BCSE329L

BLOCKCHAIN AND
DISTRIBUTED LEDGER TECHNOLOGY
Module 1
Blockchain - Distributed Ledger - Cryptographic basics for cryptocurrency -
signature schemes, encryption schemes and elliptic curve cryptography - CAP
theorem - Categories of Blockchain: Public blockchain, Private blockchain,
Permissioned Ledger, Tokenized blockchain, Tokenless blockchain, and
Sidechains.
 Money and Currency
• “The amount of goods my 10 US Dollar bill buys now is way less than
what it used to buy me 10 years ago”
• Simple terminologies that are used for examining money or currency
– Medium Of Exchange-It is widely accepted as a medium of
exchange
– Portable –It can be carried along and exchanged.
– Durable – It can be used a number of times without degrading.
– Fungible – Its one unit is equivalent to another.
– Divisible – It can be divided into smaller units of value.
– Store Of Value– It should maintain its purchasing power
 Money and Currency: Fiat Money

it is a gold certificate and 20 dollars worth of gold coin is payable to

bearer on demand. Here, the USD is backed by gold
 Money and Currency: Fiat Currency

• As per the US government’s decree, this paper is worth of 20 US

dollar goods and services. Here, the USD is backed by decree or fiat.
• Supply of dollars or paper currency increases its value depreciates
over the period of time which leads to inflation
 Money and Currency:
Inflation Vs Hyperinflation
Transaction in a traditional banking
Let’s First talk about Banking (a la Arvind Narayanan)

Regulatory
Agency (RBI)

Customers Bank
Employee
Bank
 How do you transact?
Your write a check or do internet transaction to pay a payee
Bank checks
if you have balance > transaction amount
If yes, it debits your account by balance = balance ‐ transaction_amount
credit’s payee’s account by payee.balance = payee.balance + transaction_amount
If no, the transaction is invalid and rejected.

You can check your transaction list online, or check the monthly
statement

Who maintains the ledger?

Bank Does
 What is Ledger?
• A ledger is a book or collection
of accounts in which
accounting transactions are
recorded.
• Each account has:
– an opening or brought-
forward balance;
– a list of transactions, each
recorded as either a debit or
credit in separate columns
– and an ending or closing, or
carry-forward, balance.
 What is Distributed Ledger?
• A distributed ledger is a system whereby replicated, shared,
and synchronized digital data is geographically spread
(distributed) across many sites, countries, or institutions.
• A distributed ledger does not require a central
administrator, and consequently does not have a single
(central) point-of-failure.
• In general, a distributed ledger requires a peer-to-peer
(P2P) computer network and consensus algorithms so that
the ledger is reliably replicated across distributed computer
nodes (servers, clients, etc.).
• The most common form of distributed ledger technology is
the blockchain, which can either be on a public or private
network. Infrastructure for data management is a common
barrier to implementing DLT.
 What is Blockchain?
• A blockchain is a distributed ledger with growing lists
of records (blocks) that are securely linked together
via cryptographic hashes.
• Each block contains a cryptographic hash of the
previous block, a timestamp, and transaction data.
• Since each block contains information about the
previous block, they effectively form a chain, with
each additional block linking to the ones before it.
• Consequently, blockchain transactions are
irreversible in that, once they are recorded, the data
in any given block cannot be altered retroactively
without altering all subsequent blocks.
 What is Blockchain?
• Key Features:
– Decentralization: Eliminates the need for central
authorities.
– Transparency: All participants can verify transactions.
– Immutability: Data cannot be altered once recorded.
 Database Blockchain

Database uses centralized storage of data. Blockchain uses decentralized storage of data.

Database needs a Database admin or Database

There is no administrator in Blockchain.
administrator to manage the stored data.

Blockchain keeps the present information as well

Centralized databases keep information that is
as the past information that has been stored
up-to-date at a particular moment
before.

Data can be easily deleted or modified if needed Data once entered cannot be deleted and is
with proper authorization. permanent in nature.

More expensive to maintain due to high

Cost-effective for most business applications as it
computational power requirements for
requires less computational power.
consensus mechanisms.

Offers faster query and search capabilities for Search and query operations are generally slower
complex data structures. due to its distributed nature.

