BLOCK CHAIN TECHNOLOGY

B. Tech, IV Year I-semester.

(2024-25)

Department of CSIT& CSBS

(Affiliated to JNTU, Hyderabad, Approved by AICTE- Accredited by NBA& NAAC–‘A+’)
Nagarjuna Sagar Road, Sheriguda, Ibrahimpatnam, Rangareddy - 501510.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 Blockchain Technology
Course Objectives:
To Introduce block chain technology and Cryptocurrency

Course Outcomes:
1. Learn about research advances related to one of the most popular technological
areas today.
2. Understand Extensibility of Blockchain concepts
3. Understand and Analyze Blockchain Science
4. Understand Technical challenges, Business model challenges

UNIT- I
Introduction: Block chain or distributed trust, Protocol, Currency, Cryptocurrency, how
a Cryptocurrency works, Crowdfunding.

Blockchain is a buzzword in today’s technology and this technology is described

as the most disruptive technology of the decade. Thus, Blockchain is used for
the secure transference of items like money, contracts, property rights, stocks,
and even networks without any requirement of Third-Party Intermediaries like
Governments, banks, etc. Once the data is stored in the Blockchain it becomes
very difficult to manipulate the stored data. A Blockchain is a Network Protocol
like SMTP. However, Blockchain cannot be run without the Internet. Blockchain
is useful in many areas like Banking, Finance, Healthcare, Insurance, etc.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 A blockchain is an open, distributed ledger that can record transactions between
two parties efficiently and in a verifiable and permanent way without the need
for a central authority.

Key Characteristics:
• Open: Anyone can access blockchain.

• Distributed or Decentralised: Not under the control of any single authority.

• Efficient: Fast and Scalable.

• Verifiable: Everyone can check the validity of information because

each node maintains a copy of the transactions.

• Permanent: Once a transaction is done, it is persistent and can’t be altered.

Distributed systems are a computing paradigm whereby two or more nodes

work with each other in a coordinated fashion to achieve a common outcome. It
is modeled in such a way that end users see it as a single logical platform. For
example, Google's search engine is based on a large distributed system;
however, to a user, it looks like a single, coherent platform.

A node can be defined as an individual player in a distributed system. All nodes

are capable of sending and receiving messages to and from each other. There

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 is no Central Server or System which keeps the data of Blockchain. The data is
distributed over Millions of Computers around the world which are connected
with the Blockchain. This system allows Notarization of Data as it is present on
every Node and is publicly verifiable. A node can be defined as an individual
player in a distributed system. All nodes are capable of sending and receiving
messages to and from each other.

Nodes can be honest, faulty, or malicious and have their own memory and
processor. A node that can exhibit arbitrary behavior is also known as a
Byzantine node. This arbitrary behavior can be intentionally malicious, which is
detrimental to the operation of the network. Generally, any unexpected behavior
of a node on the network can be categorized as Byzantine. This term arbitrarily
encompasses any behavior that is unexpected or malicious.

The main challenge in distributed system design is coordination between nodes

and fault tolerance. Even if some of the nodes become faulty or network links
break, the distributed system should tolerate this and should continue to work
flawlessly in order to achieve the desired result. This has been an area of active
research for many years and several algorithms and mechanisms has been
proposed to overcome these issues.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)
Disadvantages of current transaction system:
• Cash can only be used in low amount transaction 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 built 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.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

1.2009 – The Genesis of Blockchain (Bitcoin)

• Satoshi Nakamoto launched the Bitcoin network, marking the creation of the first-ever
cryptocurrency.
• The first block, known as the Genesis Block or Block 0, was mined on January 3,
2009.
• Bitcoin was built on a distributed ledger technology known as blockchain, which
allowed transactions to be secure, decentralized, and verified by network participants
without a central authority.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Key Milestone: The first Bitcoin transaction took place in 2009, with Satoshi Nakamoto
sending 10 BTC to Hal Finney, a prominent cryptographer.

2. 2010 – First Commercial Transaction and Increased Interest

• Bitcoin gained real-world value for the first time on May 22, 2010, when Laszlo
Hanyecz famously paid 10,000 BTC for two pizzas, marking the first known commercial
transaction using cryptocurrency.
• Interest grew in the technology behind Bitcoin, particularly in blockchain’s ability to
provide secure and transparent transaction processing.

3. 2011–2012 – Emergence of Alternative Cryptocurrencies (Altcoins)

• Developers started creating alternative cryptocurrencies based on Bitcoin’s open-

source code.
• Litecoin and Namecoin were among the first altcoins, experimenting with different
consensus algorithms and use cases, thus diversifying the blockchain ecosystem.

4. 2013 – Introduction of Smart Contracts (Ethereum Whitepaper)

• Vitalik Buterin introduced the concept of Ethereum in a whitepaper, proposing a

blockchain platform that could support decentralized applications (dApps) and smart
contracts—self-executing contracts with the terms of the agreement directly written
into code.
• Ethereum aimed to expand blockchain's functionality beyond cryptocurrency.

5. 2015 – Ethereum Mainnet Launch

• Ethereum launched its mainnet, bringing the concept of programmable blockchain to

life.
• With the capability to build and run smart contracts, Ethereum enabled developers to
create decentralized applications (dApps) across various industries.

