BlockChain

Technology(21CS734)
Module 1: Chapter-1
 Block chain 101-Introduction
 In the digital age, where the information is powered and security is
most important, a revolutionary technology as emerged to redefine how
we perceive and refine data—that is Block Chain Technology.
 Block Chain Technology is transparent, immutable, decentralized
digital diary that records transactions across many computers.
 It is a way to ensure trust, accountability and security.
 Its about creating a trust in trust less environment
 Block chain 101-Introduction

 Block chain Was first put forwarded by a group of researchers in 1991.

 The idea was initially intended for time stamping digital documents such that
back dating them will not be possible thereafter.
 First time in the history that inventor of a game changing technology has gone
completely anonymous-Satoshi Nakomato;
 An anonymous person/group is said to be behind the first block chain which is
bitcoin.

 Bitcoin is the first BC that came into existence in 2009.

 Continued..


 Why Block Chain
Some advantages of BC over existing systems of different domains
 Decentralized, distributed, secure & faster, transparent & immutable.
1. Security: In BC , each block is encrypted and linked to the previous block forming
block chain. This chain of transaction is visible to everyone within network.
Altering one block requires changes to be made in all blocks which requires lot of
computational power.
2. Transparency: Every transaction in the BC is visible to all participants in the network.
This transparency ensures accountability and makes it merely impossible for any
participant to cheat the systems.
 Why Block Chain
3. Decentralization: Unlike Traditional Databases that are controlled by a single
entity like Banks or Government.
A Block Chain is distributed across multiple nodes computers. Decentralization
means no single entity has complete control over the entire network.
Data Base Vs. Block Chain Architecture
Why Block Chain
Continued..
 The structure of Block Chain

 According to IBM, BC is a shared, distributed ledger that facilitates the

process of recording transactions & tracking assets in a network.
 The assets may be tangible assets like property, house, vehicle. Intangible
assets like digital currency, intellectual property rights etc.,
 It is a distributed database and a public registry that keeps details of
assets & its movements/transactions across P2P network.
 Continued..
 Each transaction will be secured through cryptography.
◻All transaction history will be grouped and stored as blocks of data. Blocks are
linked together with cryptography and secured from modifications.
◻The whole process will create an unforgettable and immutable records of
transactions that happened across the network.

◻This blocks of records are copied to every participating computer in the network
and will have access to it.
 Continued..
 The great advantage of BC is that it can store any kind of assets, its
ownership details, history of the ownership and location assets in the
network.
 The powerful feature of BC is that we can create a shared reality
across non trusting entities.(that is all participating nodes in the network do
not need to know each other or trust each other) because each has the

ability to monitor and validate the chain for themselves.

 Continued..

 In analogy, imagine each block as a box with some valuable content

inside of it.
 Once the first box is locked with multiple locks, one of the keys is
thrown into the next box, which in turn is locked and one of its keys is
thrown into the following one, etc.
 In other words, access to an individual box is dependent on the rest of
the boxes, i.e. if a box is taken out, the chain breaks.
 Continued..

 Blockchain is a Distributed Ledger Technology. It is a

distributed and decentralized database and it is secured ever as
compared to other technologies.
 Blockchain technology is a decentralized system, which means
that there is no central authority controlling the network.
Instead, the network is made up of a large number of nodes that
work together to verify and validate transactions.
 Continued..
 Linked list is a set of blocks which are connected to each other by some kind of a
link. In case of a data structure linked list, you have the nodes and nodes are
connected by pointers(memory addresses.

 The block chain is a distributed data structure, which is replicated at various

computers and therefore, the linking is not based on memory addresses.

 In BC, there are different notion of linking between nodes and each of these nodes
are called blocks.

 Therefore, block chain as a series of blocks and each block is connected to its
previous block by some kind of a link.
 Continued..
 Blockchain is a combination of three important technologies - cryptographic keys, a
peer-to-peer network, and a digital ledger.

 The cryptographic keys are of two types - private key and public key.
 Each individual or node has both of these keys and they are used to create a digital
signature.

 Ethereum is number one BCT.

 Introduced in 2013, Ethereum is one of the oldest and most established blockchain
platforms.
 It provides a truly decentralized blockchain that is comparable to the Bitcoin
blockchain network.
 Benefits of Block Chain Technology
 Key benefits you can expect to achieve when adopting Blockchain
technology:
1. It is an immutable public digital ledger, which means when a transaction is
recorded, it cannot be modified.

