Blockchain Architecture Design (BCS063)

Unit -1 ( Introduction to Blockchain )

Blockchain
Blockchain is a distributed software network that functions both as a digital ledger
and a mechanism enabling the secure transfer of assets without an intermediary.
Just as the internet is a technology that facilitates the digital flow of information,
blockchain is a technology that facilitates the digital exchange of units of value.

Blockchain is the backbone Technology of Digital CryptoCurrency BitCoin. The

blockchain is a distributed database of records of all transactions or digital event
that have been executed and shared among participating parties. Each transaction
verified by the majority of participants of the system. It contains every single
record of each transaction. BitCoin is the most popular cryptocurrency an example
of the blockchain. Blockchain Technology first came to light when a person or
Group of individuals name ‘Satoshi Nakamoto’ published a white paper on
“BitCoin: A peer to peer electronic cash system” in 2008. Blockchain Technology
Records Transaction.

What do you mean by block in blockchain?

Blocks are files where data pertaining to the Bitcoin network are permanently
recorded. A block records some or all of the most recent Bitcoin transactions that
have not yet entered any prior blocks. Thus, a block is like a page of a ledger or
record book.

In other words Blockchain is a decentralized computation and information

sharing platform that enables multiple authoritative domains, who do not
trust each other , to cooperate, coordinate and collaborate in a rational
decision making process.
Bitcoin: (₿) is a cryptocurrency invented in 2008 by an unknown person or group
of people using the name Satoshi Nakamoto and started in 2009 when its
implementation was released as open-source software. It is a decentralized digital
currency without a central bank or single administrator that can be sent from user
to user on the peer-to-peer bitcoin network without the need for
intermediaries. Transactions are verified by
network nodes through cryptography and recorded in a public distributed
ledger called a blockchain. Bitcoins are created as a reward for a process known
as mining. They can be exchanged for other currencies, products, and services.

20 november 2015 : 1 Bitcoin = 21,598 Indian rupees

25 november 2016 : 1 Bitcoin = 50,404 Indian rupees

24 november 2017: 1 Bitcoin = 5,67,706 Indian rupees

15 december 2017 : 1 Bitcoin = 12,59,035 Indian rupees

14 december 2018 : 1 Bitcoin = 2,28,890 Indian rupees

23 august 2019 : 1 Bitcoin = 7,25,701 Indian rupees

03 september 2020: 1 Bitcoin = 8,36,981 Indian rupees

Many people confuse and believe blockchain to be bitcoin. But, bitcoin is one
application of the blockchain technology. There are many other applications
and use cases that can be solved using blockchain other than just payment
systems.

Peer to Peer Network –

A peer to peer network is a distributed application architecture that consists of
computing devices connected to each other, without a central server.
In centralised networks, the security is dependent on a single entity. If that central
server is attacked, the security of the overall network is compromised. But a peer
to peer network is more secure as there is no single point of failure.
How Blockchain Technology works?
One of the famous use of Blockchain is Bitcoin. The 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 digital signature (A digital signature is a
mathematical technique used to validate the authenticity and integrity of a
message, software or digital document.).
The data is distributed over Millions of Computers around the world which are
connected with the Blockchain. This system allows Notarization of Data as it is
present on every Node and is publicly verifiable.
A network of nodes: A node is a computer connected to the Blockchain Network.
Node gets connected with Blockchain using the client. Client helps in validating
and propagates transaction on to 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.
Disadvantages of current transaction system:
• Cash can only be used in low amount transaction locally.
• 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.

Benefits of Blockchain Technology:

• Time-saving: No central Authority verification needed for settlements
making the process faster and cheaper.
• Cost-saving: A Blockchain network reduces expenses in several ways. No
need for third-party verification. Participants can share assets directly.
Intermediaries are reduced. Transaction efforts are minimized as every
participant has a copy of shared ledger.
 • Tighter security: No one can temper with Blockchain Data as it shared
among millions of Participant. The system is safe against cybercrimes and
Fraud.
What is inside a blockchain?

