Blockchain Tutorial

Blockchain Tutorial provides basic and advanced concepts of blockchain.

Blockchain is a constantly growing ledger that keeps
a permanent record of all the transactions that have taken place in
a secure, chronological, and immutable way. It can be used for the
secure transfer of money, property, contracts, etc. without requiring a
third-party intermediary such as bank or government. Blockchain is a
software protocol, but it could not be run without the Internet (like SMTP is
for email).

What is Blockchain?
A blockchain is a constantly growing ledger which keeps a permanent
record of all the transactions that have taken place in a secure,
chronological, and immutable way.

Let's breakdown the definition,

o Ledger: It is a file that is constantly growing.

o Permanent: It means once the transaction goes inside a

blockchain, you can put up it permanently in the ledger.

o Secure: Blockchain placed information in a secure way. It uses very

advanced cryptography to make sure that the information is locked
inside the blockchain.

o Chronological: Chronological means every transaction happens

after the previous one.

o Immutable: It means as you build all the transaction onto the

blockchain, this ledger can never be changed.
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.

Note: A blockchain can be used for the secure transfer of money, property, contracts,
etc. without requiring a third-party intermediary like bank or government. Blockchain is a
software protocol, but it could not be run without the Internet (like SMTP used in email).

Who uses the blockchain?

Blockchain technology can be integrated into multiple areas. The primary
use of blockchains is as a distributed ledger for cryptocurrencies. It shows
great promise across a wide range of business applications like Banking,
Finance, Government, Healthcare, Insurance, Media and Entertainment,
Retail, etc.

Need of Blockchain

Blockchain technology has become popular because of the following.

o 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. It is because of a single
version of agreed-upon data available between all stakeholders.
o 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.

o Reliability: Blockchain certifies and verifies the identities of each

interested parties. This removes double records, reducing rates and
accelerates transactions.

o Security: Blockchain uses very advanced cryptography to make

sure that the information is locked inside the blockchain. It uses
Distributed Ledger Technology where each party holds a copy of the
original chain, so the system remains operative, even the large
number of other nodes fall.

o Collaboration: It allows each party to transact directly with each

other without requiring a third-party intermediary.

o 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.

History of Blockchain
The blockchain technology was described in 1991 by the research
scientist Stuart Haber and W. Scott Stornetta. They wanted to
introduce a computationally practical solution for time-stamping digital
documents so that they could not be backdated or tampered. They
develop a system using the concept of cryptographically secured
chain of blocks to store the time-stamped documents.

o In 1992, Merkle Trees were incorporated into the design, which

makes blockchain more efficient by allowing several documents to
be collected into one block. Merkle Trees are used to create a
'secured chain of blocks.' It stored a series of data records, and each
data records connected to the one before it. The newest record in
this chain contains the history of the entire chain. However, this
technology went unused, and the patent lapsed in 2004.
o

o In 2004, computer scientist and cryptographic activist Hal

Finney introduced a system called Reusable Proof Of
Work(RPoW) as a prototype for digital cash. It was a significant
early step in the history of cryptocurrencies. The RPoW system
worked by receiving a non-exchangeable or a non-fungible
Hashcash based proof of work token in return, created an RSA-
signed token that further could be transferred from person to
person.
o RPoW solved the double-spending problem by keeping the
ownership of tokens registered on a trusted server. This server was
designed to allow users throughout the world to verify its
correctness and integrity in real-time.

o
o Further, in 2008, Satoshi Nakamoto conceptualized the theory
of distributed blockchains. He improves the design in a unique
way to add blocks to the initial chain without requiring them to be
signed by trusted parties. The modified trees would contain a secure
history of data exchanges. It utilizes a peer-to-peer network for
timestamping and verifying each exchange. It could be managed
autonomously without requiring a central authority. These
improvements were so beneficial that makes blockchains as the
backbone of cryptocurrencies. Today, the design serves as the
public ledger for all transactions in the cryptocurrency space.
o The evolution of blockchains has been steady and promising. The
words block and chain were used separately in Satoshi Nakamoto's
original paper but were eventually popularized as a single word, the
Blockchain, by 2016. In recent time, the file size of cryptocurrency
blockchain containing records of all transactions occurred on the
network has grown from 20 GB to 100 GB.
What is Bitcoin?
Satoshi Nakamoto introduced the bitcoin in the year 2008. Bitcoin is a
cryptocurrency(virtual currency), or a digital currency that uses rules of
cryptography for regulation and generation of units of currency. A Bitcoin
fell under the scope of cryptocurrency and became the first and most
valuable among them. It is commonly called decentralized digital
currency.

A bitcoin is a type of digital assets which can be bought, sold, and transfer
between the two parties securely over the internet. Bitcoin can be used to
store values much like fine gold, silver, and some other type of
investments. We can also use bitcoin to buy products and services as well
as make payments and exchange values electronically.

A bitcoin is different from other traditional currencies such

as Dollar, Pound, and Euro, which can also be used to buy things and
exchange values electronically. There are no physical coins for bitcoins or
paper bills. When you send bitcoin to someone or used bitcoin to buy
anything, you don?t need to use a bank, a credit card, or any other third-
party. Instead, you can simply send bitcoin directly to another party over
the internet with securely and almost instantly.

How Bitcoin Works?

When you send an email to another person, you just type an email
address and can communicate directly to that person. It is the same thing
when you send an instant message. This type of communication between
two parties is commonly known as Peer-to-Peer communication.

Whenever you want to transfer money to someone over the internet, you
need to use a service of third-party such as banks, a credit card, a PayPal,
or some other type of money transfer services. The reason for using third-
party is to ensure that you are transferring that money. In other words,
you need to be able to verify that both parties have done what they need
to do in real exchange.

For example, Suppose you click on a photo that you want to send it to
another person, so you can simply attach that photo to an email, type the
receiver email address and send it. The other person will receive the
photo, and you think it would end, but it is not. Now, we have two copies
of photo, one is a simple email, and another is an original file which is still
on my computer. Here, we send the copy of the file of the photo, not the
original file. This issue is commonly known as the double-spend problem.
The double-spend problem provides a challenge to determine whether a
transaction is real or not. How you can send a bitcoin to someone over the
internet without needing a bank or some other institution to certify the
transfer took place. The answer arises in a global network of thousands of
computers called a Bitcoin Network and a special type of decentralized
laser technology called blockchain.

