UNIT-1

1. Introduction

A blockchain is “a distributed database that maintains a continuously growing list of ordered records,
called blocks.” These blocks “are linked using cryptography. Each block contains a cryptographic hash
of the previous block, a timestamp, and transaction data. A blockchain is a decentralized, distributed and
public digital ledger that is used to record transactions across many computers so that the record cannot
be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.
“A blockchain is a continuously growing list of records, called blocks, which are linked and secured
using cryptography.” The concept is introduced by Satoshi Nakamoto 2009

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.

2. Applications of BCT

1. Cryptocurrency Wallet: Create a simple cryptocurrency wallet application that allows users to send
and receive digital assets.

2. Blockchain Explorer: Develop a web-based application that allows users to view and search the
transactions on a specific blockchain.

3. Smart Contract: Implement a simple smart contract on the Ethereum blockchain that can be used to
manage a digital token or asset.

4. Voting System: Create a blockchain-based voting system that allows for secure and transparent voting
while maintaining voter anonymity.

5. Supply Chain Management: Develop a blockchain-based system for tracking the movement of goods
and services through a supply chain, providing greater transparency and traceability.

6. Decentralized marketplace: Create a decentralized marketplace using blockchain technology where the
goods and services can be directly bought by the customers without any intermediary.

7. Identity Management: Create a decentralized digital identity management system that allows users to
control their personal information and share it securely with others.

3. Blockchain Architecture

Blockchain is a technology where multiple parties involved in communication can perform different
transactions without third-party intervention. Verification and validation of these transactions are carried
out by special kinds of nodes.
 Benefits of Blockchain:

 It is safer than any other technology.

 To avoid possible legal issues, a trusted third party has to supervise the transactions and validate the
transactions.
 There’s no one central point of attack.
 Data cannot be changed or manipulated, it’s immutable.

1. Header: It is used to identify the particular block in the entire blockchain. It handles all blocks in the
blockchain. A block header is hashed periodically by miners by changing the nonce value as part of
normal mining activity, also Three sets of block metadata are contained in the block header.
2. Previous Block Address/ Hash: It is used to connect the i+1th block to the ith block using the hash. In
short, it is a reference to the hash of the previous (parent) block in the chain.
3. Timestamp: It is a system verify the data into the block and assigns a time or date of creation for digital
documents. The timestamp is a string of characters that uniquely identifies the document or event and
indicates when it was created.
4. Nonce: A nonce number which uses only once. It is a central part of the proof of work in the block. It is
compared to the live target if it is smaller or equal to the current target. People who mine, test, and
eliminate many Nonce per second until they find that Valuable Nonce is valid.
5. Merkel Root: It is a type of data structure frame of different blocks of data. A Merkle Tree stores all the
transactions in a block by producing a digital fingerprint of the entire transaction. It allows the users to
verify whether a transaction can be included in a block or not.

4. Types of block chain

There are 4 types of blockchain:

1. Public Blockchain.
2. Private Blockchain.
3. Hybrid Blockchain.
4. Consortium Blockchain.

1. Public Blockchain: These blockchains are completely open to following the idea of decentralization.
They don’t have any restrictions, anyone having a computer and internet can participate in the network.

 As the name is public this blockchain is open to the public, which means it is not owned by anyone.
 Anyone having internet and a computer with good hardware can participate in this public blockchain.
 All the computer in the network hold the copy of other nodes or block present in the network.
 In this public blockchain, we can also perform verification of transactions or records
 2. Private Blockchain: These blockchains are not as decentralized as the public blockchain only selected
nodes can participate in the process, making it more secure than the others.

 These are not as open as a public blockchain.

 They are open to some authorized users only.
 These blockchains are operated in a closed network.
 In this few people are allowed to participate in a network within a company/organization.

3. Hybrid Blockchain: It is the mixed content of the private and public blockchain, where some part is
controlled by some organization and other makes are made visible as a public blockchain.
 It is a combination of both public and private blockchain.
 Permission-based and permissionless systems are used.
 User access information via smart contracts
 Even a primary entity owns a hybrid blockchain it cannot alter the transaction

4. Consortium Blockchain: It is a creative approach that solves the needs of the organization. This
blockchain validates the transaction and also initiates or receives transactions.

 Also known as Federated Blockchain.

 This is an innovative method to solve the organization’s needs.
 Some part is public and some part is private.
 In this type, more than one organization manages the blockchain.

