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IA 2 Blockchain

The document provides an overview of Ethereum technology, detailing the evolution from Ethereum 1.0 to Ethereum 2.0, the functionality of the Ethereum Virtual Machine (EVM), and the differences between Bitcoin and Ethereum. It also discusses Ethereum accounts, gas usage in transactions, the lifecycle of smart contracts, and the Truffle development framework. Additionally, it highlights the risks associated with smart contracts and the use of Remix for development, along with the structure of Ethereum transactions.
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0% found this document useful (0 votes)
20 views37 pages

IA 2 Blockchain

The document provides an overview of Ethereum technology, detailing the evolution from Ethereum 1.0 to Ethereum 2.0, the functionality of the Ethereum Virtual Machine (EVM), and the differences between Bitcoin and Ethereum. It also discusses Ethereum accounts, gas usage in transactions, the lifecycle of smart contracts, and the Truffle development framework. Additionally, it highlights the risks associated with smart contracts and the use of Remix for development, along with the structure of Ethereum transactions.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 37

BE Sem VIII IA2

Blockchain Technology and DLT Questions Bank


Module 3
2marks
1. Discuss Ethereum 1.0
Ethereum 1.0 (or Ethereum mainnet) is a version of the blockchain network that operates
based on the PoW protocol and allows for the mining of ETH tokens. In general terms, this
version represents the entire period of existence of the network since the Ethereum launch
in 2015 and including all updates and hard forks until the moment of the significant upgrade,
which took place on September 15, 2022, when the blockchain coins migrated from PoW
consensus mechanism to PoS. PoS involves the verification of transactions by staking,
which is a process of storing Ethereum coins on a cryptocurrency wallet to support all
operations on the blockchain. This allowed for a dramatic change in the underlying
increased efficiency of the network, its security, and scalability.
Over the lifetime of Ethereum 1.0, the network went through many hard forks, undergoing
various kinds of changes with each upgrade, most of which were mainly aimed at increasing
network throughput in terms of Ethereum transactions, reducing commission costs, and
increasing security to prevent hacking attacks, which have occasionally occurred in the
history of the coin. Ethereum 1.0 was a project whose objective was both to experiment with
the PoW consensus mechanism, as well as to test whether it could switch to another
consensus mechanism (PoS), a decision that was made after unsuccessful attempts to
scale the network so that it would meet technical regulations regarding transaction speed
and security.

2. Discuss Ethereum 2.0.


The Ethereum 2.0 network is a large-scale upgrade of its fundamental principles, which
focuses on improving scalability and called “Merge”, which is the first precedent in the
history of the crypto world for the transition of the operating blockchain from the Proof-of-
Work algorithm to Proof-of-Stake. Previously, miners aligned new blocks on the Ethereum
blockchain, but after the Merge, holders of digital coins ensure the blockchain’s
performance and are rewarded for doing so.

As part of the Ethereum 2.0 update, a phased network transition from one consensus
mechanism to another is planned. The roadmap contains three main steps: Beacon Chain,
Merge, and Sharding.
Beacon Chain is the coordination mechanism for the new network, responsible for creating
new blocks, verifying that these new blocks are valid, and rewarding ETH validators for
securing the network. Sharding means partitioning a database to increase capacity; this
technology is already used in programming. In the context of Ethereum, sharding reduces
the load on the network and increases the number of transactions by creating new chains,
known as “shards”. This will significantly increase the number of transactions and data
capacity on the network.

3. Discuss Ethereum Virtual Machine.


Ethereum Virtual Machine (EVM) is designed as the runtime
environment for smart contracts in Ethereum. It is sandboxed and
isolated from the other parts of the system. This means that any
operation on EVM should not affect your data or programs in any way,
no matter how many times you call a particular function on it.
 An EVM is the runtime environment that executes Ethereum
smart contracts.
 Ethereum contains its own Turing-complete scripting
language, called Solidity, and with this comes a need to
execute this code.
 A program called the Ethereum Virtual Machine (EVM) can do
this task.
 It runs on top of the Ethereum network, meaning that all
nodes reach a consensus about what code should be
executed at every given time.

Purpose of EVM

The Ethereum Virtual Machine (EVM) is a Turing complete


programmable machine, which can execute scripts to produce
arbitrary outcomes. It has been built with the purpose of being a
“world computer” and has immense power.
 It is the computer that stores data on blockchain, like bitcoin,
but it also executes code in smart contracts on the Ethereum
network.
 The machine is made to be able to run any kind of Crypto-
contract that can be built on Ethereum’s blockchain. It does
this by using a programming language called Solidity, which
is compiled into the EVM for execution.
 The intention behind writing code on the Ethereum network is
to create smart contracts and programs that automatically
execute things when certain conditions are met. If a terms or
condition is not met, the system can execute it in an “exit”
function as well.
 For example, if an account has been hacked, the hacker
cannot steal money from the system, because they don’t
have the budget or authority to do so.

4. Differentiate between Bitcoin & Ethereum(four points).

5. Explain different addresses of Ethereum. (EOA and Contract)

There are two types of Ethereum accounts each with its


address:

 Externally owned accounts (EOAs) are accounts


that are controlled by users. EOAs can hold and
manage Ether (ETH) and other tokens on the
Ethereum blockchain. They are primarily used for
initiating transactions, such as sending ether or
tokens to other addresses. EOAs can be created by
generating a new Ethereum account using wallet
software like MetaMask.
This is the most basic type of Ethereum account, it functions
similarly to a bitcoin account. A private key controls the
Ethereum address for EOAs. A person can open as many
EOAs as they require. It is created whenever a wallet is
created, and it is made with a private key that is required to
access EOAs, check balances, send and receive transactions,
and establish smart contracts.

 Contract accounts are owned by smart contracts


and can be used to interact with the Ethereum
blockchain. Contract addresses are unique addresses
that are associated with smart contracts deployed on
the Ethereum blockchain.

Contract-based accounts can perform all of the functions of


an externally owned account, but unlike EOAs, they are
formed when a contract code is deployed, are governed by
contract codes, and are accessed using a unique address.
When one party accepts a contract, a unique account is
formed which contains all of the charges associated with that
contract. Each contract is granted a distinct serial number,
which is referred to as a contract account.