2. Due to the encryption feature, Blockchain is always secure.

3. The transactions are done instantly and transparently, as the

ledger is updated automatically.

4. As it is a decentralized system, no intermediary fee is required.

5. The authenticity of a transaction is verified and confirmed by participants.

Data structure of Block Chain
 Continued..
Each Block has
1.Data. 2.Hash. 3.Hash of the previous block
Consider following example, where we have a chain of 3 blocks. The 1st block has
no predecessor. Hence, it does not contain hash of the previous block. Block 2
contains a hash of block 1. While block 3 contains Hash of block 2.
Continued..
Continued..
How distributed Ledger works
 Growth ofBC technology
• Primary usage of block chain was crypto currencies, and many new coins
emerged during that time.
• The graph shows that eventually, roughly around 2025 block chain
technology is expected to become mature with a high number of users.
 Benefitsof BCtechnology

• Decentralized trust.
• Cost savings, transparency
• Efficiency.
 There are multiple challenges too that are an area of active
research on block chain, such as scalability and privacy.
 DistributedSystems
 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.

Eg: Google's search engine is based on a large distributed system, but 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.

 Nodes can be honest, faulty, or malicious, and they have memory and a
processor.
 DistributedSystems
 A node that exhibits irrational behavior(intentionally misleading other nodes in
the network) is also known as a Byzantine node after the Byzantine Generals
Problem.

 It’s a game theory problem- where a group of generals attacks a fortress.

 Every general has an army and surrounds a fort from one side.

 Every general has a preference about whether to attack or to move backwards

 It has to be a coordinated attack or retreat to incur minimum losses.

DistributedSystems
 DistributedSystems
N4 is a Byzantine node, L2 is broken or a slow network link
 The primary challenge in distributed system design is coordination between nodes
and fault tolerance.
 Even if few nodes become faulty or network links break, the distributed system
should be able to tolerate and continue to work to achieve the desired result.
 To overcome these issues, several algorithms and mechanisms have been proposed.
 Distributed systems are so challenging to design that a hypothesis known as the
CAP theorem has been proven, which states that a distributed system cannot have
all three desired properties that is, consistency, availability, and partition tolerance
simultaneously.
 DistributedSystems
 The CAP theorem, also known as Brewer's theorem, is a fundamental
concept in the field of distributed systems. It was formulated by computer
scientist Eric Brewer in 2000.
 The CAP theorem states that in a distributed system, you can have at most
two out of the following three guarantees:
1. Consistency (C): Every read operation on the system returns the most recent
write result. All nodes in the system see the same data at the same time.
2. Availability (A): Every request to the system, whether for reading or writing,
receives a response without guaranteeing that it contains the most up-to-date
data. The system is always responsive to client requests.
3. Partition tolerance (P): The system continues to function even in the presence
of network partitions or message loss.
 Network partitions can occur when nodes in a distributed system cannot
communicate with each other.
 Historyof BlockChainandBitcoin
• Block chain was introduced with the invention of Bit coin in 2008. Its practical
implementation then occurred in 2009.
Electronic CASH:

• The model was proposed by David Chaum. Since1980s, e-cash protocols have
existed. Digital cash is a form of electronic money that is designed to mimic the

properties of physical cash in a digital environment.

• It allows users to make payments and transactions electronically while preserving

the privacy and anonymity of the parties involved.
 Accountability&Anonymity
• Two fundamental e-cash system issues need to be addressed
1. Accountability is required to ensure that cash is spendable only once
(double-spend problem) and that it can only be spent by its rightful owner.

• Double spend problem arises when same money can be spent twice. It is quite
easy to make many copies of digital data, which is a big issue in digital
currencies.

 Bitcoin solves the double spend problem by using a decentralized ledger,

which all users can access. Because all members of the Bitcoin network can
examine the full history of transactions, they can be sure that neither their
coins nor any other coins have been double spent.
 Double spending

 Accountability&Anonymity
 Anonymity is protecting users' privacy, particularly in financial transactions. As
with physical cash, it is almost impossible to trace back spending to the individual
who actually paid the money.

 Blind signatures is a type of digital signature in which the signer (usually a bank
or authority) signs a message without knowing its content. This enables a user to
obtain a valid signature on a piece of data without revealing what that data is.
Blind signatures are essential for ensuring privacy in digital cash systems.

