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Blockchain Technology - Unit-1

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54 views28 pages

Blockchain Technology - Unit-1

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Tejashwi tejuu
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Unit – 1

Introduction to blockchain technology:-


Blockchain could be a data structure that could be a growing list of
information blocks. The knowledge blocks area unit coupled along, such
recent blocks can’t be removed or altered. Blockchain is the backbone
Technology of the Digital CryptoCurrency BitCoin. The blockchain is a
distributed database of records of all transactions or digital events that have
been executed and shared among participating parties. Each transaction is
verified by the majority of participants of the system. It contains every single
record of each transaction. Bitcoin is the most popular cryptocurrency an
example of the blockchain. Blockchain Technology first came to light when a
person or Group of individuals name ‘Satoshi Nakamoto’ published a white
paper on “BitCoin: A peer-to-peer electronic cash system” in 2008.
Blockchain Technology Records Transaction in Digital Ledger which is
distributed over the Network thus making it incorruptible. Anything of value
like Land Assets, Cars, etc. can be recorded on Blockchain as a Transaction.
How does Blockchain Technology Work?
One of the famous use of Blockchain is Bitcoin. Bitcoin is a cryptocurrency
and is used to exchange digital assets online. Bitcoin uses cryptographic proof
instead of third-party trust for two parties to execute transactions over the
Internet. Each transaction protects through digital signature.

Distributed Database: There is no Central Server or System which keeps the


data of the Blockchain. The data is distributed over Millions of Computers
around the world which are connected to the Blockchain. This system allows
the Notarization of Data as it is present on every Node and is publicly
verifiable.
A network of nodes: A node is a computer connected to the Blockchain
Network. Node gets connected with Blockchain using the client. Client helps
in validating and propagating transactions on to the Blockchain. When a
computer connects to the Blockchain, a copy of the Blockchain data gets
downloaded into the system and the node comes in sync with the latest block
of data on Blockchain. The Node connected to the Blockchain which helps in
the execution of a Transaction in return for an incentive is called Miners.

Disadvantages of the current transaction system:


