Blockchain UNIT-1 SEM-7

DIGITAL NOTES ON
BLOCK CHAIN TECHNOLOGY

B. TECH – 7 Sem
(2024-25)
DEPARTMENT OF E N G I N E E R I N G & INFORMATION TE C H N O L O G Y

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 Blockchain UNIT-1 SEM-7

BLOCKCHAIN TECHNOLOGY

a. Course Name: Blockchain

b. Course Code: 203105408
c. Prerequisite: Data Structure, Networking, OOP | 203105408 – Blockchain
d. Rationale: This course is intended to study the basics of Blockchain technology. During
this course learners will explore various aspects of Blockchain technology like application
in various domains. By implementing, learners will have ideas about private and public
Blockchain, and smart contracts.

e. Course Learning Objective:

CLOBJ 1 Understanding Blockchain Fundamentals

CLOBJ 2 Exploring Blockchain Applications

CLOBJ 3 Hands-on Experience with Blockchain Development

CLOBJ 4 Analysing Challenges and Opportunities

f. Course Learning Outcomes:

CLO 1 Develop a workable knowledge of basic concepts of blockchain technology and its
underlying mechanisms.
CLO 2 Understand cryptographic primitives in blockchain and its impact on
implementation related decisions.
CLO 3 Review the principles behind various consensus mechanism models

CLO 4 Define a currency and Analyse the workflow behind bitcoin.

CLO 5 Determine smart contract use cases and deploy a minimalist blockchain
application.
CLO 6 Understand and get familiar with different blockchain platforms.

g. Teaching & Examination Scheme:

Teaching Scheme Evaluation Scheme

Internal Evaluation ESE
L T P C Total
MSE CE P Theory P
3 0 0 3 20 20 - 60 - 100

L- Lectures; T- Tutorial; P- Practical; C- Credit; MSE- Mid-Semester Evaluation, CE-

Continuous Evaluation, ESE- End Semester Examination

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Course Content:
Sr. Topics Teaching
Weightage
Hours

1 Introduction to Blockchain fundamentals: 20% 7

Introduction, History and Origin of blockchain, what is blockchain,
Importance, Properties, Applications, Types of Blockchain, Blockchain as
a distributed Ledger, Centralized vs Distributed Ledger, Advantages of
DL, Immutable Ledger, How DL works, Blockchain Network,
Components of Blockchain: Blocks, Blockchain, Genesis Block, Hash,
Nonce, Mining Process.
2 Cryptographic concepts in Blockchain: 15% 7
Content Summary: Use of Cryptography Primitives in Blockchain,
Security Services and Security Mechanisms, Hashing, Hash Functions,
SHA512, Digital Signature, Signing and Verification of Signature, Merkle
Tree.
3 Distributed Consensus: 20% 8
Content Summary: Distributed systems, Consensus decision- making,
Blockchain Consensus, Blockchain Nodes: Light nodes, Full Nodes,
Mining Nodes, Byzantine Generals Problem, Byzantine Fault Tolerance,
Practical and Federated BFT, Consensus Algorithms: Proof of Work, Proof
of Stake, Proof of Work v Stake, Delegated Proof of Stake, Proof of
Importance, Proof of Elapsed Time, Proof of Capacity, Proof of Authority,
RAFT, 51% Attack, Forking, Hard and Soft Forking: Case Studies
4 Cryptocurrency: 20% 9
Content Summary: Introduction to Bitcoin, History of Bitcoin, Bitcoin
elements, How bitcoin functions, Cryptography in Bitcoins, hash function,
Elliptic key Cryptography, Digital signature, Establishing ownership,
Bitcoin addition, Wallets, Bitcoin Wallets, Transactions, Constructing a
transaction, Bitcoin script, Locking and unlocking, Network Architecture,
Mining, CAP theorem, Weaknesses in Bitcoin.
5 Smart Contracts and its potential uses: 15% 6
Content Summary: Traditional Contracts vs Smart Contracts, Properties of
smart contracts, How smart contract works, Platforms for implementing
smart contracts, Resources required, Use cases, Overview of Ethereum,
Ethereum vs. Bitcoin, Logic and Challenges of Smart Contracts, Smart
contract programming architecture, Solidity and remix, using smart
contracts to enforce legal contracts
6 Introduction to Blockchain platforms: 10% 3
Content Summary: Ethereum, Hyperledger, IBM Blockchain, Multichain,
Hydrachain, Ripple, R3 Corda, Big Chain DB, IPFS,
Dapps

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UNIT-I
➢ INTRODUCTION: -
• 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.
• Definition: - 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.
• Blockchain can be defined as the Chain of Blocks that contain some specific Information. Thus, a
Blockchain is a ledger i.e. file that constantly grows and keeps the record of all transactions permanently.
This process takes place in a secure, chronological (Chronological means every transaction happens after
the previous one) and immutable way. Each time when a block is completed in storing information, a new
block is generated.