A blockchain is a chain of blocks connected to each other. A block consists of four

parts:
• Previous Hash
• The timestamp
• Nonce
• Merkle tree root

Figure – A block in a blockchain

Each block contains a cryptographic hash of the data of the previous block. The
nonce is calculated by the miners by solving a cryptographic puzzle to propose the
next block in the chain. It is known as proof of work. The blockchain is said to be
immutable because of its cryptographic properties. But this does not mean that
changing the data is impossible. It means that it is extremely hard to change the
data and any change can be easily detected. A merkle tree is a binary tree with hash
pointers. A merkle tree is a structure that allows for efficient and secure
verification of content in a large body of data. The advantage of using merkle trees
is that proving membership requires O(logn) steps. Also, in a sorted merkle tree,
non-membership can also be proved in O(logn) steps. The first block is known as
the genesis block.

Advantages of Blockchain
1. Blockchains are expected to be implemented by most businesses because of the
several benefits it provides.
2.The blockchain eliminates the need of a third party between two entities that are
willing to exchange something.
3.This saves time as exchanges can be done without any outside interference. It
saves money as it reduces overhead and cost of intermediaries.
4. It reduces risk of tampering, fraud and cyber crime due to its immutable nature.
5. There is no need to trust a third party now as the records are stored in distributed
ledgers.

Types of Blockchain
There are different types of blockchains possible in the ecosystem.
1. Public –
A public blockchain is also known as permission-less blockchain. Here,
everyone can be a part of this blockchain and can participate by running as a
 node, by mining a block or by making transactions in the blockchain. Bitcoin
and Litecoin are examples of public blockchains.
2. Private –
A private blockchain is also known as permissioned blockchain. Here, there
are restrictions on the participation as only selected individuals or member of
an organisation can be a part of the blockchain. Multichain and Hyperledger
projects (Fabric, Sawtooth) are examples of private blockchain.
3. Consortium (an association)–
A consortium blockchain are said to be partially-decentralised or semi-
decentralised. It is controlled by a group of organisations unlike one
organisation as in private blockchain. The member organisations has the
authority to participate by running as a full node, by mining etc. R3 and EWF
(Energy Web Foundation) are examples of consortium blockchain.

Blockchain architecture:
Mostly people think that Blockchain is Bitcoin and vice-versa. But it’s not the
case. In fact, Bitcoin is a digital currency or cryptocurrency that works
on Blockchain Technology.
As the name suggests, blockchain is a chain of blocks that contains information.
Each block consists of a number of transactions and each transaction is recorded in
the form of Hash. Hash is a unique address assigned to each block during its
creation and any further modification in the block will lead to a change in its hash.

A block has mainly 3 parts:

1. Data/Information part- contain the information of the transaction incurred

2. Hash- Unique ID of block
3. Previous Hash- Hash of previous block
 Figure – Blockchain architecture

Blockchain vs Bitcoin
Bitcoin is a crypto-currency (a kind of digital currency), mainly created to simplify
a transaction without having third-party intermediaries. It all started when this
mysterious man under the name of Satoshi Nakamoto (whose actual identity is
still unknown) published a white-paper named Bitcoin: A Peer-to-Peer
Electronic Cash System in 2009. A Satoshi is the smallest unit of Bitcoin. A
unit of Satoshi is equal to 0.00000001 bitcoin.
The most interesting part here is that these Bitcoins are not issued by any
centralised banks or authorities. They are ‘mined’ by a group of people called
as ‘miners’. They solve complex mathematical problems/puzzles and are issued a
certain number of Bitcoins in exchange.

Blockchain
Blockchain is a data structure or ledger that stores information about any
transactions that occurs(not just bitcoin). Anything that is stored once can’t be
changed or modified. This feature of Blockchain makes it the most secure. It
is decentralized and establishes a peer to peer network thus eliminating any
middle-men.
Blockchain is made up of blocks that are stored in a chronological order. Each
block has a capacity of around 500 transactions on an average. Thanks to the
cryptography involved, these blocks are extremely secure. Each block will a
unique ‘hash’ value attached to it which is calculated based on the data stored in
the block. Every-time a new block is added to the chain, the new block contains the
hash of the previous block as well. So modifying the contents of any previous
block is practically impossible(and would destroy the whole chain). This makes
Block-chain immutable.

Blockchain Hash Function

Blockchain is a constantly growing ledger that keeps a permanent record of all the
transactions that have taken place, in a secure, chronological and immutable way.
To make the data secure blockchain uses hash function.
Hashing:
In simple terms, hashing means taking an input string of any length and giving out
an output of a fixed length. The fixed-length output is called an equivalent hash or
simply hash.