Vulnerability to single point of failure as data is Highly resistant to system failure due to
stored in one central location. distributed nature and multiple copies of data.
Cryptographic basics for
cryptocurrency
• A cryptographic hash function (CHF) is a
mathematical algorithm that maps data of arbitrary size (often
called the "message") to a bit array of a fixed size (the "hash value",
"hash", or "message digest").

• It is a one-way function, that is, a function which is practically

infeasible to invert.

• Ideally, the only way to find a message that produces a given hash is
to attempt a brute-force search of possible inputs to see if they
produce a match, or use a rainbow table of matched hashes.

• Cryptographic hash functions are a basic tool of modern

cryptography.
• An illustration of the potential use of a cryptographic hash is as
follows:
Alice poses a tough math problem to Bob and claims that she has
solved it.
Bob would like to try it himself, but would yet like to be sure that Alice
is not bluffing.
Therefore, Alice writes down her solution, computes its hash, and tells
Bob the hash value (whilst keeping the solution secret).
Then, when Bob comes up with the solution himself a few days later,
Alice can prove that she had the solution earlier by revealing it and
having Bob hash it and check that it matches the hash value given to
him before.
(This is an example of a simple commitment scheme; in actual
practice, Alice and Bob will often be computer programs, and the
secret would be something less easily spoofed than a claimed puzzle
solution.)
• Cryptographic Hash Functions
– cryptographic hash is like a fingerprint
• extremely hard to find another person with the same left thumb
fingerprint
• fingerprint doesn’t disclose any information about the person other
than that particular fingerprint
• Digital information also has fingerprints
– Called as cryptographic hash
– hash means something that’s chopped into small pieces or mixed
up
– How to create a cryptographic hash of file?
• send the file into a computer program called a cryptographic hash
function
– Why are cryptographic hash functions useful?
• Cryptographic hash functions can be used as an integrity check to
detect changes in data
Cryptographically Secure Hash functions
• Property 1: Deterministic
– No matter how many times you parse through a particular input through a
hash function you will always get the same result.
• Property 2: Quick Computation
– Hash function should be capable of returning the hash of an input quickly.
• Property 3: Pre-Image Resistance
– Given H(A) it is infeasible to determine A, where A is the input and H(A) is the
output hash.
• Property 4: Small Changes In The Input Changes the Hash.
– Even if you make a small change in your input, the changes that will be
reflected in the hash will be huge.
• Property 5: Collision Resistant
– Given two different inputs A and B where H(A) and H(B) are their respective
hashes, it is infeasible for H(A) to be equal to H(B).
• Property 6: Puzzle Friendly
– For every output “Y”, if k is chosen from a distribution with high min-entropy
it is infeasible to find an input x such that H(k|x) = Y.
 Example Cryptograph Hash

The output—the hash—is a 256-bit number; 256 bits equals 32 bytes

because 1 byte consists of 8 bits which is tiny compared to the size of
the 1.21 MB cat picture

A bit is the smallest unit of information in a computer: 0 or 1. A byte

is 8 bits that together can take 256 different values; hexadecimal, or
hex Each byte is printed as two hex digits each in the range 0–f,
where a = 10 and f = 15

You can’t “reconstruct” the cat picture from just the hash –ONE WAY FUNCTION
 How does a cryptographic hash function work?
Suppose you want to hash a file containing the six bytes a1 02 12 6b
c6 7d. You want the hash to be a 1-byte number (8 bits). You can
construct a hash function using addition modulo 256, which means to
wrap around to 0 when the result of an addition reaches 256
Integrity Checks using Hash Values
 Secure Hash Algorithm
• SHA originally designed by NIST & NSA in 1993
• Revised in 1995 as SHA-1
• US standard for use with DSA signature scheme
– standard is FIPS 180-1 1995, also Internet RFC3174
• based on design of MD4 with key differences
• produces 160-bit hash values
• recent 2005 results on security of SHA-1 have raised concerns on its use in
future applications
 Examples of cryptographic hash functions
• MD 5:
– It produces a 128-bit hash. Collision resistance was broken
after ~2^21 hashes.
• SHA 1:
– Produces a 160-bit hash. Collision resistance broke after
~2^61 hashes.
• SHA 256:
– Produces a 256-bit hash. This is currently being used by
Bitcoin.
• Keccak-256:
– Produces a 256-bit hash and is currently used by Ethereum.
 SHA Versions