 Secret sharing is a concept that enables the detection of double spending, that is
using the same e-cash token twice (double spending).
 E-Cash
• In 2009, the first practical implementation of an electronic cash (e-cash)
system named Bitcoin appeared.(Later the term crypto currency emerged)

• For the very first time, it solved the problem of distributed consensus in
a trustless network.

• It used public key cryptography with a Proof of Work (PoW) mechanism to

provide a secure, controlled, and decentralized method of mining digital
currency.
• The key innovation was the idea of an ordered list of blocks composed of
transactions and cryptographically secured by the PoW mechanism.
 Consensus in Block Chain
 In the blockchain, a consensus mechanism is a system that validates a transaction
and marks it as authentic.

 This mechanism lists all valid transactions of a coin in a blockchain to build trust in
the coin among traders.

 In a distributed system, where there is no central governing authority,

all participants collectively decide and agree upon what is best for the
network.
 Distributed consensus allows multiple nodes to agree on a shared database without
relying on a central authority.
 Proof of work
 It describes a system that requires a considerable amount of effort to be done for
mining a new block to prevent malicious uses of computing power and other possible
attacks on the system, such as denial-of-service attacks and other service abuses like
spamming by making the service requester do some demanding work.

 The PoW consensus mechanism requires the network mining nodes to prove that the
work done and submitted by them qualifies them to receive the right to add new
transactions containing blocks to the blockchain.

 In PoW, nodes that will add the next block to the blockchain are selected in proportion
to their computing power.
 Proof of work-Advantages
 Reaches consensus quickly, rules out the possibility of spamming, and is the
most tested protocol over time.

 Drawbacks. A lot of power is consumed and wasted in mining; hardware

dependency can lead to mining centralization.

 Security. PoW is open to 51% attack along with selfish mining and eclipse attack.

 Application. Bitcoin, Ethereum, Litecoin, bitcoin cash, Zcash

Thevarious ideas thatsupportedthe inventionofBit coinand
block chain
•
 BlockChain
• In 2008, a ground breaking paper entitled Bitcoin:
• A Peer-to-Peer Electronic Cash System was written on the topic of peer-to-peer electronic
cash under the pseudonym Satoshi Nakamoto.
• It introduced the term chain of blocks.
• No one knows the actual identity of Satoshi Nakamoto.
 After introducing Bitcoin in 2009, he remained active in the Bitcoin developer
community until 2011.

 He then handed over Bitcoin development to its core developers and simply
disappeared.
White paper
 BlockChain
 Layman's definition: Blockchain is an ever-growing, secure, shared record
keeping system in which each user of the data holds a copy of the records,
which can only be updated if all parties involved in a transaction agree to
update.
 Technical definition: Block chain is a peer-to-peer, distributed ledger that is
cryptographically-secure, append-only, immutable (extremely hard to change),
and updateable only via consensus or agreement among peers.
 This means that there is no central controller in the network, and all
participants talk to each other directly.
• This property allows for cash transactions to be exchanged directly among the
peers without a third-party involvement, such as by a bank.
 Distributed ledger
 Block chain is a distributed ledger, which means that a ledger is spread across
the network among all peers in the network, and each peer holds a copy of the
complete ledger.
• Ledger is cryptographically-secure to provide security services which make this
ledger secure against tampering and misuse.
• The services include non-repudiation, data integrity, and data origin
authentication.

• Non-repudiation: A party involved in a communication or transaction

cannot deny the authenticity or integrity of their actions or the data
exchanged.
 Distributed ledger
 Data Integrity: Refers to the accuracy and reliability of data throughout its entire
lifecycle, from creation or capture to storage, processing, and retrieval.

 Origin authentication: Refers to the process of verifying the identity or

authenticity of the source or origin of data, messages, or requests in a networked
environment.

 This verification helps ensure that the data or communication is coming from a
legitimate and trusted source rather than from a malicious or unauthorized entity.
 Append-only

• Append-only  A blockchain is a read- and append-only storage

methodology.

• This means that blocks can only be created and read in the
blockchain ledger.

• Blocks in a blockchain cannot be updated or deleted; blocks can

only be appended to the end of a blockchain..
 Appendonly
 This property implies that once data is added to the blockchain, it is almost
impossible to change that data and can be considered practically immutable.

• It can be changed in rare scenarios wherein collusion against the blockchain network
succeeds in gaining more than 51 percent of the power.(To gain control over the
network , a group/participants gain 51% of the computational power in PoW or stake in
PoS), so that they can manipulate the blockchain's operation in their favour.