 Cash can only be used in low amount transactions locally.
 Huge waiting time in the processing of transactions.
 Need to third party for verification and execution of Transaction
make the process complex.
 If the Central Server like Banks is compromised, whole System is
affected including the participants.
 Organization doing validation charge high process thus making the
process expensive.
Building trust with Blockchain: Blockchain enhances trust across a business
network. It’s not that you can’t trust those who you conduct business with its
that you don’t need to when operating on a Blockchain network. Blockchain
builts trust through the following five attributes:
 Distributed: The distributed ledger is shared and updated with every
incoming transaction among the nodes connected to the Blockchain.
All this is done in real-time as there is no central server controlling
the data.
 Secure: There is no unauthorized access to Blockchain made
possible through Permissions and Cryptography.
 Transparent: Because every node or participant in Blockchain has a
copy of the Blockchain data, they have access to all transaction data.
They themselves can verify the identities without the need for
mediators.
 Consensus-based: All relevant network participants must agree that
a transaction is valid. This is achieved through the use of consensus
algorithms.
 Flexible: Smart Contracts which are executed based on certain
conditions can be written into the platform. Blockchain Network can
evolve in pace with business processes.
Benefits of Blockchain Technology:
 Time-saving: No central Authority verification needed for
settlements making the process faster and cheaper.
 Cost-saving: A Blockchain network reduces expenses in several
ways. No need for third-party verification. Participants can share
assets directly. Intermediaries are reduced. Transaction efforts are
minimized as every participant has a copy of shared ledger.
 Tighter security: No one can temper with Blockchain Data as it
shared among millions of Participant. The system is safe against
cybercrimes and Fraud.
 Collaboration: It permits every party to interact directly with one
another while not requiring third party negotiate.
 Reliability: Blockchain certifies and verifies identities of every
interested party. This removes double record, reducing rates and
accelerate transactions.
Application of Blockchain
 Leading Investment Banking Companies like Credit Suisse, JP
Morgan Chase, Goldman Sachs and Citigroup have invested in
Blockchain and are experimenting to improve the banking experience
and secure it.
 Following the Banking Sector, the Accountants are following the
same path. Accountancy involves extensive data, including financial
statements spreadsheets containing lots of personal and institutional
data. Therefore, accounting can be layered with blockchain to easily
track confidential and sensitive data and reduce human error and
fraud. Industry Experts from Deloitte, PwC, KPMG and EY are
proficiently working and using blockchain-based software.
 Booking a Flight requires sensitive data ranging from the passenger’s
name, credit card numbers, immigration details, identification,
destinations, and sometimes even accommodation and travel
information. So the sensitive data can be secured using blockchain
technology. Russian Airlines are working towards the same.
 Various industries, including hotel services, pay a significant amount
ranging from 18-22% of their revenue to third-party agencies. Using
blockchain, the involvement of the middleman is cut short and allows
interacting directly with the consumer ensuring benefits to both
parties. Winding Tree works extensively with Lufthansa, AirFrance,
AirCanada, and Etihad Airways to cut short third-party operators
charging high fees.
 Barclaysuses Blockchain to streamline the Know Your Customer
(KYC) and Fund Transfer processes while filling patents against
these features.
 Visauses Blockchain to deal with business to business payment
services.
 Unileveruses Blockchain to track all their transactions in the supply
chain and maintain the product’s quality at every stage of the
process.
 Walmart has been using Blockchain Technology for quite some time
to keep track of their food items coming right from farmers to the
customer. They let the customer check the product’s history right
from its origin.
 DHL and Accenture working together to track the origin of medicine
until it reaches the consumer.
 Pfizer,an industry leader, has developed a blockchain system to keep
track of and manage the inventory of medicines.
 The government of Dubai looking forward to making Dubai the first-
ever city to rely on entirely and work using blockchain, even in their
government office.
 Along with the above organisations, leading tech companies like
Google, Microsoft, Amazon, IBM, Facebook, TCS, Oracle,
Samsung, NVIDIA, Accenture, PayPal, are working on Blockchain
extensively.

Basic ideas behind block chain :-


Blockchain is a revolutionary technology that underlies cryptocurrencies like
Bitcoin, but its applications extend far beyond digital currencies. At its core,
blockchain is a distributed ledger technology that offers several key ideas and
features:

1. Decentralization: Unlike traditional centralized systems (like banks or


governments), blockchain operates on a decentralized network of
computers, often referred to as nodes. Each node has a copy of the entire
blockchain, and there is no single central authority controlling the
network. This decentralization enhances security and resilience.
2. Immutable Ledger: Data on the blockchain is stored in blocks, which
are linked together in chronological order to form a chain. Once data is
added to the blockchain, it becomes extremely difficult to alter or delete.
This immutability is achieved through cryptographic hashing, making it
highly secure against tampering.
3. Transparency: The blockchain ledger is public and transparent. Anyone
can view the entire transaction history and verify the authenticity of
transactions. This transparency can help build trust in the system.
4. Security through Cryptography: Blockchain uses advanced
cryptographic techniques to secure transactions and control access to the
network. Participants on the network have cryptographic keys that allow
them to sign and verify transactions.
5. Consensus Mechanisms: To add a new block of transactions to the
blockchain, nodes on the network must agree on its validity. Different
blockchain networks use various consensus mechanisms, such as Proof of
Work (PoW) or Proof of Stake (PoS), to achieve this agreement.
Consensus mechanisms ensure that the network remains secure and
functional.
6. Smart Contracts: Some blockchains, like Ethereum, support smart
contracts. These are self-executing contracts with the terms of the
agreement directly written into code. They automatically execute when
predefined conditions are met, eliminating the need for intermediaries in
many transactions and agreements.
7. Decentralized Applications (DApps): Developers can build
decentralized applications on blockchain platforms. These applications
operate on a distributed network of computers and often use smart
contracts to automate processes.
8. Cryptocurrency: While not exclusive to blockchain technology,
cryptocurrencies like Bitcoin and Ethereum are built on blockchain
networks. They enable digital peer-to-peer transactions without the need
for traditional financial intermediaries.
9. Tokenization: Blockchain allows for the creation of digital tokens that
can represent various assets, including real estate, art, or even ownership
in a company. This tokenization of assets can make them more accessible
and tradable.
10.Use Cases Beyond Finance: Blockchain has applications beyond
finance, including supply chain management, voting systems, healthcare
data management, and more. It provides a secure and transparent way to
record and verify data.
11.Privacy and Permissions: Not all blockchains are entirely public. Some
allow for private or permissioned networks where access is restricted to a
select group of participants. This can be important for businesses and
organizations that need control over who can participate in their
blockchain network.