6. Discuss the use of gas in Ethereum transactions.


Ethereum gas is what users pay to process transactions or
use smart contracts on the Ethereum network. Ethereum gas is
denominated in gwei, short for gigawei, with one gwei equal to one
billionth of an ETH. Ethereum gas fees can only be paid in
Ethereum’s native token, Ether (ETH).
Ethereum gas fees exist because operating the Ethereum network
uses resources in the form of computational power. Participants in
the Ethereum network can voluntarily operate the blockchain to
earn gas fees, provided that they stake—that is, agree not to trade
or sell—their ETH.

Gas fees on the Ethereum network are determined by three


variables:

1. Complexity. Specifically, the amount of gas required to


process a transaction.

2. Base fee. The reserve price below which a transaction is


ineligible for processing on the blockchain.

3. Priority fee. An optional incentive fee to expedite


processing time.

Your total Ethereum gas fee is determined by adding the


base fee to the optional tip and multiplying that sum by the
amount of gas used.

7. Explain the life cycle of solidity smart contract.

Phases of Smart Contract Life Cycle

There are four phases of the smart contracts life cycle in the
blockchain ecosystem:
 Create
 Freeze
 Execute
 Finalize

Let’s look at each of these phases in detail.


SKIP

Lifecycle of Smart Contracts

1. Create: Contract reiteration and negotiation constitute a


significant part of the first phase. First, the parties must agree on the
contract’s overall content and goals. This can be done online or
offline. This is similar to traditional contract negotiations. On the
blockchain being used to draw up the smart contract, all participants
must have a wallet. Once the contents of the smart contract have
been finalized, they must be converted into code.
The following tasks are done in this phase:
 Negotiation of multiple parties.
 Smart contract’s design, implementation, and validation.
2. Freeze: Validation of the transactions on a blockchain is done by a
set of computers across the network called nodes. These nodes are
the blockchain miners. A small fee must be paid to the miners in
exchange for this service to keep the ecosystem from being flooded
with smart contracts. The smart contract and its participants become
open to the public on the public ledger during the ‘freeze’ phase.
Digital assets of both involved parties in the smart contracts are
locked via freezing the corresponding digital wallets, and nodes
operate as a governance board that verifies whether the
preconditions for smart contract execution have been satisfied.
The following tasks are done in this phase:
 Smart Contracts are stored on the blockchain.
 Freezing of digital assets of involved parties.
3. Execute: Participating nodes read contracts that are stored on the
distributed ledger. The integrity of a smart contract is verified by the
authenticating nodes, and the code is executed by the smart
contract’s interference engine (or by the compiler). When the inputs
for the execution from one party are received in the form of coins
(commitment to goods through coins), the interference engine
creates a transaction triggered by the met criteria.
Now the new transaction data is added to the blockchain and to
ensure fulfillment according to the agreed-upon terms in the Smart
contract the governing nodes now verify it again. ‘Consensus
mechanism’ governs this verification process.
The following tasks are done in this phase:
 Evaluation of smart contact condition
 Auto execute smart contact statement triggered
4. Finalize: After a smart contract has been executed, the new
states of all involved parties are updated. Now the updated state
information and resulting transactions are put in the distributed
ledger of the blockchain and the consensus mechanism verifies that
the assets transferred by the first party have been received and
unfreezes the assets for the receiving party.
The following tasks are done in this phase:
 State updating and digital assets allocated.
 Unfreezing of digital assets received from the first party.
The smart contract has completed the whole life cycle. During
freezing, execution, and finalization the sequence of transactions has
been executed and stored in the blockchain.

8. Explain truffle.
Truffle is the core component of the Truffle Suite, serving as a
comprehensive development framework for Ethereum dapps. It
provides developers with tools, including a smart contract compiler,
automated testing, and deployment scripts. With Truffle, developers
can efficiently write and manage smart contracts using the Solidity
programming language. It simplifies the development process by
offering features like contract migration, network management, and
debugging.

Truffle also integrates with popular testing frameworks and allows


developers to simulate real-world scenarios, ensuring the reliability
and security of their smart contracts before deployment.

9. Explain different test networks in short(any two).

Ethereum Goerli Testnet:


The Goerli testnet is a proof-of-authority (PoA) testnet that is primarily used
for testing protocol upgrades and staking operations. It is also a good choice
for testing smart contracts and applications, but it is important to note that
the network may be less stable than other testnets. NOTE: The Goerli testnet
will be retired or “deprecated in 2023

Ethereum Sepolia Testnet:


Sepolia is a proof-of-stake (PoS) testnet that is currently the recommended
testnet for smart contract and application development. It is more stable
than Goerli and is also more representative of the Ethereum mainnet.

Ethereum Holešky Testnet:


The Holešky testnet is the newest Ethereum testnet. It was launched in
September 2023 and is intended to replace the Goerli testnet as the primary
testnet for staking, infrastructure, and protocol development. The Holešky
testnet has a number of advantages over other testnets, including a larger
validator set, improved tokenomics, and better stability.
10. Discuss smart contract opportunities in research work.
11. Discuss smart contract risks.

While smart contracts offer numerous benefits such as automation,


transparency, and efficiency, they also come with inherent risks.
Understanding these risks is crucial for developers, users, and stakeholders
involved in smart contract implementation. Here are some common smart
contract risks:

1. Code Vulnerabilities:
 Smart contracts are written in programming languages like
Solidity, which can contain bugs, logic errors, or vulnerabilities
that attackers can exploit.
 Common vulnerabilities include reentrancy attacks, integer
overflow/underflow, and unchecked external calls.
 Even well-audited contracts can have undiscovered
vulnerabilities due to the complexity of decentralized systems.
2. Immutability:
 Once deployed on the blockchain, smart contracts are
immutable, meaning their code cannot be modified or updated.
 If a vulnerability is discovered after deployment, it may be
challenging or impossible to fix without deploying a new
contract, potentially leading to significant financial losses.
3. External Dependencies:
 Smart contracts often rely on external data sources, such as
oracles, for information not available on the blockchain.
 These external dependencies introduce a risk of manipulation or
failure, which can compromise the integrity and reliability of
smart contract operations.