• When a group gains more than 51 percent of the power in a blockchain network,
they can potentially engage in an attack called "51% attack."
 Updateable via consensus
• The most critical attribute of a block chain is that it is updateable only via
consensus which gives it the power of decentralization.

• No central authority. Any update made to the blockchain is validated against strict
criteria defined by the block chain protocol and added to the blockchain only after a
consensus has been reached among all participating peers/nodes on the network.

• To achieve consensus, there are various consensus facilitation algorithms which

ensure that all parties are in agreement about the final state of the data on the block
chain network.
 Updateable via consensus
 Block chain can be thought of as a layer of a distributed peer-to-peer network
running on top of the internet, as can be seen in the following diagram.

• It is analogous to SMTP, HTTP, or FTP running on top of TCP/IP.

Thenetworkviewof ablockchain
 The networkviewof a block
 At the chainlayer, there is the internet, which
bottom provides a basic
communication layer for any network.
 In this case, a peer-to-peer network runs on top of the internet, which hosts
another layer of block chain.
 That layer contains transactions, blocks, consensus mechanisms, state
machines, and block chain smart contracts. (components are shown as a
single logical entity in a box) representing block chain above the peer-to-peer
network.
 Finally, at the top, there are users or nodes that connect to the block chain
and perform various operations such as consensus, transaction verification,
and processing.
 Continued…
 A block chain can be defined as a platform where peers can exchange value /
electronic cash using transactions without the need for a centrally-trusted
arbitrator.

Eg: For cash transfers, banks act as a trusted third party.

In financial trading, a central clearing house acts as an arbitrator between
two trading parties.

 Significant benefit of decentralization in BC is if no banks or central clearing

houses are required, then it immediately leads to cost savings, faster transaction
speeds, and trust.
 Block

• A block is merely a selection of transactions bundled together and

organized logically.

• A transaction is a record of an event.

Eg: The event of transferring cash from a sender's account to a
beneficiary's account.

• A block is made up of transactions, and its size varies depending on the

type and design of the block chain in use.
 Block
 A genesis block is the first block in the blockchain that is hardcoded at the
time the blockchain was first started.

 The structure of a block is also dependent on the type and design of a block
chain.

 Attributes that are essential to the functionality of a block:

1. The block header: Which is composed of pointer to previous block.

2. The timestamp. 3.Nonce 4. Merkle root. 5.Block body that contains

transactions.

 There are also other attributes in a block .

Block
Etherscan.io
Block transaction as on 23/09/23
 Nonce
• A nonce is a number that is generated and used only once.
• A nonce is used extensively in many cryptographic operations to provide
replay protection, authentication, and encryption.
• It is a number which blockchain miners are finding and on average, it takes
almost 10 times to find out the correct nonce.
• A nonce is a 32-bit number, having the maximum value as 2^(32) total
possible value, so the job of the bitcoins miners is to find out the correct
integer value which is a random integer between 0 and 2^(32), so it becomes
computationally expensive.
• In blockchain, it's used in PoW consensus algorithms and for transaction
replay protection.
 Merkleroot

• Merkle root is a hash of all of the nodes of a Merkle tree.

• Merkle trees are widely used to validate the large data structures securely and
efficiently.
• In the blockchain world, Merkle trees are commonly used to allow efficient
verification of transactions.
• Merkle root in a blockchain is present in the block header section of a block,
which is the hash of all transactions in a block.
• This means that verifying only the Merkle root is required to verify all
transactions present in the Merkle tree instead of verifying all transactions one
by one.
Merkle Tree
 Merkel root
 A Merkle root uses mathematical formulas to check if the data is not
corrupted, hacked, or manipulated.

Eg: Suppose one block has 10 transactions, then to identify that block, all 10
transactions to combine and form one Hash Value.

 It uses the concept of the binary tree to create the hash of the block and that
value is called the Merkle Root.
 Genericstructureofa block
•
 Genericelementsof a blockchain- Ethereum blockchain
•
 Address
• Addresses are unique identifiers used in a BC transaction to denote senders and
recipients.
• An address is usually a public key or derived from a public key and they are unique..

• A single user may not use the same address again and generate a new one for each
transaction. This newly-created address will be unique.

• Bitcoin is a pseudonymous system. End users are usually not directly identifiable,
but some research in removing the anonymity of Bitcoin users has shown that they
can be identified successfully.