In Bitcoin, all the information related to the transaction is captured

securely by using maths, protected cryptographically, and the data is
stored and verified across the entire network of computers. In other
words, instead of having a centralized database of the third-party such as
banks to certify the transaction took place. Bitcoin
uses blockchain technology across a decentralized network of computers
to securely verify, confirm and record each transaction. Since data is
stored in a decentralized manner across a wide network, there is no single
point of failure. This makes blockchain more secure and less prone to
fraud, tampering or general system failure than keeping them in a single
centralized location.

Blockchain Version
The brief description of the evolution of blockchain technology and
its versioning from 1.0 to 3.0 are explained below.

Blockchain 1.0: Currency

The idea of creating money through solving computational puzzles was
first introduced in 2005 by Hal Finney, who created the first concept for
cryptocurrencies (The implementation of distributed ledger technology).
This ledger allows financial transactions based on blockchain technology
or DLT to be executed with Bitcoin. Bitcoin is the most prominent example
in this segment. It is being used as cash for the Internet and seen as
the enabler of an Internet of Money.

Blockchain 2.0: Smart Contracts

The main issues that came with Bitcoin are wasteful mining and lack of
network scalability. To overcome these issues, this version extends the
concept of Bitcoin beyond currency. The new key concepts are Smart
Contracts. It is small computer programs that "live" in the blockchain.
They are free computer programs which executed automatically and
checked conditions which are defined earlier like facilitation, verification
or enforcement. The big advantage of this technology that blockchain
offers, making it impossible to tamper or hack Smart Contracts. A most
prominent example is the Ethereum Blockchain, which provides a platform
where the developer community can build distributed applications for the
Blockchain network.

Quickly, the blockchain 2.0 version is successfully processing a high

number of daily transactions on a public network, where millions were
raised through ICO (Initial Coin Offerings), and the market cap increased
rapidly.

Blockchain 3.0: DApps

DApps is also known as a decentralized application. It uses decentralized
storage and communication. Its backend code is running on a
decentralized peer-to-peer network. A DApp can have frontend
code hosted on decentralized storages such as Ethereum Swarm
and user interfaces written in any language that can make a call to its
backend like a traditional Apps.
Blockchain and cryptocurrencies are two terms often used
interchangeably. However, there is a big difference
between the two. Cryptocurrencies are digital currencies
that use blockchain as a ledger for storing records of crypto
transactions. However, blockchains have many uses
beyond cryptocurrencies, including storing and accessing
medical data, supply chain and logistics information, and
financial records.

What is Blockchain?
A blockchain is a collection of records or an electronic
database, like a spreadsheet. A blockchain holds larger
amounts of information, such as cryptocurrency transaction
records, stored in “blocks” or groups, unlike a regular
spreadsheet.

These blocks are distributed across multiple computers or a

“distributed ledger.” Once each block reaches its storage
limit, it is “chained” to a block filled previously, and a new
block comes into use.

What is Cryptocurrency?
Cryptocurrency is digital money with market value like
other currencies. Cryptocurrencies can also be used as a
store of value like gold. The first cryptocurrency
was Bitcoin which pioneered blockchain technology.

Subsequently, other cryptocurrencies, such as Ether, came

up with their own blockchains (known as Ethereum).
Similarities Between Blockchain and
Cryptocurrency
Intangible

Both blockchain and cryptocurrencies are intangible.

Cryptocurrencies are intangible digital tokens, which you
cannot hold physically like the US dollar or the Indian
rupee. The blockchains used for storing cryptocurrencies
do not exist in a single place or one physical data centre.

Advanced

Both blockchain and cryptocurrencies are technological

advancements. Blockchain is the underlying technology
behind cryptocurrencies. Blockchain is much more
advanced and secure than traditional databases.
Cryptocurrencies are technologically advanced than
physical or paper-based currencies.

Interdependent

Blockchain came into existence to record transactions of

bitcoin, the world’s first cryptocurrency. All major
cryptocurrencies have blockchains for recording
transactions. If someone buys a new bitcoin, it is recorded
in a bitcoin blockchain.

Differences Between Blockchain and

Cryptocurrency
Inherent Nature

Blockchain is a storage technology used for saving data on

decentralized networks. Cryptocurrency is a medium of
exchange like the US dollar. A blockchain can be used for
storing different types of information beyond
cryptocurrency transaction records.

Monetary Value

All cryptocurrencies have a monetary value. You must have

heard of Bitcoin hitting a high of 65,000 dollars (around 48
lac rupees) or Ether reaching 4,000 dollars (about 3 lac
rupees). A blockchain does not have any monetary value.

Usage

Blockchain technology has uses beyond cryptocurrencies.

Blockchain can be used for recording transactions in
banking, healthcare, supply chain, and retail.
Cryptocurrency is digital money, which can be used for
buying goods and services and for investment.

Mobility

Blockchain technology is decentralized and distributed all

over the world. There is no single location where all records
of a blockchain are stored. Cryptocurrencies, although held
in blockchains, can be accessed via mobile wallets. If you
have a bitcoin wallet, you can use it anywhere for
transacting with parties accepting bitcoins.

Transparency

Blockchain, being a public ledger, is highly transparent.

Anyone can join a blockchain network and view the
information available. On the other hand, cryptocurrencies
offer anonymity. So, while anyone can see the
source/destination of a bitcoin transaction, no one can
know who is behind the transaction.

What Is Distributed Ledger Technology (DLT)?

Distributed ledger technology (DLT) is the technological infrastructure and
protocols that allow simultaneous access, validation, and record updating
across a networked database. DLT is the technology blockchains are
created from, and the infrastructure allows users to view any changes and
who made them, reduces the need to audit data, ensures data is reliable,
and only provides access to those that need it.

KEY TAKEAWAYS

 Distributed ledgers are maintained by a network of nodes, each of

which has a copy of the ledger, validates the information, and helps
reach a consensus about its accuracy.

 Distributed ledgers have been around for decades but have become
more well-known, researched, used, and developed since Bitcoin
was introduced.
  Distributed ledgers can be used in nearly every industry where data
is collected and used.