1. Reentrancy attack: This is one of the most iconic exploitable smart contract
vulnerabilities. It occurs when a smart contract calls another smart contract in its code
and, when the new call is finished, continues with execution. This action requires the
vulnerable contract to submit an external call. Scammers steal these external calls and
make a recursive call back to the contract with the help of the callback function. They can
create a contract at an external address using malicious code. When the smart contract
fails to update its state before sending funds, the scammer can continuously call the
withdraw function, thus allowing them to drain the contract funds.
2. Integer overflow/underflow: This happens when a variable exceeds
its maximum or minimum value. Attackers can exploit this to gain
control over the contract. Use safe math libraries to avoid this
vulnerability.
3. Timestamp dependence: Smart contracts can be vulnerable to
timestamp manipulation. Attackers can change the timestamp to their
advantage and exploit the contract. Use block timestamps instead of
the current time to avoid this vulnerability.
4. Unprotected private data: Private data can be accessed by anyone
if it is not protected properly. Use encryption to protect private data.
5. Unchecked return values: Smart contracts can be vulnerable to
unchecked return values. Attackers can exploit this vulnerability to
gain control over the contract. Use the require function to check return
values.

12. Explain use of Remix in brief

Remix is an open-source web-based Integrated Development


Environment (IDE) for developing smart contracts using the Solidity
programming language. It provides a user-friendly interface for writing,
testing, debugging, and deploying smart contracts on various
blockchain networks such as Ethereum, Binance Smart Chain, and
more.

Remix has a built-in compiler and debugger, making it straightforward


for developers to write efficient and secure smart contracts. It also
supports a wide range of plugins and extensions, allowing users to
customize their development environment according to their needs.

13. Explain Ethereum transaction structure.


RNGPLVDS

Transaction in Ethereum is one of the core functions that


play a role as the only thing that can change or update
Ethereum states. It has a data structure and contains several
elements representing what activity happens in the
Ethereum blockchain network, such as sender, recipient,
date, time, and amount of Gas.

Scope(Structure of Transaction)

- Nonce
- Gas price
- Gas Limit
- Recipient(EOA, Contract Account)
- Value
- Data
- v, r, s(ECDSA)

■ Nonce(transaction nonce)
Ethereum has two types of Nonce: proof-of-work nonce and
transaction nonce. Transaction nonce is a sequence number
of transactions sent from a given address. Each time you
send a transaction, the nonce value increases by one.
Moreover, Nonce prevents replay attacks on the Ethereum
blockchain.

■ Gas price
Gas Price represents the price of Gas in Gwei. For example,
1 Gas = 10 Gwei. It is determined by market supply and
demand. Gas Price is used to multiply Gas Limit to determine
the final price of Gas.

■ Gas limit
Gas Limit limits the amount of ETH the sender will pay for
the transaction. Usually, when one is talking about Gas in
Ethereum, they are referring to Gas Limit. When transferring
ETH, the sender needs to set a Gas Limit. If the Gas Limit is
insufficient to transfer, the transfer will be canceled, and the
Gas will be refunded to the sender. On the other hand, if the
sender sets an excess Gas Limit, the Gas left over will be
refunded to the sender.

■ Recipient
The recipient is the destination of the Ethereum address. It is
either an EOA or contract address represented by a 20-byte.
Here, let me explain what EOA and contract address are for
deep understanding.

EOA(Externally-Owned Account)

EOAs are accounts controlled by users with their private


keys. It has an ether balance, can send/initiate transactions,
and controls a private key. Unlike a Contract Account, it has
no associated code and is used for transferring money.

Contract Account

Contracts have addresses, just like EOAs. However, the


contract account does not have a private key. Instead, It is
owned by the logic of its smart contract code. Transactions
or messages produced by EOA trigger any execution in the
contract. A contract account cannot initiate a transaction by
itself because it does not hold a private key.

Value
The value field represents the amount of ether/wei from the
sender to the recipient. Value is used for both transfer money
and contract execution. It is possible to construct
transactions without filling the value field, though it is
supposed to be filled all the time.

Data
The data field is for contract-related activities such as the
deployment or execution of a contract. Data contains
messages that can be conceived of as function calls. As
Ethereum has an intelligent contract function, a transaction
must contain messages to call/execute functions. Messages
are produced by contract and execute CALL or
DELEGATECALL opcodes. If the Data field is empty, a
transaction is for a payment, not an execution of the
contract.

A message contains below:

* The sender of the message (implicit).

* the recipient of the message

* VALUE field — The amount of wei to transfer alongside the


message to the contract address,
* an optional data field, that is the actual input data to the
contract

* a STARTGAS value, which limits the maximum amount of


Gas the code execution triggered by the message can incur.

v,r,s
This field is a component of an ECDSA digital signature of
the originating EOA. Ethereum transactions use
ECDSA(Elliptic Curve Digital Signature Algorithm) as its
digital signature for verification. v indicates two things: the
chain ID and the recovery ID to help the ECDSA recover
function check the signature. r and s are inputs of ECDSA to
generate a signature.

14. List use cases of smart contracts.

Smart contracts, which are self-executing contracts with the terms of the
agreement directly written into code, have a wide range of potential use
cases across various industries. Here are some examples:

1. Financial Services:
 Payment Systems: Facilitating instant and secure payments
without the need for intermediaries.
 Remittances: Streamlining cross-border money transfers,
reducing costs and processing times.
2. Supply Chain Management:
 Provenance Tracking: Tracking the origin and journey of
products from manufacturing to delivery, ensuring authenticity
and reducing counterfeiting.
 Inventory Management: Automating inventory management
processes, including reordering and tracking.
3. Real Estate:
Property Transactions: Executing property transactions such as

purchases, sales, and rentals without the need for intermediaries
like real estate agents.
4. Healthcare:
 Medical Records: Securing and managing patient medical records,
ensuring privacy and accessibility.
 Clinical Trials: Automating the execution and monitoring of clinical
trials, ensuring data integrity and transparency.

