MANAV RACHNA INTERNATIONAL INSTITUTE OF RESEARCH AND STUDIES

(Deemed to be University under section 3 of the UGC Act 1956)

School of Computer Applications

Bitcoin and Cryptocurrency Technologies

ASSIGNMENT-2 DEPARTMENT: BSC-IT

TIME ALLOWED: 1 WEEK SEMESTER:IV

Unit 2 - Cryptography and Blockchain

PART A

1. Which of the following is true for a hash function in the context of blockchain
technology? [CO1][L1]
o A. It generates a fixed-length output from variable-length input
o B. It uses symmetric encryption for data security
o C. It is used for storing private keys securely
o D. It decrypts the encrypted data

Soln1 –

The correct answer is A. It generates a fixed-length output from variable-length

input.

Hash functions in blockchain technology are used to generate a fixed-length output

(called a hash) from variable-length input data. This property ensures data integrity and
plays a crucial role in linking blocks in a blockchain securely.

2. Which cryptographic algorithm is primarily used for generating digital signatures in

blockchain systems? [CO1][L2]
o A. RSA
o B. ECDSA (Elliptic Curve Digital Signature Algorithm)
o C. AES
o D. SHA-256

Soln 2 –

The correct answer is B. ECDSA (Elliptic Curve Digital Signature Algorithm).

 ECDSA is a widely used cryptographic algorithm for generating digital signatures in
blockchain systems. It provides high security with relatively small key sizes, making it
efficient and secure for blockchain applications.

3. What is the primary objective of a memory-hard algorithm in blockchain mining?

[CO1][L2]
o A. To make the mining process easier for ASIC miners
o B. To reduce the power consumption of the network
o C. To make the algorithm resistant to ASIC mining and prevent centralization
o D. To store more data in the blockchain

Soln 3 –

The correct answer is C. To make the algorithm resistant to ASIC mining and
prevent centralization.

Memory-hard algorithms are designed to be computationally intensive and require a

significant amount of memory to perform mining tasks. This makes it difficult for
specialized hardware like ASIC (Application-Specific Integrated Circuit) miners to
dominate the mining process, promoting decentralization and ensuring that mining
remains accessible to a wider range of participants.

4. Which of the following best defines a Zero-Knowledge Proof in cryptography? [CO1]

[L2]
o A. A method to prove that a statement is false without revealing the actual
statement
o B. A method to prove the correctness of a statement without revealing the
underlying information
o C. A way to encode information into blocks
o D. A technique to enhance the security of symmetric encryption

Soln 4–

The correct answer is B. A method to prove the correctness of a statement without

revealing the underlying information.

Zero-Knowledge Proofs (ZKPs) are cryptographic methods that allow one party (the
prover) to prove to another party (the verifier) that a statement is true, without disclosing
any additional information beyond the fact that the statement is indeed true. This
technique enhances privacy and security in various applications, including blockchain
technology.
 5. Which feature makes blockchain superior to conventional distributed databases?
[CO1][L1]
o A. Blockchain allows unlimited storage capacity
o B. Blockchain eliminates the need for consensus algorithms
o C. Blockchain provides a decentralized and immutable ledger system
o D. Blockchain systems do not require encryption for data protection

Soln 5 –

The correct answer is C. Blockchain provides a decentralized and immutable ledger

system.

Blockchain technology offers significant advantages over conventional distributed

databases by providing a decentralized structure, where no single entity has control, and
an immutable ledger system, where once data is written, it cannot be altered or deleted.
This ensures transparency, security, and trustworthiness in various applications, making
blockchain a superior choice for many use cases.