5. Basic ideas behind block chain

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:

1. 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.

2. Secure: There is no unauthorized access to Blockchain made possible through Permissions and
Cryptography.

3. 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.

4. Consensus-based: All relevant network participants must agree that a transaction is valid. This is
achieved through the use of consensus algorithms.

5. 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.

6. How it is changing the landscape of digitalization

Block chain technology is transforming many industries, including identity and security. Block chain is a
distributed ledger technology that enables secure, transparent, and tamper-proof transactions, making it
an ideal platform for storing and managing identity information. In this article, we will explore how
block chain technology is changing the landscape of identity and security.
 1. Decentralization: One of the most significant advantages of blockchain technology is decentralization.
Unlike traditional centralized systems, where data is stored in a single location and controlled by a
central authority, blockchain technology enables data to be stored and managed by a network of
computers. This makes it almost impossible for a single entity to manipulate or control the data, making
it more secure.

2. Immutable Record: The data stored on a blockchain is immutable, meaning it cannot be modified or
deleted once it is recorded. This makes it ideal for storing sensitive identity information such as birth
certificates, passports, and other government-issued documents. By using blockchain technology to store
identity information, it becomes much more difficult for hackers or malicious actors to modify or steal
the data.

3. Digital Identity Verification: Blockchain technology also enables the creation of digital identities that
can be verified without the need for a centralized authority. This is achieved through the use of digital
signatures and cryptographic algorithms that ensure the authenticity and integrity of the data. By using
blockchain technology for digital identity verification, users can control their personal information and
reduce the risk of identity theft.

4. Secure Transactions: Blockchain technology enables secure transactions between parties without the
need for intermediaries. This is achieved through the use of 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 enable secure and transparent transactions, reducing the risk of fraud or
manipulation.

5. Data Privacy: Finally, blockchain technology enables users to maintain their privacy while still sharing
their identity information. This is achieved through the use of private and public keys that enable users to
share only the information they want to share while keeping the rest of their identity information private.
This makes it much more difficult for hackers or other malicious actors to steal personal information.

7. Introduction to cryptographic concepts required

Cryptography is a way of securing data against unauthorized access. In the blockchain, cryptography is
used to secure transactions between two nodes in the blockchain network. As mentioned above, there are
two main concepts in blockchain – cryptography and hashing. Cryptography encrypts messages in the
P2P network while hashing helps secure block information and link blocks in the blockchain.

A. The Role of Cryptography in Blockchain: Blockchain is developed with several different cryptography
concepts. In the blockchain, the main use of cryptography is to protect user privacy and transaction
information and ensure data consistency. It plays a key role in maintaining the security of the public
network, so it is suitable for maintaining the integrity and security of the blockchain.

B. Terminology in Cryptography:

 Encryption: Converting plaintext to a random sequence of bits.

 Key: A certain amount of information needed to obtain the information of the cryptographic algorithm.
 Decryption: The inverse process of encryption, converting a random sequence of bits into plain text.
 Cipher: A mathematical function, i.e., a cryptographic algorithm, that converts plaintext into ciphertext (a
random sequence of bits).

C. Types of Cryptography: Basic cryptography technologies can include two types of encryptions:

 Symmetric Key Encryption: This type of cryptography focuses on a similar key for encryption and
decryption. Most importantly, the symmetric key encryption method is also applicable for secure website
 connections or data encryption. Also referred to as secret key cryptography. The only problem is that the
sender and receiver exchange keys securely. The Data Encryption System (DES) is a popular symmetric
key cryptographic system. A cryptographic algorithm uses an encryption key to encrypt data, which must
be made available. The person entrusted with the secret key can decrypt the data. Examples: AES, DES,
etc.

 Asymmetric Key Encryption: This encryption method uses different keys for encryption and decryption.
This encryption method uses public key and private key methods. This public key method helps
completely unknown parties share information like email ID. The private key helps to decrypt the
messages and also helps in verifying the digital signature. The mathematical relationship between the
keys is that the private key cannot be derived from the public key, but the public key can be derived from
the private key. Example: ECC, DSS, etc.

D. Hash Cryptography Function in the Blockchain: One of the major significant uses of cryptography is
cryptographic hashing. Hashing enables immutability in the blockchain. Encryption does not include the
use of keys in cryptographic hashing. When the transaction is verified, the hashing algorithm adds the
hash to the block, and a new unique hash is added to the block from the original transaction. Hashing
continues to combine or create new hashes, but the original trace is still accessible. The hash which
single combined is described as the root hash. Hash Function helps in linking the block and maintaining
the integrity of the data inside the block, and any change in the data of the block leads to breaking the
blockchain. Some commonly used hash functions are MD5 and SHA-1.