15. Explain Ethereum Wallet


An Ethereum wallet is a digital tool used to store, manage, and interact with
Ethereum (ETH) and other Ethereum-based cryptocurrencies, as well as digital
assets such as tokens and non-fungible tokens (NFTs). Essentially, an Ethereum
wallet allows users to securely send, receive, and manage their Ethereum-based
assets on the Ethereum blockchain.
Here are the key components and functionalities of an Ethereum wallet:

1. Public and Private Keys:

 The public key is used to generate the wallet address, which serves
as the destination for sending Ethereum and other tokens.
 The private key is known only to the wallet owner and is used to
access and control the wallet's funds. It should be kept confidential
and securely stored, as anyone with access to the private key can
control the associated assets.

2. Wallet Address:
 A wallet address is a hexadecimal string derived from the public key and
serves as the identifier for the Ethereum wallet.
3. Wallet Types:
Ethereum wallets come in various types, including software wallets
(desktop, mobile, or web-based), hardware wallets (physical
devices), and paper wallets (printed or written down).
4. Balance and Transaction History:

 Ethereum wallets display the balance of Ethereum and other tokens


held in the wallet, as well as the transaction history of incoming and
outgoing transfers.
 Users can view details such as transaction amounts, timestamps,
sender/receiver addresses, and transaction status (pending, confirmed,
or failed).

5. Sending and Receiving Transactions:


 Users can send Ethereum and other tokens from their wallet to other
addresses by specifying the recipient address and the amount to be
transferred.
 Similarly, users can receive Ethereum and tokens by sharing their
wallet address with senders who wish to transfer funds to them.

6. Interaction with Decentralized Applications (DApps):

 Many Ethereum wallets support the interaction with decentralized


applications (DApps) deployed on the Ethereum blockchain.
 Users can access DApps directly from their wallet interface, enabling
them to interact with various decentralized services, such as
decentralized finance (DeFi) protocols, NFT marketplaces, and
decentralized exchanges (DEXs).

Module 5 5 marks
1. Differentiate between ERC 20 and ERC 721 Tokens.
2. Explain ERC721 tokens. Describe the steps to create ERC721 token.

ERC721 is a standard for non-fungible tokens (NFTs) on the Ethereum


blockchain. Unlike fungible tokens, which are interchangeable and have
identical value, ERC721 tokens are unique and indivisible, making them ideal
for representing ownership or proof of authenticity of digital or physical
assets.

Creating an ERC721 token involves several steps, which can be summarized


as follows:

1. Define the Token Contract: The first step is to define the smart
contract for the ERC721 token. This contract will specify the functions
and variables necessary for managing ownership, transfer, and other
functionalities of the token.
2. Inherit from ERC721 Interface: The token contract should inherit from
the ERC721 interface, which defines the standard functions and events
required for ERC721 compliance. This interface includes functions such
as balanceOf, ownerOf, transferFrom, approve, setApprovalForAll, and
events such as Transfer and Approval.
3. Implement Token Metadata: ERC721 tokens can include metadata to
provide additional information about each token, such as its name,
symbol, and properties. Implementing token metadata involves
defining variables to store this information and functions to retrieve it.
4. Define Minting and Burning Functions: Minting refers to the process of
creating new tokens, while burning involves destroying tokens. Define
functions in the contract to handle these operations securely, ensuring
that only authorized users can mint or burn tokens.
5. Implement Ownership and Transfer Functions: ERC721 tokens allow for
the transfer of ownership of individual tokens between users.
Implement functions to transfer ownership of tokens securely, verifying
that the sender has the authority to transfer the token.
6. Handle Approvals and Operator Permissions: ERC721 tokens support
approvals, allowing token owners to grant permission for other
addresses to transfer their tokens on their behalf. Implement functions
to manage approvals and operator permissions securely.
7. Test and Deploy the Contract: Once the token contract is defined and
implemented, it should be thoroughly tested to ensure its functionality
and security. After testing, deploy the contract to the Ethereum
blockchain, making the ERC721 tokens available for use.
8. Interact with the Token Contract: Users can interact with the ERC721
token contract through various means, such as wallets, decentralized
applications (DApps), or directly through Ethereum transactions.
Provide users with the necessary information and interfaces to interact
with the token contract effectively.

By following these steps, developers can create ERC721 tokens to represent


unique digital or physical assets on the Ethereum blockchain, enabling a
wide range of use cases such as digital art, collectibles, gaming assets, and
more.

• The main characteristic that makes ERC 721 special is any token created
following this standard is unique. Once an ERC 721 token is created, there will
only ever be one of them in existence.
• It is not an east task to get a hold of an NFT. Why? Mainly because of the
prices or bidding amounts. Though one can follow the following steps to
create their own NFTs and make use of the various NFT marketplaces
available to sell them.
• Decide on the Concept
• Choose your NFT marketplace of choice
• Connect and build a community
• Create your NFT
• Mint the NFT!

3. Explain ICO with advantages and disadvantages.


• ICO or initial coin offering is an event where an organisation sells new crypto
to raise money.
• An ICO is the crypto version of an IPO (initial public offering) in the stock
market.
• The purpose of ICO, is to raise capital, where digital proprietary tokens are
sold.
• A company conduct an initial coin offering when it sells tokenized
cryptographic assets to raise money for its operations.
• If the initiative is successful, those who purchase the tokens early will save
money because they are essential to the projects.
• It is a source of funding new business.
• ICOs are start up companies efforts to generate money through crowed
funding.
• To investors, a certain amount of cryptocurrency is offered in the form of
tokens.
• MasterCoin , which was released in 2012, was the first ICO.
• In 2014, Ethereum held a token sale to raise money. In first 12 hrs, it raised
3,700 BTC or about $2.3 at the same time.
• Since the ICOs are largely unregulated, investors must be very extremely
cautious and diligent while learning about and making investments in them.
Phases of ICO: ITCTTE
• Idea-Team and Companies first step is to understand how blockchain
technology will work in the business world and what they provide customers
and investors using the technology.
• Team-Building a talented staff throughout ICO development is a self-
explanatory necessity.
• Create a White paper: In consideration of securities laws, investors will
write papers.
• Tokens delivery: The production of tokens is the next phase of the initial
coin offering.
• Tokens trading-The Ethereum blockchain technology is now the most
popular choice for ICO launches since it offers smart contract, the key
mechanism for automating token generation and distribution.
• Execute project- Tokens are made available to investors after they have
been created.
Advantages of ICO :
• It is relatively inexpensive a simple for business.
• Typically, obtaining regulatory permissions is simple.
• Tokens owner remains anonymous.
• Tokens can be traded on both controlled and decentralized exchanges.
• High liquidity
• Less paperwork is required.
Disadvantages of ICO :
• In most jurisdictions, there is no investors protection.
• There are lot of scams
• It is simple to hack them