Short Answer Questions

1. Explain the concept of a hash function and its role in ensuring data
integrity in blockchain systems. [CO1][L2]

Soln 1–

A hash function is a mathematical algorithm that takes input data of any length and
transforms it into a fixed-length string of characters, which appears to be a random
sequence. This resulting string is called a hash value or digest. A hash function has
several key properties:

1. Deterministic: The same input will always produce the same hash.
2. Fast Computation: It should be quick to compute the hash value for any given input.
3. Preimage Resistance: It should be infeasible to generate the original input from its
hash.
4. Small Changes in Input Produce Large Changes in Output: Even a tiny change in
the input should drastically change the output hash (known as the avalanche effect).
5. Collision Resistance: It should be infeasible to find two different inputs that produce
the same hash.
 Role in Blockchain Systems

1. Data Integrity: Hash functions ensure that data has not been altered. In blockchain,
each block contains a hash of its data, which means any change in the block’s data
changes its hash. This makes it easy to detect tampering.
2. Linking Blocks: Each block in a blockchain includes the hash of the previous block.
This creates a chain of blocks that are cryptographically linked. If someone tries to
alter the data in a block, its hash changes, breaking the chain and signaling tampering.
3. Immutability: Since altering one block would require recalculating the hashes of all
subsequent blocks and convincing the majority of the network to accept these
changes, modifying past transactions becomes practically impossible. This ensures
that the transaction history remains trustworthy.
4. Proof of Work: In mining processes, hash functions are used to solve complex
mathematical puzzles. Miners must find a hash that meets certain criteria, which
requires significant computational effort, ensuring that new blocks are added securely
and in a way that can't be easily corrupted.

Examples

 SHA-256: Used by Bitcoin.

 Keccak-256: Used by Ethereum.

2. What is the difference between private and public blockchains? Provide

examples of their use cases. [CO1][L2]

Soln 2–

Public Blockchains

Public blockchains are open, decentralized networks where anyone can join, participate,
and validate transactions. They are designed to be transparent and secure, using
consensus algorithms like Proof of Work (PoW) or Proof of Stake (PoS) to maintain the
integrity of the network.

Key Features:

 Decentralization: No single entity has control over the network.

 Transparency: All transactions are visible to everyone on the network.
 Security: Robust against tampering due to its consensus mechanism and wide
distribution.
Examples:

 Bitcoin: A decentralized digital currency that allows peer-to-peer transactions

without the need for intermediaries.
 Ethereum: A platform for decentralized applications (dApps) and smart contracts.

Use Cases:

 Cryptocurrencies: Bitcoin, Ethereum, and other digital currencies rely on public

blockchains for secure and transparent transactions.
 Decentralized Finance (DeFi): Platforms like Uniswap and Compound use public
blockchains to offer financial services without traditional intermediaries.
 Supply Chain Management: Ensuring transparency and traceability of products
from origin to consumer.

Private Blockchains

Private blockchains, on the other hand, are restricted networks where only authorized
participants can join and validate transactions. These blockchains are often used within
organizations or consortiums to control and manage access to sensitive information.

Key Features:

 Controlled Access: Only authorized participants can join and access the network.
 Privacy: Transactions are visible only to the participants with permission.
 Efficiency: Can be more efficient than public blockchains as they require fewer nodes
to reach consensus.

Examples:

 Hyperledger Fabric: A modular and flexible blockchain framework for enterprise

use.
 R3 Corda: A blockchain platform designed for businesses to transact directly and in
strict privacy.

Use Cases:

 Enterprise Solutions: Companies use private blockchains for secure and efficient
record-keeping, such as IBM's Food Trust for tracking food supply chains.
 Consortium Blockchains: Multiple organizations collaborate on a shared ledger,
such as the banking consortium R3 using Corda for financial transactions.
 Healthcare: Managing patient records and ensuring data privacy in healthcare
systems.
 3. Discuss the mining mechanism in blockchain. How does it contribute to
the security and decentralization of the network? [CO1][L2]

Soln 3 –

Mining Mechanism

Mining is the process through which new transactions are verified and added to a
blockchain, and new blocks are created. Miners, who are participants in the network,
compete to solve complex mathematical puzzles using computational power. The first
miner to solve the puzzle gets the right to add a new block to the blockchain and is
rewarded with cryptocurrency.