E. Use of Cryptographic Hash Functions: Since the blockchain is also public for everyone, it is important
to secure the data in the blockchain and protect the user’s data from malicious hands. So this can be
easily achieved using cryptography. When a transaction is verified using a hashing algorithm, it is added
to the blockchain, and once the transaction is confirmed, it is added to the network forming the chain of
blocks. Cryptography uses mathematical codes, ensuring that the intended users of the data can retrieve it
to read and process the transaction. Over the years, many new tools have appeared related to the
application of cryptography in the blockchain with different functions.
 F. Advantages of Blockchain Cryptography: There are a huge number of advantages of cryptography in
blockchain; some of them are listed below:

 Encryption: Cryptography uses asymmetric encryption to ensure that transactions on their network
protect information and communications from unauthorized disclosure and access to information.
 Immutability: This cryptography function is important for blockchain and allows blocks to be securely
connected to other blocks and to ensure the reliability of data stored in the blockchain. It also guarantees
that no attacker can obtain a valid signature for unopposed queries and their related signatures from past
queries.
 Security: Cryptography facilitates transaction records by encrypting and accessing data using public and
private keys. Data manipulation by cryptographic hashing is impossible, making the blockchain more
secure.
 Scalability: Cryptography makes the transaction irreversible and provides assurance that all users can
rely on the accuracy of the digital ledger. Allows you to record unlimited transactions on the network
securely.
 Non-repudiation: A digital signature provides a non-repudiation service that protects against any
rejection of the message forwarded by the sender. This advantage can be associated with collision
resistance because each input value has a unique hash function. This ensures there is no collision between
the messages sent, and one message can be easily distinguished from another.
 Prevent hackers: Digital signature prevents hackers from changing the data because if the data is
changed, the digital signature becomes invalid. It uses cryptography to protect data from hackers and
makes cryptography unstoppable on the blockchain.

G. Limitations of Blockchain Cryptography: Below are some limitations of blockchain cryptography:

 Difficult access to information: Heavily encrypted and digitally signed information can be difficult to
access even for a legitimate user at the most critical decision-making time. The network can be attacked
and disabled by an intruder.
 High availability: It is one of the fundamental aspects of information security and cannot be ensured by
cryptography. Other methods are needed to protect against threats such as denial of service or complete
breakdown of information systems.
 No protection against vulnerabilities: Cryptography does not protect against vulnerabilities and threats
that result from poorly designed protocols, procedures, and systems. These problems need to be solved
by proper design of defense infrastructure.
 Expensive: Cryptography requires a huge investment of time and money. Public key encryption requires
setting up and maintaining a public key infrastructure, which requires a huge investment. Adding
cryptographic techniques to sending messages and processing information increases latency.
 Vulnerability: The safety of cryptographic techniques relies on complication and difficulty of
mathematical difficulty. Any improvement in resolving such mathematical problems can depart from
vulnerable cryptographic techniques.

8. Block chain or distributed trust:

Blockchain is a complex technology, but its value proposition is very simple - distributed trust. This
means you can trust the network, without trusting anyone - or anything on the network. It enables direct
peer-to-peer transactions in a way we haven’t seen since precious metal coinage was taken out of
circulation. The blockchain enables the construction of a vast ledger that is distributed as far and as wide
as desired, visible to everyone, updated in accordance with a transactional principle similarly distributed
and guaranteed by a community, without the need for a trusted third party as a central authority. The
blockchain makes five promises:

 Distributed trust.

 A system of transactions.
 Guaranteed by an extended community.

 No trusted third parties

 The capacity to operate complex protocols.

The first promise is crucial, as it lends the blockchain its capacity for disruption: the ability to handle
complex protocols (money transfers, banking, validation, and so on) in an automated way, with much
lower transaction costs compared with systems that require human input, above all in the form of a
trusted third party. In other words, the blockchain not only transports information, but also algorithms,
and it does so with the same guarantee of trust as applies to the information itself. The blockchain model
is even more powerful than the community-based trust model: it offers a model in which trust in
transactions is reliable, can be audited by all and distributed thanks to its decentralised means of reaching
a consensus.