6. 2017 – Rise of Initial Coin Offerings (ICOs) and Blockchain Popularity

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • 2017 saw an explosion in ICOs, where blockchain startups raised funds by issuing
tokens. Ethereum’s platform became a popular choice for launching these tokens.
• This year marked a peak in public interest and investment, and blockchain became
widely recognized as a transformative technology.

7. 2018 – Regulation and Market Correction

• Following the ICO boom, regulatory scrutiny increased worldwide, particularly in the
U.S. and Asia.
• Many ICO projects failed to deliver on promises, leading to a market correction.
• However, the underlying blockchain technology continued to gain traction in finance,
healthcare, logistics, and government sectors.

8. 2019 – Rise of Enterprise Blockchain Solutions

• Major enterprises began exploring blockchain technology for supply chain

management, payment processing, and identity verification.
• Hyperledger and Corda became prominent frameworks for permissioned, enterprise-
grade blockchains, supporting sectors like finance and manufacturing.

9. 2020 – Decentralized Finance (DeFi) Boom and CBDC Interest

• DeFi, a new financial system powered by Ethereum and other blockchains, gained
immense popularity, offering lending, borrowing, and trading without intermediaries.
• Central banks worldwide started exploring Central Bank Digital Currencies
(CBDCs), examining the potential of blockchain to support national digital currencies.

10. 2021 – NFTs and Further Growth of DeFi

• Non-Fungible Tokens (NFTs), unique digital assets representing ownership of art,

music, and virtual goods, gained global attention.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • DeFi continued to grow, with innovations in liquidity mining, decentralized exchanges,
and blockchain interoperability.

11. 2022 – Institutional Adoption and Regulatory Focus

• Many financial institutions adopted blockchain-based systems for enhanced

transparency, security, and efficiency.
• Governments worldwide advanced regulatory frameworks to address blockchain and
cryptocurrency’s implications for taxation, anti-money laundering (AML), and consumer
protection.

12. 2023 and Beyond – Continued Development and Emerging Technologies

• Layer 2 Solutions and interoperability emerged to address blockchain scalability and

speed issues.
• Innovations like Web3, Metaverse, and Decentralized Autonomous Organizations
(DAOs) are actively shaping the future of blockchain applications, with increased
emphasis on user-controlled digital identities and ecosystems.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

What is Blockchain and Distributed Trust?

Blockchain is a type of distributed ledger technology (DLT) that enables multiple parties to
maintain a shared database of transactions securely and transparently. The key aspect of
blockchain is distributed trust, which allows participants to rely on the technology rather than
a central authority to verify, authorize, and record transactions.

• Distributed Trust means that the integrity of the system is maintained collectively by
a network of participants (or nodes), each of which has a copy of the ledger.
• Instead of a single centralized authority (like a bank or government), the network's
consensus and cryptographic algorithms enforce trust and security.

Core Components of Blockchain Technology

• Blocks: Each block contains a set of transactions. Once a block is filled with
transactions, it’s added to the chain and linked to the previous block, forming an
immutable record.
• Nodes: Devices or participants in the network that maintain a copy of the entire
blockchain ledger and verify transactions.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Consensus Mechanism: Methods like Proof of Work (PoW), Proof of Stake (PoS),
and other consensus algorithms that help nodes agree on the validity of transactions
and maintain trust across the network.
• Cryptographic Hashing: Ensures data security and immutability. A unique hash is
generated for each block and is included in the subsequent block, linking them
together.
• Smart Contracts: Self-executing contracts with code embedded in the blockchain,
enabling automatic execution of contract terms when certain conditions are met.

How Blockchain Works

1. Transaction Initiation: A user requests a transaction.

2. Transaction Verification: The transaction is broadcast to the network of nodes.
3. Consensus Protocol: Nodes use a consensus mechanism to validate the transaction.
4. Block Formation: Validated transactions are grouped into a new block.
5. Chain Update: The block is added to the blockchain, making it immutable.
6. Confirmation: The transaction is confirmed, and the ledger is updated across all
nodes.

Types of Blockchains

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Public Blockchain: Open to anyone, decentralized, and permissionless (e.g., Bitcoin,
Ethereum).
• Private Blockchain: Controlled by a single organization, permissioned, often used for
enterprise applications (e.g., Hyperledger).
• Consortium Blockchain: Controlled by a group of organizations, with permissioned
access for members (e.g., R3’s Corda).

5. Real-Time Applications and Examples of Blockchain Technology

A. Financial Services

• Use Case: Cross-border Payments

o Blockchain significantly reduces the time and cost associated with cross-border
payments.
o Example: Ripple - Ripple’s blockchain platform facilitates instant cross-border
payments between financial institutions, reducing settlement time from days to
seconds.
• Use Case: Decentralized Finance (DeFi)
o DeFi uses smart contracts on blockchains like Ethereum to create decentralized
alternatives to traditional finance services (lending, borrowing, insurance).
o Example: Aave, Uniswap - Platforms like Aave offer lending and borrowing
services without intermediaries, while Uniswap allows decentralized trading of
cryptocurrencies.