SHA-1 SHA-224 SHA-256 SHA-384 SHA-512

Digest size 160 224 256 384 512

Message size < 264 < 264 < 264 < 2128 < 2128
Block size 512 512 512 1024 1024
Word size 32 32 32 64 64
# of steps 80 64 64 80 80
 Secure Hash Algorithm
• SHA-256 is used in several different parts of
the Bitcoin network:
– Mining uses SHA-256 as the proof-of-work
algorithm.
– SHA-256 is used in the creation of bitcoin
addresses to improve security and privacy.
 Construction of Hash functions
• Hash functions are typically constructed from fixed-input compression functions!
– Example: See construction of SHA-256 Hash function  SHA-256 used in Bitcoins
– Also referred to as Merkle-Damgard Transform
• Why does it work?
– Theorem: If c is collision-free, then SHA-256 is collision-free.

Padding (10* | length)

512
bits Message
Message Message (block n)
(block (block
1) 2)

256 256
bits bits
c c c Has
IV
h
 SHA 256…
• it takes the message you're hashing, and it breaks it up into
blocks that are 512 bits in size. The message size, in
general, isn't necessarily a multiple of block size. To make it
a multiple of block size, we will use some kind of padding
(i.e. a 1 followed by a certain number of 0)
• you start with the 256-bit value called the IV, specified in
the standards document and the first block. This 768-bits
string goes through a special function c (compression
function) that outputs a 256-bits string
• Then the compression function (Merkle‐Damgard transform) is
applied to the concatenation of the first output and the
second block
• The process is repeated until the end of the blocks, the
hash is the final 256-bits output
One Compression function in SHA-256
• One compression function in
SHA-256 comprises
• a 256-bit block cipher with 64
rounds,
• a key expansion mechanism from
512 to 2048 bits, and
• a final set of eight 32-bit
additions.
Hash Pointers and Data Structures
Pointers
 Hash Pointers
• Hash pointer is:
– Pointer to where some info/data is stored,
and
– (Cryptographic) hash of the info
 Hash Pointers

What can you do with a hash pointer?

• Retrieve or get back the info/data
• Verify that the info/data hasn’t changed
• What else?
Use hash pointers to build data structures!
 Block Chains
• What is a Block Chain?
– Linked list with hash pointers
• What is it used for?
– Tamper-evident log or register
 Tamper-evident Log

 An attacker wants to tamper with one block of the chain, let’s say, block 1.
 The attacker changed the content of block 1, because of “collision free” property of the hash
function, he is not able to find another data which has the same hash with the old one. So
now the hash of this modified block is also changed.
 To avoid others noticing the inconsistency, he also needs to change the hash pointer of that
block in the next block, which is block 2.
 Now the content of block 2 is changed, so to make this story consistent, the hash pointer in
block3 must be changed.
 Finally, the attacker goes to the hash pointer to the last block of the blockchain, which is a
roadblock for him, because we keep and remember that hash pointer.
 Conclusion on Tamper evident log
• If the adversary wants to tamper with data anywhere
in this entire chain, in order to keep the story
consistent he's going to have to tamper with hash
pointers all the way back to the beginning. And he's
ultimately going to run into a road block, because he
wont be able to tamper with the head of the list.
• So we can build a block chain like this containing as
many blocks as we want, going back to some special
block at the beginning of the list which we might call
the genesis block. And that's a tamper evidence log
built out of the block chamber.
 Merkle tree
• Another useful hash pointer data structure is the Markle tree.
• A Markle tree is a data structure used for efficiently verifying the
integrity of large sets of data.
• Binary tree with hash pointers!
H( ) H( )

H( ) H( ) H( ) H( )

H( ) H( ) H( ) H( ) H( ) H( ) H( ) H( )

(data) (data) (data) (data) (data) (data) (data) (data)