9. Currency:

Currency is a medium of exchange for goods and services. In short, it's money, in the form of paper and
coins, usually issued by a government and generally accepted at its face value as a method of payment.

Currency is the primary medium of exchange in the modern world, having long ago replaced bartering as
a means of trading goods and services.

 Currency is a generally accepted form of payment usually issued by a government and

circulated within its jurisdiction.
 The value of any currency fluctuates constantly in relation to other currencies.
 Currency is a tangible form of money, which is an intangible system of value.
 Many countries accept the U.S. dollar for payment, while others peg their currency value
directly to the U.S. dollar.
 Cryptocurrency is a 21st century innovation and exists only electronically.

Money vs. Currency

The terms money and currency are often thought to mean the same thing. However, while related, they
have different meanings. Money is a broader term that refers to an intangible system of value that makes
the exchange of goods and services possible, now and in the future. Currency is simply one, tangible
form of money.

Money is used in a variety of ways, all related to its future use in some kind of transaction. For example,
money is a store of value. This means that it has and maintains a certain value that supports ongoing
exchanges. People know that the money they received today essentially will have the same value next
week when they need to make a purchase or pay a bill.

10. Cryptocurrency

A cryptocurrency is not a type of currency that can be used in the real world. It can be used to perform
transactions only in the digital world. So in order to buy/sell using a cryptocurrency, it has to be
converted from a digital form to some existing currency that is used in the real world. For example,
Dollars, Rupees, etc. Cryptocurrencies don’t have a central issuing authority instead using a
decentralized system to record transactions and issue new units. Cryptocurrency is a digital payment
system that does not rely on banks to verify transactions. Cryptocurrency payments exist purely as digital
entries to an online database. When cryptocurrency funds are transferred, the transactions are recorded in
a public ledger.
 In cryptocurrency, “coins” (which are publicly agreed on records of ownership) are generated or
produced by “miners”.
 These miners are people who run programs on ASIC (Application Specific Integrated Circuit) devices
made specifically to solve proof-of-work puzzles.
 The work behind mining coins gives them value, while the scarcity of coins and demand for them causes
their value to fluctuate.
 Cryptocurrencies can be used for buying goods just like fiat currency.
 Cryptocurrencies use encryption to verify and protect transactions.
 It does not exist in physical form and is not typically issued by any central authority.
 They use decentralized control in contrast to central bank digital currency.

Cryptocurrency Examples: Some of the best-known cryptocurrencies are:

1. Bitcoin: Bitcoin is the most widely accepted cryptocurrency. Founded in 2009 by Satoshiakamoto, it is
still the most commonly traded. It is a decentralized digital currency that can be transferred on a peer-to-
peer bitcoin network.

2. Ether: Ether is the native cryptocurrency of the Ethereum blockchain network. Each Ethereum
account has an ETH balance and may send ETH to any other account. The smallest subunit of Ether is
known as Wei.

3. Litecoin: Litecoin is a peer-to-peer cryptocurrency and in technical terms, Litecoin is nearly identical
to Bitcoin. It uses script in its proof-of-work algorithm. It is an adaptation of Bitcoin that is intended to
make payment easier.

4. Stablecoins: These are the class of cryptocurrencies whose values are designed to stay stable relative
to real-world assets like the U.S. Dollar.

Solana: Solana is a competitor of Ethereum whose main emphasis is on speed and cost-effectiveness.

11. How Does Crypto currency Works: Cryptocurrencies are not regulated or controlled by any central
authority hence cryptocurrency works outside the banking system using different types of coins.

1. Mining: Cryptocurrencies are generated through the process called Mining. In this process, the miners
are required to solve a mathematical puzzle over a specially equipped computer system to be rewarded
with bitcoins in exchange.

2. Buying, selling, and storing: Users can buy cryptocurrencies from central exchanges, brokers, or
individual currency owners and sell crypto to them. Cryptocurrencies can be stored in wallets.

3. Investing: Cryptocurrencies can be transferred from one digital wallet to another.

How To Buy Cryptocurrency: There are three steps involved in buying a cryptocurrency:

1. Choosing a platform: There are two platforms available to choose from:

Traditional Brokers: There are online brokers who offer to buy and sell cryptocurrencies along with
stocks, bonds, etc, but they offer lower trading costs and fewer crypto features.