 All blockchains are distributed ledgers, but not all distributed ledgers
are blockchains.

 Though DLT enhances accountability, security, and accessibility, it is

still complex, difficult to scale, and not subject to strong regulation.

History of Distributed Ledgers

Distributed computing is not new—businesses and governments have
been using the concept for several decades. In the 1990s, it became
possible for multiple computers and users in different locations to solve
problems and return the solutions to a central location.1

Advances in data science, computing, software, hardware, and other

technologies have made ledgers much more capable. Improved
connectivity through intranet and internet protocols allowed for much more
data to be collected, analyzed, and used. However, because there can
now be many users with access to data, it is necessary to have someone
verify the changes.

Computer and data scientists developed programs that reduced the need
for auditing data. These programs used automation and data encryption
techniques to verify database transactions or changes in a database's
state. This is called consensus—the act of automated majority agreement
on transaction validity, where a transaction is simply a change made to a
database's state.

Distributed ledgers evolved into scalable and programmable platforms, as

seen in Ethereum and HyperLedger Fabric, where solutions can be
created to use a database, or ledger, for everything from tokenizing
physical assets to streamlining manufacturing and other business
processes.

How Distributed Ledger Technology Works

DLTs allow information to be stored securely and accurately using
cryptography. The data can be accessed using "keys" and cryptographic
signatures. Once the information is stored, it can become an immutable
database; the rules of the network, written into the coding of the database
programming, govern the ledger.
If something is immutable, it is unable to be changed. Distributed ledgers
are only immutable if they are programmed to be that way. Blockchains
are always immutable because they are decentralized public ledgers
Because they are decentralized, private, and encrypted, distributed
ledgers are less prone to cybercrime, as all the copies stored across the
network needs to be attacked simultaneously for the attack to be
successful. Additionally, the peer-to-peer sharing and updating of records
make the whole process much faster, more effective, and cheaper.

Every device on a distributed ledger network stores a copy of the ledger.

These devices are called nodes—a network can have any number of
nodes. Any changes to the ledger, such as moving data from one block to
another, are recorded across all nodes. Because each node has a copy of
the ledger, each one publishes its version with the latest transactions.

If the network reaches a consensus about the validity of the latest ledger,
the transactions are finalized, encrypted, and used as a basis for the
following transactions. This is how blockchains develop—each block
contains encrypted information about the proceeding block, which makes
them impossible to change.

Industries Using Distributed Ledger Technology

Distributed ledgers are created for many different purposes, but one of the
most used ways is as a platform for others to scale and use. One of the
more well-known distributed ledgers is Hyperledger Fabric. It is a modular
and scalable DLT platform that several businesses have used to create
solutions that span many industries. Some industries that have
implemented DLT solutions include aviation, education, healthcare,
insurance, manufacturing, transportation, and utilities.2

Supply chains can benefit greatly from DLT. Many factors make them
inefficient, inaccurate, and susceptible to corruption or losses. Fujitsu, a
global data and information technology company, has designed distributed
ledger technology to enhance supply chain transparency and fraud
prevention by securing and tracking data.

Fujitsu's Rice Exchange was created to trade rice, ensuring data regarding
sources, prices, insurance, shipping, and settlement are recorded on the
ledger. Anyone involved can look at any data and find accurate information
regarding the entire process because it cannot be changed. All data is
entered and secured automatically by the platform—it will eventually
provide tracking information for rice shipping containers as it is shipped to
its final destination.3
Uses of Distributed Ledger Technology
Aside from specific industries, there are also specific situations where DLT
solutions have proven to add value. Some examples of specific uses of
DLT include:

 Record transactions. DLT enables secure, transparent and

decentralized transactions without the need for a central authority.
As DLT is a ledger, it records inflows and outflows. Though this
naturally lends itself to financial records, DLT can record any type of
transaction even without financial undertones.

 Secure identities. DLT can be used to create a secure and tamper-

proof digital identity for individuals, as the technology can provide a
reliable way to verify identities and prevent identity theft.

 Collect votes. DLT can be used to create a secure and transparent

voting system that can prevent voter fraud and ensure the integrity of
the voting process. As mentioned above, as transactions (financial
or non-financial) are recorded, a transparent, immutable, open
ledger of interactions with users is saved. This enhances the equity
and believability of a collection of opinions.

 Enter contracts. DLT allows for smart contracts, agreements that

automatically execute or complete based on prevailing conditions.
For example, an insurance claim may automatically release funds
once the claim has been processed. This limits error, and DLTs
make it more difficult for precarious activity by bad actors.

 Demonstrate ownership. DLT can be used to record property

transactions, creating a tamper-proof and transparent record of
ownership and transfer of property. Though there are some
limitations on translating real-world ownership of physical assets to a
distributed ledger, the ledger may be able to convey an
unchangeable source of truth regarding ownership.

DLT may also be referred to as a shared ledger as it requires a ledger to

be shared across a peer-to-peer computer network.

Advantages and Disadvantages of Distributed

Ledger Technology
Pros of DLT

DLT holds many benefits over more traditional centralized ledger systems.
Because DLT is a decentralized system, there is no central point of control
or failure. This makes DLT more resilient to attacks and less vulnerable to
system-wide failures. Also, because DLT uses cryptographic algorithms to
secure data, DLT is nearly impossible to tamper with or forge records. This
enhances the trustworthiness of the data and reduces the risk of fraud.

DLT allows for transparent access to data and transactions, allowing all
users of the DLT greater visibility into the operations of the system. This
may lead to greater buy-in from users due to transparency and
accountability of records.

DLT can streamline processes by removing intermediaries and automating

transactions through smart contracts. Because smart contracts may
automatically execute when contract conditions are met, there may be less
need for human interaction or administration. This can reduce costs and
increase efficiency.

Last, DLT can enable greater financial inclusion. Some people may have
not have access to traditional banking services . As DLT often relies only
on an internet connection, individuals who would be otherwise limited may
have access to a greater range of services. This extends to the use of
different platforms and networks via interoperability.

Cons of DLT

Largely due to the infancy of DLT, there are still large downsides to the
technology. DLT is still complex and difficult to implement and maintain. In
order for companies or individuals to leverage the solution, it often
requiring specialized knowledge and expertise especially to implement.