 Features of Merkle Tree
• Tamper evident
Just like blockchain, we only need to remember the hash pointer in the root (top-
level node), then we can traverse down to any leaf data block to check if a node is
in the tree or has it been tampered with.
• Traversal efficiency
To verify a data block, we only need to traverse the path from the top to the leaf
where the data is. So the complexity is O(log n), which is much more efficient
compared with O(n) of a linked list blockchain.
• None-membership proof
If Merkel tree is sorted, we can prove a given data is not in the tree: if the data
before and after the given data are both in the tree and they’re consecutive, so
there’s no space between them, this proves that the given data is not in three.
 Merkle tree
• Advantage:
– Tree holds many items, but just
need to remember the root hash H( ) H( )

– Proving membership of a data

block in the tree is easy
– Only need to show O(log n) items H( ) H( )

– In other words, membership

verification in O(log n) time/space
• How to prove non-membership? H( ) H( )
– Sorted Merkle trees: Order leafs of
the tree in some fashion, say
lexicographically, numerically, etc.
– Verify membership of data before (data)

and after the missing one!

– Non-membership verification also
Digital Signatures
 Digital Signatures
• Second cryptographic primitive (in addition to Hash
functions) that we will need to build
cryptocurrencies (and bitcoins)
• What are the properties we need from digital
signatures? – same as properties we need from
handwritten signatures
– Only you can sign, but anyone can verify
– Signature tied to a particular document - can’t be cut-and-
pasted to another document (unforgeability)
 Digital Signatures APIs
1. (sk, pk) := generateKeys(keysize) can be
sk: secret signing key randomized
pk: public verification key algorithms

2. sig := sign(sk, message)

Is a determinisitc
algorithm
3. isValid := verify(pk, message, sig)
 Digital Signatures Requirements
1. Valid signatures must always verify correctly
• i.e., verify(pk, message, sign(sk, message)) == true
• Basic property for signatures to be useful!

2. Signatures should be existentially unforgeable  can’t forge

signatures
• i.e., adversary who knows pk and gets to see signatures on
messages of his choice, still can’t produce a verifiable
signature on another message
• Can be formalized by means of the unforgeability game
described next
Unforgeability game
 Unforgeability game
• Participants: an adversary who claims that he can forge
signatures and a challenger that will test this claim
• Generate keys to generate the secret key which is given to
challenger and public key to adversary
• Allow the attacker to get signatures on some documents of
his choice, for as long as he wants, as long as the number of
guesses is plausible
• After that, the attacker picks some message M which he never
sees, that he will attempt to forge a signature on
• Challenger runs the verify algorithm to determine if the
signature produced by the attacker is a valid signature on M
– If it successfully verifies, the attacker wins the game
Digital Signature with Hash
How do you own bitcoins?
• Remember the following:
– Every coin that is going to be spending is known as Input or
consumed coin.
– Every input or consumed coin is created as output in earlier
transactions
– Hence, it is possible to establish a relationship between the
input or consumed coin of a current transaction and output
coin produced in the earlier transactions.
– Why we need to relate it?
• To verify the ownership of the coin
– How will you verify the ownership of coins in a transaction?
• Get the public key hash (address) from the recipient of coin as a
output in earlier transaction and get the signature and public key
in the current transaction. Then check
– Hash(pub key)==public key hash
– Verify(Signature, transaction, Pubkey)
You can think of the blockchain as being a storage facility for safe
deposit boxes, which we call outputs. These outputs are just
containers that hold various amounts of bitcoin.
When you make a bitcoin transaction, you select some outputs
and unlock them, then create new outputs and put new locks on
them.

