Blockchain Technology - Unit-1
Blockchain Technology - Unit-1
1. Data Integrity: Hash functions ensure that once data is added to the
blockchain, it cannot be altered without changing the hash value. This is
crucial for maintaining the immutability of transactions and records.
2. Secure Transactions: Digital signatures verify the authenticity of
transactions. Only the rightful owner of a private key can sign a
transaction, ensuring that transactions are legitimate and not tampered
with.
3. Privacy: Cryptography allows blockchain networks to encrypt sensitive
data, such as personal information, while still allowing participants to
verify the encrypted data's validity without revealing its content.
4. Secure Identities: Public and private key pairs create secure identities
for participants in the network. Public keys are used as addresses to send
and receive transactions, while private keys authenticate ownership and
enable secure interactions.
5. Secure Consensus: In Proof of Stake (PoS) and other consensus
mechanisms, participants need to prove ownership of a certain number of
cryptocurrency tokens. Cryptographic proofs help establish this
ownership without revealing the private key.
Blockchain:
Distributed Trust:
Currency :-
A cryptocurrency is a digital or virtual currency secured by cryptography,
which makes it nearly impossible to counterfeit or double-spend. Most
cryptocurrencies exist on decentralized networks using blockchain technology
—a distributed ledger enforced by a disparate network of computers.
KEY TAKEAWAYS
Understanding Cryptocurrencies
Cryptocurrencies are digital or virtual currencies underpinned by cryptographic
systems. They enable secure online payments without the use of third-party
intermediaries. "Crypto" refers to the various encryption algorithms and
cryptographic techniques that safeguard these entries, such as elliptical curve
encryption, public-private key pairs, and hashing functions.
Every new block generated must be verified before being confirmed, making it
almost impossible to forge transaction histories. The contents of the online
ledger must be agreed upon by a network of individual nodes, or computers
that maintain the ledger.1
Experts say that blockchain technology can serve multiple industries, supply
chains, and processes such as online voting and crowdfunding. Financial
institutions such as JPMorgan Chase & Co. (JPM) are using blockchain
technology to lower transaction costs by streamlining payment processing.2
Types of Cryptocurrency
Many cryptocurrencies were created to facilitate work done on the blockchain
they are built on. For example, Ethereum's ether was designed to be used as
payment for validating transactions and opening blocks. When the blockchain
transitioned to proof-of-stake in September 2022, ether (ETH) inherited an
additional duty as the blockchain's staking mechanism.3 Ripple's XRP is
designed to be used by banks to facilitate transfers between different
geographies.4
Because there are so many cryptocurrencies on the market, it's important to
understand the types of cryptocurrencies. Knowing whether the coin you're
looking at has a purpose can help you decide whether it is worth investing in —
a cryptocurrency with a purpose is likely to be less risky than one that doesn't
have a use.
Most of the time, when you hear about cryptocurrency types, you hear the
coin's name. However, coin names differ from coin types. Here are some of the
types you'll find with some of the names of tokens in that category:
Utility: XRP and ETH are two examples of utility tokens. They serve
specific functions on their respective blockchains.
Transactional: Tokens designed to be used as a payment method.
Bitcoin is the most well-known of these.5
Governance: These tokens represent voting or other rights on a
blockchain, such as Uniswap.6
Platform: These tokens support applications built to use a blockchain,
such as Solana.7
Security tokens: Tokens representing ownership of an asset, such as a
stock that has been tokenized (value transferred to the blockchain). MS
Token is an example of a securitized token. If you can find one of these
for sale, you can gain partial ownership of the Millenium Sapphire.8
If you find a cryptocurrency that doesn't fall into one of these categories,
you've found a new category or something that needs to be investigated to be
sure it's legitimate.
Cryptocurrency :-
If you own cryptocurrency, you don’t own anything tangible. What you own is
a key that allows you to move a record or a unit of measure from one person to
another without a trusted third party.
Although Bitcoin has been around since 2009, cryptocurrencies and applications
of blockchain technology are still emerging in financial terms, and more uses
are expected in the future. Transactions including bonds, stocks, and other
financial assets could eventually be traded using the technology.