DLT can struggle with scalability as the number of participants and

transactions increase. As a result, DLT processes may lead to slower
processing capabilities or higher costs of use. In addition, some DLTs such
as Bitcoin require a significant amount of energy to maintain the network
and process transactions. This can have negative environmental impacts.

As seen by actions of bad actors, the lack of regulation and

standardization in the DLT industry can lead to risk for users and investors.
By extension, DLT requires widespread adoption to be effective, and many
industries and organizations may be hesitant to adopt new technologies
due to these security concerns.
Finally, though immutability is one of the strengths of DLT, it can also be a
weakness. As all transactions are publicly viewable, it may make it difficult
to have true privacy for more sensitive types of transactions. It can also be
more difficult to correct or reverse transactions in which errors or fraud has
occurred.

Pros

 Spreads systematic risk around, minimizing the risk of a single point

of failure

 Has greater security due to cryptographic algorithms

 Allows for transparency and visibility into operations

 May prove to be more efficient due to smart contract automation

 Offers individuals with limited access to traditional systems

potentially greater capabilities

Cons

 Is more complex compared to more traditional ledger solutions

 Often requires higher energy consumption for operation

 May have difficult scaling as more users/transactions occur

 Still remains risky due to lack of regulation

 May prove to be difficult to reverse fraudulent or erroneous activity

Why Distribute Ledger Technology Is Important

DLT is important because it has the potential to transform how information
is recorded, stored, and distributed. The importance is often cited across
three pillars: security, transparency, and accessibility.

Security

Traditional ledger technology often has a central point of control with one
single entity often in charge of the ledger. DLT makes the ledger more
resilient to attacks and less vulnerable to system-wide failures. As DLT
uses cryptographic algorithms to secure data, it also makes it more difficult
to tamper with or forge records.
Consider a traditional banking system where a banker is the central point
in ensuring your transaction is recorded correctly. In contrast, consider a
DLT solution built on a consensus mechanism where all distributed ledgers
must be in agreement about how a transaction is recorded. This validation
of transactions allows greater trust among users and relinquishes power
from any single individual.

Transparency

Centralized, traditional ledgers often restrict access to certain individuals.

Though this still holds value for sensitive information, there are many use
cases where it is more beneficial for all when data and information is
broadly distributed and transparent. Consider the example above of voting;
having digitally distributed, undisputable, verifiable records of voting may
enhance the believability of results.

DLT is also important as it holds the theory of reducing fraud and

increasing accountability in the long-term. Note how all transactions within
a DLT system are able to be viewed by anyone with access to the DLT.
The information may be "audited" by anyone at any time, potentially
demotivating bad actors from entering into nefarious activity in such a
public sphere.

Accessibility

Last, DLT may eventually be critically important to third-world countries or

regions where centralized technologies are limited. Think about the
banking limitations of different countries around the world. DLT boasts the
ability to store and record transactions using only a network connection as
opposed to a very niche (and expensive) connection such as a bank
account at a specific bank.

As DLT is a relatively new technology that is still being explored and

developed, this presents opportunities for innovation and the creation of
new applications and use cases. In general, because of the ease of being
to access DLT solutions, there are many positive implications on the broad
public being able to communally access a shared network with often fewer
bureaucratic hurdles to meet prior to access.

Distributed Ledger Technology Consensus

Mechanisms
A central facet of DLT is how transactions are "approved". Without a
universally-agreed system of how items are accepted within the DLT,
users of the DLT would be unable to universally agree on how items to
include and what items should be excluded.

This process of reviewing transactions is called a consensus mechanism,

and a DLT may leverage any of the following processes. Note that
consensus mechanisms are constantly evolving, and only several of the
more common approaches are listed below.

 Proof of Work (PoW): In PoW, miners compete to solve complex

mathematical problems to validate transactions and create new
blocks. This type of consensus mechanism requires computational
power, making it a less environmentally friendly method. The notion
of PoW is miners must financially invest and commit resources to
approving transactions, so they are incentivized to be "good actors".

 Proof of Stake (PoS): In PoS, validators hold a stake in the network

and are chosen to validate transactions based on the amount of the
stake they hold. Seen as a more environmentally-friendly option,
PoS is at greater risk of a 51% attack (when one party can hold a
majority of tokens of a network to push through transactions at their
will).

 Delegated Proof of Stake (DPoS): DPoS is a variant of proof of

stake where the network selects a limited number of validators to
validate transactions. This variation reduces the computational
resources required to secure the network. In many ways, a DPoS
system is seen as a more democratic means of selecting approvers
and offers better scalability.

 Byzantine Fault Tolerance (BFT): In BFT, validators agree on a

consensus value based on a voting system. This mechanism strives
to avoid the Byzantine Generals Problem which describes a game
theory problem where decentralized parties must arrive at a
consensus by leveraging a trusted central party.

Distributed Ledgers vs. Blockchain

There are several key factors that distinguish blockchain from distributed
ledgers. In general, blockchain is a specific type of DLT. DLTs may take
various forms, while a blockchain uses one specific infrastructure that uses
a linear system of blocks to record and verify information.

Blockchains often leverage a proof of work or proof of stake consensus

mechanism, whereas a DLT has a much broader range of mechanisms
available. In addition, DLTs are often more broadly used across industries
as they can be leveraged for broader problems. Blockchain has historically
been most associated with the financial sector as a means of recording a
payment system. The security behind either may also vary, with blockchain
having a very defined set of criteria with the DLT realm.

Distributed Ledgers

 Data can be chained, but doesn't use "blocks"

 Can be encrypted

 Private and permissioned, but can be permissionless

 Can be immutable

Blockchain

 Data is stored in chained "blocks"

 Always encrypted

 Generally public and permissionless, but some are permissioned

 Always immutable

What Is Distributed Ledger Technology Used for?

Distributed ledger technology is used to securely store data so that it is
unaltered, transparent, synchronized, and accurate. This can be extended
to counting votes, recording transactions (financial or non-financial), or
reporting activity across all users of a single DLT solution.

Is DLT Better Than Blockchain?

Each has a different purpose. For example, blockchain is designed to be
public and permissionless, while DLT is intended for private uses and can
be permissioned or permissionless.