So when you “send” someone bitcoins, you are actually placing

an amount of bitcoins in to a new safe deposit box, and putting a
lock on it that only the person you are “sending” the bitcoins to
can unlock.
For example, if I wanted to send you some bitcoins, I would select
some outputs from the blockchain that I can unlock, and create a
new output from them that only you can unlock. Also, if I didn’t
want to send you all of the bitcoins that I had unlocked, I would
create an extra output as my “change” and lock it to myself.
if you want to send your bitcoins to someone else, you would
repeat the process of selecting existing outputs (that you can
unlock) and creating new outputs from them. As a result, bitcoin
transactions form a graph-like structure, where the movement of
bitcoins is connected by a series of transactions.
Lastly, when a transaction gets mined on to the blockchain, the
outputs that were used up (spent) in the transaction cannot be
used in another transaction, and the newly created outputs will be
available to be moved on in a future transaction.
 Encryption schemes and elliptic curve
cryptography
• Symmetric-key Encryption (secret key
encryption): Symmetric-key algorithms are
cryptographic algorithms that employ the same
cryptographic keys both for plaintext encryption and
ciphertext decoding. The keys could be identical, or
there could be a simple transition between them.
• Asymmetric-key encryption (public key
encryption): Asymmetric-key algorithms encrypt and
decrypt a message using a pair of related keys (one
public key and one private key) and safeguard it from
unauthorized access or usage.
Encryption schemes and elliptic curve
cryptography
• Elliptic Curve Cryptography (ECC) is an
encryption technology comparable to RSA that
enables public-key encryption.
• While RSA’s security is dependent on huge
prime numbers, ECC leverages the
mathematical theory of elliptic curves to
achieve the same level of security with
considerably smaller keys.
 Encryption schemes and elliptic curve
cryptography
• An elliptic curve is the set of points that satisfy
a specific mathematical equation. The
equation for an elliptic curve looks something
like this:
• y2 = x3 + ax + b