B. Supply Chain Management

• Use Case: Product Tracking and Verification

o Blockchain enables end-to-end visibility in supply chains, ensuring product
authenticity and reducing fraud.
o Example: IBM Food Trust - IBM’s blockchain tracks food products from farm
to store, enabling retailers to verify product origins and improve transparency
for consumers.
• Use Case: Traceability in Luxury Goods
o Luxury brands use blockchain to certify the authenticity of high-value goods,
preventing counterfeit.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 o Example: LVMH and Aura Blockchain - LVMH, alongside other luxury brands,
developed the Aura blockchain to verify the authenticity of luxury products and
track their lifecycle.

C. Healthcare

• Use Case: Patient Data Management and Sharing

o Blockchain allows secure storage and sharing of medical records across
institutions, improving data security and patient privacy.
o Example: Medicalchain - This platform allows patients to control their health
data and grant access to healthcare providers when necessary, improving data
interoperability.
• Use Case: Drug Traceability
o Ensures the authenticity of drugs and prevents counterfeit medications from
entering the supply chain.
o Example: MediLedger - MediLedger enables tracking of pharmaceuticals
through the supply chain, ensuring compliance with the U.S. Drug Supply Chain
Security Act.

D. Real Estate

• Use Case: Property Transactions and Land Registry

o Blockchain simplifies the buying and selling of properties by automating contract
execution and providing a secure, immutable record of ownership.
o Example: Propy - Propy’s blockchain platform allows users to buy and sell real
estate with minimal paperwork, storing transaction details on a public ledger.
• Use Case: Fractional Ownership
o Tokenization of real estate allows fractional ownership, enabling small investors
to participate in large properties.
o Example: RealT - RealT uses Ethereum to tokenize real estate properties,
allowing investors to purchase shares and earn rental income proportionally.

E. Government and Public Sector

• Use Case: Voting Systems

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 o Blockchain voting can increase transparency, security, and prevent tampering
in elections.
o Example: Voatz - This blockchain-based voting platform has been used in pilot
programs in the U.S. to allow secure voting for overseas military personnel.
• Use Case: Identity Verification and Digital Identity
o Blockchain provides a secure, verifiable digital identity that users control, which
can reduce identity theft and improve access to services.
o Example: Self-Sovereign Identity Solutions - Platforms like uPort allow users
to manage their digital identities on the blockchain, enhancing privacy and
control over personal data.

F. Energy

• Use Case: Peer-to-Peer Energy Trading

o Blockchain enables decentralized energy trading, allowing households to buy
and sell excess energy without intermediaries.
o Example: Power Ledger - Power Ledger uses blockchain to facilitate peer-to-
peer energy trading, allowing users to sell their solar energy to neighbors.

G. Education

• Use Case: Academic Credential Verification

o Blockchain can securely store academic records and verify credentials,
reducing fraud and improving portability.
o Example: MIT and Blockcerts - MIT uses blockchain technology through
Blockcerts to issue digital diplomas, making it easier for students and employers
to verify academic records.

H. Insurance

• Use Case: Automated Claims Processing

o Smart contracts can automate insurance claims, reducing fraud and speeding
up processing.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 o Example: Etherisc - This decentralized insurance platform uses blockchain for
flight delay insurance, where smart contracts automatically trigger pay outs
based on flight status.

6. Benefits of Blockchain and Distributed Trust

• Transparency: All transactions are recorded on a public ledger, providing high

visibility.
• Immutability: Once a transaction is recorded, it cannot be altered, reducing fraud.
• Security: Cryptographic hashing and consensus mechanisms make blockchain secure
against unauthorized access.
• Efficiency: By eliminating intermediaries, blockchain can significantly reduce
transaction time and costs.
• Decentralization: Trust is distributed across the network, reducing reliance on central
authorities.

What is a Blockchain Protocol?

A blockchain protocol is a foundational set of standards and guidelines that dictate how the
blockchain functions. Protocols are vital for ensuring the integrity, security, and reliability of

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

the blockchain network. They cover aspects such as data structure, consensus mechanisms,
transaction processing, and node communication.

2. Key Components of Blockchain Protocols

1. Data Structure and Blocks

o Defines how transactions are organized into blocks and how blocks link to form
a chain.
o Each block typically includes a header (metadata like timestamp, previous block
hash) and a body (transaction details).
2. Consensus Mechanism
o Consensus protocols are rules that help nodes in a decentralized network agree
on the validity of transactions and the current state of the blockchain.
o Examples include Proof of Work (PoW), Proof of Stake (PoS), and Delegated
Proof of Stake (DPoS).
3. Cryptographic Hashing
o Protocols use hashing functions (e.g., SHA-256) to create a unique fingerprint
for each block, ensuring data integrity and immutability.
o Each block's hash includes the previous block's hash, linking them securely.
4. Incentive and Penalty Mechanisms
o Many protocols use reward mechanisms to incentivize network participants
(miners or validators) and penalize malicious activities, such as slashing in
Proof of Stake systems.
5. Network Participation and Node Roles
o Defines the types of nodes in the network (e.g., full nodes, light nodes, miners,
validators) and their roles in maintaining and securing the blockchain.
6. Transaction Validation and Verification
o Protocols specify how transactions are validated (e.g., through digital
signatures, account balances) before inclusion in a block