In summary, blockchain is a transformative technology that offers


decentralization, immutability, transparency, and security through cryptography.
It has the potential to disrupt various industries by enabling trust and automation
in a wide range of applications.

How it is changing the landscape of digitalization :-

lockchain is changing the landscape of digitalization in several profound ways:

1. Enhanced Security: Blockchain's cryptographic principles make it


highly secure and resistant to tampering. Data stored on a blockchain is
immutable, making it an ideal choice for securing sensitive information
such as financial records, identity data, and healthcare records. This
enhanced security can reduce the risk of data breaches and fraud.
2. Decentralization: Blockchain eliminates the need for intermediaries in
digital transactions and record-keeping. This decentralization reduces
reliance on centralized authorities, like banks and government agencies,
leading to more democratic and inclusive digital systems. It also enhances
resilience, as there is no single point of failure.
3. Trust and Transparency: The transparent and verifiable nature of
blockchain technology builds trust among users. In supply chain
management, for example, companies can track the journey of products
from manufacturing to delivery using blockchain, ensuring authenticity
and quality. In voting systems, it can enable citizens to verify their votes
were counted accurately.
4. Smart Contracts: Blockchain platforms like Ethereum allow for the
creation of smart contracts, which are self-executing agreements with
code-enforced rules. These contracts automate processes, reducing the
need for intermediaries and minimizing the potential for disputes. Smart
contracts have applications in various industries, including finance, real
estate, and insurance.
5. Efficiency and Cost Reduction: Blockchain can streamline processes
and reduce operational costs. In finance, cross-border payments and
settlement times can be significantly reduced. In healthcare,
administrative costs associated with managing patient records can be
minimized. Supply chain processes become more efficient with real-time
tracking and transparency.
6. Tokenization of Assets: Blockchain enables the tokenization of real-
world assets, such as real estate, art, and even ownership in a company.
This fractional ownership allows for greater liquidity and accessibility to
traditionally illiquid assets.
7. Financial Inclusion: Blockchain and cryptocurrencies provide
opportunities for financial inclusion by giving people in underserved or
unbanked regions access to financial services. They can participate in the
global economy and transfer money without relying on traditional
banking infrastructure.
8. Data Ownership and Privacy: Users have more control over their data
on blockchain networks. They can choose what data to share and with
whom, enhancing data privacy and ownership. This shift in data control is
crucial in the age of digital surveillance and data monetization.
9. Global Trade and Supply Chains: Blockchain can simplify
international trade by providing a single, transparent record of goods as
they move across borders. This reduces delays, fraud, and errors in the
supply chain.
10.New Business Models: Blockchain enables new business models and
revenue streams. Decentralized applications (DApps) and token
ecosystems offer opportunities for startups and established companies to
innovate and create value in novel ways.
11.Environmental Impact: Some blockchains are exploring more energy-
efficient consensus mechanisms, such as Proof of Stake (PoS), to address
concerns about the energy consumption of blockchain networks,
particularly those using Proof of Work (PoW). This shift aligns with
growing environmental consciousness.