• One of these is horizontal symmetry. Any point

on the curve can be reflected over the x axis
and remain the same curve.
• A more interesting property is that any non-
vertical line will intersect the curve in at most
three places.
 Components of Elliptic Curve
Cryptography
• 1. ECC keys:
• Private key: ECC cryptography’s private key creation is as simple as
safely producing a random integer in a specific range, making it highly
quick. Any integer in the field represents a valid ECC private key.
• Public keys: Public keys within ECC are EC points, which are pairs of
integer coordinates x, and y that lie on a curve. Because of its unique
features, EC points can be compressed to a single coordinate + 1 bit (odd
or even). As a result, the compressed public key corresponds to a 256-bit
ECC.
• 2. Generator Point:
• ECC cryptosystems establish a special pre-defined EC point called
generator point G (base point) for elliptic curves over finite fields, which
can generate any other position in its subgroup over the elliptic curve by
multiplying G from some integer in the range [0…r].
• The number r is referred to as the “ordering” of the cyclic subgroup.
• Elliptic curve subgroups typically contain numerous generator points, but
cryptologists carefully select one of them to generate the entire group
(or subgroup), and is excellent for performance optimizations in
calculations. This is the “G” generator.
 Application of Elliptic Curve
Cryptography
• Diffie-Hellman: The basic public-key cryptosystem suggested for secret key
sharing is the Diffie-Hellman protocol. If A (Alice) and B (Bob) initially agree
on a given curve, field size, and mathematical type. They then distribute
the secret key in the following manner. We can see that all we need to
build the Diffie-Hellman protocol is scalar multiplication.
• Elliptic Curve Digital Signature Algorithm (ECDSA): ECC is one of the most
widely utilized digital signature implementation approaches in
cryptocurrencies. In order to sign transactions, both Bitcoin and Ethereum
use the field inverse multiplication, but also arithmetic multiplication,
inverse function, and modular operation.
• Online application: Moreover, ECC is not limited to cryptocurrencies. It is
an encryption standard that will be utilized by most online apps in the
future due to its reduced key size and efficiency. Most commonly used in
cryptocurrencies such as Bitcoin and Ethereum, along with single-way
encryption of emails, data, and software.
• Blockchain application: The cryptocurrency Bitcoin employs elliptic curve
cryptography. Ethereum 2.0 makes heavy use of elliptic curve pairs with
BLS signatures, as stated in the IETF proposed BLS specification, to
cryptographically ensure that a specific Eth2 validator has really verified a
specific transaction.
 CAP theorem
• CAP Theorem stands for
Consistency, Availability,
and Partition Tolerance.
• According to the theory, a
distributed system cannot
always ensure consistency,
availability, and partition
tolerance. When things go
wrong, we must prioritize
at most two distributed
system features and trade-
offs between them.
• Consistency
• Consistency means that all clients see the same data at the
same time, no matter which node they connect to. For this
to happen, whenever data is written to one node, it must be
instantly forwarded or replicated to all the other nodes in the
system before the write is deemed ‘successful.’
• Availability
• Availability means that any client making a request for data
gets a response, even if one or more nodes are down.
Another way to state this—all working nodes in the
distributed system return a valid response for any request,
without exception.
• Partition tolerance
• A partition is a communications break within a distributed
system—a lost or temporarily delayed connection between
two nodes. Partition tolerance means that the cluster must
continue to work despite any number of communication
breakdowns between nodes in the system.
 CAP theorem
• CAP Theorem or Brewer’s theorem states that it is feasible
to provide either consistency or availability—but not
both—in the event of a network failure on a distributed
database, a theory from theoretical computer science
about distributed data stores. In other words, according to
the CAP theorem, a distributed database system that
experiences a partition must choose between Consistency
and Availability.
• We must simultaneously communicate over the network
and store data among several nodes in a distributed
system. A distributed system frequently falls victim to
network failures because of its reliance on network calls in
a significant way. Tolerance for partitions is crucial. In this
situation, we must decide, based on our needs, whether to
prioritize consistency or availability.
• The blockchain trilemma is a
concept that was likely
derived from CAP Theorem
which highlights the trade-offs
that exist between three
desirable properties of a
blockchain
system: scalability, security,
and decentralisation.
• Scalability refers to the ability of the blockchain system to
handle a large volume of transactions efficiently. As more
users join the network and the number of transactions
increases, the blockchain must be able to keep up with the
demand without sacrificing its other properties.
• Security refers to the level of protection that the blockchain
system provides against various types of attacks, such as
double-spending, 51% attacks, and others. The security of
the system is critical, as any weakness or vulnerability can
lead to financial losses for users and damage the overall
trust in the blockchain.
• Decentralisation refers to the distribution of power and
control among the network participants. In a decentralised