3. Types of Blockchain Protocols by Consensus Mechanism

A. Proof of Work (PoW)

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Description: PoW requires miners to solve complex cryptographic puzzles to validate
transactions and add new blocks.
• Energy-intensive: Requires significant computational power, leading to high energy
consumption.
• Security: Provides high security against certain attacks, but can be costly and slow.
• Examples: Bitcoin, Ethereum (pre-2022)

B. Proof of Stake (PoS)

• Description: PoS selects validators based on the amount of cryptocurrency they hold
and are willing to “stake” as collateral.
• Energy-efficient: Eliminates the need for intensive computation, making it more eco-
friendly.
• Security and Incentives: Validators earn rewards based on their staked assets;
penalties exist for malicious actions.
• Examples: Ethereum 2.0, Cardano, Polkadot

C. Delegated Proof of Stake (DPoS)

• Description: Token holders vote to elect a limited number of “delegates” who validate
transactions and create blocks.
• Scalability: DPoS is faster and more scalable, making it suitable for applications
requiring high throughput.
• Examples: EOS, TRON

D. Practical Byzantine Fault Tolerance (PBFT)

• Description: PBFT is a consensus protocol for permissioned networks, designed to

handle faulty or malicious nodes while ensuring consistency.
• Low Latency: Suitable for permissioned blockchains with high throughput and low
latency.
• Examples: Hyperledger Fabric

E. Proof of Authority (PoA)

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Description: PoA uses pre-approved validators who validate transactions and create
blocks, making it fast and efficient.
• Permissioned: Commonly used in private or consortium blockchains where node
identities are known.
• Examples: VeChain, Microsoft Azure Blockchain

F. Hybrid Protocols

• Description: Some blockchains use hybrid consensus mechanisms, combining

different protocols to achieve desired outcomes.
• Examples: Algorand (Pure PoS with elements of Byzantine fault tolerance),
Kadena (PoW for security and scalability)

4. Examples of Blockchain Protocols and Their Functions

1. Bitcoin Protocol
o Consensus: Proof of Work (PoW)
o Purpose: Peer-to-peer digital cash system; the first implementation of a
blockchain.
o Main Characteristics: Decentralized, high security, slower transaction speed.
o Mining: Uses SHA-256 hashing for block creation; miners compete to solve
puzzles to validate transactions.
2. Ethereum Protocol (Pre-2022 and Post-Merge)
o Consensus: Originally PoW, now transitioned to PoS with Ethereum 2.0.
o Purpose: A programmable blockchain supporting decentralized applications
(dApps) and smart contracts.
o Main Characteristics: Turing-complete, supports DeFi and NFT ecosystems.
o Smart Contracts: Allows developers to create self-executing contracts using
Ethereum’s native programming language, Solidity.
3. Hyperledger Fabric
o Consensus: PBFT (Practical Byzantine Fault Tolerance)
o Purpose: Permissioned, enterprise-focused blockchain for secure and scalable
solutions.
o Main Characteristics: High scalability, modular, tailored for private/consortium
networks.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 o Real-World Usage: Used in supply chain, finance, and manufacturing sectors
for secure, permissioned data sharing.
4. Ripple Protocol
o Consensus: Ripple Protocol Consensus Algorithm (RPCA)
o Purpose: Real-time gross settlement system (RTGS) for cross-border
payments.
o Main Characteristics: Fast and low-cost transactions; primarily used by banks.
o Unique Feature: Unlike PoW or PoS, RPCA is based on trust among approved
validators, making it faster for financial applications.
5. Cardano Protocol
o Consensus: Proof of Stake (specifically, Ouroboros PoS)
o Purpose: Secure and scalable platform for dApps and smart contracts.
o Main Characteristics: Focus on security, scalability, and sustainability.
o Research-Driven: Cardano’s protocol development is grounded in academic
research and peer-reviewed processes.
6. Corda
o Consensus: Not a traditional blockchain; Corda is a DLT platform where
transactions are validated between parties directly.
o Purpose: Designed for finance and other regulated sectors where privacy is
key.
o Main Characteristics: Ensures privacy, allows selective data sharing, and is
tailored for enterprise use.
o Example: Used by major banks and financial institutions for interbank
transactions.

5. Protocols for Interoperability

As blockchain networks continue to expand, there is a growing need for interoperability

between them. Protocols that enable cross-chain communication are essential for connecting
disparate blockchain ecosystems.

Examples of Interoperability Protocols:

• Polkadot: Uses a relay chain and parachains to connect various blockchains, allowing
them to share data and functionality.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Cosmos (IBC - Inter-Blockchain Communication Protocol): Enables different
blockchains to exchange information and assets, creating an “internet of blockchains.”
• Chainlink: Decentralized oracle network that allows blockchains to interact with real-
world data sources, bridging on-chain and off-chain environments.