➢ Key Characteristics or Properties of Block chain

• Open: Anyone can access blockchain.
• Distributed or Decentralized: 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.
• Secure: provide data in crypt format.

➢ Disadvantages of current transaction system:

• 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.
• Cash can only be used in low amount transaction locally.

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➢ 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 it’s that you don’t need to when operating on a Blockchain network.
Blockchain builds trust through the following five attributes:

1. Distributed: The distributed ledger is shared and updated with every incoming transaction among
the nodes connected to the Blockchain. All this is done in real time as there is no central server
controlling the data.

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

3. Transparent: Because every node or participant in Blockchain has a copy of the Blockchain data,
they have access to all transaction data. They themselves can verify the identities without the need
for mediators.

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

5. Flexible: Smart Contracts which are executed based on certain conditions can be written into the
platform. Blockchain Networks can evolve in pace with business processes.

➢ History of Blockchain:

• In 1991, researcher scientists named Stuart Haber and W. Scott Stornetta introduce Blockchain
Technology. These scientists wanted some Computational practical Solution for time-stamping the
digital documents so that they couldn't be tempered or misdated. So, both scientists together developed
a system with the help of Cryptography. In this System, the time-stamped documents are stored in
a Chain of Blocks.
• After that in 1992, Merkle Trees formed a legal corporation by using a system developed by Stuart
Haber and W. Scott Stornetta with some more features. Hence, Blockchain Technology became efficient
to store several documents to be collected into one block. Merkle used a Secured Chain of Block which
stores multiple data records in a sequence. However, this Technology became unused when Patent came
into existence in 2004.

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• After that in 2008, Satoshi Nakamoto conceptualized the concept of "Distributed Blockchain"
under his white paper: "A Peer-to-Peer Electronic Cash System". He modified the model of
Merkle Tree and created a system that is more secure and contains the secure history of data
exchange. His System follows a peer- to-peer network of time stamping. His system became
so useful that Blockchain become the backbone of Cryptography.

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➢ What is Blockchain Architecture?

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

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

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➢ Core Components of Blockchain Architecture: -

1. Node: Nodes are network participants and their devices permit them to keep track of the distributed
ledger and serve as communication hubs in various network tasks. A block broadcasts all the network
nodes when a miner looks to add a new block in transactions to the blockchain.

2. Transactions: A transaction refers to a contract or agreement and transfers of assets between parties. The
asset is typically cash or property. The network of computers in blockchain stores the transactional data as
copy with the storage typically referred to as a digital ledger.

3. Block: A block in a blockchain network is similar to a link in a chain. In the field of cryptocurrency, blocks
are like records that store transactions like a record book, and those are encrypted into a hash tree. There
are a huge number of transactions occurring every day in the world. It is important for the users to keep
track of those transactions, and they do it with the help of a block structure.

4. Chain: Chain is the concept where all the blocks are connected with the help of a chain in the whole
blockchain structure in the world. And those blocks are connected with the help of the previous block hash
and it indicates a chaining structure.

5. Miners: Blockchain mining is a process that validates every step in the transactions while operating all
cryptocurrencies. People involved in this mining they called miners. Blockchain mining is a process to
validate each step in the transactions while operating cryptocurrencies.

6. Consensus: A consensus is a fault-tolerant mechanism that is used in computer and blockchain systems to
achieve the necessary agreement on a single state of the network among distributed processes or multi-
agent systems, such as with cryptocurrencies. It is useful in record keeping and other things.

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✓ There are different kinds of consensus mechanism algorithms, each of which works on different
principles:

• Proof of Work (PoW): Proof of Work required a stakeholder node to prove that the work is done and
submitted by them certifying them to receive the right to add new transactions in the blockchain.