Do Banks Use DLT?

Banking ledgers have historically been centralized. However, DLT
solutions allow for banking practices (i.e. saving value, entering into
transactions, etc.). If a financial institution has implemented a
cryptocurrency, digital currency, or other means of recording on a digital
ledger, that financial institution can theoretically enter into all of the same
transactions as a traditional bank through the use of smart contracts. This
can range from recording transactions, KYC information, or settling
securities.

What Is the Difference Between DLT and DeFi?

Decentralized finance (DeFi) builds off of DLT solutions. DeFi allows for
users to enter into many familiar transactions offered by traditional banking
solutions. However, these trades, loans, or investments are made without
a centralized intermediary.

The Bottom Line

Distributed ledger technology is a platform that uses ledgers stored on
separate, connected devices in a network to ensure data accuracy and
security. Blockchains evolved from distributed ledgers to address growing
concerns that too many third parties are involved in too many transactions.

Distributed ledger technology is becoming necessary in modern

businesses and enterprises that need to ensure accuracy in financial
reporting, manage supply chains, prevent fraud, and identify inefficiencies.
It has many more use cases in business activities that are time-consuming
and costly.

Correction—July 6, 2023: A previous version of this article incorrectly listed

IBM as the owner of HyperLedger Fabric. HyperLedger Fabric is entirely
community built and maintained.
 Blockchain and Distributed Ledger
Technology (DLT)
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A blockchain is a digital ledger of transactions that are distributed

across the entire network of computers (or nodes) on the
blockchain. Distributed ledgers use independent nodes to record,
share, and synchronize transactions in their respective electronic
ledgers instead of keeping them in one centralized server. A
blockchain uses several technologies like digital signatures,
distributed networks, and encryption/ decryption methods including
distributed ledger technology to enable blockchain applications.
Blockchain is one of the types of DLT in which transactions are
recorded with an unchangeable cryptographic signature called a
hash. That is why distributed ledgers are often called blockchains.

What is Distributed Ledger Technology (DLT)?

Distributed Ledger Technology (DLT) is centered around an

encoded and distributed database where records regarding
transactions are stored. A distributed ledger is a database that is
spread across various computers, nodes, institutions, or countries
accessible by multiple people around the globe.
Features:
1. Decentralized: It is a decentralized technology and every node
will maintain the ledger, and if any data changes happen, the
ledger will get updated. The process of updating takes place
independently at each node. Even small updates or changes
made to the ledger are reflected and the history of that change is
sent to all participants in a matter of seconds.
2. Immutable: Distributed ledger uses cryptography to create a
secure database in which data once stored cannot be altered or
changed.
3. Append only: Distributed ledgers are append-only in comparison
to the traditional database where data can be altered.
4. Distributed: In this technology, there is no central server or
authority managing the database, which makes the technology
transparent. To counter the weaknesses of having one ledger to
rule all, So that there is no one authoritative copy and have
specific rules around changing them. This would make the system
much more transparent and will make it a more decentralized
authority. In this process, every node or contributor of the ledger
will try to verify the transactions with the various consensus
algorithms or voting. the voting or participation of all the nodes
depends on the rules of that ledger. In the case of bitcoin, the
Proof of Work consensus mechanism is used for the participation
of each node.
5. Shared: The distributed ledger is not associated with any single
entity. It is shared among the nodes on the network where some
nodes have a full copy of the ledger while some nodes have only
the necessary information that is required to make them
functional and efficient.
6. Smart Contracts: Distributed ledgers can be programmed to
execute smart contracts, which are self-executing contracts with
the terms of the agreement between buyer and seller being
directly written into lines of code. This allows for transactions to
be automated, secure, and transparent.
7. Fault Tolerance: Distributed ledgers are highly fault-tolerant
because of their decentralized nature. If one node or participant
fails, the data remains available on other nodes.
8. Transparency: Distributed ledgers are transparent because
every participant can see the transactions that occur on the
ledger. This transparency helps in creating trust among the
participants.
9. Efficiency: The distributed nature of ledgers makes them highly
efficient. Transactions can be processed and settled in a matter of
seconds, making them much faster than traditional methods.
10. Security: Distributed ledgers are highly secure because of
their cryptographic nature. Every transaction is recorded with a
cryptographic signature that ensures that it cannot be altered.
This makes the technology highly secure and resistant to fraud.
How DLT Can Replace Traditional Book-Keeping
Methods?

Distributed ledger technology has the potential to effectively

improve these traditional methods of bookkeeping by updating and
modifying fundamental methods of how data is collected, shared,
and managed in the ledger. To understand this, traditionally paper-
based and conventional electronic ledgers were used to manage
data that had a centralized point of control. This types of system
require high computing resource and labor to maintain ledgers and
also had many points of failure. Points of failure like:
1. Mistakes made during data entry.
2. Manipulation of data could happen which increases the risk of
errors.
3. Other participants contributing data to the central ledger will not
able to verify the legitimacy of data coming from other sources.
However, DLT allows real-time sharing of data with transparency
which gives trust that data in the ledger is up to date and legitimate.
Also Distributed Ledger Technology eliminates the single point of
failure which prevents data in the ledger from being manipulations
and errors. In DLT, there is no need for a central authority to
validate transactions here different consensus mechanisms are used
to validate transactions which eventually makes this process very
fast and real-time. Similarly, DLT can reduce the cost of transactions
because of this process.