In summary, blockchain is driving significant changes in the digital landscape


by providing a secure, transparent, and decentralized foundation for various
applications. Its impact extends beyond finance to industries like supply chain
management, healthcare, identity verification, and more, reshaping the way we
interact with digital systems and data.
Introduction to cryptographic :-

Cryptography plays a pivotal role in the functioning and security of blockchain


technology. It's the underlying mechanism that ensures the integrity,
confidentiality, and authenticity of data stored and transmitted within a
blockchain network. Here's an introduction to cryptography in the context of
blockchain:

Cryptography Defined: Cryptography is the practice and study of techniques


used to secure communication and protect information from unauthorized
access. It involves the use of mathematical algorithms to encode data in such a
way that only authorized parties can decipher and understand it.

Key Components of Cryptography in Blockchain:

1. Hash Functions: Hash functions are fundamental cryptographic tools in


blockchain. They take an input (data) and generate a fixed-size string of
characters, which is the hash value or digest. Hash functions are one-way
and deterministic, meaning you can't reverse-engineer the input from the
hash value. This property ensures data integrity and helps maintain the
immutability of blockchain data.
2. Public and Private Keys: Public-key cryptography, also known as
asymmetric cryptography, involves the use of paired keys: a public key
and a private key. Data encrypted with the public key can only be
decrypted with the corresponding private key, and vice versa. In
blockchain, public keys are used to generate addresses, while private keys
are used to sign transactions and prove ownership.
3. Digital Signatures: Digital signatures provide a way to prove the
authenticity of data and the identity of the sender. A digital signature is
created by applying a cryptographic algorithm to a message and the
sender's private key. Recipients can verify the signature using the sender's
public key, ensuring the message's integrity and origin.
4. Symmetric Encryption: This form of encryption uses a single secret key
to both encrypt and decrypt data. While not as commonly used in
blockchain as asymmetric encryption, it has applications in scenarios
where speed and efficiency are essential.

Cryptography's Role in Blockchain:

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.

In summary, cryptography is the foundation of security and trust in blockchain


technology. It provides the means to secure data, ensure transaction
authenticity, and enable participants to interact in a decentralized and secure
manner.

Blockchain or distributed trust :-


Blockchain and distributed trust are closely related concepts, but they represent
different aspects of decentralized systems and technologies. Let's explore both
of these terms:

Blockchain:

 Definition: Blockchain is a specific technology that underlies many


cryptocurrencies (like Bitcoin) and has various applications beyond
digital currencies. It is a distributed ledger technology that stores
transaction data in a decentralized and secure manner.
 Key Features: Blockchain uses cryptographic techniques to create a
tamper-proof ledger, where data is organized into blocks and linked
together in a chain. Each block contains a set of transactions, and once a
block is added to the chain, it becomes extremely difficult to alter. This
immutability and decentralization enhance security and transparency.

Distributed Trust:

 Definition: Distributed trust is a broader concept related to the trust that


is established in decentralized networks and systems. It goes beyond
blockchain technology and encompasses the idea that trust can be
distributed across a network of peers rather than relying on a central
authority.
 Key Features: In distributed trust systems, trust is established through
consensus mechanisms and cryptographic techniques. Participants in the
network trust the system's rules and the verifiability of transactions or
data without the need for a central authority. This trust is often achieved
through the use of cryptographic proofs and a consensus among network
participants.

Relationship between Blockchain and Distributed Trust:

 Blockchain technology is a specific implementation of the broader


concept of distributed trust. It uses cryptographic techniques,
decentralization, and consensus mechanisms to establish trust in the data
and transactions recorded on the blockchain.
 Distributed trust can exist in various forms beyond blockchains. For
example, some distributed databases, decentralized applications (DApps),
and peer-to-peer networks also rely on distributed trust to ensure the
integrity and security of data and transactions.