6. Challenges of Blockchain Protocols

• Scalability: Protocols like PoW face challenges in processing high volumes of

transactions, leading to slower speeds and higher fees.
• Energy Consumption: PoW protocols, particularly those used in Bitcoin, are energy-
intensive due to computational requirements.
• Complexity: Blockchain protocols, especially those involving smart contracts, can be
complex to implement and debug.
• Regulatory Concerns: As protocols handle sensitive data (e.g., financial transactions,
healthcare records), compliance with regulations like GDPR is challenging.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

Cryptocurrency

Cryptocurrency is a form of digital or virtual currency that relies on cryptographic techniques

to secure transactions and control the creation of new units. Unlike traditional currencies (like
the U.S. dollar or Euro), cryptocurrencies operate independently of a central authority, such
as a government or bank, and instead function on a decentralized, peer-to-peer network.

Key Characteristics of Cryptocurrency

• Decentralization: Cryptocurrencies typically use decentralized networks based on

blockchain technology, which means there is no central authority controlling
transactions.
• Anonymity and Privacy: While transactions are transparent on the blockchain, users’
identities are pseudonymous, protecting privacy.
• Limited Supply: Most cryptocurrencies have a finite supply, which can make them
deflationary. For instance, Bitcoin has a hard cap of 21 million coins.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Global Access: Cryptocurrency transactions are borderless and accessible to anyone
with an internet connection.

Popular Cryptocurrencies

• Bitcoin (BTC): The first and most well-known cryptocurrency, launched in 2009 by an
anonymous creator known as Satoshi Nakamoto.
• Ethereum (ETH): A cryptocurrency with a robust platform for building decentralized
applications (dApps) and smart contracts.
• Ripple (XRP): Known for fast, low-cost cross-border payments, widely used by banks
and financial institutions.
• Litecoin (LTC): Often considered the "silver to Bitcoin's gold," with faster transaction
speeds.

How a Cryptocurrency Works

Cryptocurrencies function on the principles of blockchain technology, a decentralized ledger

that records all transactions across a network of computers (nodes). Here’s a step-by-step
breakdown of how a cryptocurrency transaction works:

A. The Blockchain Network

• Blockchain is the foundational technology behind most cryptocurrencies. It consists

of a chain of blocks, where each block contains a list of transactions.
• Each participant (node) in the network has a copy of the blockchain, making it
transparent and secure.
• The consensus protocol ensures all nodes agree on the validity of transactions.
Popular consensus mechanisms include Proof of Work (PoW) and Proof of Stake
(PoS).

B. Transaction Process

1. Initiation: A user (sender) initiates a transaction by specifying the recipient’s wallet

address and the amount to transfer.
2. Verification: The transaction is broadcast to the network, where nodes validate its
authenticity, checking that the sender has enough balance.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 3. Consensus Protocol: The network uses a consensus mechanism to confirm the
transaction. In Bitcoin’s PoW, miners solve complex mathematical puzzles to validate
transactions and add them to the blockchain.
4. Block Addition: Once validated, the transaction is added to a new block along with
other transactions and linked to the previous block.
5. Finalization: The transaction is now part of the blockchain, and all nodes update their
ledgers accordingly.

C. Mining and Validation

• Mining: For Proof of Work (PoW) cryptocurrencies like Bitcoin, mining involves solving
cryptographic puzzles to validate transactions and add them to the blockchain. Miners
are rewarded with new coins for their efforts.
• Proof of Stake (PoS): In PoS-based cryptocurrencies, validators are chosen based on
the amount of cryptocurrency they "stake" (hold as collateral). This method is more
energy-efficient than PoW.

D. Wallets and Security

• Digital Wallets: Cryptocurrency wallets store users’ private and public keys, allowing
them to send and receive crypto. Wallets can be online (hot) or offline (cold).
• Private and Public Keys: Users need a private key to sign and authorize transactions,
while the public key serves as their address.

E. Example of a Transaction (Bitcoin)

1. Alice wants to send 1 BTC to Bob.

2. Alice enters Bob’s wallet address and the amount (1 BTC) in her wallet app.
3. The transaction is broadcast to the Bitcoin network.
4. Miners verify the transaction and include it in a block.
5. Once the block is confirmed and added to the blockchain, Bob receives the 1 BTC.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

Crowdfunding

Crowdfunding is a method of raising funds from a large number of people, typically via online
platforms, to finance a project, business, or cause. It democratizes fundraising by allowing
individuals, startups, or organizations to reach a global audience without traditional financing
methods like bank loans or venture capital.

Types of Crowdfunding

1. Reward-Based Crowdfunding: Backers contribute funds in exchange for a non-

financial reward, such as a product or service. This model is common for product-based
startups.
o Example: Kickstarter – backers might receive early access to a new gadget.
2. Equity Crowdfunding: Contributors receive equity (ownership) in the company or
project in exchange for their investment. This is more regulated, as it involves security
laws.
o Example: Crowdcube – investors receive shares in startups.
3. Donation-Based Crowdfunding: Individuals donate money without expecting any
return. Often used for charitable causes, medical expenses, or community projects.
o Example: GoFundMe – people donate to causes they believe in, such as
medical emergencies.
4. Debt-Based Crowdfunding (Peer-to-Peer Lending): Also known as peer-to-peer
lending, contributors lend money to a project with the expectation of repayment, often
with interest.
o Example: LendingClub – contributors receive interest on the funds they lend to
individuals or small businesses.
5. Hybrid Crowdfunding: Combines multiple models, such as a mix of reward-based
and equity-based crowdfunding.