• A good practice is for users to generate a new address for each transaction in order to
avoid linking transactions to the common owner, thus preventing identification.
 Address
 A blockchain address is a form of identification, usually comprising a sequence
of alphanumeric characters unique to a specific user.

 A blockchain address is used to send and receive funds of digital assets on a

blockchain network.

 It is a string of text that uniquely identifies the source or destination of a

transaction.

 Every blockchain will have wallet addresses that are created by a cryptographic
operation on a computer.
 Otherelements

• Transaction: A transaction is the fundamental unit of a block chain.

A transaction represents a transfer of value from one address to
another.
• Block: A block is composed of multiple transactions and other
elements, such as the previous block hash (hash pointer),
timestamp, and nonce.
• Peer-to-peer network: As the name implies, a peer-to-peer network
is a network topology wherein all peers can communicate with each
other and send and receive messages
 Scriptingor programminglanguage:

 Scripts or programs perform various operations on a transaction in order to

facilitate various functions.
Eg: In Bitcoin, transaction scripts are predefined in a language called Script,
which consist of sets of commands that allow nodes to transfer tokens from one
address to another.
 Script is a limited language, it allows essential operations that are
necessary for executing transactions, but it does not allow for arbitrary
program development.
 Scriptingor programminglanguage:

 Think of it as a calculator that only supports standard preprogrammed

arithmetic operations.
 Bitcoin script language cannot be called Turing complete. Turing complete
language means that it can perform any computation.
 It is named after Alan Turing who developed the idea of Turing machine that
can run any complex algorithm.
 Turing complete languages need loops and branching capability to perform
complex computations.

 Bitcoin's scripting language is not Turing complete.

 Ethereum’s Solidity  is Turing complete.
 Scriptingor programming language

 To facilitate arbitrary program development on a blockchain, Turing

complete programming language is needed, which is a desirable
feature of block chains.

 The security of such languages is a crucial question and an

essential and ongoing research area.
 High Level diagram of BC architecture

 Virtual Machines

 A virtual machine allows Turing complete code to be run on a block chain

(as smart contracts); whereas a transaction script is limited in its
operation.
 Virtual machines are not available on all block chains.
 Various block chains use virtual machines to run programs such as
Ethereum Virtual Machine (EVM) and Chain Virtual Machine
(CVM).
 EVM is used in Ethereum blockchain, while CVM is a virtual machine
developed for and used in an enterprise-grade blockchain called Chain
Core.
 State Machine,Nodes
 A blockchain can be viewed as a state transition mechanism whereby a
state is modified from its initial form to the next one and eventually to a
final form by nodes on the blockchain network as a result of a
transaction execution, validation, and finalization process.

 A node in a block chain network performs various functions depending

on the role that it takes on.

 A node can propose and validate transactions and perform mining to

facilitate consensus and secure the block chain.
 Node
 Nodes can also perform other functions such as simple payment verification
(lightweight nodes), validation, and many other functions depending on the
type of the block chain used and the role assigned to the node.

 Nodes also perform a transaction signing function. Transactions are first created
by nodes and then digitally signed by nodes using private keys as proof
that they are the legitimate owner of the asset that they wish to transfer to
someone else on the blockchain network.

 This asset is usually a token or virtual currency, such as Bit coin.

 Smart Contracts
 These programs run on top of the block chain and encapsulate the
business logic to be executed when certain conditions are met.

 Business logic helps companies manage and work with large amounts of
data.

 With the right software, organizations can use business logic to translate
various company protocols into usable data and instructions to feed into

computer systems.

 These programs are enforceable and automatically executable.

 Smart Contracts

 The smart contract feature is not available on all block chain

platforms.

 Now it is a very desirable feature due to the flexibility and power that
it provides to the blockchain applications.

 Smart contracts have many use cases such as identity management,

capital markets, trade finance, record management, insurance, and e-
governance etc..
 Working of block chain
 Nodes are either miners who create new blocks and mine
crypto currency (coins) or block signers who validate and
digitally sign the transactions.

 A critical decision that every block chain network has to

make is, to figure out which node will append the next block
to the block chain.

 This decision is made using a consensus mechanism.

 Step1: Transaction is initiated
 A node starts a transaction by first creating it and then digitally
signing it with its private key.

 A transaction can represent various actions in a block chain.

 Transaction is a data structure that represents the transfer of value

between users on the blockchain network.