In summary, blockchain is a specific application of distributed trust, and both


concepts are integral to decentralized systems. Blockchain technology is a well-
known example of how distributed trust can be implemented to create secure
and transparent ledgers, but the idea of distributed trust extends to various other
decentralized systems and networks that rely on consensus and cryptography to
establish trust without central authorities.

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.

A defining feature of cryptocurrencies is that they are generally not issued by


any central authority, rendering them theoretically immune to government
interference or manipulation.

KEY TAKEAWAYS

 A cryptocurrency is a form of digital asset based on a network that is


distributed across a large number of computers. This decentralized
structure allows them to exist outside the control of governments and
central authorities.
 Some experts believe blockchain and related technologies will disrupt
many industries, including finance and law.
 The advantages of cryptocurrencies include cheaper and faster money
transfers and decentralized systems that do not collapse at a single point
of failure.
 The disadvantages of cryptocurrencies include their price volatility, high
energy consumption for mining activities, and use in criminal activities.

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.

Central to the appeal and functionality of Bitcoin and other cryptocurrencies is


blockchain technology. As its name indicates, a blockchain is essentially a set
of connected blocks of information on an online ledger. Each block contains a
set of transactions that have been independently verified by each validator on a
network.

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 :-

Cryptocurrency is a digital payment system that doesn't rely on banks to verify


transactions. It’s a peer-to-peer system that can enable anyone anywhere to send
and receive payments. Instead of being physical money carried around and
exchanged in the real world, cryptocurrency payments exist purely as digital
entries to an online database describing specific transactions. When you transfer
cryptocurrency funds, the transactions are recorded in a public ledger.
Cryptocurrency is stored in digital wallets.

Cryptocurrency received its name because it uses encryption to verify


transactions. This means advanced coding is involved in storing and
transmitting cryptocurrency data between wallets and to public ledgers. The aim
of encryption is to provide security and safety.
The first cryptocurrency was Bitcoin, which was founded in 2009 and remains
the best known today. Much of the interest in cryptocurrencies is to trade for
profit, with speculators at times driving prices skyward.
How does cryptocurrency work?

Cryptocurrencies run on a distributed public ledger called blockchain, a record


of all transactions updated and held by currency holders.

Units of cryptocurrency are created through a process called mining, which


involves using computer power to solve complicated mathematical problems
that generate coins. Users can also buy the currencies from brokers, then store
and spend them using cryptographic wallets.

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

There are thousands of cryptocurrencies. Some of the best known include:

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:

Developed in 2015, Ethereum is a blockchain platform with its own


cryptocurrency, called Ether (ETH) or Ethereum. It is the most popular
cryptocurrency after Bitcoin.

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.

Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to


distinguish them from the original.

How to buy cryptocurrency

You may be wondering how to buy cryptocurrency safely. There are typically
three steps involved. These are:

Step 1: Choosing a platform

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.

When comparing different platforms, consider which cryptocurrencies are on


offer, what fees they charge, their security features, storage and withdrawal
options, and any educational resources.

Step 2: Funding your account

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.

An important factor to consider is fees. These include potential deposit and


withdrawal transaction fees plus trading fees. Fees will vary by payment method
and platform, which is something to research at the outset.

Step 3: Placing an order

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.

How to store cryptocurrency

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.

What can you buy with cryptocurrency?

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:

Technology and e-commerce sites:

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:

Some car dealers – from mass-market brands to high-end luxury dealers –


already accept cryptocurrency as payment.

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.

If you want to spend cryptocurrency at a retailer that doesn’t accept it directly,


you can use a cryptocurrency debit card, such as BitPay in the US.
Cryptocurrency fraud and cryptocurrency scams

Unfortunately, cryptocurrency crime is on the rise. Cryptocurrency scams


include:

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.