Cryptocurrency examples
Bitcoin:
Founded in 2009, Bitcoin was the first cryptocurrency and is still the most
commonly traded. The currency was developed by Satoshi Nakamoto – widely
believed to be a pseudonym for an individual or group of people whose precise
identity remains unknown.
Ethereum:
Litecoin:
This currency is most similar to bitcoin but has moved more quickly to develop
new innovations, including faster payments and processes to allow more
transactions.
Ripple:
Ripple is a distributed ledger system that was founded in 2012. Ripple can be
used to track different kinds of transactions, not just cryptocurrency. The
company behind it has worked with various banks and financial institutions.
You may be wondering how to buy cryptocurrency safely. There are typically
three steps involved. These are:
The first step is deciding which platform to use. Generally, you can choose
between a traditional broker or dedicated cryptocurrency exchange:
Traditional brokers. These are online brokers who offer ways to buy
and sell cryptocurrency, as well as other financial assets
like stocks, bonds, and ETFs. These platforms tend to offer lower trading
costs but fewer crypto features.
Cryptocurrency exchanges. There are many cryptocurrency exchanges
to choose from, each offering different cryptocurrencies, wallet storage,
interest-bearing account options, and more. Many exchanges charge
asset-based fees.
Once you have chosen your platform, the next step is to fund your account so
you can begin trading. Most crypto exchanges allow users to purchase crypto
using fiat (i.e., government-issued) currencies such as the US Dollar, the British
Pound, or the Euro using their debit or credit cards – although this varies by
platform.
Crypto purchases with credit cards are considered risky, and some exchanges
don't support them. Some credit card companies don't allow crypto transactions
either. This is because cryptocurrencies are highly volatile, and it is not
advisable to risk going into debt — or potentially paying high credit card
transaction fees — for certain assets.
Some platforms will also accept ACH transfers and wire transfers. The accepted
payment methods and time taken for deposits or withdrawals differ per
platform. Equally, the time taken for deposits to clear varies by payment
method.
You can place an order via your broker's or exchange's web or mobile platform.
If you are planning to buy cryptocurrencies, you can do so by selecting "buy,"
choosing the order type, entering the amount of cryptocurrencies you want to
purchase, and confirming the order. The same process applies to "sell" orders.
There are also other ways to invest in crypto. These include payment services
like PayPal, Cash App, and Venmo, which allow users to buy, sell, or hold
cryptocurrencies. In addition, there are the following investment vehicles:
Bitcoin trusts: You can buy shares of Bitcoin trusts with a regular
brokerage account. These vehicles give retail investors exposure to crypto
through the stock market.
Bitcoin mutual funds: There are Bitcoin ETFs and Bitcoin mutual funds
to choose from.
Blockchain stocks or ETFs: You can also indirectly invest in crypto
through blockchain companies that specialize in the technology behind
crypto and crypto transactions. Alternatively, you can buy stocks or ETFs
of companies that use blockchain technology.
The best option for you will depend on your investment goals and risk appetite.
Once you have purchased cryptocurrency, you need to store it safely to protect
it from hacks or theft. Usually, cryptocurrency is stored in crypto wallets, which
are physical devices or online software used to store the private keys to your
cryptocurrencies securely. Some exchanges provide wallet services, making it
easy for you to store directly through the platform. However, not all exchanges
or brokers automatically provide wallet services for you.
There are different wallet providers to choose from. The terms “hot wallet” and
“cold wallet” are used:
Hot wallet storage: "hot wallets" refer to crypto storage that uses online
software to protect the private keys to your assets.
Cold wallet storage: Unlike hot wallets, cold wallets (also known as
hardware wallets) rely on offline electronic devices to securely store your
private keys.
Typically, cold wallets tend to charge fees, while hot wallets don't.
When it was first launched, Bitcoin was intended to be a medium for daily
transactions, making it possible to buy everything from a cup of coffee to a
computer or even big-ticket items like real estate. That hasn’t quite materialized
and, while the number of institutions accepting cryptocurrencies is growing,
large transactions involving it are rare. Even so, it is possible to buy a wide
variety of products from e-commerce websites using crypto. Here are some
examples:
Several companies that sell tech products accept crypto on their websites, such
as newegg.com, AT&T, and Microsoft. Overstock, an e-commerce platform,
was among the first sites to accept Bitcoin. Shopify, Rakuten, and Home Depot
also accept it.