• Proof of Stake (PoS): The proof of Stake is also a common consensus algorithm that evolved as a low-cost
low-energy-consuming, low-energy-consuming alternative for the PoW algorithm. For providing the
responsibilities the public ledger provides by the virtual currency token like Bitcoin and Ethereum.

• Proof of Capacity (PoC): Proof of Capacity (PoC) allow sharing of memory space of the nodes in the
blockchain network.

• Proof of Elapsed Time (PoET): It encrypts the passage of time cryptographically to reach an agreement
without expending many resources.

➢ Types of Blockchain:

1. Public Blockchain:
• A public blockchain is a concept where anyone is free to join and take part in the core activities of
the blockchain network. Anyone can read, write, and audit the ongoing activities on a public
blockchain network, which helps to achieve the self-determining, decentralized nature often
authorized when blockchain is discussed. Data on a public blockchain is secure as it is not possible
to modify once they are validated.
• The public blockchain is fully decentralized, it has access and control over the ledger, and its data is
not restricted to persons, is always available and the central authority manages all the blocks in the
chain. There is publicly running all operations. Due to no one handling it singly then there is no need
to get permission to access the public blockchain. Anyone can set his/her own node or block in the
network/ chain.
• After a node or a block settled in the chain of the blocks, all the blocks are connected like peer-to-
peer connections. If someone tries to attack the block then it forms a copy of that data and it is
accessible only by the original author of the block.

✓ Advantages:
• A public network operates on an actuate scheme that encourages new persons to join and keep the
network better.
• There is no agreement in the public blockchain.
• This means that a public blockchain network is immutable.
• It has Rapid transactions.

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✓ Disadvantages:
• Public blockchain can be costly in some manner.
• The person need not give identity, that’s why there is a possibility of corruption of the block if it is in
under attack.
• Processing speed is sometimes slow and It has Integration issues.

2. Private Blockchain: -

• Miners need permission to access a private blockchain. It works based on permissions and controls,
which give limit participation in the network. Only the entities participating in a transaction will have
knowledge about it and the other stakeholders not able to access it. By it works on the basis of
permissions due to this it is also called a permission-based blockchain.
• Private blockchains are not like public blockchains it is managed by the entity that owns the network.
A trusted person is in charge of the running of the blockchain it will control who can access the
private blockchain and also controls the access rights of the private chain network. There may be a
possibility of some restrictions while accessing the network of the private blockchain.

✓ Advantages:
• In a private blockchain, users join the network using the invitations and all are verified.
• Only permitted users/ persons can join the network.
• Private Blockchain is partially immutable.

✓ Disadvantages:
• A private blockchain has trust issues, due to exclusive information being difficult to access it.
• As the number of participants increases, there is a possibility of an attack on the registered users.

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3. Consortium Blockchain
• A consortium blockchain is a concept where it is permissioned by the government and a group of
organizations, not by one person like a private blockchain. Consortium blockchains are more
decentralized than private blockchains, due to being more decentralized it increases the privacy and
security of the blocks. Those like private blockchains connected with government organizations
blocks network.
• Consortium blockchains is lies between public and private blockchains. They are designed by
organizations and no one person outside of the organizations can gain access. In Consortium
blockchains all companies in between organizations collaborate equally. They do not give access
from outside of the organizations/ consortium network.

✓ Advantages:
• Consortium blockchain providers will always try to give the fastest output as compared to public
blockchains.
• It is scalable.
• A consortium blockchain is low transaction costs.

✓ Disadvantages:
• A consortium blockchain is unstable in relationships.
• Consortium blockchain lacks an economic model.
• It has flexibility issues.

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➢ How does Blockchain Technology Work?

• One of the famous uses of Blockchain is Bitcoin. Bitcoin is a cryptocurrency and is used to
exchange digital assets online. Bitcoin uses cryptographic proof instead of third-party trust for two
parties to execute transactions over the Internet. Each transaction protects through a digital signature.

➢ Benefits of blockchain:
o Numerous benefits of blockchain technology are being discussed in the industry and proposed by
thought
leaders around the world in blockchain space. The top benefits are listed and discussed as follows.

Decentralization:
• This is a core concept and benefit of blockchain. 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.
Transparency and trust:
• As blockchains are shared and everyone can see what is on the blockchain, this allows the
system to be transparent and as a result trust is established. This is more relevant in scenarios
such as the disbursement of funds or benefits where personal discretion should be restricted.