Crowdfunding Process

1. Project Launch: The campaign creator presents the project on a crowdfunding

platform with details like objectives, funding goal, timeline, and rewards (if applicable).

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 2. Promotion and Marketing: Creators promote their campaigns via social media, email,
and other channels to reach potential backers.
3. Funding and Contributions: Backers view the campaign, evaluate it, and contribute
funds if they’re interested.
4. Funds Collection and Project Execution: If the campaign reaches its funding goal,
the platform releases the funds to the creator, who uses them to develop the project.
5. Reward/Repayment: Depending on the model, backers may receive rewards, equity,
or repayments with interest.

Crowdfunding Platforms

• Kickstarter: Focuses on creative projects, such as arts, design, and technology, where
backers receive rewards.
• Indiegogo: Allows campaigns for various projects and offers both flexible and fixed
funding options.
• Seed Invest and Crowd cube: Platforms that specialize in equity crowdfunding.
• GoFundMe: Often used for personal causes and donation-based campaigns.

Benefits of Crowdfunding

• Access to Capital: Allows creators to raise funds without needing traditional loans or
investors.
• Validation and Market Feedback: The interest and support from backers validate the
project concept and provide insights into market demand.
• Community Building: Creates a community of supporters who feel connected to the
project.

Challenges of Crowdfunding

• Competition: High competition among campaigns can make it challenging to stand

out.
• Marketing Efforts: Campaign success often requires extensive promotion and
engagement with potential backers.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Risk of Failure: If the project fails to deliver on promises, it can lead to reputational
damage and loss of trust among backers.

UNIT- II
Extensibility of Blockchain concepts, Digital Identity verification, Block chain Neutrality,
Digital art, Blockchain Environment
The extensibility of blockchain refers to the ability of blockchain systems to evolve,
scale, and accommodate additional functionality, making them adaptable to new
applications, increased demands, and advancements in technology. This adaptability is
key to blockchain's continued relevance across different sectors, as new use cases and
complex applications emerge.
Blockchain extensibility addresses the need for a system that can grow and handle
increased volume or complexity. It encompasses:
• Scalability: The ability to handle a larger volume of transactions and nodes.
• Interoperability: The ability to interact with other blockchains and systems.
• Customizability: The flexibility to add new features, functionalities, and modules.
• Upgradeability: The capacity to adapt to protocol improvements without
disrupting the network.
Core Aspects of Blockchain Extensibility
A. Smart Contracts
Smart contracts enable programmability on the blockchain, extending its use beyond
simple currency transactions.
• Functionality: Self-executing contracts stored on the blockchain that run
automatically when predefined conditions are met.
• Examples:
o Ethereum: The first blockchain to implement programmable smart
contracts, enabling decentralized applications (dApps) in areas such as
finance (DeFi), gaming, and digital identity.
o Cardano and Polkadot: Support smart contracts with enhanced scalability
and efficiency, often used for more complex applications.
B. Layer 2 Solutions
Layer 2 solutions build on top of the primary blockchain (Layer 1) to increase scalability
without altering the core protocol.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Sidechains: Independent chains connected to the main blockchain, handling
specific tasks (e.g., transaction batching, gaming assets) while periodically
syncing with the main chain.
o Example: Liquid Network (a sidechain of Bitcoin) enhances transaction
speed for exchanges.
• Payment Channels: Allow for multiple transactions off-chain, with only the final
state recorded on-chain, reducing congestion and fees.
o Example: Lightning Network (Bitcoin), Raiden Network (Ethereum) –
used for micropayments and other high-frequency, low-value transactions.
C. Modular and Cross-Chain Frameworks
Blockchain frameworks provide modularity, allowing developers to choose or create
specific functionalities and consensus mechanisms.
• Modular Frameworks: Allow custom implementations for features like
consensus, data storage, and governance.
o Example: Cosmos SDK – a toolkit that enables developers to build
custom, scalable blockchains on Cosmos’ ecosystem.
• Cross-Chain Protocols: Facilitate interoperability between different blockchain
networks, allowing assets and data to flow between chains.
o Example: Polkadot’s Relay Chain enables different blockchains
(parachains) to share information and assets seamlessly.
o Cosmos (IBC - Inter-Blockchain Communication Protocol) enables
different blockchains to transfer assets and data, creating an ecosystem of
connected blockchains.

