digital eeret key must be used; consequet 20y ofthat kay, nn nneaent w (New Sabu we acaderic your 22. 23)48-19 &h. fech-Neo Publcaons sects and OLT(MU-Som.8.) ee (6) Ineryplography, the digital signature used to spend money sali ale a witness. In 1 bitesinteanaaction, the witness deta shows who actually ova the money being spent. (6) There are two types of keys a public key and a private (secret key. The publi key it analogous othe number on a bank account, andthe private key i analogous to the tecret PIN, or signature on a check, that grants access othe acount. (2) The people who ue bites rarely ee thete gal keys, They are typically managed by the afta forthe biter wallet and stored thin the wallet fle (@) A biteoin address, which ea digital iagerprit ofthe recipients public Key, i used in the payment orton ofa bitoin transaction in the same way that the beneficiary name on a check is used (or example “Pay tothe oder of) Asa rl, itenin tires is produced frm and relate aa publi kay. But ot every bitenn ares is 4 representation of public keys; a we will ce in a later ection of his chapter, they an also represent other bensicarca, sucha cits, (9) Similar to paper checks, bitrin adresses aetract the rcpent of fund, making transaction destinations exible: single payment method that ean be used to transfer funds to cash, peopl axons, company account, or Fay ils (20) Because thi isthe part ofthe Keys that users are required to share withthe rst of the worl, the biteon address i the only representation ofthe keys that they will Public key ryptography was developed during the 1970s and is numerical starting pint for PC and data security. +) Since the ingovation of pubic key coptography, a fw reasonable numerical cstiltie, ike indivisible umber exponentiation and elliptic bend duplication, have sand Those muerial capabilites are basically irreversible, implying that they aaa soul to work out in one couse and infeasible o compute the ater way. «+ In view of these numerical capabilites, xyptography empowers the production of eaoated mysteries and wafrgeabe advanced masks Eiti ivalves elite tend increase a the reason or ls erptography- «tn bitcon, we utlze pubic key eyptography to make a Key pair that controls es tein: The key pix empresa confidential hey and — gt mt aaa val public hxy. Te public key is willed to get reserves, and the eafdential key is tlized to sign exchanges to spend the assets : + There sa naneion between zope in general and the content Key Terms de i ace marks on messages. Tis that persite the confidential key tobe utilized to prod = ae er aed agaist the public key without uncovering the conSdential ey (ew sytabus w.e scadomic year 2-28)8-130) 0] Scanned with CamScanner Bloc no runsstons