Cryptocurrency exchanges: Different types of cryptocurrency exchanges are available to choose from
with different cryptocurrencies, wallet storage, etc.
 2. Funding your account: After choosing the platform, the next step is to fund the account. Most crypto
exchanges allow users to purchase cryptocurrencies using fiat currency like U.S. Dollar, the Euro, or
using Credit and Debit cards, but this varies from platform to platform. An important factor to consider
here is the fees that include the potential deposit and withdrawal transaction fees plus the trading fees.

3. Placing an order: The order can be placed via exchanges or broker’s web or mobile platform.

 Select the Buy option.

 Choose the order type.
 Enter the amount of crypto currencies.
 Confirm the order.

A similar process needs to be followed for selling crypto currencies.

How to Store Cryptocurrency: Once the cryptocurrency is purchased, it needs to be stored safely to
protect it from hackers. The usual place to store cryptocurrency is crypto wallets which can be physical
devices or online software. Not all exchanges or brokers provide crypto wallet services. The
cryptocurrencies can be stored in these four places:

1. Custodial Wallet: In this approach, a third party such as a crypto exchange stores the cryptocurrency
either through cold storage or hot storage, or a combination of the two. This is the most simplest and
convenient method for the users as it requires less work on the user part.

2. Cold Wallet: These are also known as Hardware wallets. It is an offline wallet in which hardware
connects to the computer and stores the cryptocurrency. The device connects to the internet at the time of
sending and receiving cryptocurrency but other than that the cryptos are safely stored offline.

3. Hot Wallet: These are the applications that store cryptocurrencies online. These are available as
desktop or mobile apps.

4. Paper Wallet: This is also known as a physical wallet. It is a printout of the public and private keys
available as a string of characters or scannable QR codes. To send crypto scan the public and private keys
and crypto will be received using the public keys.

Advantages of Cryptocurrencies: The following are some of the advantages of cryptocurrencies:

1. Private and Secure: Blockchain technology ensures user anonymity and at the same time the use of
cryptography in blockchain makes the network secure for working with cryptocurrencies.

2. Decentralized, Immutable, and Transparent: The entire blockchain network works on the principle of
shared ownership where there is no single regulating authority and the data is available to all the
permissioned members on the network and is tamper-proof.

3. Inflation Hedge: Cryptocurrencies are a good means of investing in times of inflation as they are
limited in supply and there is a cap on mining any type of cryptocurrency.

4. Faster Settlement: Payments for most cryptocurrencies settle in seconds or minutes. Wire transfers at
banks can cost more and often take three to five business days to settle.

5. Easy Transactions: Crypto transactions can be done more easily, in a private manner in comparison to
bank transactions. using a simple smartphone and a cryptocurrency wallet, anyone can send or receive a
variety of cryptocurrencies.
Disadvantages of Cryptocurrencies: The following are some of the drawbacks of cryptocurrencies:

1. Cybersecurity issues: Cryptocurrencies will be subject to cyber security breaches and may fall into the
hands of hackers. Mitigating this will require continuous maintenance of security infrastructure.

2. Price Volatility: Cryptocurrencies are highly volatile in terms of price as they have no underlying
value and there is a supply-demand-like equation that is used to determine the price of cryptocurrencies.

3. Scalability: Scalability is one of the major concerns with cryptocurrencies. Digital coins and tokens
adoption is increasing rapidly but owing to the sluggish nature of the blockchain makes cryptocurrencies
prone to transaction delays. Cryptocurrencies cannot compete with the number of transactions that
payment giants like VISA, and Mastercard processes in a day.

4. Less awareness: Cryptocurrency is still a new concept for the people and the long-term sustainability
of cryptocurrencies remains to be seen.

12. Financial Services:

Capital Markets

Issuance

Sales and trading

Clearing and settlement

Post-trade services and infrastructure

Asset servicing

Custody

Asset Management

Fund launch

Cap table management

Transfer agency in asset management

Fund administration

Payments and remittances

Domestic retail payments

Domestic wholesale and securities settlement

Cross border payments

Tokenized fiat, stablecoins and cryptocurrency

Banking and Lending

Credit prediction and credit scoring

Loan syndication, underwriting and disbursement

Asset collateralization

Trade Finance

Letters of credit and bill of lading

Financing structures

Insurance

Claims processing and disbursement

Parametrized contracts

Reinsurance markets

13. Bit coin prediction markets

A prediction market is a platform that enables users to forecast the outcomes of particular events and earn
rewards if they are accurate. These events may be connected to finance, politics, sports, and other
themes. There are numerous applications for prediction markets, including market research, risk
management, and entertainment. They could also enable users to earn returns by accurately forecasting
the outcomes of events. The prediction markets used in crypto currencies are built on the block chain,
allowing for decentralized and trustless operations. When an event ends, the platform will automatically
distribute the rewards to the winning users through crypto currency or other assets.