blockchain system, no single entity has complete control
over the network. This helps to ensure the transparency and
immutability of the blockchain, as well as prevent
censorship and protect user privacy.
• Like CAP Theorem the Blockchain Trilemma states that it is
impossible for a blockchain system to simultaneously
achieve all three properties at the same time. This is
because each property places different demands on the
system, and optimizing for one property requires
sacrificing another.
• For example, increasing the block size or reducing the
block time can improve scalability by allowing more
transactions to be processed, but it can also reduce
security by making the system more vulnerable to attacks.
Similarly, increasing the number of nodes and their
participation in consensus can improve decentralisation,
but it can also reduce scalability by slowing down the
consensus process.
• The trilemma is a challenge for layer 1 blockchain
developers who must carefully balance the trade-offs
between scalability, security, and decentralisation when
designing a blockchain system.
CATEGORIES OF BLOCKCHAIN
Permissionless Blockchain
• A permissionless blockchain is a type of blockchain network that allows
anyone to participate in the network without requiring special
permissions or approvals.
• Open Access: Anyone can join the network, validate transactions, and
contribute to the blockchain. This openness fosters a decentralized
environment where no single entity controls the network.
• Decentralization: Permissionless blockchains operate on a decentralized
network of nodes, which helps to distribute power and reduce the risk of
censorship or manipulation by any single party.
• Consensus Mechanisms: These blockchains typically use consensus
algorithms such as network participants’ Proof of Stake (PoS) to validate
transactions and secure the network. Participants compete to solve
complex mathematical problems (in the case of PoW) or stake their own
tokens (in PoS) to earn the right to validate new blocks.
• Transparency: All transactions on a permissionless blockchain are
recorded on a public ledger, allowing anyone to view transaction history
and verify data integrity.
• Anonymity: While transactions are transparent, participants often
remain pseudonymous. Users are identified by their public keys rather
than personal information, providing a layer of privacy.
Permissioned Blockchain
• A permissioned blockchain is a type of blockchain network that restricts
access and participation to a select group of authorized users. Unlike
permissionless blockchains, where anyone can join and validate
transactions, permissioned blockchains require participants to obtain
permission before they can access the network or perform certain
actions.
• Access Control: Only authorized participants can join the network,
ensuring that all nodes are known and vetted. This allows for greater
control over who can validate transactions and access data.
• Centralized Governance: Typically governed by a consortium of
organizations or a central authority, which makes decisions about
network rules and policies.
• Enhanced Privacy: Transactions and data are often more private, as
sensitive information can be kept off-chain or shared only among
authorized parties.
• Customizable Protocols: Organizations can customize consensus
mechanisms and other protocols to meet their specific needs and
requirements.
 Categories of Blockchain
• Private Blockchain
– A private blockchain ecosystem, limits access to a certain participant group that has been given the authorization to
join and conduct transactions on the network.
– To keep track of a shared ledger and expedite activities within a closed network, it is often employed by
corporations, associations, or consortiums.
– Private blockchains have a regulated membership and require permission to join, in contrast to public blockchains
where everyone can participate.
– Because there are fewer participants than in a public blockchain environment, the consensus techniques utilized in
private blockchains are frequently more effective and scalable.
• Public Blockchain
– A distributed ledger system without constraints and permissions is known as a public blockchain. Anyone with
internet access can sign up on a blockchain platform to join the network as an authorized node and become a part of
the blockchain.
– It is permitted for a node or user who is a part of the public blockchain to view recent and old records, confirm
transactions or complete proof-of-work for an incoming block, and engage in mining.
– The mining and trading of cryptocurrencies is the most fundamental usage of public blockchains. As a result, Bitcoin
and Litecoin blockchains are the most widely used public blockchains.
– If users adhere to security policies and procedures to the letter, public blockchains are generally secure. However, it
is only dangerous when the participants don’t really adhere to the security rules.
• Consortium Blockchain
– A hybrid architecture that combines the advantages of both public and private blockchains is the consortium
blockchain ecosystem.
– It entails a consortium of organizations or companies coming together to jointly manage and oversee a blockchain
network. Due to the fact that the consensus process is shared among the consortium members, consortium
blockchains provide a compromise between decentralization and control.
– These members may be for-profit businesses, governmental organizations, or other groups with similar objectives.
While still providing for a distributed and shared ledger among trustworthy users, consortium blockchains offer
greater privacy and scalability than public blockchains.
 Consortium
Feature Public Blockchain Private Blockchain Hybrid Blockchain
Blockchain