4. Explain STO with advantages and disadvantages.


STO(Secure Token Offering)

STO stands for security token offering. It is a process similar to an ICO where
an investor exchanges money for coins or tokens representing their
investment. Security token offering (STO) is frequently called the next step in
token evolution.
What does STO mean?
The acronym STO stands for Security Token Offering, a term that is becoming
increasingly important in the financial world.

STO is the process by which investors issue crypto coins or tokens. These
securities or financial instruments have monetary value and are intended for
trading on STO crypto exchanges where the information is recorded on a
public blockchain.
This process is often seen as a hybrid approach between a cryptocurrency
initial coin offering (ICO) and a more traditional equity initial public offering
(IPO).

What is a Security Token Offering?


A Security Token Offering (STO) is effectively a public event where tokens are
sold through a cryptocurrency exchange. Tokens can then be used to trade
real financial assets such as stocks.

STOS are already used in several investment scenarios and are being
embraced with increasing enthusiasm by mainstream and institutional
investors.

Pros and Cons of STO


Here are some of the pros and cons of STO.

Pros
- STOS are generally considered less risky than ICOS and IPOs as they are
protected by securities laws. It is also backed by real assets, making it easier
to determine if the token is priced appropriately.

- Initial security token offerings are inexpensive as they are structured to


eliminate middlemen such as banks and brokers.

-A smart contract that is part of the STO package also reduces the need for
lawyers and makes STO a more affordable option.

- STO is 24/7 tradeable with increased flexibility.

Cons
-The main drawback of STO is that an unaccredited investor cannot own STO.
In the US, to become an Accredited Investor, you must earn at least $200,000
annually or have at least $1 million in the bank. This makes the token
significantly less accessible than traditional blockchain products.

- STOS are more expensive than utility tokens due to regulatory requirements.
- They are subject to secondary market trading restrictions that don't apply to
similar coins.

- Also, security tokens have a time lock mechanism. Once the STO process
begins, STO tokens may only be traded among qualified investors for a limited
period of time.

Advantages of STO:
• STO token enable fractional ownership of the asset.
• Regulated offering ensure investor security.
• More secure than traditional ICO.
• Less speculative and lower chance of market manipulation.
• Project launched by STO are generally more trustworthy with higher chances
of successful completion.
• More cost effective than IPO.
• Increased liquidity as compared to ICO’s and IPO’s with 24/7 global access
trading.

Disadvantages:
• High cost of launching due to regulatory pre-requisites and approval.
• Reduced investors pool as only recognized investors can participate.
• Process time line longer as all transactions needs to adhere strict KYC and
AML(Anti Money Laundering)
• Liquidity constraints
• High administrative burden.

5. Differentiate between Fungible token and Non Fungible Token

Module 6 5 marks
1 Explain blockchain in IoT with benefits and challenges
Issues in traditional usage of IOT-
• Single point of IOT intelligence and access is compromised.
• Data may be incomplete , misleading and inaccurate
• Data privacy may be compromised.

Blockchain in IOT
• The centralized components of IoT can be replaced by blockchain.
• A smart contract can be utilized whenever data needs to be moved from one
location to another.
• For instance smart phone app allows the user to communicate directly to
blockchain while installing an IoT device.
• Eliminate single point failure problem.
• Blockchain can address privacy and security concern.
• Blockchain keeps logs and traceability of sequential transactions for IoT
applications which needs.

Benefits of Blockchain in IoT


Below are few benefits of Blockchain in IoT −

 Enhanced Security − The integration of blockchain & IoT can provide


enhanced security for devices and systems. Blockchain technology
provides a decentralized & tamper-proof ledger. This technology prevents
unauthorized access to devices & data. It can also prevent many attacks.
By using blockchain, IoT devices can be authenticated & authorized,
preventing unauthorized access and ensuring that only trusted devices
are allowed to communicate with each other.
 Transparency − Blockchain technology can provide transparency by
allowing all parties in the IoT network to access and verify the data on the
ledger. With this transparency, you can identify fraud. Blockchain
technology makes sure you can access the most up-to-date information as
every party involves in this need to get all the correct information.
Blockchain can trace the movement of items during the transfer in a
supply chain. With this getting real-time information on the shipment is
easy.
 Decentralization − Blockchain technology allows for decentralization,
which can provide increased resilience to the IoT network. There is no
single point of failure in a decentralized network thus even if some
devices malfunction or are compromised, the network can still function.
With this you can lower the chance of data loss & help to prevent
downtime.
 Data Integrity − With Blockchain technology you can get data integrity.
You can get this by creating a permanent record of all ledger transactions.
It makes sure the data cannot be erased or changed, which can help to
stop data manipulation or tampering. It can be crucial in an IoT network
for delicate applications like healthcare or financial transactions, where
data quality and integrity are essential.
 Automated Transactions − Blockchain technology can enable
automated transactions in an IoT network. Smart contracts enable
transactions to be carried out automatically when specific criteria are
satisfied, such as when a task is finished or an event takes place.
Processes may be streamlined & the need for manual intervention may be
diminished, saving time and lowering the possibility of mistakes.