Luxury goods:
Some luxury retailers accept crypto as a form of payment. For example, online
luxury retailer Bitdials offers Rolex, Patek Philippe, and other high-end watches
in return for Bitcoin.
Cars:
Insurance:
In April 2021, Swiss insurer AXA announced that it had begun accepting
Bitcoin as a mode of payment for all its lines of insurance except life insurance
(due to regulatory issues). Premier Shield Insurance, which sells home and auto
insurance policies in the US, also accepts Bitcoin for premium payments.
Fake websites: Bogus sites which feature fake testimonials and crypto jargon
promising massive, guaranteed returns, provided you keep investing.
Virtual Ponzi schemes: Cryptocurrency criminals promote non-existent
opportunities to invest in digital currencies and create the illusion of huge
returns by paying off old investors with new investors’ money. One scam
operation, BitClub Network, raised more than $700 million before its
perpetrators were indicted in December 2019.
"Celebrity" endorsements: Scammers pose online as billionaires or well-
known names who promise to multiply your investment in a virtual currency but
instead steal what you send. They may also use messaging apps or chat rooms
to start rumours that a famous businessperson is backing a specific
cryptocurrency. Once they have encouraged investors to buy and driven up the
price, the scammers sell their stake, and the currency reduces in value.
Romance scams: The FBI warns of a trend in online dating scams, where
tricksters persuade people they meet on dating apps or social media to invest or
trade in virtual currencies. The FBI’s Internet Crime Complaint Centre fielded
more than 1,800 reports of crypto-focused romance scams in the first seven
months of 2021, with losses reaching $133 million.
Is cryptocurrency safe?
According to Consumer Reports, all investments carry risk, but some experts
consider cryptocurrency to be one of the riskier investment choices out there. If
you are planning to invest in cryptocurrencies, these tips can help you make
educated choices.
Research exchanges:
Before you invest, learn about cryptocurrency exchanges. It’s estimated that
there are over 500 exchanges to choose from. Do your research, read reviews,
and talk with more experienced investors before moving forward.
If you buy cryptocurrency, you have to store it. You can keep it on an exchange
or in a digital wallet. While there are different kinds of wallets, each has its
benefits, technical requirements, and security. As with exchanges, you should
investigate your storage choices before investing.
Diversification is key to any good investment strategy, and this holds true when
you are investing in cryptocurrency. Don't put all your money in Bitcoin, for
example, just because that's the name you know. There are thousands of
options, and it's better to spread your investment across several currencies.
The cryptocurrency market is highly volatile, so be prepared for ups and downs.
You will see dramatic swings in prices. If your investment portfolio or mental
wellbeing can't handle that, cryptocurrency might not be a wise choice for you.
Cryptocurrency is all the rage right now, but remember, it is still in its relative
infancy and is considered highly speculative. Investing in something new comes
with challenges, so be prepared. If you plan to participate, do your research, and
invest conservatively to start.
One of the best ways you can stay safe online is by using a comprehensive
antivirus. Kaspersky Internet Security defends you from malware infections,
spyware, data theft and protects your online payments using bank-grade
encryption.
The access is shared between its users and any information shared is transparent,
immediate, and “immutable”. Immutable means anything that blockchain records is
there for good and cannot be modified or tampered with – even by an administrator.
Benefits Of Cryptocurrency
Centralized money refers to the regular money that we use, which is governed by
authorities like the Reserve Bank of India. Decentralization in cryptocurrency means
there is no similar authority that can be held responsible for supervising the rise and
fall of a particular cryptocurrency. This has many benefits over centralized money.
The roots of cryptocurrency technology can be traced back to the 1980s with the
invention of what is called a “blinding algorithm”. The algorithm is all about secure
and immutable digital transactions. It remains fundamental to the modern-day digital
currency.
The underlying blockchain technology is today used in banking, insurance, and other
business sectors. Growing at a compounded annual growth rate of 12.8% since 2021,
the cryptocurrency market is estimated to reach $4.94 billion by 2030, thanks to the
need to improve the efficiency of today’s payment systems, rise in global remittances
and increased need to secure data.