Highly secure:
• All transactions on a blockchain are cryptographically secured and provide integrity.

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Immutability:
• Once the data has been written to the blockchain, it is extremely difficult to change
it back. It is not truly immutable but, due to the fact that changing data is extremely
difficult and almost impossible, this is seen as a benefit to maintaining an immutable
ledger of transactions.

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 each and every node, the system becomes highly
available. Even if nodes leave the network or become inaccessible, the network as a
whole continues to work, thus making it highly available.

Simplification of current paradigms:

• The current model in many industries such as finance or health is rather disorganized,
wherein multiple entities maintain their own databases and data sharing can become
very difficult due to the disparate nature of the systems. But as a blockchain can serve
as a single shared ledger among interested parties, this can result in simplifying this
model by reducing the complexity of managing the separate systems maintained by
each entity.
Faster dealings:
• In the financial industry, especially in post-trade settlement functions, blockchain can
play a vital role by allowing the quicker settlement of trades as it does not require a
lengthy process of verification, reconciliation, and clearance because a single version
of agreed upon data is already available on a shared ledger between financial
organizations.

Cost saving:
• As no third party or clearing houses are required in the blockchain model, this can
massively eliminate overhead costs in the form of fees that are paid to clearing houses
or trusted third parties.

➢ Disadvantages Of Blockchain Technology

1. Private keys:

• The blockchain network maintains its high level of security through private keys.
It comes in handy when you validate a blockchain address. Moreover, when you
open a crypto wallet, you get a private key. It is a password that allows you to
withdraw funds from your wallet. By chance, if you lose this key, you cannot
withdraw funds from your account. So, you need to store multiple copies of it just
so that if you lose the original one, you can rely on one of the copies.

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2. High costs of implementation

• If you are a company owner looking to implement blockchain, you have to hire
core blockchain developers and blockchain software developers. This requires
substantial funds. After that, you have to create blockchain-based applications.
Plus, there are hardware requirements too.

3. Inefficient mining process

• Each block in a blockchain is mined through a mechanism called Proof-of-Work.
Each miner needs a high-powered computer to compete in the mining process.
Many miners may compete to mine a block; only one gets the block rewards.
There is a massive waste of energy and resources.

4. Environmental impacts
• Mining, minting and validating transactions require high-powered systems to run
24/7. Apart from heavy investments, these processes require a lot of power. This
can lead to serious environmental consequences.

5. Storage problems
• As the number of users increases, so will the data; hence, the hard disk space will
also need an upgrade. A time may come when a blockchain's total amount of data
may exceed the available hard disk sizes.

6. Immutability
• Once you enter information on a blockchain, it becomes unchangeable. If any
errors or information need updating, it is simply impossible to do so. On the flip
side, this feature is an advantage of blockchain, as the data cannot be violated in
any way. But there are always two sides to a coin, and you must be aware of
both.

7. Legal formalities and regulations

• Blockchain still faces regulatory challenges in various parts of the world.
Moreover, legal formalities in various countries and regions prohibit the use and
application of blockchain technology.

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➢ Application of Blockchain

• Leading Investment Banking Companies like Credit Suisse, JP Morgan Chase,

Goldman Sachs, and Citigroup have invested in Blockchain and are experimenting
to improve the banking experience and secure it.
• Following the Banking Sector, the Accountants are following the same path.
Accountancy involves extensive data, including financial statements spreadsheets
containing lots of personal and institutional data. Therefore, accounting can be
layered with blockchain to easily track confidential and sensitive data and reduce
human error and fraud. Industry Experts from Deloitte, PwC, KPMG, and EY are
proficiently working and using blockchain-based software.
• Booking a Flight requires sensitive data ranging from the passenger’s name, credit
card numbers, immigration details, identification, destinations, and sometimes
even accommodation and travel information. So sensitive data can be secured
using blockchain technology. Russian Airlines are working towards the same.
• Various industries, including hotel services, pay a significant amount ranging from
18-22% of their revenue to third-party agencies. Using blockchain, the
involvement of the middleman is cut short and allows interaction directly with the
consumer ensuring benefits to both parties.
• Barclays uses Blockchain to streamline the Know Your Customer (KYC) and
Fund Transfer processes while filling patents against these features.
• Visa uses Blockchain to deal with business-to-business payment services.
• Walmart has been using Blockchain Technology for quite some time to keep track
of their food items coming right from farmers to the customer. They let the
customer check the product’s history right from its origin.
• DHL and Accenture work together to track the origin of medicine until it reaches
the consumer.
• Pfizer, an industry leader, has developed a blockchain system to keep track of and
manage the inventory of medicines.
• The government of Dubai looking forward to making Dubai the first-ever city to
rely on entirely and work using blockchain, even in their government office.
• Along with the above organizations, leading tech companies like Google,
Microsoft, Amazon, IBM, Facebook, TCS, Oracle, Samsung, NVIDIA, Accenture,
and PayPal, are working on Blockchain extensively.