Types of Distributed Ledger Technology

The Distributed Ledgers can be categorized into three categories:

1. Permissioned DLT: Nodes have to take permission from a
central authority to access or make any changes in the network.
Mostly these types of permissions include identity verification.
2. Permissionless DLT: There is no central authority to validate
transactions, rather existing nodes are collectively responsible for
validating the transactions. Various consensus mechanisms are
used to validate transactions based on predefined algorithms. In
the case of bitcoin proof of work consensus mechanism is used.
3. Hybrid DLT: It is combined with both permissionless and
permissioned DLTs and can benefit from both of them.
Below are some of the types of DLT:
1. Blockchain: In this type of DLT, transactions are stored in the
form chain of blocks and each block produces a unique hash that
 can be used as proof of valid transactions. Each node has a copy
of the ledger which makes it more transparent.
2. Directed Acyclic Graphs (DAG): This uses a different data
structure to organize the data that brings more consensus. In this
type of DLT, validation of transactions mostly requires the
majority of support from the nodes in the network. Every node on
the network has to provide proof of transactions on the ledger
and then can initiate transactions. In this nodes have to verify at
least two of the previous transactions on the ledger to confirm
their transaction.
3. Hashgraph: In this type of DLT, records are stored in the form of
a directed acyclic graph. It uses a different consensus
mechanism, using virtual voting as the form consensus
mechanism for gaining network consensus. Hence nodes do not
have to validate each transaction on the network.
4. Holochain: Holochain is termed as the next level of blockchain
by some people because it is much more decentralized than
blockchain. It is a type of DLT that simply proposes that each
node will run on a chain of its own. Therefore nodes or miners
have the freedom to operate autonomously. It basically moves to
the agent-centric structure. Here agent means computer, node,
miner,etc.
5. Tempo or Radix: Tempo uses the method of making a partition
of the ledger this is termed sharding and then all the events that
happened in the network are ordered properly. Basically,
transactions are added to the ledger on basis of the order of
events than the timestamp.

Advantages Of Distributed Ledger Technology

1. High Transparency: Distributed ledger presents a high level of

transparency because all the transaction records are visible to
everyone. The addition of data needs to be validated by nodes by
using various consensus mechanisms. and if anyone tries to alter
or change data in the ledger then it is immediately reflected
across all nodes of the network which prevents invalid
transactions.
2. Decentralized: In a centralized network, there may be a single
point of failure and it can disrupt the whole network because of
mistakes at the central authority level. But in the case of
distributed networks, there is no risk of a single point of failure.
because of the decentralized structure trust factor also increases
 in participating nodes. This decentralized nature of validation
reduces the cost of transactions drastically.
3. Time Efficient: As this network is decentralized so there is no
need for a central authority to validate transactions every time.
Hence this time for validation of each transaction reduces
drastically. In the case of DLT, transactions can be validated by
members of the network itself by using various consensus
mechanisms.
4. Scalable: Distributed ledger technology is more scalable
because many different types of consensus mechanisms can be
used to make it more reliant, fast, and updated. Because these
many advanced DLT technologies are introduced in the last few
years. Such as Holochain, hashgraph are considered to be
advanced and more secure versions of Blockchain DLT.
Blockchain itself is advanced and secure but DLT provides a way
to more advanced technologies.

Uses of Distributed Ledger Technology

Because of all these benefits of distributed ledger technology and

this technology has the potential to revolutionize many sectors like
Financial, energy, healthcare, governance, supply chain
management, real estate, cloud computing, etc.

1. Banking: In the banking sector right now transfer of money can

be both expensive and time-consuming. Also sending money
overseas becomes even more complex due to exchange rates
and other hidden fees included. Here DLT can provide a
decentralized secure network that will help to reduce the time,
complexity, and costs required to transfer money. This
decentralized network will eliminate the need for third parties
which makes this system more complex and time-consuming.
2. Cyber Security: Nowadays cyber security has been emerging as
a big threat to governments, enterprises, and individual people
also. So it is essential to find an effective solution to secure our
data and privacy against unauthorized access. In DLT, all
information is authorized and securely encrypted by various
cryptographic algorithms. This provides a transparent and secure
environment and none of the data can be tempered by any
entity.
3. Supply chain management: Supply chain is one of the complex
structures itself. In this structure, it is hard to trace where the
fault happened. So here Distributed ledger technology comes into
 the picture, Using DLT, you can easily trace the supply chain from
the beginning to the end and can easily find out where a mistake
or fault has happened. All the data added to the DLT is validated
and permanent and can not be altered. This transparency of data
enables us to trace from the beginning to the end of the ledger.
4. Healthcare: Distributed Ledger eliminates central authority and
ensures rapid access to secured and untempered data. Here
important medical can be stored securely and no one can change
this data, even if someone tries to change it will be reflected
everyone immediately. DLT can be used in the insurance sector
to trace false claims because of its decentralized system.
5. Governance: DLT can be used in the government system to
make it transparent among citizens. Many governments have
adopted blockchain in the governance system because of the
robustness of this system. It can be used as a voting system too.
The traditional voting system has many flaws and sometimes it is
found that there are many false voting and illegal activities that
happen during voting. Online voting systems can be used to vote
and with security and fake votes can be easily checked. everyone
will have their own identity. So that any person sitting anywhere
in the world can cast his vote.

How are Blockchain And Distributed Ledger Different?

In general blockchain and Distributed Ledger Technology are

considered as same, but there are some differences between these
two technologies. Blockchain can be classified as a type of
Distributed Ledger Technology. We can say that Blockchain is a type
of DLT, but every Distributed Ledger can not be called a blockchain.
Blockchain is the parent technology of DLT. But the idea behind
them is the same. Blockchain technology has the potential to solve
many problems in the banking and financial industry. Here,
blockchain is the advanced version of Distributed Ledger Technology
with many useful functionalities. Developers have many other
variants of DLTs in the technology world. However, they do not have
the many real-life implementations and applications that blockchain
has been able to do.

Basis Distributed Ledger Blockchain Technology

In DLT, blocks can be organized In Blockchain, blocks are added in

Block Structure in different forms. the form of a chain.
 Basis Distributed Ledger Blockchain Technology

It is more scalable because it

It is a subset of DLT, the power of
does not need the power of a
the work consensus mechanism
work consensus mechanism for
adds more functionalities and
the validation of each
security.
Power of Work transaction.

It does not require any tokens or In it, tokens must be considered

Tokens digital currency. while working with Blockchain.

It does not require any specific All blocks are arranged in a

Sequence sequence of data. particular series.

Trust among participating nodes

Trust among participating nodes is less than DLT. Decision-making
is high. powers can be on one hand
Trustability because everyone can mine.