Otherwise, fraudsters may pose as legitimate virtual currency traders or set up


bogus exchanges to trick people into giving them money. Another crypto scam
involves fraudulent sales pitches for individual retirement accounts in
cryptocurrencies. Then there is straightforward cryptocurrency hacking, where
criminals break into the digital wallets where people store their virtual currency
to steal it.

Is cryptocurrency safe?

Cryptocurrencies are usually built using blockchain technology. Blockchain


describes the way transactions are recorded into "blocks" and time stamped. It's
a fairly complex, technical process, but the result is a digital ledger of
cryptocurrency transactions that's hard for hackers to tamper with.

In addition, transactions require a two-factor authentication process. For


instance, you might be asked to enter a username and password to start a
transaction. Then, you might have to enter an authentication code sent via text
to your personal cell phone.
While securities are in place, that does not mean cryptocurrencies are un-
hackable. Several high-dollar hacks have cost cryptocurrency start-ups heavily.
Hackers hit Coincheck to the tune of $534 million and BitGrail for $195
million, making them two of the biggest cryptocurrency hacks of 2018.

Unlike government-backed money, the value of virtual currencies is driven


entirely by supply and demand. This can create wild swings that produce
significant gains for investors or big losses. And cryptocurrency investments are
subject to far less regulatory protection than traditional financial products like
stocks, bonds, and mutual funds.

Four tips to invest in cryptocurrency safely

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.

Know how to store your digital currency:

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.

Diversify your investments:

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.

Prepare for volatility:

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.

How a Cryptocurrency works :-

In simple words, blockchain in the context of cryptocurrency is a digital ledger whose


access is distributed among authorized users. This ledger records transactions related
to a range of assets, like money, house, or even intellectual property.

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.

 There is no need for currency owners to “trust” a single governing entity, as


everyone in the network has access to the same information that cannot be
altered.
 Data remains accessible only to the users of the network and it is heavily
secured. Shared ownership also means all users sign off on how accurate the
data is, which means there is very little scope for data mismanagement or
miscommunication. Think of it as a democracy.
 Security, which is a fundamental part of a blockchain.
Cryptography is the method that secures data from unauthorized access by the use of
encryption techniques. Most of the claims that blockchain makes, like privacy and
immutability, are enabled through cryptography.

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.

In 2008, a group of people (currently known under the pseudonym Satoshi


Nakamoto) created the guiding principles of the first and leading cryptocurrency in
the market today, Bitcoin. In 2009, Bitcoin was launched to the world. But it would be
years before it was formally recognized as a means of payment among leading
merchants, starting with WordPress in 2012.

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.

How Does Cryptocurrency Work?

Cryptocurrencies are not controlled by the government or central regulatory


authorities. As a concept, cryptocurrency works outside of the banking system using
different brands or types of coins – Bitcoin being the major player.

1. Mining

Cryptocurrencies (which are completely digital) are generated through a process


called “mining”. This is a complex process. Basically, miners are required to solve
certain mathematical puzzles over specially equipped computer systems to be
rewarded with bitcoins in exchange.

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.

2. Buying, selling, and storing

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:

a) use them to buy goods or services

b) trade in them

c) exchange them for cash

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:

 Security: Its distributed consensus based architecture eliminates single


points of failure and reduces the need for data intermediaries such as
transfer agents, messaging system operators and inefficient
monopolistic utilities. Ethereum also enables implementation of secure
application code designed to be tamper-proof against fraud and
malicious third parties— making it virtually impossible to hack or
manipulate.
 Transparency: It employs mutualized standards, protocols, and shared
processes, acting as a single shared source of truth for network
participants
 Trust: Its transparent and immutable ledger makes it easy for different
parties in a business network to collaborate, manage data, and reach
agreements
 Programmability: It supports the creation and execution of smart
contracts— tamper proof, deterministic software that automates
business logic – creating increased trust and efficiency
 Privacy: It provides market-leading tools for granular data privacy
across every layer of the software stack, allowing selective sharing of
data in business networks. This dramatically improves transparency,
trust and efficiency while maintaining privacy and confidentiality.
 High-Performance: It’s private and hybrid networks are engineered to
sustain hundreds of transactions per second and periodic surges in
network activity
 Scalability: It supports interoperability between private and public
chains, offering each enterprise solution the global
reach, tremendous resilience, and high integrity of the mainnet