 The transaction data structure usually consists of some logic of

transfer of value, relevant rules, source and destination addresses, and
other validation information.
 Transactions are usually either a crypto currency transfer or smart
contract invocation that can perform any desired operation.

 A transaction occurs between two or more parties.

 Step2: Transaction is validated and broadcasted
• A transaction is propagated (broadcast) usually by using data-
dissemination protocols, such as Gossip protocol, to other peers
that validate the transaction based on preset validity criteria.

• Before a transaction is propagated, it is also verified to ensure that

it is valid.
 Step3:Find a new block
 When the transaction is received and validated by special participants
called miners on the blockchain network, it is included in a block,
and the process of mining starts.

 This process is also sometimes referred to as "finding a new block."

 Here, nodes called miners race to finalize the block they've created by
a process known as mining.
 Step4:New block Found
 Once a miner solves a mathematical puzzle (or fulfills the
requirements of the consensus mechanism implemented in a
blockchain), the block is considered "found" and finalized.

 At this point, the transaction is considered confirmed.

 In crypto currency block chains such as Bit coin, the miner who solves
the mathematical puzzle is also rewarded with a certain number of
coins as an incentive for their effort and the resources they spent in
the mining process.
 Step5:Add a new block to Block chain
 The newly created block is validated, transactions or smart
contracts within it are executed, and it is propagated to other peers.

 Peers also validate and execute the block.

 Block now becomes part of the block chain (ledger), and the next
block links itself cryptographically back to this block. This link is
called a hash pointer.
Working of Block Chain
Thisprocesscanbevisualizedinthediagramas follows
 Benefits, Features & Limitations of BC
1. Decentralization: There is no need for a trusted third party or intermediary to validate
transactions; instead, a consensus mechanism is used to agree on the validity of
transactions.
2. Transparency and trust: Because block chains are shared and everyone can see what is
on the block chain, this allows the system to be transparent.

 As a result, trust is established. This is more relevant in scenarios such as

the disbursement of funds or in situations where it's important to limit personal
choice when picking who should receive certain benefits.
3. Immutability: Once the data has been written to the block chain, it is extremely difficult
to change it back.
 Benefits, Features & Limitations of BC

4. High availability: As the system is based on thousands of nodes in a

peer-to-peer network, and the data is replicated and updated on every

node, the system becomes highly available.

 Even if some parts of the network go offline or can't be reached, the

network keeps functioning, ensuring it stays available. This redundancy
ensures high availability.

5. Highly secure: All transactions on a block chain are cryptographically

secured and thus provide network integrity.
 Benefits, Features & Limitations of BC

6. Simplification of current paradigms: The current block chain model

used in many industries, such as finance or health, is somewhat

disorganized.

In this model, multiple entities maintain their own databases and data
sharing can become very difficult due to the disparate nature of the
systems.
 Here, block chain can serve as a single shared ledger among many
interested parties thereby reducing the complexity of managing the
separate systems maintained by each entity.
 Benefits, Features & Limitations of BC

7. Faster dealings: In the financial industry, especially in post-trade

settlement functions, block chain can play a vital role by enabling the quick
settlement of trades.

 Blockchain doesn't need a complicated verification process because it

uses a single shared ledger that financial organizations already agree on.

10. Cost saving: Because blockchain doesn't need a trusted middleman or

clearinghouse, it can significantly reduce costs by eliminating the fees paid
to these parties.
 Limitations of BC
1. Scalability: Blockchain can struggle to handle a large number of transactions
quickly(like A traffic jam on a busy road.)

2. Adaptation: Getting existing systems to work with blockchain can be tricky,

(like Fitting a new puzzle piece into an old jigsaw.)

3. Regulation: Governments and rules are still catching up with blockchain,

which can make it uncertain( like A new game without clear rules.)

4. Relative Immature Technology: Blockchain is like a young plant, not fully

grown yet; it's constantly evolving and can have unexpected issues.

5. Privacy and Confidentiality: Keeping secrets safe on a blockchain can be

tough because everyone can see the transactions( like having a see-through
bank account.)
 Types of BC
• Based on technical and business usage perspective

1. Distributed ledgers

2. Distributed Ledger Technology (DLT)

3. Block chains

4. Ledgers.
 Types of BC
 Distributed ledger is a broad term describing shared
databases; hence, all block chains technically fall under the
umbrella of shared databases or distributed ledgers.