Extensibility Techniques in Blockchain

A. Sharding
Sharding splits the blockchain into smaller, more manageable parts called “shards.” Each
shard handles a subset of transactions, enhancing scalability.
• Functionality: Divides data storage and processing across multiple nodes,
enabling parallel transaction processing.
• Examples:
o Ethereum 2.0 plans to implement sharding to improve transaction
throughput and reduce fees.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 o Zilliqa: Implements sharding from the start, designed specifically to handle
high-throughput applications.
B. On-Chain Governance and Decentralized Autonomous Organizations (DAOs)
On-chain governance allows for protocol changes and upgrades to be decided
democratically by token holders, enabling blockchain networks to evolve based on
community consensus.
• Functionality: Governance mechanisms allow stakeholders to propose, vote on,
and implement changes.
• Examples:
o Tezos: Uses an on-chain governance model to implement upgrades
without needing a hard fork, making it highly adaptable.
o DAOs: Decentralized Autonomous Organizations such as MakerDAO
allow users to govern decentralized finance protocols in a transparent,
decentralized way.
C. Upgradeable Smart Contracts
Traditionally, smart contracts were immutable once deployed. However, upgradeable
contracts now allow for updates, which is essential for adaptability in changing
environments.
• Proxies: Proxy contracts refer to a contract setup where the primary contract logic
can be updated without changing the original address.
• Example: OpenZeppelin’s Proxy Pattern: Allows developers to implement
upgradeable contracts on Ethereum by using proxy contracts that reference the
latest logic contract.

Real-World Applications of Extensible Blockchain Concepts

A. Decentralized Finance (DeFi)
DeFi extends blockchain technology into financial services by replacing traditional
intermediaries with smart contracts, creating a decentralized financial ecosystem.
• Applications: Lending, borrowing, yield farming, staking, and derivatives.
• Examples:
o Uniswap: A decentralized exchange (DEX) for swapping tokens.
o Aave and Compound: DeFi protocols for lending and borrowing, built on
Ethereum with extensible, upgradable smart contracts.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

B. Non-Fungible Tokens (NFTs) and Digital Ownership
NFTs represent unique digital assets, creating a marketplace for digital collectibles, art,
real estate, and in-game items.
• Interoperability: NFTs can be transferred across various ecosystems due to
standards like ERC-721 (Ethereum) and BEP-721 (Binance Smart Chain).
• Examples:
o OpenSea: A marketplace for trading NFTs across multiple blockchains,
supporting Ethereum, Polygon, and Solana.
o Decentraland: A virtual world where users can buy and trade NFT-based
land, wearables, and items, showcasing blockchain’s extensibility in digital
assets and ownership.
C. Supply Chain Management
Blockchain extends into supply chain management, allowing for real-time, immutable
tracking of products across different parties and borders.
• Traceability: Provides transparency and verifies the authenticity of goods.
• Examples:
o VeChain: A blockchain platform focused on enhancing transparency in the
supply chain by providing IoT integration and tracking.
o IBM Food Trust: Uses Hyperledger Fabric to trace food products from
source to retailer, allowing for greater accountability and trust.
D. Healthcare
Blockchain’s extensibility also benefits healthcare, ensuring data privacy and integrity
while allowing authorized access across multiple institutions.
• Applications: Patient data management, drug traceability, medical research.
• Examples:
o MedRec: A blockchain-based healthcare data management system that
provides secure patient data sharing across providers.
o PharmaLedger: Tracks pharmaceuticals from manufacturer to patient to
reduce counterfeiting.
Future Directions for Blockchain Extensibility
A. Zero-Knowledge Proofs (ZKPs)
ZKPs allow data to be verified without revealing the underlying information, extending
blockchain’s privacy capabilities.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Example: Z cash uses ZKPs to provide privacy for transactions, and zk-Rollups
on Ethereum allow for scalable, private transactions off-chain while only storing
minimal data on-chain.
B. Decentralized Identity (DID)
Decentralized Identity frameworks give users control over their identities and data,
enabling privacy-focused, cross-platform digital identities.
• Example: Microsoft ION on Bitcoin’s blockchain uses a decentralized identity
protocol, allowing for secure authentication and data management.
C. Cross-Chain DeFi Protocols
With the rise of multiple blockchain networks, cross-chain DeFi protocols allow for
decentralized financial operations across blockchains.
• Example: Thor chain enables DeFi applications to operate across different
chains, such as Bitcoin and Ethereum, facilitating asset swaps between distinct
blockchains.
D. Quantum-Resistant Blockchains
As quantum computing advances, there is a need to ensure that blockchain cryptography
is resistant to potential quantum attacks.
• Example: QAN platform: A quantum-resistant blockchain protocol that is
designed to protect against future quantum attacks while enabling rapid
development and integration
Digital Identity Verification
Digital Identity Verification is the process of confirming a person’s identity in the digital
world. It combines a person's digital information (such as name, date of birth, and
address) with verifiable credentials to ensure authenticity.
Why Digital Identity Matters
• Security: Protects individuals from identity theft and fraud.
• Convenience: Enables seamless online transactions without physical
documents.
• Transparency: Allows businesses and governments to verify identities quickly
and accurately.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

How It Works
Digital identity verification typically involves three main steps:
1. Data Collection: Collects personal information like name, date of birth, and
biometric data.
2. Document Verification: Confirms the legitimacy of documents like passports or
driver’s licenses.
3. Biometric Verification: Uses facial recognition, fingerprints, or other biometric
data to confirm the identity.
Blockchain and Digital Identity
Blockchain technology enhances digital identity by making it more secure, private, and
accessible. Instead of storing personal data in centralized databases, blockchain allows
users to have control over their identity on a decentralized network.
• Decentralized Identity (DID): Users control their digital identity, sharing only
necessary information with others without relying on a central authority.
• Example: Microsoft ION is a digital identity system built on the Bitcoin blockchain
that allows users to own and manage their identities.
Use Cases
• Healthcare: Patients can manage their medical records securely and share them
only with authorized providers.
• Finance: Banks use digital identity verification to meet Know Your Customer
(KYC) regulations, ensuring that users are who they claim to be.
• Education: Universities use blockchain to issue and verify digital certificates,
reducing fraud and making verification easier.