Types of cryptographic hash functions:

• Secure Hashing Algorithm (SHA-2 and SHA-3)
 • RACE Integrity Primitives Evaluation Message Digest (RIPEMD)
• Message Digest Algorithm 5 (MD5)
• BLAKE2
SHA-256:
SHA-256 is the most famous of all cryptographic hash functions because it’s used
extensively in blockchain technology. SHA-256 Hashing algorithm was developed
by the National Security Agency (NSA) in 2001.
SHA-256 (Secure Hash Algorithm 256-bit)
• Used in Bitcoin and many other blockchains.
• It converts input data of any size into a fixed 256-bit (32-byte) hash.
• It is a one-way function, meaning the original data cannot be derived from
the hash.
• Even a small change in input results in a completely different hash
(avalanche effect).
• SHA-256 helps in:
o Generating unique transaction identifiers.
o Mining through Proof-of-Work (PoW) consensus (solving complex
puzzles).
o Linking blocks securely by hashing the previous block’s hash.

Hashing process:
For this hash function we can use Anders Brownworth Hash Program, a program
developed by Anders Brownworth.
If we type any character in the data section, we will observe its corresponding
cryptographic hash in the hash section.
Small Changes In The Input Changes the Hash:
If we make a small change in the input, the equivalent hash produced will be
entirely different.

Changing the capital “T” to small “t” completely changed the equivalent hash.

It is very difficult to determine the original string from the equivalent hash but its
not impossible. The only method to determine the original string from its hash is
by using “brute-force”. Brute-force basically means that we have to take random
inputs, hash them and compare them with the target hash.

There can be basically three scenarios:

1. Best case scenario:
We get our answer on the first try. The odds of this happening are
astronomical.
 2. Average case scenario:
In case of SHA-256 we get our answer after 2^256/2 = 2^255 times. In other
words, its a huge number.
3. Worst case scenario:
We get our answer at the end of data.
Attention reader! Don’t stop learning now. Get hold of all the important DSA
concepts with the DSA Self Paced Course at a student-friendly price and become
industry ready.
Blockchain technology relies on multiple cryptographic algorithms to ensure
security, integrity, and authenticity. The most commonly used cryptographic
algorithms in blockchain include:

Features of Hashing
1. Fixed-Length Output
o No matter the size of the input, the output hash is always of a fixed
length.
o Example: SHA-256 always produces a 256-bit hash.
2. Deterministic
o The same input always produces the same hash.
3. Fast Computation
o Hash functions are optimized to generate hash values quickly.
4. Irreversibility (One-Way Function)
o It is computationally infeasible to reverse-engineer the original input
from the hash.
5. Avalanche Effect
o A small change in input results in a completely different hash.
o Example:
vbnet
CopyEdit
Input: "Hello"
Hash:
185f8db32271fe25f561a6fc938b2e264306ec304eda518007d1764826381969

Input: "hello" (small change)

Hash: 2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b9824
6. Collision Resistance
o No two different inputs should produce the same hash value.
7. Pre-Image Resistance
o It should be infeasible to derive the original input from the hash.
8. Second Pre-Image Resistance
o Given one input and its hash, it should be difficult to find another
input with the same hash.
9. Security and Integrity
o Hashing ensures data integrity by allowing verification of unchanged
data.
10.Used in Proof-of-Work (PoW)
• In blockchain, hashing is used in PoW mining to solve complex
mathematical puzzles.

Cryptography
Cryptography is the practice of securing information by converting it into an
unreadable format to prevent unauthorized access. It ensures confidentiality,
integrity, authentication, and non-repudiation of data. Cryptography is widely
used in blockchain, secure communications, digital signatures, and online
transactions.
Types of Cryptography
1. Symmetric-Key Cryptography (Secret Key Cryptography)
o Uses a single key for both encryption and decryption.
o Fast but less secure if the key is compromised.
o Example: AES (Advanced Encryption Standard), DES (Data
Encryption Standard).
2. Asymmetric-key cryptography (Public Key Cryptography)
o Uses a pair of keys: Public Key (for encryption) and Private Key
(for decryption).
o More secure but computationally slower.
o Example: RSA, Elliptic Curve Cryptography (ECC), ECDSA.
3. Hashing (One-Way Cryptography)
o Converts data into a fixed-length hash value.
o Used for data integrity and authentication.
o Example: SHA-256, Keccak-256 (SHA-3), MD5.
4. Quantum Cryptography (Emerging Technology)
o Uses quantum mechanics for ultra-secure encryption.
o Example: Quantum Key Distribution (QKD).