Blockchain in IoT Challenges


Here are few challenges of blockchain in IoT −

 Scalability − Scalability is one of the primary obstacles to the integration


of IoT & blockchain. When it comes to low transaction volume occurring in
an IoT network, blockchain technology may not support it. Blockchain
technology is only built to manage some specific transactions per second.
This is the thing that delayed the transaction process & increased network
congestion.
 Interoperability − This is another challenge of integrating blockchain
with IoT. IoT devices use various communication protocols, ensuring that
all devices can communicate with each other properly. Likewise,
Blockchain technology also have different blockchain protocols and
standards.
 Cost − The cost of the complete integration process between blockchain
technology & IoT network is significantly high. Blockchain technology
requires significant computing power & storage capacity, which can be
expensive to deploy and maintain. In addition, because it can necessitate
substantial alterations to the underlying architecture, integrating
blockchain with current IoT infrastructure can be expensive.
 Energy Consumption − One of the significant challenges of blockchain
in IoT is its high energy consumption. It needs substantial energy usage
during the mining process of a block as it needs an enormous amount of
processing power. As IoT devices typically have limited computing power,
integrating blockchain technology may require significant energy
resources & may not be practical for low-power devices.
 Regulatory Frameworks − Another challenge of integrating blockchain
with IoT is the lack of regulatory frameworks. As technology is relatively
new and constantly evolving, there is a lack of standardized regulations
and guidelines. When it comes to concerns like data privacy and security,
in particular, it may lead to uncertainty and legal difficulties. As a result,
regulatory organizations must provide precise rules and specifications for
the fusion of blockchain and IoT.

2 Explain blockchain in AI with benefits and challenges

Artificial Intelligence (AI) and Blockchain are powerful forces


in this dynamic digital ecosystem. Individually, they have
significantly impacted various industries and societal
interactions. However, their convergence opens up a whole
new era of possibilities. The fusion of AI and Blockchain can
potentially revolutionize supply chain logistics, healthcare,
and cybersecurity, among other areas. Simply put, the
advancements backed by their intersection are truly
unparalleled.

AI and Blockchain, each a titan in its domain, are now


converging to unleash incredible possibilities. AI enables
machines to make decisions and support humans, while
Blockchain provides a secure and transparent distributed
ledger. Together, they are poised to revolutionize various
industries and unlock unprecedented potential.

The combination of AI and Blockchain is not just the sum of


their strengths but rather a multiplication of their impact. The
seamless integration of AI in Blockchain is set to unleash a
wave of innovation, reshaping problem-solving and decision-
making approaches.

AI and Blockchain – A Brief


Introduction
AI is revolutionizing industries by simulating human
intelligence in machines. Through machine learning and
natural language processing, AI technologies are reshaping
how businesses function. As businesses increasingly integrate
AI solutions for automation, predictive analysis, and
personalized customer experiences, the AI-based solutions
market is expected to grow substantially in the years ahead.

Blockchain is a decentralized and tamper-proof ledger


technology that has revolutionized data security and
transparency. Originally designed for cryptocurrencies, its
applications have expanded to various industries, including
finance, supply chain, and healthcare. The market size of
Blockchain is driven by its adoption in these sectors, as it
offers secure, transparent, and traceable transactions. Simply
put, Blockchain has become a cornerstone for digital
transformation.

The collaboration between AI and Blockchain forms a robust


alliance that tackles data security, transparency, and
efficiency issues. This has further made the combined market
size of AI and blockchain technologies to exceed $703 million
by 2025, witnessing a CAGR of 25.3% from 2020 to 2025.

Businesses can now strategically utilize the integration of


these technologies to enhance the security and transparency
of AI applications. The convergence of these technologies
enables businesses to develop advanced AI models while
ensuring the integrity and trustworthiness of the underlying
data.

Integrating these technologies not only boosts the


capabilities of AI applications but also tackles concerns
surrounding data integrity and trust. Combining AI and
Blockchain establishes a secure groundwork for innovation in
an era where industries are progressively dependent on data-
driven decision-making. Thus, it’s the right time for
businesses to position themselves ahead in technological
advancement, capitalizing on the mutually beneficial
relationship between AI and Blockchain to foster efficiency,
security, and growth.

Advantages:

1. Data Security: Blockchain provides a decentralized and tamper-


resistant ledger, ensuring the integrity and security of data stored on
the network. This feature is beneficial for AI applications that rely on
sensitive or valuable data, such as personal information, medical
records, or financial transactions.
2. Data Transparency: Blockchain's transparent nature allows
participants to access and verify the data stored on the network. In AI
applications, this transparency can enhance trust and accountability by
providing visibility into the origin, quality, and usage of training data
and machine learning models.
3. Data Integrity: Blockchain's immutability ensures that once data is
recorded on the blockchain, it cannot be altered or deleted without
consensus from the network participants. This property is crucial for
maintaining the integrity of AI training datasets and ensuring the
reliability of machine learning models.
4. Decentralized Governance: Blockchain enables decentralized
governance models through smart contracts or decentralized
autonomous organizations (DAOs). In AI ecosystems, decentralized
governance can empower stakeholders to collaboratively make
decisions, enforce rules, and govern the development and deployment
of AI systems without relying on centralized authorities.
5. Incentive Mechanisms: Blockchain introduces tokenization and
incentive mechanisms that can incentivize participation, collaboration,
and data sharing in AI projects. By rewarding stakeholders with tokens
or cryptocurrencies for contributing resources, expertise, or computing
power, blockchain can accelerate AI innovation and foster a more
inclusive and collaborative ecosystem.

Disadvantages:

1. Scalability: Blockchain networks, especially public blockchains like


Ethereum, often face scalability challenges in terms of transaction
throughput and latency. This limitation can hinder the performance of
AI applications that require real-time processing of large volumes of
data, such as high-frequency trading or real-time analytics.
2. Cost: Running computations or storing large datasets on a blockchain
can be expensive due to transaction fees and gas costs. For AI
applications with resource-intensive operations, such as training deep
learning models or performing complex computations, the cost of using
blockchain technology may outweigh the benefits.
3. Privacy Concerns: While blockchain offers security and transparency,
it may not be suitable for applications that require strict privacy
protections, such as handling sensitive personal data or proprietary
information. Public blockchains expose data to all participants on the
network, raising privacy concerns for certain AI applications.
4. Regulatory Uncertainty: The intersection of blockchain and AI
introduces regulatory challenges and uncertainties, particularly
regarding data privacy, intellectual property rights, and compliance
with existing regulations. Navigating regulatory requirements can be
complex and may pose legal risks for organizations deploying
blockchain-based AI solutions.
5. Complexity: Integrating blockchain with AI introduces additional
complexity to the development, deployment, and maintenance of AI
systems. Developers need to understand both technologies and
address interoperability issues, smart contract vulnerabilities, and
other technical challenges associated with blockchain integration.