Key Components:

1. Proof of Work (PoW): This is the most common consensus algorithm used in
mining (e.g., Bitcoin). Miners must find a hash value that meets certain criteria,
which requires significant computational effort. The process involves:
o Hash Function: Miners repeatedly apply the hash function to different inputs
(nonce) until they find a hash that satisfies the difficulty target.
o Difficulty Target: The network adjusts the difficulty of the puzzle to ensure
that new blocks are added at a consistent rate.
2. Block Rewards: When a miner successfully adds a block, they receive a reward in
the form of cryptocurrency (e.g., newly minted Bitcoins) and transaction fees from
the transactions included in the block.
3. Nonce: A random value that miners vary in each iteration to find a hash that meets
the difficulty target.

Contributions to Security and Decentralization

1. Security:
o Immutability: Once a block is added, altering its data would require
recalculating the hashes of that block and all subsequent blocks. This is
computationally infeasible, ensuring the integrity of the blockchain.
o Proof of Work: The computational effort required to solve the PoW puzzle
makes it extremely difficult for any single entity to control the network or
alter past transactions. This protects the network against attacks, such as
double-spending.
o Decentralized Verification: Multiple miners independently verify
transactions, reducing the risk of fraudulent activities.
2. Decentralization:
o Distributed Network: Mining is performed by participants worldwide,
preventing centralization of control. Anyone with the necessary hardware and
software can join the network and participate in mining.
 o Incentive Structure: The block rewards and transaction fees incentivize
miners to act honestly and maintain the network. This decentralized incentive
mechanism ensures that the network remains robust and resistant to
centralized control.
o Consensus Mechanism: The use of PoW ensures that consensus is achieved
without a central authority, relying instead on the collective computational
power of the miners.

Visualizing the Process

Imagine a giant jigsaw puzzle. Thousands of participants (miners) are racing to find the
correct piece that completes the puzzle (solving the hash puzzle). The first one to find the
piece is rewarded and gets to add their newly completed section to the larger picture
(block to the blockchain). The puzzle's difficulty adjusts over time to ensure the race
remains fair and consistent.

Example

For instance, in the Bitcoin network, miners compete to solve the SHA-256 hash puzzle,
and once they find the correct hash (meeting the difficulty target), they add a new block
to the blockchain and are rewarded with a set number of Bitcoins, along with transaction
fees.

Evolution of Mining

While PoW is the dominant mechanism, other consensus algorithms like Proof of Stake
(PoS) and Delegated Proof of Stake (DPoS) are emerging. These alternatives aim to
reduce the energy consumption and computational power required by PoW, offering
different methods to achieve consensus while maintaining security and decentralization.

Long Answer Questions

1. Explain the process of creating a digital signature using the ECDSA
algorithm. How does it help in ensuring the authenticity and integrity of
data in blockchain transactions? [CO1][L4]

Soln –

Creating a Digital Signature using ECDSA

ECDSA is a cryptographic algorithm used for digital signatures. Here's a step-by-step

explanation of the process:
 1. Key Generation:
o Private Key: A randomly generated number, kept secret by the owner.
o Public Key: Derived from the private key using elliptic curve
multiplication, which is a one-way function.
2. Signing Process:
o Message Hashing: The message to be signed (e.g., a transaction) is
hashed using a secure hash function (e.g., SHA-256) to produce a
fixed-length hash value.
o Random Number Generation: A new random number (k) is
generated for each signature.
o Curve Point Calculation: The elliptic curve point (R) is calculated
using the random number k and a predefined point on the curve (G):
R=k⋅GR = k \cdot G.
o Signature Creation: The signature consists of two components (r, s):
 rr is the x-coordinate of the point R.
 s=k−1⋅(H(m)+r⋅d)mod ns = k^{-1} \cdot (H(m) + r \cdot d) \
mod n, where H(m)H(m) is the message hash, dd is the private
key, and nn is the order of the curve.
3. Signature: The pair (r, s) is the digital signature of the message.

Verifying a Digital Signature

1. Message Hashing: The verifier hashes the received message using the same hash
function used by the signer.
2. Signature Validation: The verifier uses the signer's public key (Q), the signature
(r, s), and the elliptic curve parameters to validate the signature:
o Calculate the elliptic curve points: u1=s−1⋅H(m)mod nu_1 = s^{-1} \cdot
H(m) \mod n and u2=s−1⋅rmod nu_2 = s^{-1} \cdot r \mod n.
o Calculate the point RR using the public key QQ: R=u1⋅G+u2⋅QR = u_1 \
cdot G + u_2 \cdot Q.
o The signature is valid if the x-coordinate of RR equals rr.

