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Unit 2

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16 views6 pages

Unit 2

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omnikam0202
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Unit 2

Basic of Cryptography

Blockchain emerged as a response to the 2008 Global Financial Crisis (GFC),


commonly known as the Great Recession. The crisis exposed major flaws in the
centralized financial system, such as the role of large banks, regulatory gaps, and the lack
of transparency. People lost trust in financial institutions because major banks acted
carelessly, which caused the housing market and the global economy to crash.

In Following the financial crisis, Bitcoin was introduced by an anonymous person or


group under the Satoshi Nakamoto in a whitepaper titled "Bitcoin: A PeertoPeer
Electronic Cash System" (2008). This paper proposed a new form of digital currency
that would allow people to send and receive money directly without needing
intermediaries like banks. The technology that enabled this vision was blockchain.

Key factors from the Great Recession leading to blockchain's creation:


1. Distrust of Centralized Institutions:
The recession highlighted how centralized control over money and finance could lead to
corruption, poor decision making, and systemic risks.

2. Lack of Transparency:
Traditional financial systems lacked transparency, as many complex financial products
(like mortgage backed securities) were poorly understood by investors and regulators.

3. Desire for Decentralization:


Bitcoin, powered by blockchain, offered an alternative by decentralizing control over
currency. It enabled trust in a system through cryptography and consensus rather than
relying on institutions like central banks or governments.

Blockchain’s Role:
The core technology behind Bitcoin is blockchain, which allows for:
1. Transparency:
All transactions are recorded on a public ledger, which can be viewed by anyone.
2. Decentralization:
Blockchain operates without a central authority, distributing power across its
users.
3. Security:
The use of cryptographic algorithms ensures secure, immutable transactions.

Thus, blockchain was born from a desire to build a more transparent, secure, and
decentralized financial system in response to the economic fallout of the Great Recession.

How the name Blockchain?


Blockchain got its name from the format it stores data. In blockchain, the data is
packaged into “blocks“. The blocks later form a chain with other blocks of information,
forming –blockchain.

What a block contains?


Blocks contains information on transactions happening on a blockchain.

How a block looks like?


A block contains a header and body. Transactions are stored in the body part and other
details in the header.
The blocks are cryptographically verified and chained up to form an immutable chain of
blocks called the blockchain.

What Makes Up a Blockchain?


There are three basic parts to every blockchain.
● The transaction: This can be any type of information recorded on the blockchain.
● The block: A bundle of different transactions.
● The chain: All the blocks are linked together.

❖ Distributed Network in Blockchain


A distributed network spreads data and processing power across multiple nodes in
different locations.
Definition:
A distributed network refers to a system where multiple computers (nodes) are spread
across different locations, working together to achieve a common goal. In such a
network, resources such as data, processing power, and communication capabilities are
shared among the nodes.

In blockchain:
● Replication of Ledger: Each node in the distributed network maintains a
complete or partial copy of the blockchain. This replication ensures that the
blockchain is synchronized and up-to-date across all nodes.
● Immutable Data: Once data (such as a transaction) is added to the blockchain, it
is difficult to alter because the ledger is distributed across many nodes. Any
changes to the data would need to be made across the majority of the network,
which is computationally expensive and nearly impossible in large,
well-established networks like Bitcoin or Ethereum.

Key Characteristics of Distributed Network:


● Decentralized Data:
In a distributed network, data is spread across multiple nodes rather than being
stored on a central server.
● Independent Nodes:
Each node in a distributed network operates independently. If one node fails, the
others can continue to function, making the network resilient.
● Collaboration:
Nodes collaborate to perform tasks like processing data or sharing resources.
Communication between nodes is direct or via intermediaries, depending on the
design.
● Transparency:
Distributed technologies offer a high level of transparency. Which is necessary for
the sectors like finance, medical science, banking, etc.
● Immutable:
Any validated transactions can not be changed as they are irreversible.
● Decentralization:
In a centralized network, there may be a single point of failure and it can disrupt
the whole network because of mistakes at the central authority level. But in the
case of distributed networks, there is no risk of a single point of failure.
All network members or nodes have a copy of the ledger for complete
transparency. A decentralized private distributed network improves the reliability
of the system and gives assurance of continuous operations without any
interruption. It gives control of information and data in the hand of the user.
● Applications:
Distributed networks are used in many technologies, including cloud computing,
peer-to-peer (P2P) file sharing (e.g., BitTorrent), and content delivery networks
(CDNs).
Distributed Ledger Technology which use in bitcoin & ethereum to record
cryptocurrency transaction is also application of distributed network.
❖ Peer-to-Peer (P2P) Network in Blockchain
A Peer-to-Peer (P2P) network is a decentralized network architecture where
individual devices, called peers or nodes.
A P2P network involves multiple computers that communicate directly with one
another without the need for a central server. Each node can act as both a client
and a server (meaning they can both request and provide resources such as data or
services), sharing responsibility for storing and validating data.
Client => Who is requesting data
Server => who is giving that data
In blockchain:

Decentralization: Every node has equal status. No single point of failure exists,
unlike centralized systems where a server failure can shut down the entire
network.
Direct Data Sharing: Nodes in the blockchain network directly share data with
each other. This includes blockchain transactions and updates to the ledger. For
example, in Bitcoin, each node keeps a copy of the blockchain and communicates
with other nodes to verify transactions.
Increased Resilience: P2P networks are more resistant to censorship, shutdowns,
and malicious attacks. If one node goes down, the network continues to function
through other nodes.
Applications of P2P Network
Below are some of the common uses of P2P network:

File sharing:
P2P network is the most convenient, cost-efficient method for file sharing for
businesses. Using this type of network there is no need for intermediate servers to
transfer the file.
Blockchain:
The P2P architecture is based on the concept of decentralization. When a
peer-to-peer network is enabled on the blockchain it helps in the maintenance of a
complete replica of the records ensuring the accuracy of the data at the same time.
At the same time, peer-to-peer networks ensure security also.
Direct messaging:
P2P network provides a secure, quick, and efficient way to communicate. This is
possible due to the use of encryption at both the peers and access to easy
messaging tools.

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