3 Discuss advantages of blockchain with cybersecurity and its Challenges.

Blockchain technology offers several advantages in the context of


cybersecurity, but it also presents certain challenges. Let's discuss both
aspects:
Advantages:

1. Immutable Ledger: One of the primary advantages of blockchain in


cybersecurity is its immutable ledger. Once data is recorded on the
blockchain, it cannot be altered or deleted without consensus from the
network participants. This property ensures the integrity and tamper-
resistance of data, making it ideal for recording critical information
such as transaction records, digital identities, or audit trails.
2. Decentralization: Blockchain operates on a decentralized network of
nodes, which eliminates the need for a central authority or
intermediary to verify transactions. This decentralized architecture
enhances resilience against cyber attacks, as there is no single point of
failure that attackers can target. Even if some nodes in the network are
compromised, the integrity of the blockchain remains intact as long as
the majority of nodes remain honest.
3. Data Security: Blockchain employs cryptographic techniques to
secure data transmission and storage. Each block in the blockchain is
cryptographically linked to the previous block, forming a chain of
blocks that are resistant to unauthorized modifications. Additionally,
blockchain's consensus mechanisms, such as proof of work or proof of
stake, ensure that only valid transactions are added to the blockchain,
preventing unauthorized access or tampering.
4. Transparency and Audibility: Blockchain's transparent nature
allows participants to access and verify the data stored on the
network. This transparency enhances accountability and auditability,
as stakeholders can trace the provenance of data and verify its
authenticity. In cybersecurity, this feature is valuable for detecting and
investigating security breaches or unauthorized access attempts.
5. Smart Contracts: Blockchain platforms like Ethereum support smart
contracts, which are self-executing contracts with predefined rules and
conditions. Smart contracts enable automated and tamper-proof
execution of agreements, eliminating the need for intermediaries and
reducing the risk of fraud or manipulation. Smart contracts can be used
to enforce security policies, manage access control, or automate
incident response processes in cybersecurity operations.

Challenges:

1. Preventing Data Theft: Despite blockchain's cryptographic security


measures, preventing data theft remains a challenge. While blockchain
protects data integrity, it does not inherently protect against
unauthorized access to data. Organizations must still implement robust
access controls, encryption, and authentication mechanisms to prevent
data theft from endpoints, databases, or unauthorized network access
points.
2. False Data Entry Prevention: Blockchain's immutability makes it
difficult to rectify errors or fraudulent data entries once they are
recorded on the ledger. While blockchain ensures the integrity of data,
it cannot verify the accuracy of the data itself. To address this
challenge, organizations must implement data validation mechanisms
and ensure data integrity at the source before it is recorded on the
blockchain.
3. Protecting Centralized Data: While blockchain decentralizes data
storage and eliminates single points of failure, organizations may still
have centralized repositories of sensitive data outside the blockchain.
These centralized data repositories remain vulnerable to cyber attacks,
such as ransomware, insider threats, or unauthorized access by
malicious actors. Organizations must implement robust security
measures, such as encryption, access controls, and regular security
audits, to protect centralized data repositories from cyber threats.

4. Scalability: Blockchain networks, especially public blockchains, often


face scalability challenges in terms of transaction throughput and
latency. As the size of the blockchain grows, the performance of the
network may degrade, leading to delays and congestion. Scalability
limitations can hinder the adoption of blockchain for large-scale
cybersecurity applications that require real-time processing and high
throughput.
5. Privacy Concerns: While blockchain provides security and
transparency, it may not be suitable for applications that require strict
privacy protections. Public blockchains expose data to all participants
on the network, raising privacy concerns for sensitive information such
as personal data or confidential business transactions. Private or
permissioned blockchains offer better privacy controls but may
sacrifice some of the decentralization and transparency benefits.
6. Regulatory Compliance: The regulatory landscape surrounding
blockchain and cryptocurrencies is still evolving, posing challenges for
organizations seeking to adopt blockchain for cybersecurity
applications. Compliance with existing regulations, such as GDPR in
Europe or HIPAA in the United States, can be complex, especially
regarding data privacy, consent management, and cross-border data
transfers. Navigating regulatory requirements and ensuring
compliance remains a challenge for blockchain-based cybersecurity
solutions.
7. Interoperability: Integrating blockchain with existing cybersecurity
infrastructure and legacy systems can be challenging due to
interoperability issues. Different blockchain platforms may use
incompatible standards, protocols, or consensus mechanisms, making
it difficult to exchange data or coordinate security measures across
heterogeneous environments. Achieving seamless interoperability
between blockchain and traditional cybersecurity technologies requires
standardized interfaces, protocols, and integration frameworks.
8. Resource Consumption: Blockchain networks, particularly those
using proof of work consensus mechanisms, consume significant
computational resources and energy. The high energy consumption
associated with mining activities has raised environmental concerns
and sustainability issues. Moreover, resource-intensive blockchain
operations may incur high operational costs for organizations
deploying blockchain-based cybersecurity solutions, especially in terms
of transaction fees and infrastructure maintenance.