• Although all block chains are fundamentally distributed ledgers,

all distributed ledgers are not necessarily block chains.

• A distributed ledger is distributed among its participants and

spread across multiple sites or organizations. This type of ledger
can be either private or public.
 Distributed Ledgers
• The fundamental idea here is that the records are stored
contiguously instead of being sorted into blocks.

• This concept is used in Ripple, which is a block chain-and

crypto currency-based global payment network.

• In the finance industry, people often use the terms "distributed

ledger" or "DLT" to talk about blockchain.

 Distributed Ledgers
• Block chain and DLT are used interchangeably.
• DLT has evolved recently, especially in the finance sector and is
now is active and thriving area of research.

• From a financial sector point of view, DLTs are permissioned

block chains that are used by consortiums.
• DLTs usually serve as a shared database, with all participants
known and verified.

• They do not have a crypto currency and do not require mining to

secure the ledger.
 Public Block chains
• Public block chains are not owned by anyone.
• They are open to the public, and anyone can participate as a
node in the decision-making process.
• No reward for their participation.
• All users of these "permissionless" or "un-permissioned"
ledgers maintain a copy of the ledger on their local nodes and
use a distributed consensus mechanism to decide the eventual
state of the ledger.
• Eg: Bitcoin and Ethereum .
 Private Block chains
• Private blockchains are exclusive, limited to a specific group of people or
organizations who choose to use and share the ledger together.

Eg: Kadena and Quorum.

Kadena is a blockchain platform designed for both public and private

blockchain applications.

 It is known for its scalable and secure blockchain solutions.

 Kadena offers a smart contract language called Pact, which is designed to be

user-friendly while maintaining robust security.

 This platform is suitable for various use cases, including supply chain
management, financial services, and healthcare.
 Private Block chains
• Quorum: Quorum is an enterprise-focused blockchain platform
developed by JPMorgan Chase.

• It's specifically designed for private and consortium networks,

making it suitable for financial institutions and businesses.

• Quorum leverages the Ethereum technology but incorporates

privacy features to ensure confidential transactions.

• It is used for applications such as trade finance, supply chain

management, and tokenization of assets.
 Semi private- Block chains
 A semi-private blockchain, also known as a consortium blockchain, is a
type of blockchain network that falls between public and private
blockchains in terms of access control and permissions.
 With a semi-private block chain, the private part is controlled by a group
of individuals, while the public part is open for participation by anyone.

A semi-private blockchain is accessible to a select group of participants.

These participants typically belong to a consortium or group of
organizations.
 Semi private- Block chains

This type of block chain can also be called a semi-decentralized

model, where it is controlled by a single entity but still allows
for multiple users to join the network by following appropriate
procedures.
 Side Chains(Pegged Side Chain)
A sidechain is a separate blockchain network that connects to another
blockchain – called a parent blockchain or mainnet – via a two-way
peg.

This is a concept whereby coins can be moved from one block chain to
another and moved back again.

Typical uses include the creation of new altcoins (alternative crypto

currencies Eg: Slim coin) whereby coins are burnt as a proof of an
adequate stake.
 Side Chains

 A "sidechain" in blockchain technology refers to a separate blockchain that

is interoperable with the main or "parent" blockchain.

 It is designed to work alongside the primary blockchain, allowing for

specific functions or transactions to occur more efficiently or with different
rules while still benefiting from the security and trust of the main
blockchain.

 Primary blockchain network(Eg:-Bitcoin or Ethereum)is one where

most of the transactions and activities take place.

 It has its own set of rules and consensus mechanisms

 Side Chains
 A sidechain is like an auxiliary blockchain connected to the
main one.
 It is used for specific purposes such as handling certain types
of transactions or smart contracts.
 Sidechains often have their own unique features or rules
tailored to their intended use cases.
Sidechains are designed to be interoperable with the main
blockchain(move assets or data between the main chain and the sidechain)
 Side Chains
 Sidechains can be used for various purposes, including scalability
(processing transactions more quickly), testing new features or
upgrades without affecting the main chain.

 Providing specialized functionality like enhanced privacy or smart

contract capabilities.

 One-way and two-way pegged chains are concepts used in the

blockchain networks to facilitate the movement of assets or data
between different blockchains.
 One-way pegged Side Chains
 A typical use case for burning coins, like in Slimcoin, is to create new
alternative cryptocurrencies by sending coins to an unspendable address,
making those coins permanently unrecoverable.(Assets or data is moved in one
direction)

 This mechanism is used to bootstrap a new currency or introduce scarcity which

results in increased value of the coin.