Restricted to
Access Limited to a group Combination of
Open to everyone specific
Control of organizations public and private
participants

Governa Mixed governance

Decentralized Centralized Semi-decentralized
nce structure

Transpar Moderate Variable

High transparency Low transparency
ency transparency transparency

Scalabilit Moderate High scalability

Limited scalability High scalability
y scalability potential

High due to Lower due to

Security Moderate security Variable security
decentralization centralization

Transacti Slower due to

Faster than public,
on consensus Faster transactions Variable speed
slower than private
Speed mechanisms

Enterprise Supply chain, Various

Use Cryptocurrencies,
solutions, data banking, applications need
Cases decentralized apps
privacy collaborations flexibility
 Tokenized blockchain
Tokenized blockchains use tokens to represent
assets and transfer value, while tokenless
blockchains don't use tokens:
• Tokenized blockchains
• Use tokens to represent assets and transfer
value. Tokenized blockchains can provide
liquidity, decentralization, and fundraising
opportunities. They also offer transparency and
security because each transaction and
ownership transfer is recorded on the
blockchain.
 Tokenless blockchain
• Tokenless blockchains
• Don't use tokens to transfer value. They can
be useful for sharing data among trusted
parties, storing data as a shared distributed
ledger, and when there's no need to transfer
value between nodes. Tokenless blockchains
can emphasize privacy, control, and scalability.
Tokenization
• Tokenization is the process of converting the
rights of an asset into a digital token on a
blockchain. This allows for fractional ownership,
trading, and transferring of assets.
Token types
• Tokens can be fungible or non-fungible. Fungible
tokens are identical and can replace one another,
while non-fungible tokens (NFTs) are unique and
scarce.
• Blockchain with tokens refers to a distributed ledger
technology that incorporates a native token within its
ecosystem. These tokens can represent various assets,
including cryptocurrencies, utility tokens, security tokens,
and more.
• They play a crucial role in facilitating transactions,
incentivizing network participants, and enabling smart
contract functionalities. Here are some key characteristics
and use cases of blockchain with tokens:
• Tokenized Assets and Cryptocurrencies: Blockchain with
tokens allows for the creation and management of
tokenized assets, such as digital currencies, real estate
properties, intellectual property, and more.
• These tokens can be traded, exchanged, and transferred
securely on the blockchain, enabling efficient peer-to-peer
transactions.
• Utility Tokens:
• Utility tokens provide access to specific products, services, or
platforms within the blockchain ecosystem. They can be used
for voting, accessing premium features, or participating
in decentralized applications (dApps), fostering community
engagement and user incentives.
• Security Tokens:
• Security tokens represent ownership in a company, asset, or
investment. They offer fractional ownership, liquidity, and
regulatory compliance, revolutionizing traditional financial
markets. Security tokens enable easier and more inclusive
access to investment opportunities, bringing benefits to both
issuers and investors.
• ICOs and Token Sales:
• Initial Coin Offerings (ICOs) and token sales have gained
significant popularity as fundraising mechanisms. Blockchain
with tokens enables startups and projects to raise capital by
issuing tokens, providing investors with early access and
potential returns as the project grows.
• Blockchain without tokens, also known as tokenless blockchain or
permissioned blockchain, operates differently from its tokenized
counterpart. It emphasizes privacy, control, and limited access to network
participants. Here are the key aspects of blockchain without tokens:
• Permissioned Access:
• In tokenless blockchain networks, participation is restricted to authorized
entities or selected nodes. This feature allows for enhanced privacy, data
confidentiality, and compliance with regulations.
• Centralized Governance:
• Tokenless blockchains often rely on centralized entities or consortiums to
validate transactions and maintain the network. This governance
structure provides control over the blockchain’s operations, making it
suitable for enterprise use cases.
• Enterprise Applications:
• Tokenless blockchains find extensive applications in industries where
privacy and confidentiality are paramount, such as supply chain
management, healthcare, finance, and government sectors. These
industries require a fine balance between transparency and restricted
access to sensitive information.
 Sidechains
• A sidechain is a separate blockchain network that connects to another
blockchain – called a parent blockchain or mainnet – via a two-way peg.
• These secondary blockchains have their own consensus
protocols allowing a blockchain network to improve its privacy and
security, and minimize the additional trust required to maintain a
network.
• A key component of sidechains is their ability to facilitate a smoother
asset exchange between the mainnet and the secondary blockchain. This
means that digital assets such as tokens can be securely transferred
between blockchains – allowing projects to expand their ecosystem in a
decentralized manner.
• In practical terms, an individual using the Bitcoin mainnet needs to send
bitcoin to an output address. This address could be a hard wallet, a hot
wallet or a sidechain. Once the transaction is confirmed, a notice of the
completed transaction is broadcasted across Bitcoin’s network.
• Following a brief security check, the sent bitcoin is transferred onto the
sidechain, allowing users to freely move their assets across the new
network.
• Now, as simple as that may sound there are a
few key components that allow sidechains to
operate effectively. These components
include:
• A two-way peg
• Smart contracts
 Two-way peg
• Sidechains were developed to facilitate the transfer of digital
assets between blockchains, regardless of who is the holder of the
assets. Digital assets should be able to be moved without any
counterparty risk – meaning that no secondary actor should be
able to stop the transfer of the asset from occurring.
• To facilitate this transfer back and forth between blockchains, a
two-way peg is required. You can think of this as a two-way tunnel
with cars driving in both directions.
• a two-way peg allows digital assets such as bitcoin to be
transferred back and forth between the mainnet and the new
sidechain. Interestingly, the “transfer” of a digital asset never
occurs. The assets are not actually transferred; instead, they are
simply locked on the mainnet while the equivalent amount is
unlocked in the sidechain.
• As a result, any two-pegged operation needs to assume the actors,
or “validators,” involved in the two-way pegged are acting
honestly.
 Smart contracts
• To transfer digital assets between a sidechain and its mainnet, an
off-chain process – transactions occurring outside of the parent
blockchain – that transfers data between the two blockchains must
be built.
• As mentioned above, because the transfer of digital assets
between a parent chain and sidechain are imaginary, digital assets
are locked in and released on either end of the two blockchains
once the transaction has been validated via a smart contract.
• Smart contracts are used to ensure that foul play is minimized by
enforcing validators on the mainnet and sidechain to act honestly
confirming cross-chain transactions. Once a transaction has
occurred, a smart contract will notify the mainnet that an event
has happened.
• Then, the off-chain process will relay the transaction information
to a smart contract on the sidechain, verifying the transaction.
After the event has been verified, funds can be released on the
sidechain, allowing users to move digital assets across both
blockchains.
Mainnet to Sidechain illustration