Blockchain Neutrality
Blockchain Neutrality refers to the principle that a blockchain should be impartial, open
to all, and not favor specific users, organizations, or regions.
Key Features of Blockchain Neutrality
• Permissionless: Anyone can join and participate in a truly neutral blockchain.
• Transparency: All participants can view the transactions on a public blockchain.
• Equal Access: Blockchain doesn’t favor one participant over another and
remains decentralized.
Why Blockchain Neutrality Matters

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Fairness: Ensures no single entity can control or manipulate the blockchain.
• Resilience: Neutral blockchains are more resilient as they don’t depend on any
central party.
• Trust: Users can trust that the network operates based on consensus, not under
the influence of a central authority.
Examples of Neutral Blockchains
• Bitcoin: Bitcoin is a neutral, decentralized network where no individual or
organization controls the transactions.
• Ethereum: Ethereum is also decentralized, with users having the freedom to
create and deploy applications without central control.
Use Cases
• International Remittances: Blockchain neutrality enables people across borders
to send and receive funds without needing approval from a central authority.
• Voting Systems: Blockchain-based voting systems allow for transparent and
unbiased voting, as all votes are recorded publicly and cannot be altered.

Digital Art
Digital Art in the blockchain context often involves Non-Fungible Tokens (NFTs),
which are unique digital assets that represent ownership of digital items like art, music,
or videos.
What Are NFTs?
NFTs (Non-Fungible Tokens) are digital tokens that represent ownership of a unique
item or piece of content on the blockchain. Unlike cryptocurrencies, which are fungible
(interchangeable), each NFT is unique, with its own value and characteristics.
Why NFTs Matter in Digital Art
• Ownership: NFTs give artists and creators a way to prove ownership of digital
art.
• Revenue for Artists: Artists can earn royalties every time an NFT is resold.
• Transparency: The blockchain records the history of ownership, creating a
transparent record of ownership.
How Digital Art on Blockchain Works
1. Creation: Artists create digital art and "mint" it as an NFT on a blockchain (usually
Ethereum).

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 2. Ownership Transfer: When someone buys the NFT, they own the digital art, with
a record on the blockchain.
3. Resale: If the owner resells the NFT, the artist can earn a percentage of each
resale through royalties.
Examples of NFT Marketplaces
• OpenSea: A popular NFT marketplace where artists can mint, buy, and sell NFTs.
• Rarible: A marketplace that allows artists to mint NFTs and sell directly to
collectors.
Use Cases
• Art Collecting: Art collectors can buy and own exclusive digital art pieces,
recorded on the blockchain.
• Gaming: NFTs are used for in-game items, making them unique and transferable
between players.
• Music and Media: Musicians and creators use NFTs to sell exclusive content to
fans directly.

Blockchain in the Environment

Blockchain can play a significant role in environmental initiatives by increasing
transparency, reducing fraud, and enabling better management of resources.
Blockchain and Environmental Impact
While blockchain networks (like Bitcoin) can consume high amounts of energy, newer
blockchain protocols are designed to be more energy-efficient, supporting sustainable
practices.
Environmental Applications of Blockchain
• Supply Chain Transparency: Blockchain helps track the origin of goods,
ensuring ethical and eco-friendly sourcing.
• Carbon Credits and Trading: Blockchain-based systems allow companies to
trade carbon credits more transparently.
• Waste Management: Blockchain can track waste disposal and recycling,
reducing environmental impact.
Examples and Use Cases
• IBM Food Trust: Uses blockchain to track the food supply chain, ensuring
sustainable practices from farm to table.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)

 • Power Ledger: A blockchain platform for trading renewable energy between
households and businesses.
• CarbonX: Allows companies to offset their carbon footprint by purchasing
blockchain-based carbon credits.
How Blockchain Reduces Environmental Impact
• Reduced Fraud: Blockchain’s transparency prevents “greenwashing” (false
claims of environmental friendliness).
• Traceability: Allows consumers to verify the eco-friendliness of products.
• Decentralized Energy Markets: Blockchain-based energy trading helps manage
and distribute renewable energy locally.

Blockchain’s adaptability allows it to support complex applications across

industries through scalable, interoperable solutions, and secure digital identity
systems that empower users to control their data. Its neutrality promotes fairness and
transparency, fostering trust in decentralized systems like payments and voting. In
digital art, blockchain-based NFTs enable creators to verify and monetize their work,
while collectors gain unique ownership rights. Additionally, blockchain plays a role in
environmental efforts by enhancing transparency in supply chains and supporting
sustainable practices, though energy efficiency remains a key area for improvement.

Blockchain Technology Dept of CSIT, CSBS (IV Year- I Sem)