Advantages of Using Distributed Ledger Technology In

Blockchain

1. Security: All records of every transaction are securely

encrypted. Once the transaction is validated, it is completely
secure and no one can update or change it. It is a permanent
process.
2. Decentralization: All network members or nodes have a copy of
the ledger for complete transparency. A decentralized private
distributed network improves the reliability of the system and
gives assurance of continuous operations without any
interruption. It gives control of information and data in the hand
of the user.
3. Anonymity: The identity of each participant is anonymous and
does not possibly reveal their identity.
4. Immutable: Any validated transactions can not be changed as
they are irreversible.
5. Transparency: Distributed technologies offer a high level of
transparency. Which is necessary for the sectors like finance,
medical science, banking, etc.
6. Speed: Distributed Ledger Technology can handle large
transactions faster than traditional methods.
7. Smart Contracts: Distributed Ledger Technology supports smart
contracts which are self-executing contracts with the terms of the
agreement between buyer and seller being directly written into
lines of code. Smart contracts reduce the need for intermediaries
and offer transparency and automation in the execution of the
contract terms.
8. Lower Costs: Distributed Ledger Technology eliminates
intermediaries and reduces the costs associated with
intermediaries, which makes the system more cost-effective.
9. Improved Efficiency: Distributed Ledger Technology reduces
the time and costs associated with traditional transaction
methods. It offers faster settlement times, reduced paperwork,
and increased efficiency.
10. Auditing: Distributed Ledger Technology makes auditing
easier as every transaction is recorded and the ledger cannot be
altered. This improves the transparency and accuracy of financial
audits.
11. Resilience: Distributed Ledger Technology is more resilient
than traditional databases as it is spread across multiple nodes.
This means that even if one node goes down, the network can
still function as the rest of the nodes can continue to validate
transactions.
12. Traceability: Distributed Ledger Technology offers complete
traceability of assets, from their creation to their current
ownership. This improves accountability and reduces the risks of
fraud and theft.

Disadvantages Of Distributed Ledger Technology

1. 51% Attack: The 51% attack is a bit concerning part of this

distributed ledger technology that is to be checked routinely.
2. Costs of Transaction: The connected nodes are expected to
validate the transaction of a given Distributed Ledger Technology
which gives high transaction cost as the other nodes are paid
incentives to validate the transaction.
3. Slow Transaction Speed: The major disadvantage of this DLT is
the slow speed of transactions as multiple nodes are attached to
this network and it takes time to validate the transaction by all
the other nodes.
4. Scalability Issues: Due to low speed and high transaction costs
DLT faces very difficulties to expand on a large scale.
5. Lack of Regulation: As DLT is a decentralized technology, it
operates outside the control of any centralized authority which
 can lead to a lack of regulation, making it difficult to hold
accountable any wrongdoings or fraudulent activities on the
network.
6. Energy Consumption: Distributed Ledger Technology requires a
significant amount of energy to maintain the network and
validate transactions, especially in the case of Proof of Work
consensus mechanisms, which can lead to a negative impact on
the environment.
7. Complexity: Implementing and managing Distributed Ledger
Technology can be complex and requires a high level of technical
expertise, which can be a barrier to entry for many organizations
and individuals.
8. Privacy Concerns: While the anonymity of participants on the
network is considered an advantage, it can also be a
disadvantage as it can lead to privacy concerns and illicit
activities on the network.
9. Lack of Interoperability: Different Distributed Ledger
Technologies may use different protocols, which can lead to
interoperability issues, making it difficult for different networks to
communicate and transact with each other.

Future of Distributed Ledger Technology

1. Experts in this area promote DLT as a solution for many problems

that are present on the internet and will drastically be able to
solve all these problems. Distributed Ledger Technology is
termed the “Internet of Value”. Transactions and processes will
occur in real-time with the help of the internet.
2. Distributed Ledger Technology has the potential to impact
problems in financial or banking, cyber security, healthcare,
government, data security, etc. sectors with effective solutions.
3. Enterprises and visionaries are now faced with the challenge of
establishing networks of entities that together can take
advantage of DLT to radically change how they share and keep
records, and innovate where DLT can enable entirely new
processes and business models.
Chain of Custody
Ashish Badiye; Neeti Kapoor; Ritesh G. Menezes.

Author Information and Affiliations

Last Update: February 13, 2023.

Go to:

Definition/Introduction
The chain of custody is the most critical process of evidence documentation. It is a must to
assure the court of law that the evidence is authentic, i.e., it is the same evidence seized at the
crime scene. It was, at all times, in the custody of a person designated to handle it and for
which it was never unaccounted. Although it is a lengthy process, it is required for evidence
to be relevant in the court. The continuity of possession of evidence or custody of evidence
and its movement and location from the point of discovery and recovery (at the scene of a
crime or from a person), to its transport to the laboratory for examination and until the time it
is allowed and admitted in the court, is known as the chain of custody or chain of evidence.
Go to:

Issues of Concern
Importance of the Chain of Custody
The chain of custody proves the integrity of a piece of evidence.[1] A paper trail is
maintained so that the persons who had charge of the evidence at any given time can be
known quickly and summoned to testify during the trial if required.
A record of the chain of evidence must be maintained and established in the court whenever
presenting evidence as an exhibit.[2] Otherwise, the evidence may be inadmissible in the
court leading to serious questions regarding its legitimacy, integrity, and the examination
rendered upon it.[3] The chain of custody needs to document every transmission from the
moment the evidence is collected, from one person to another, to establish that nobody else
could have accessed or possessed that evidence without authorization. Although there is no
limit on the number of transfers, it is crucial to keep this number as low as possible.
Evidence requires conscientious handling to avert tampering. The chain of custody is said to
be the sequential documentation or trail that accounts for the sequence of custody, control,
transfer, analysis, and disposition of physical or electronic evidence. The goal is to establish
that the evidence is related to the alleged crime, was collected from the scene, and was in its
original/unaltered condition rather than having been tampered with or "planted" deceitfully to
make someone seem guilty. The chain of custody maintains the integrity of the sample. The
traceability of the record of the control, transfer, and analysis of samples indicates the
transparency to the procedure.[4]
Maintaining the chain of custody is critical in forensic practice.[5] This step of
documentation is vital because everything done for the examination and analysis of the
evidentiary sample must be authorized and recorded. The liability for the condition rests with
everyone coming in contact with it. The documentation should be comprehensive with
information regarding the circumstances of evidence collection, the people who handled the
evidence, period of the guardianship of evidence, safekeeping conditions while handling
and/or storing of the evidence, and how evidence is handed over to subsequent custodians
every time a transfer occurs (along with the signs of individuals involved at the respective
stage). It prevents police officers and other labs/law officials involved from tainting the
evidence or misplacing the piece of evidence as it would eventually be traceable back to
them, and they would be held responsible for the same.[6]
Go to:

Clinical Significance
The Relevance of the Chain of Custody Documentation
The documentation of the chain of custody serves three primary purposes; to ask relevant
questions regarding the evidence to the analytical laboratory, to maintain a record of the
chain of custody, and to document that the sample/evidence was handled only by approved
personnel and was not accessible for tampering before analysis.
The investigator or the person responsible for collecting evidence must complete the labels of
the sample container/bags and the chain of custody forms to enable tracking of the sample.
Each sample container label must receive a unique identification code and other relevant
information such as location, date and time of collection, the name, and signature of the
person who collected the sample, and signature of the witness(es). It is vital that the evidence
is appropriately packed to avoid damage during transport and must be preferably sealed in
tamper-evident/resistant bags or with tamper-evident tapes.
A separate chain of custody form must accompany different evidence bags. The chain of
custody form shall at least include the following information:
 Unique identifier
 Name and signature of the sample collector
 Official address and contact number
 Name of the recipient
 Laboratory's address
 Details of each sample, including:

o Unique identifier and matrix
o Date and time of collection
o Type of analysis required
 Signatures of everyone involved in the chain of possession with date and time
 Date and method of delivery
 Authorization for the analysis of the sample
 Any other information about the sample
Custody of the Evidence
Each time the charge of evidence is changed, an entry of signature, date, and time is
necessary for the chain of custody form. A sample shall be deemed to be in custody if it is in
actual physical possession of the authorized custodian in a secured place without access to
unauthorized personnel or any opportunity for tampering.
An illustration of the chain of custody in case of the recovery of a blood-stained flat iron rod
at the scene of a murder depicted in the routine text is as follows:
"Investigating officer Steve collects the iron rod, packs it, and hands it over to forensic
analyst Jack. Forensic analyst Jack analyses the iron rod at the laboratory and collects
fingerprints and blood from the iron rod. Jack then hands over the iron rod and all the
collected evidence from the iron rod to the evidence receiving clerk Tom. The evidence
receiving clerk, Tom, then stores the evidence in the evidence storage locker. Tom keeps a
record of all those who have accessed the original evidence."
During the trial, if the defense counsel raises queries on the chain of evidence, the records
will demonstrate that the iron rod in the evidence storage is the same as that collected from
the scene of a crime. Still, if inconsistencies persist and the prosecution cannot prove who
had the iron rod at a given point of time, then the chain is deemed broken, and the defense
counsel may seek in the court to have the resultant evidence annulled.
Other Scenarios of the Chain of Custody Usage
 Apart from crime scene investigation, the other areas which also find the use of the
chain of custody maintenance include (but are not limited to):
 Civil litigation
 In dope testing of athletes
 Managing the chain of source, e.g., to improve the traceability of food products (to
ensure authenticity to ethically sourced meat), or to ensure that wood products
originate from sustainably managed woodlands
 In research (involving the use of animals) to know whether the animals were ethically
raised/sourced or not
 In clinical trials
 In the fields of history, art collection to see the provenance (timeline of the ownership,
custody, and/or location of the painting, document, or a piece of art/antique)
 Postal services; supply chain integrity
 The procurement of drugs for execution
 Seizure of controlled/prohibited substance
 Seizure of money/gold ornaments/other valuable items by customs, income tax, or
revenue departments
 In violence and abuse cases
 In firearms injuries, etc.[2][4][7][8][9][4]
The chain of custody is particularly significant in environmental sampling that can help
identify contamination and can be used to fix accountability. The laboratories should also be
aware of other legal implications such as chain of custody, expert testimony, and
appropriateness of scientific evidence.[10]
Chain of Custody in Legal Drug Testing
For drugs of abuse testing using urine samples, it is essential that the
donor/athlete/sportsperson identifies the sample and that the urine cup is sealed (preferably
by themselves). The chain of custody forms should then be signed by the donor/athlete,
followed by the person who collected the specimen. In the case of an insentient patient in the
emergency room, the nurse who collects the urine/blood sample can identify it in the patient's
place.
A related illustration depicted at the "American Association for Clinical Chemistry"- Clinical
Laboratory News by Professor Amitava Dasgupta is as follows:
"Police officer Ramsey seizes the urine sample collected from the suspect, and police
officer Fred transports the sample to the forensic/drug testing laboratory. At the laboratory,
case receiving staff, Paul, receives the sample, and scientist Derek analyzes it and detects a
metabolite of a banned substance/drug. Scientist Derek gives the result to principal
scientist Evan, who confirms the result."
Ramsey, Fred, Paul, Derek, and Evan would have to sign the chain of custody form
sequentially. Each one of them would be required to testify to recognize and establish the
condition of the sample while in their custody while maintaining the chain, which will
eventually prove that the suspect abused the banned substance.
Chain of Custody in Clinical/Medical Drug Testing
A drug test in a clinical setting using urine or blood samples is usually necessary in cases of
the suspected overdosing patient getting admitted in the emergency department except for the
cases where the results are positive, and the patient was in an accident or instances which
may result in a trial. The screening for drugs in urine samples is usually via immunoassays.
[11] Analytical methods confirm the initial results on the clinician's request.
The result of medical drug testing is confidential information. Even if the drug screen is
positive, it cannot be evidence against the individual for disciplinary or penal action. Hence,
the chain of custody is not required. It is necessary to confirm the results of the initial positive
immunoassay, as it may be necessary in court as evidence. In these cases, the chain of
custody is essential.
Conclusion
Maintaining the chain of custody should be considered a professional and ethical
responsibility by those in charge of the evidence. It is imperative to create appropriate
awareness regarding the importance and correct procedures of maintaining the chain of
custody of evidence among the people dealing with such cases. It is often ignored and given
very little significance as a presumably un-important and straightforward procedure. Still, it
must remain in mind that it is the most critical procedure which ultimately decides the
admissibility of evidence in the court of law.