 This mechanism is also called Proof of Burn (PoB) and is used as an alternative
method for distributed consensus to PoW and Proof of Stake (PoS).
 2. Two-way pegged Side Chains
 Allows the movement of coins from the main chain to the side chain and
back to the main chain when required.(Bidirectional movement of assests or
data)

This process enables the building of smart contracts for the Bit coin network.

Eg: Rootstock which enables smart contract development for Bit coin side
chains.

It works by allowing a two-way peg for the Bit coin block chain, results in
much faster throughput.
Side Chains
 Permissioned Ledger
 Is a block chain where participants of the network are already known and trusted.
 Do not use distributed consensus mechanism.

 An agreement protocol is used to maintain a shared version of the truth about the state of
the records on the block chain.

 For verification of transactions on the chain, all verifiers are already preselected by a
central authority and there is no need for a mining mechanism.

 There is also no requirement for a permissioned block chain to be private, as it can be a

public block chain but with regulated access control.

 Bitcoin can become a permissioned ledger if an access control layer is introduced on top
of it that verifies the identity of a user and then allows access to the block chain.
 Shared Ledger
 This is a generic term that is used to describe any
application or database that is shared by the public or a
consortium.
 All block chains, fall into the category of a shared ledger.
 Fullyprivateand proprietaryblockchains
 In specific private settings within an organization, there could be a
need to share data and provide some level of guarantee of the
authenticity of the data.

Eg: This type of block chain might be to allow for collaboration and the
sharing data between various government departments.

 No complex consensus mechanism is required, apart from simple

state machine replication and an agreement protocol with known
central validators.

 Here Tokens can be used as means of transferring value.

 Tokenizedblock chains
 These block chains are standard block chains that generate
crypto currency as a result of a consensus process via
mining or initial distribution.

 Bitcoin and Ethereum are prime examples of this type of

block chain.
 TokenLessblock chains
 These block chains are shared distributed ledger designed in such a
way that they do not have the basic unit for the transfer of value.

 They are useful only when you need to share data among trusted
parties and not transfer value between nodes, offering benefits like
immutability, security, and consensus-driven updates.

 They are not commonly used for typical blockchain applications

involving value transfer or cryptocurrencies.
 CAP Theorem
 CAP theorem is also known as Brewer’s theorem.
 Introduced by Eric Brewer in 1998 as an hypothesis.
 In 2002, it was proven as a theorem by Seth Gilbert and
Nancy Lynch.
 The theory states that any distributed system can not
have consistency, availability, and partition tolerance
simultaneously.
 CAP Theorem

1. Consistency is a property which ensures that all nodes in distributed

a system have a single, current, and identical copy of the
data.
 Consistency is achieved if both nodes have the same shared state; that
is, they have the same up-to-date copy of the data.

2. Availability means that the nodes in the system are up, accessible for use,
accepting incoming requests and responding with data without any failures
as and when required. i.e data is available at each node and the nodes are
responding to requests.
Availability is achieved if both nodes are up and running and responding
with the latest copy of data.
 C A P theorem

3. Partition tolerance ensures that if a group of nodes is unable to

communicate with other nodes due to network failures, the
distributed system continues to operate correctly.

 This can occur due to network and node failures.

 Partition tolerance is achieved if communication does not break
down between two nodes (either due to network issues, Byzantine
faults, and so forth), and they are able to communicate with each
other.
 CAP theorem and block chain
1. To achieve fault tolerance, replication is used. This is a standard
and widely-used method to achieve fault tolerance.
2. Consistency is achieved using consensus algorithms in order to
ensure that all nodes have the same copy of the data. This is also
called state machine replication

3. Fail-stop fault:
• This type of fault occurs when a node has crashed. Fail-stop
faults are the easier ones to deal with of the two fault types.
• Paxos protocol, is normally used to deal with this type of fault.
These faults are simple to deal with.
 CAP theorem and block chain

4. Byzantine faults:

• The second type of fault is one where the faulty node exhibits
malicious or inconsistent behavior arbitrarily.

• This type is difficult to handle since it can create confusion due to

misleading information.

• This can be a result of an attack by adversaries, a software bug, or

data corruption.

• State machine replication protocols such as PBFT was developed

to address this second type of faults.