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Different types of networks/systems

➢ What is Decentralization:

• There is no Central Server or System which keeps the data of the Blockchain.
• The data is distributed over Millions of Computers around the world which are
connected to the Blockchain. This system allows the Notarization of Data as it is
present on every Node and is publicly verifiable.
• Decentralization is a core benefit and service provided by blockchain technology. By
design, blockchain is a perfect vehicle for providing a platform that does not need
any intermediaries and that can function with many different leaders chosen via
consensus mechanisms. This model allows anyone to compete to become the
decision-making authority. A consensus mechanism governs this competition, and
the most famous method is known as Proof of Work (Pow).
• A decentralized system is a type of network where nodes are not dependent on a single
master node; instead, control is distributed among many nodes. This is analogous to a
model where each department in an organization is in charge of its own database
server, thus taking away the power from the central server and distributing it to the
sub-departments, who manage their own databases.
• A significant innovation in the decentralized paradigm that has given rise to this
new era of decentralization of applications is decentralized consensus. This
mechanism came into play with Bitcoin, and it enables a user to agree on something
via a consensus algorithm without the need for a central, trusted third party,
intermediary, or service provider.

➢ What is centralization:
• A centralized system is one in which all decision-making and control reside in one
central authority or entity. In other words, power is concentrated in a single location or
group of individuals, who make all the key decisions that affect the entire system.
• Centralized systems are conventional (client-server) IT systems in which there is a
single authority that controls the system, and who is solely in charge of all operations
on the system. All users of a centralized system are dependent on a single source of
service.
• The majority of online service providers, including Google, Amazon, eBay, and
Apple's App Store, use this conventional model to deliver services.

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➢ What is Distributed Systems:

• Understanding distributed systems is essential to our understanding blockchain, as

blockchain was a distributed system at its core. It is a distributed ledger that can be
centralized or decentralized. A blockchain is originally intended to be and is usually
used as a decentralized platform. It can be thought of as a system that has properties of
the both decentralized and distributed paradigms. It is a decentralized-distributed
system.
• 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 modelled 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.
• In a distributed system, data and computation are spread across multiple nodes in the
network. Sometimes, this term is confused with parallel computing. While there is
some overlap in the definition, the main difference between these systems is that in a
parallel computing system, computation is performed by all nodes simultaneously in
order to achieve the result; for example, parallel computing platforms are used in
weather research and forecasting, simulation, and financial modelling.
• On the other hand, in a distributed system, Nodes can be honest, faulty, or malicious
and have their own memory and processor. A node that can exhibit arbitrary behaviour
is also known as a Byzantine node. This arbitrary behaviour can be intentionally
malicious, which is detrimental to the operation of the network. Generally, any
unexpected behaviour of a node on the network can be categorized as Byzantine. This
term arbitrarily encompasses any behaviour 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.
• This is the key difference between decentralized and distributed networks. A
decentralized system may look like a distributed system from a topological point of
view, but it doesn't have a central authority that controls the network. A traditional
distributed system comprises many servers performing different roles The following
diagram shows a decentralized system (based on blockchain) where an exact replica of
the applications and data is maintained across the entire network on each participating
node:

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➢ Blockchain nodes: -
• A node is a computer connected to the Blockchain Network. Node gets connected with
Blockchain using the client. The client helps in validating and propagating
transactions onto the Blockchain.
• When a computer connects to the Blockchain, a copy of the Blockchain data gets
downloaded into the system and the node comes in sync with the latest block of data
on Blockchain. The Node connected to the Blockchain which helps in the execution of
a Transaction in return for an incentive is called Miners.