4 Discuss an application with blockchain in IOT and AI.


Blockchain in IoT: Real-world Applications
Few examples of how the combination of Blockchain and IoT can positively
impact multiple industries, including –
1) Supply Chain and Logistics
• A supply chain network involves numerous stakeholders, and this is primarily
the reason why delivery delay becomes one of the biggest challenges in the
supply chain and logistics industry.
• While IoT-enabled devices will allow companies to track shipment movement
at every stage, Blockchain will provide transparency to the entire transaction.
IoT sensors (for example, motion sensors, GPS, temperature sensors, etc.)
can offer details about the shipment status.
2) Automotive Industry
• Automotive companies are leveraging IoT-enabled sensors to develop fully
automated vehicles.
• The automotive industry is further inclined to connecting IoT enabled vehicles
with Blockchain tech to allow multiple users to exchange crucial information
easily and quickly.
• Also, the industry is readily exploiting Blockchain IoT use cases that can
transform autonomous cars, smart parking, and automated traffic control for
the better.
• NetObjex presents a compelling case in point by creating a smart parking
solution by combining Blockchain and IoT. It has collaborated with PNI, a
parking sensor
• company for real-time vehicle detection and finding possible parking spots in
the parking area. The integration also automates payments using crypto-
wallets.
3) Smart Homes Industry
• In the traditional centralized approach, exchanging information generated by
IoT devices lacks the security standards and ownership of data.
• Blockchain IoT allows homeowners to manage the home security system
remotely from the smartphone.
• Blockchain could elevate Smart Homes security by eliminating the limitations
of centralized infrastructure.
• For instance, Telstra, an Australian telecommunication and media company,
provides smart home solutions.
• The company has implemented Blockchain and biometric security to ensure
no one can manipulate the data captured from smart devices
4) Pharmacy Industry
• One of the biggest challenges of the pharmaceutical sector is the increasing
incidence of counterfeit medicines.
• The pharmacy industry is now capable of countering this issue.
• Blockchain IoT allows all the stakeholders involved in the drug manufacturing
process to be responsible and update the Blockchain network with relevant
information in real-time.
• The transparent nature of Blockchain will further allow all the stakeholders to
access and monitor all the stages of drug manufacturing and supply from
their connected devices.
• Mediledger is one interesting Blockchain IoT applications that can track the
legal change of ownership of prescription medicines.
Use cases for blockchain and AI
Healthcare
• From surfacing treatment insights and supporting user needs to identifying
insights from patient data and revealing patterns, AI can help advance
almost every field in healthcare.
• With patient data on blockchain, including electronic health records,
organizations can work together to improve care while protecting patient
privacy.
Life sciences
• Blockchain and AI in the pharmaceutical industry can add visibility and
traceability to the drug supply chain while dramatically increasing the
success rate of clinical trials.
• Combining advanced data analysis with a decentralized framework for
clinical trials enables data integrity, transparency, patient tracking, consent
management and automation of trial participation and data collection.
Financial services:
• Blockchain and AI are transforming the financial service industry by enabling
trust, removing friction from multiparty transactions, and accelerating the
speed of transactions.
• Consider the loan process. Applicants grant consent for access to personal
records stored on the blockchain.
• Trust in the data and automated processes for evaluating the application help
drive faster closings and improve customer satisfaction.

5 Discuss different challenges addressed by blockchain in Health care sector.

Challenges of Blockchain in Healthcare


Blockchain is totally new technology and it has not been fully effective
yet. As Blockchain is a new technology, there are many challenges of
blockchain in the Healthcare sector:
1. Lack of Technical Knowledge
It is not expected that all users will have expensive hardware and
software resources. Many users also are not acquainted with the
latest technologies. For example, many old men and women do not
use laptops or computers for instance. GPUs are required for
cryptocurrency mining which is not present in all laptops. This is a big
challenge of blockchain. SKIP
2. Lack of Paperless Method Adoption
Many users and doctors prefer paper records. They prefer to keep the
medical records in a file system. Some medicine shops are not 100%
paperless. Most medicine shops use prescriptions to keep records of
their medicines. Patients also keep the paper works for their handy
purpose. So adapting to a total paperless blockchain network is a
challenging task.
3. Lack of Government Involvement
Most Hospitals are Government owned. So there is the involvement of
the Government to implement rules. Some Governments are adamant
to adopt the latest technologies. Therefore Blockchain cannot be
implemented in Government owned Hospitals because it is a highly
decentralized, distributed ledger. No central authority or third parties
are there to make decisions. The decisions are usually made by
blockchain.
4. Lack of Cost Reduction
Blockchain is still a costly technology. For mining, users require costly
hardware and software. It involves costly GPUs for mining
cryptocurrencies. To mine, each block electricity is also required. But
the incentives that miners get are not satisfactory. Therefore this
technology is very costly.
5. Lack of Privacy
The information is stored in the database of Blockchain and each user
has a copy of the database so that if one part of the network fails, the
data remains safe so that it can be updated later. Many users prefer
to keep their medical problems private. Thus it hampers an
individual’s privacy.
6. Lack of Incentive
Upon successful verification of a block, miners get incentives.
Blockchain provides financial independence but the incentives are not
up to the mark. So users try to mine more in order to increase the
amount. For example, To mine 1 bitcoin, the average time is 10
minutes, and that too if the machine is powerful. So Incentives
generated are very less as compared to the hardware, and software
used.
7. Lack of Cryptocurrency Acceptance
Most doctors do not accept cryptocurrency as a mode of payment.
Before the adoption of Blockchain technology, online payment has not
been fully established. The cash flow still exists. Therefore a proper
implementation of online payment should be adopted. Then
Blockchain technology should be adopted.

8. Lack of Cyber Security

Although Blockchain is highly secured and there is no involvement of


third parties still many attacks like 51% attack, Sybil attack, etc. have
become a major problem. Many hackers target users’ wallets in order
to steal money. Many hackers target to increase their incentives by
mining unnecessary blocks and increasing the traffic in the network.
9. Lack of Central Healthcare
Most healthcare systems are distributed. Many hospitals are in
multiple places. So maintaining a blockchain is a very hectic task.
Without a streamlined system, it would be impossible to maintain all
the medical records together to adopt blockchain as a technology. For
instance: A person visits a hospital ‘A’ in one location. Next time he
might visit to Hospital ‘A’ but in a different location. There are two
blockchains for two different locations. So accessing the previous
medical records will be a challenging task.
10. Lack of Speed
Speed is very less in Blockchain. The processing speed takes a long,
especially if the network is very large. The confirmations take too long
and as a result information sharing becomes slow.

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