Distributed ledger
A distributed ledger (also called a shared ledger or distributed ledger
technology or DLT) is a consensus of replicated, shared, and synchronized digital
data geographically spread across multiple sites, countries, or institutions. Unlike
with a distributed database, there is no central administrator.

A peer-to-peer network is required as well as consensus algorithms to ensure

replication across nodes is undertaken. One form of distributed ledger design is
the blockchain system, which can be either public or private.
Digital Money to Distributed Ledgers
Underlying distributed ledgers is the same technology that is used by blockchain,
which bitcoin uses as its distributed ledger. A distributed ledger can be
described as a ledger of any transactions or contracts maintained in decentralized
form across different locations and people.

Is distributed ledger technology the same as Blockchain?

The most important difference to remember is that blockchain is just one type
of distributed ledger. Although blockchain is a sequence of blocks, distributed
ledgers do not require such a chain. Furthermore, distributed ledgers do not need
proof of work and offer – theoretically – better scaling options.

Protocols used in blockchain

Enterprise blockchain protocol or blockchain protocols are designed to maintain
different aspects of blockchain. This means that there are blockchain security
protocols, network protocols, and blockchain consensus protocols. All these
protocols, when combined, mainly combine into becoming a blockchain
framework.

What is distributed ledger technology and how does it work?

Distributed ledger technology (DLT) is a digital system for recording the
transaction of assets in which the transactions and their details are recorded in
multiple places at the same time. Unlike traditional databases, distributed ledgers
have no central data store or administration functionality.

What are Blockchain protocols?

A blockchain protocol is a common term for consensus methods. These methods
are different systems that are implemented to reach consensus and validate
 transactions within a blockchain network. Some of them require investors to
purchase physical mining.
How many Blockchain protocols are there?
The world got introduced to the blockchain with the Bitcoin network. Following
different objectives and use cases that were envisioned, different protocols were
designed. We will look at the key features of three major blockchain protocols
How do you create a Blockchain protocol?
Step-by-step Guide
1. Find Your Niche. ...
2. Design a Workflow for Blockchain Integration. ...
3. Choose Between New and Existing Blockchain. ...
4. Choose Between Private and Public Blockchain.
5. Choose a Relevant Consensus Mechanism.
6. Choose a Relevant Platform. ...
7. Decide Whether You Need Smart Contracts. ...
8. Making a Final Decision.

Consensus in blockchain

What Is a Consensus Mechanism? A consensus mechanism is a fault-tolerant

mechanism that is used in computer and blockchain systems to achieve the
necessary agreement on a single data value or a single state of the network among
distributed processes or multi-agent systems, such as with cryptocurrencies.

All the decisions are taken by the leader or a board of decision makers. This isn’t
possible in a blockchain because a blockchain has no “leader”. For the blockchain
to make decisions, they need to come to a consensus using “consensus
mechanisms”.
So, how do these consensus mechanisms work and why did we need them? What
are some of the consensus mechanisms used in cryptocurrencies?

What are consensus mechanisms?

“Consensus decision-making is a group decision-making process in which group
members develop, and agree to support a decision in the best interest of the whole.
Consensus may be defined professionally as an acceptable resolution, one that can
be supported, even if not the “favorite” of each individual. Consensus is defined by
Merriam-Webster as, first, general agreement, and second, group solidarity of
belief or sentiment.”

In simpler terms, consensus is a dynamic way of reaching agreement in a group.

While voting just settles for a majority rule without any thought for the feelings
and well-being of the minority, a consensus on the other hand makes sure that an
agreement is reached which could benefit the entire group as a whole.

From a more idealistic point-of-view, Consensus can be used by a group of people

scattered around the world to create a more equal and fair society.

A method by which consensus decision-making is achieved is called “consensus

mechanism”.

So now what we have defined what a consensus is, let’s look at what the objectives
of a consensus mechanism are

• Agreement Seeking: A consensus mechanism should bring about as much

agreement from the group as possible.

• Collaborative: All the participants should aim to work together to achieve a

result that puts the best interest of the group first.

• Cooperative: All the participants shouldn’t put their own interests first and
work as a team more than individuals.
• Egalitarian: A group trying to achieve consensus should be as egalitarian as
possible. What this basically means that each and every vote has equal
weightage. One person’s vote can’t be more important than another’s.