Ensuring Authenticity and Integrity in Blockchain

1. Authenticity:
o Ownership Verification: A valid signature can only be generated
with the owner's private key, proving that the transaction was
authorized by the owner.
o Public Key Association: The public key is used to verify the
signature, ensuring that only the rightful owner can sign transactions.
2. Integrity:
o Message Integrity: The hash function ensures that even a small
change in the message will produce a different hash, invalidating the
signature if the message is altered.
 o Tamper Resistance: Any attempt to modify the transaction data
would result in a signature mismatch, immediately signaling
tampering.

Use Case in Blockchain

In blockchain transactions, ECDSA is used to sign transactions before they are

broadcast to the network. Each node verifies the signature before including the
transaction in a block. This process ensures that:

 Transactions are authenticated and authorized by the owner.

 Transaction data remains unchanged from the time of signing to inclusion in the
blockchain.
 The network maintains trust in the validity and integrity of transactions without
relying on a central authority.

2. Discuss the concept of distributed consensus in blockchain technology. Explain its

significance and how it helps maintain consistency across a decentralized network.
Provide examples of different consensus mechanisms. [CO1][L4]

Soln –

Concept of Distributed Consensus

Distributed consensus is the process by which a group of nodes in a decentralized

network agree on a single version of the truth, such as the order of transactions in a
blockchain. In a blockchain, no central authority exists to validate transactions or
maintain the ledger, so consensus mechanisms are used to achieve agreement among the
distributed participants.

Significance of Distributed Consensus

1. Consistency: Ensures that all nodes have the same copy of the blockchain,
preventing discrepancies and ensuring data integrity.
2. Security: Protects the network against malicious actors who might attempt to
alter the blockchain. Consensus mechanisms make it difficult to achieve
consensus fraudulently.
3. Decentralization: Allows the network to operate without a central authority,
distributing trust among multiple participants.
4. Fault Tolerance: The network can continue to operate even if some nodes fail or
act maliciously, as consensus is reached collectively.
Examples of Consensus Mechanisms

1. Proof of Work (PoW):

o Mechanism: Nodes (miners) compete to solve complex mathematical
puzzles. The first one to solve the puzzle gets to add the next block to
the blockchain and is rewarded with cryptocurrency.
o Example: Bitcoin uses PoW with the SHA-256 hash function.
o Pros: High security, difficult to tamper with.
o Cons: Energy-intensive and requires significant computational power.
2. Proof of Stake (PoS):
o Mechanism: Nodes are selected to validate transactions and create
new blocks based on the number of coins they hold and are willing to
"stake" as collateral. The more coins staked, the higher the chances of
being selected.
o Example: Ethereum 2.0 is transitioning to PoS.
o Pros: Energy-efficient, reduces the need for massive computational
power.
o Cons: Can lead to centralization if a few participants hold a large
number of coins.
3. Delegated Proof of Stake (DPoS):
o Mechanism: Token holders vote to elect a small number of delegates
who are responsible for validating transactions and creating new
blocks. These delegates are periodically re-elected.
o Example: EOS and Tron use DPoS.
o Pros: High throughput, efficient, and scalable.
o Cons: Can be less decentralized if only a few delegates dominate the
network.
4. Practical Byzantine Fault Tolerance (PBFT):
o Mechanism: Nodes in the network exchange messages to agree on the
order of transactions. PBFT ensures consensus even if some nodes act
maliciously (Byzantine failures).
o Example: Hyperledger Fabric uses PBFT.
o Pros: High performance, suitable for private/permissioned
blockchains.
o Cons: Requires a higher level of communication among nodes, which
can limit scalability.
5. Proof of Authority (PoA):
o Mechanism: A limited number of pre-approved validators
(authorities) are selected to validate transactions and create new
blocks. These validators are known and trusted entities.
o Example: VeChain and POA Network use PoA.
o Pros: High throughput, efficient, and suitable for private networks.
o Cons: Less decentralized, relies on trusted authorities.