1. Mining
In an ideal world, it would take a person just 10 minutes to mine one bitcoin, but in
reality, the process takes an estimated 30 days.
Users today can buy cryptocurrencies from central exchanges, brokers, and individual
currency owners or sell it to them. Exchanges or platforms like Coinbase are the
easiest ways to buy or sell cryptocurrencies.
Once bought, cryptocurrencies can be stored in digital wallets. Digital wallets can be
“hot” or “cold”. Hot means the wallet is connected to the internet, which makes it easy
to transact, but vulnerable to thefts and frauds. Cold storage, on the other hand, is safer
but makes it harder to transact.
3. Transacting or investing
Cryptocurrencies like Bitcoins can be easily transferred from one digital wallet to
another, using only a smartphone. Once you own them, your choices are to:
b) trade in them
If you are using Bitcoin for purchases, the easiest way to do that is through debit-card-
type transactions. You can also use these debit cards to withdraw cash, just like at an
ATM. Converting cryptocurrency to cash is also possible using banking accounts or
peer-to-peer transactions.
Financial Services :-
The Ethereum blockchain enables more open, inclusive, and secure business
networks, shared operating models, more efficient processes, reduced costs,
and new products and services in banking and finance. It enables digital
securities to be issued within shorter periods of time, at lower unit costs, with
greater levels of customization. Digital financial instruments may thus be
tailored to investor demands, expanding the market for investors, decreasing
costs for issuers, and reducing counterparty risk.
Over the last five years, the technology has matured for enterprise-grade use
demonstrating the following benefits:
Capital Markets
o Issuance
o Sales and trading
o Clearing and settlement
o Post-trade services and infrastructure
o Asset servicing
o Custody
Asset Management
o Fund launch
o Cap table management
o Transfer agency in asset management
o Fund administration
Payments and remittances
o Domestic retail payments
o Domestic wholesale and securities settlement
o Cross border payments
o Tokenized fiat, stablecoins and cryptocurrency
Banking and Lending
o Credit prediction and credit scoring
o Loan syndication, underwriting and disbursement
o Asset collateralization
Trade Finance
o Letters of credit and bill of lading
o Financing structures
Insurance
o Claims processing and disbursement
o Parametrized contracts
o Reinsurance markets
future events. Market prices can indicate what the marketplace believes the
probability of the event is. For example, “who will win in a sporting event?" For
this sporting event there will be two tokens, one for each team. If the price of
token A is higher than token B, it means that the market believes team A has a
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Table of Contents
Most prediction markets are a binary option market (e.g., “yes" or “no), where
the two options will expire at the price of 0% or 100%. Before expiry, the two
assets trade between 0% and 100%, which indicates what the marketplace
thinks the odds are. Let’s return to our sporting event example. If the market
price of token A is US$0.30 and the price of token B is US$0.70, then the
Derivatives, such as futures and options, are used to predict the future price of
assets such as oil, gold, stocks, and bitcoin. Prediction markets do the same for
events.
Derivatives markets are also used to bet on the probability of some future
events, but indirectly. For example, if you believe a certain political party will
win the US presidency, you might express that belief by buying or selling
certain stocks and commodities. Prediction markets allow people to place bets
directly on the probability of the election. In this way, prediction markets can be
Prediction markets are still a young industry. It seems likely that their predictive
power will only increase as a more and varied group of people participate.
Most prediction markets exist within the legacy finance and web2 framework.
organizations like the SEC. These centralized markets have several problems
The most important problem with these centralized markets is that they have
low limits on how much each person can bet. This limits the predictive power of
prediction markets, because even if a person has very strong conviction about
an outcome and the means to back it up, they are capped at limits well under
$1,000. This is especially true when someone believes that the likelihood of an
event is very mispriced. They, and like minded people, will be unable to
capitalize on the market mispricing, and the prediction market will grossly
Legacy prediction markets need to KYC their customers, shutting out many
people. A smaller, narrower pool of people likely skews the market's predictive
power. Finally, prediction markets have high fees (e.g., a 5% withdrawal fee on
Finally, as is the case when comparing any DeFi protocol to its legacy market
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