According to a report by Jupiter Research, blockchain deployments will


enable banks to realize savings on cross-border settlement transactions of up
to $27 billion by the end of 2030, reducing costs by more than 11%. Ethereum
specifically has already demonstrated disruptive economics, creating over 10x
cost advantages against incumbent technologies. Financial institutions
acknowledge that distributed ledger technology will save billions of dollars
for banks and major financial institutions over the next decade.

How does the Digitization of Financial Instruments Impact Finance?

The digitization of financial instruments – comprising digital assets, smart


contracts and programmable money – takes the benefits of blockchain further
by forging unprecedented levels of connectivity and programmability between
products, services, assets and holdings. These digitized instruments will
redefine the processes of commercial and financial markets, creating a new
paradigm where value is brought at every touch point.

Digital financial instruments offer the following business benefits:

 Authenticity and scarcity: Digitization ensures data integrity, and


enables asset provenance and full transaction history in a single shared
source of truth
 Programmable capabilities: Code that addresses governance,
compliance, data privacy, identity (KYC/AML attributes), system
incentives and features that manage stakeholder participation (for
voting and other rights)— can be built into the assets themselves
 Streamlined processes: Heightened automation increases overall
operational efficiency. It enables real-time settlement, audit and
reporting; and it reduces processing times, the potential for error and
delay, and the number of steps and intermediaries required to achieve
the same levels of confidence in traditional processes
 Economic benefits: Automated, more efficient processes trigger
reduced infrastructure costs, operation costs, and transaction costs
 Market reactivity: Digital securities allow greater customization than
standardized securities, and can be issued within shorter timeframes.
Issuers can create bespoke digital financial instruments directly
matched to investor demand.
 New products and markets: Secure, scalable and rapid asset transfers,
fractionalized ownership of real-world assets, tokenized micro-
economies, and more

Together, these benefits result in more accountable transparent governance


systems, more efficient business models, improved incentive alignment
between stakeholders, greater liquidity, lower costs of capital, reduced
counterparty risk, access to a broader investor and capital base, and access to
all other digital financial instruments.
What are the Blockchain Use Cases in Financial Services?

 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

Bitcoin prediction markets :-

Prediction markets are marketplaces where people trade on the outcomes of

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

higher chance of winning.

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Table of Contents

1. How prediction markets work


2. What are the uses of prediction markets?
3. Centralized or decentralized prediction markets
How prediction markets work

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

market believes the likelihood of team B winning is approximately 70%.

What are the uses of prediction markets?

Prediction markets can be seen as an extension of derivatives markets.

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.

Read more: What are derivatives?

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

seen as a “cleaner" way to express your views of the future.

Prediction markets might also be a public good. They have proven to be

relatively accurate at predicting future events. Companies such as Google have

begun to use prediction markets. Financial institutions pay attention to


prediction markets on things like Central Bank rate hikes. News organizations

and society at large pay attention to prediction markets on political elections.

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.

Centralized or decentralized prediction markets

Most prediction markets exist within the legacy finance and web2 framework.

There are many centralized prediction markets regulated by government

organizations like the SEC. These centralized markets have several problems

that impact their predictive power.

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

misrepresent the probabilities.

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

PredictIt) — an all too common problem with legacy financial products.


Decentralized crypto prediction markets solve these problems. They do not limit

people’s ability to fully express their conviction on an outcome. There are

decentralized projects that do no have jurisdictional or KYC requirements.

Finally, as is the case when comparing any DeFi protocol to its legacy market

counterparts, fees are much lower.

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