• Inclusive: As many people as possible should be involved in the consensus

process. It shouldn’t be like normal voting where people don’t really feel like
voting because they believe that their vote won’t have any weightage in the long
run.

• Participatory: The consensus mechanism should be such that everyone should

actively participate in the the overall process.

Which consensus mechanisms should be used for an entity like blockchain.

Before bitcoin, there were loads of iterations of peer-to-peer decentralized currency

systems which failed because they were unable to answer the biggest problem
when it came to reaching a consensus. This problem is called “Byzantine Generals
Problem”.

Permission in Blockchain
A blockchain can be built and accessed in multiple ways. There are certain
other blockchains that need special permissions to read, access, and write
information on them. ... It may also include maintaining the identity of
each blockchain participant on the network. Such blockchains are called
permissioned blockchains.

Is ethereum permission Blockchain?

With respect to permissioning, Ethereum is a public, permissionless blockchain.
Some groups, mostly industry consortia, have adapted Ethereum's open-source
protocol to run their own permissioned, private instance of Ethereum. .
 Permissioned and Permissionless Blockchains:
The basic distinction of these is clear from the terms itself. A permissioned
blockchain needs prior approval before using whereas a permissionless blockchain
lets anyone participate in the system. Though the two systems might sound similar,
they cannot be used for the same things. People might not be keen on using a
permissioned cryptocurrency as one of the major drawbacks of crypto is that no
one has control over how it works. For example, a company like Maersk, that
uses blockchain technology to track its shipping logistics, will not want to store
its confidential information onto a permissionless blockchain.
Advantages of Permissioned Blockchains
Some of the notable advantages are:
• These offer more efficient performance when compared to public blockchain
networks.
• These have clearly defined governance structures.
• High customizability.
• Access controls.
• Better Scalability.
Disadvantages of Permissionless Blockchains
Some of the prominent disadvantages are:
• Security is entirely reliant on the integrity of its members.
• These are more prone to censorship and regulation.
• Less Transparent.
• Vulnerable to hacks and manipulation.
• Less anonymous.

Advantages and Disadvantages of Permissionless Blockchains

These are the most reliable in terms of security as the chances for collusion by bad
actors with malicious intentions is minimum. These potential events are softened
by the high number of nodes present in the network. Anyone will be able to access
the ledger and check the correctness of transactions or see if the data entered is
consistent. As these are widely-open, anyone can use it without creating any
additional infrastructure. These are some of the notable advantages of
permissionless blockchains.

The major drawback is that they are quite slow. They can validate only a limited
number of transactions per second. These entail a high amount of energy
consumption. One of the biggest threats of these blockchains is the 51% attack
risk. A small number of nodes have the ability to make the network more
vulnerable to hacking risks and collusions.

Conclusion
Both permissioned and permissionless blockchains are branches of the same
technology that have been developed for different needs. Both have their own
advantages and can help benefit different technologies depending on the use cases.
Privacy in Blockchain

A key aspect of privacy in blockchains is the use of private and public

keys. Blockchain systems use asymmetric cryptography to secure transactions
between users. In these systems, each user has a public and private key. ... Public
keys can be shared with other users in the network because they give away no
personal data.

Can Blockchain be private?

A private blockchain is an invitation-only network governed by a single entity.
Entrants to the network require permission to read, write or audit the blockchain.
There can be different levels of access and information can be encrypted to protect
commercial confidentiality.
What is the point of a private Blockchain?
In a blockchain that is private, each user does not have equal rights within it.
Users are granted permissions to access certain types of data and complete specific
functions. Everything else remains closed. The mechanism of access depends on
the rules set forth by the network creator.
Blockchain architecture and design

We will describe the blockchain structure, its components, and their interaction, namely:

▪ Nodes within P2P network

▪ Properties of block & genesis block

▪ Transactions within the ledger

▪ The validation process - mining

▪ The “consensus” within a blockchain architecture

▪ Proof-of-work

The term blockchain was first described back in 1991. A group of researchers wanted to
create a tool to timestamp digital documents so that they could not be backdated or
changed. Further, the technique was adapted and reinvented by Satoshi Nakamoto. In
2008, Nakamoto created the first cryptocurrency, the blockchain-based project called
Bitcoin.

In general, blockchain technology has the core characteristics of decentralization,

accountability, and security. This technique can improve operational efficiency and save
costs significantly. The demand and usage of applications built on blockchain
architecture will only evolve. Thus, it makes now the right time to get educated on this
topic.