How Prediction Markets Work: Prediction markets enable users to forecast the outcome of events and
receive a payment if their prediction is accurate. Using crypto currencies or other assets, users may wager
on the outcome of any kind of event. The platform employs a market-based approach that allows users to
purchase and sell assets based on the potential outcomes of an event. Each asset’s price represents the
expected possibility that the outcome will occur. If a prediction market is used to anticipate the outcome
of an election, for instance, people might purchase assets in favor of the candidate they believe will win.

Centralized Vs. Decentralized Prediction Markets: Centralized prediction markets are operated by a
single entity, such as a company or organization. These markets typically have more resources and
liquidity as a central authority backs them. However, they also have more control over the market and
can potentially manipulate it for their benefit. Decentralized prediction markets, on the other hand, are
built on the block chain and run by smart contracts; hence, they are not controlled by any individual. This
makes them more resistant to censorship and manipulation but also means they may have lower liquidity
and be less user-friendly. Overall, both centralized and decentralized prediction markets have their
benefits and drawbacks and using either depends on the user’s needs and preferences.

Legal and regulatory issues surrounding prediction markets: In a prediction market, participants can
purchase and sell estimates of the likelihood of various outcomes. They are useful for gauging the likely
course of events like elections, product development timelines, and surveys. Prediction markets can be
useful for gathering information and insights, but they also bring up questions that need to be addressed
by law and policymakers. Because of the attractiveness of prediction markets for unlawful gambling and
other shady pursuits, they could violate the law. In many places, it is against the law to run a gambling
site or gamble online without a license. Therefore, gambling laws may apply to prediction markets, albeit
these laws vary widely depending on the jurisdiction.

Insider trading is another potential problem with prediction markets. When an investor makes
transactions in stocks based on what they know about a company that is not available to the general
public, this is considered insider trading. Insiders of prediction markets might take advantage of
undisclosed information about an event and execute trades to their benefit. To address this issue, many
prediction markets have policies to prevent insider trading, requiring participants to disclose any
material, non-public information they have. In addition to these legal issues, prediction markets may also
be subject to regulatory scrutiny. For instance, prediction markets in the United States that deals with
commodity futures or options contracts fall within the purview of the Commodity Futures Trading
Commission (CFTC). Prediction markets may be subject to oversight by the Securities and Exchange
Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Operators of prediction
markets should be familiar with the laws and regulations in their jurisdiction.

Risks and challenges of prediction markets: There are several risks and challenges associated with
using prediction markets. One risk is the potential for market manipulation. Market manipulation refers
to the practice of artificially inflating or deflating the price of a security or commodity, often to achieve a
specific outcome or profit. In prediction markets, manipulation could occur if someone with knowledge
of an event tries to influence the market’s prediction of the event’s outcome by buying or selling shares
in the market. Market manipulation can undermine its integrity and erode trust in its results. Another risk
is the inherent uncertainty of predicting the outcome of events.

Future developments and Trends in the Prediction Market Space: Future developments and trends
could change the prediction market in the coming years. Here are some of them:

1. Increased adoption of artificial intelligence: Adoption of Artificial Intelligence: AI-enabled predictive

algorithms will become more commonplace in the forecasting industry. These algorithms could be used
to examine data and produce more precise predictions on a wide range of subjects.

2. The use of blockchain technology: The application of blockchain technology could result in more
transparent and secure prediction markets. This could improve trust in the prediction market’s accuracy
and fairness.

3. Greater integration with other emerging technologies: To provide a more immersive and engaging
experience for consumers, prediction markets may be combined with other emerging technologies such
as the Internet of Things (IoT), virtual reality (VR), and augmented reality (AR).

4. Expansion into new industries and sectors: Prediction markets have the potential to be used in a wider
variety of fields and industries than just banking and politics. In a few years, more industries will use the
data curated from predictive markets.

5. Regulation and legal issues: The increased interest and use of prediction markets may attract the
attention of policymakers and regulators. Because of this, new laws and policies may be drafted to
control the usage of prediction markets.