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A comparison between centralized and decentralized systems (networks/applications) is shown in the following table:

Feature Centralized Decentralized

Ownership Service provider All users

Architecture Client/server Distributed, different topologies

Security Basic More secure

High availability No Yes

Fault tolerance Basic, single point of failure Highly tolerant, as service is replicated

Collusion Basic, because it's under the control of a Highly resistant, as consensus
resistance group or even single individual algorithms ensure defense against
adversaries

Application architecture Application replicated across all nodes on

Single application the network

Consumers have to trust the service

Trust provider No mutual trust required

Cost for consumer Lower

Higher

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➢ Distributed Ledger: -
• A blockchain is a digital ledger of transactions that are distributed across the entire
network of computers (or nodes) on the blockchain. Distributed ledgers use
independent nodes to record, share, and synchronize transactions in their respective
electronic ledgers instead of keeping them in one centralized server.
• A blockchain uses several technologies like digital signatures, distributed networks,
and encryption/ decryption methods including distributed ledger technology to
enable blockchain applications.
• Blockchain is one of the types of DLT in which transactions are recorded with an
unchangeable cryptographic signature called a hash. That is why distributed ledgers
are often called blockchains.
➢ Advantages Of Distributed Ledger Technology: -

• High Transparency: Distributed ledger presents a high level of transparency

because all the transaction records are visible to everyone. The addition of data
needs to be validated by nodes by using various consensus mechanisms. and if
anyone tries to alter or change data in the ledger then it is immediately reflected
across all nodes of the network which prevents invalid transactions.
• Decentralized: In a centralized network, there may be a single point of failure and it
can disrupt the whole network because of mistakes at the central authority level. But
in the case of distributed networks, there is no risk of a single point of failure.
because of the decentralized structure trust factor also increases in participating
nodes. This decentralized nature of validation reduces the cost of transactions
drastically.
• Time Efficient: As this network is decentralized so there is no need for a central
authority to validate transactions every time. Hence this time for validation of each
transaction reduces drastically. In the case of DLT, transactions can be validated by
members of the network itself by using various consensus mechanisms.

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• Scalable: Distributed ledger technology is more scalable because many different

types of consensus mechanisms can be used to make it more reliant, fast, and
updated. Because these many advanced DLT technologies are introduced in the last
few years. Such as Holochain, hash graph is considered to be advanced and more
secure versions of Blockchain DLT. Blockchain itself is advanced and secure but
DLT provides a way to more advanced technologies.

➢ How the Distributed Ledger Technology is work? -

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

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➢ Immutable ledger
• An immutable ledger is a record-keeping system where the data entered can’t be
altered, tampered with, or deleted. It ensures that all transactions or entries made in
the ledger are permanently recorded and maintained in their original state, creating a
transparent and trustworthy record of events. Immutable ledgers are used in finance,
supply chain management, and digital currencies. One well-known example of an
immutable ledger is blockchain.

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➢ How an immutable ledger works

• Participants initiate transactions (e.g., financial or digital asset trading).

• Transactions are sent to network nodes (i.e., computers) that authenticate them
through rules and cryptographic methods.
• Validated transactions are grouped into blocks before being accepted onto the ledger.
• Various network consensus mechanisms (like Proof of Work, Proof of Stake, or
Delegated Proof of Stake) agree on valid transactions and their order.
• Verified blocks generate unique cryptographic hashes, linking them in an unalterable
chain.
• The previous block's hash is included, creating an unbreakable link. Altering one
block requires changing all subsequent ones due to hash functions and consensus.
• The network is decentralized, with no central control, enhancing security and
resilience.
• The ledger is replicated across all nodes, ensuring even data availability and ledger
integrity.
• Blockchain's transparency allows anyone to audit and verify transactions — making it
more accountable.

➢ Immutable ledger benefits: -

• Once entered, the data can’t be changed or deleted.

• The ledger is open for anyone to see, reducing the possibility of data manipulation.
• The cryptographic techniques enhance security.
• Decentralization makes the system more resilient against attacks and failures.
• Automated verification reduces the need for intermediaries.
• The transparency of the ledger makes it difficult to commit fraud.

Components of Blockchain:

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SEM-7 UNIT-1 Blockchain

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