Blockchain(BBFT642)

Dr. SAURABH ANAND

Technical Trainer and Instructional Designer
Securiskill
Unit I: Introduction
Data and
Information
Background
Spreadsheets

Databases

Are you familiar with these words?

Are they similar to Blockchain?
Contd…

“But the key difference

A blockchain is somewhat
between a traditional
similar because it is a
database or spreadsheet
database where
and a blockchain is how the
information is entered and
data is structured and
stored.
accessed.”
Blockchain
Architecture
vs Database
 Blockchain is a shared, immutable ledger that
facilitates the process of recording transactions and
tracking assets in a business network.

An asset can be tangible (a house, car, cash, land) or

intangible (intellectual property, patents, copyrights,

Blockchain branding).

Virtually anything of value can be tracked and

traded on a blockchain network, reducing risk and
cutting costs for all involved.
Why blockchain is
important
Business runs on information. The faster it’s received and the more accurate
it is, the better.
Blockchain is ideal for delivering that information because it provides:
• immediate,
• shared and
• completely transparent information stored on an immutable ledger that can
be accessed only by permissioned network members.
Contd…
A blockchain network can track
• orders,
• payments,
• accounts,
• production
• and much more
And because members share a single view of the truth, you can see all details of a transaction end to
end, giving you greater confidence, as well as new efficiencies and opportunities.
 A brief history of blockchain:
1991
A cryptographically secured chain of blocks is described for the first time by Stuart Haber and W
Scott Stornetta
1998
Computer scientist Nick Szabo works on ‘bit gold’, a decentralised digital currency
2000
Stefan Konst publishes his theory of cryptographic secured chains, plus ideas for implementation
2008

History of
Developer(s) working under the pseudonym Satoshi Nakamoto release a white paper establishing
the model for a
blockchain

Blockchain
2009
Nakamoto implements the first blockchain as the public ledger for transactions made using
bitcoin
2014
Blockchain technology is separated from the currency and its potential for other financial, inter-
organisational
transactions is explored. Blockchain 2.0 is born, referring to applications beyond currency
The Ethereum blockchain system introduces computer programs into the blocks, representing
financial instruments
such as bonds. These become known as smart contracts.
 Blockchain is a technology where
multiple parties involved in
communication can perform
different transactions without third-
Blockchain party intervention.
Architecture
Verification and validation of these
transactions are carried out by
special kinds of nodes.
Contd..
Components
1. Header: It is used to identify the particular block in the entire
blockchain. It handles all blocks in the blockchain. A block header
is hashed periodically by miners by changing the nonce value as
part of normal mining activity, also Three sets of block metadata

of Block are contained in the block header.

2. Previous Block Address/ Hash: It is used to connect the

i+1th block to the ith block using the hash. In short, it is a reference
to the hash of the previous (parent) block in the chain.

3. Timestamp: It is a system verify the data into the block and

assigns a time or date of creation for digital documents. The
timestamp is a string of characters that uniquely identifies the
document or event and indicates when it was created.
4. Nonce: A nonce number which uses only once. It is a central part of the proof of work in the block. It is
compared to the live target if it is smaller or equal to the current target. People who mine, test, and
eliminate many Nonce per second until they find that Valuable Nonce is valid.

5. Merkel Root: It is a type of data structure frame of different blocks of data. A Merkle Tree stores all
the transactions in a block by producing a digital fingerprint of the entire transaction. It allows the users to
verify whether a transaction can be included in a block or not.
 Decentralization: In centralized transaction
systems, each transaction needs to be validated in
the central trusted agency (e.g., the central bank),
naturally resulting in cost and the performance
jam at the central servers.
Key
Characteristics Persistency: Transactions can be validated
quickly and invalid transactions would not be
of Blockchain admitted by persons or miners who mining the
crypto. It is not possible to delete or roll back
Architecture transactions once they are included in the
blockchain network. Invalid transactions do not
carry forward further.

Anonymity: Each user can interact with the

blockchain with a generated address, which does
not disclose the real identity of the miner.
Auditability: Blockchain stores data of users based on the Unspent Transaction Output (UTXO) model. Every transaction
has to refer to some previous unspent transactions. Once the current transaction is recorded into the blockchain, the position
of those referred unspent transactions switches from unspent to spent. Due to this process, the transactions can be easily
tracked and not harmed between transactions.

Transparency: The transparency of blockchain is like cryptocurrency, in bitcoin for tracking every transaction is done by
the address. And for security, it hides the person’s identity between and after the transaction. All the transactions are made by
the owner of the block associated with the address, this process is transparent and there is no loss for anyone who is involved
in this transaction.

Cryptography: The blockchain concept is fully based on security and for that, all the blocks on the blockchain network
want to be secure. And for security, it implements cryptography and secures the data using the cipher text and ciphers.
Types of Blockchain Networks

Broadly, there are two kinds of blockchain network—public and

private.

Along with being public or private, a blockchain can be

both permissionless (such as Bitcoin or Ethereum)
and permissioned (such as the Hyperledger blockchain framework).
Permissionless Blockchain

A permissionless Permissionless P2P Parties communicate on a

blockchain is also known systems do not require a permissionless blockchain
as a public blockchain set amount of peers to be without verifying the
because anyone can join online and are generally transacting parties'
the network. slower. identities.

Anyone can join a

As the actors are not
permissionless blockchain
known, there are chances
such as Ethereum and can
of malicious actors being
perform read and write
in a network.
transactions.
Permissioned Blockchain

Permissioned networks are the Pre-verification of the participating

By virtue of the limited nodes, they
blockchain networks where only parties is mandatory for a
are faster and inexpensive, can
pre-authorized users or permissioned blockchain and,
comply with regulations, and can
organizations can perform write hence, transacting parties are
easily be maintained.
transactions. made.

Permissioned blockchains such as

Hyperledger Fabric ensure that
Permissioned P2P networks have to Hence, capabilities such as data
only transacting parties are part of
guarantee uptime and require a privacy, immutability, and security
the transaction and that records of
high level of quality of service on are the primary capabilities that
the transaction are displayed to
communication links. Hyperledger offers to enterprises.
only those participants and not to
the whole network.
Although there are two kinds of blockchain network—public and private – on
permissions, they can be classified as PUBLIC AND PERMISSIONLESS, PUBLIC
AND PERMISSIONED, PRIVATE AND PERMISSIONLESS, and PRIVATE AND
PERMISSIONED
Public and Public and Private and Private and
Permissionless Permissioned Permissionless Permissioned

Restricted yet read Restricted (hybrid

Open and transparent. Open and restricted.
transparent. approach).

Write restricted and read

Write all and read all. Write all and read restricted. Write restricted and read all.
restricted.

Everyone can join and

Everyone can join, nobody
Everyone can join, transact, transact, but only Nobody can join, transact,
can transact, and everyone
read, and audit. permissioned users can read read, and audit.
can read and audit.
and audit.

Anyone who meets the

Anyone in the network can
Anyone can download the predefined criteria can Only consortium members
participate and validate
protocol and participate with download the protocol and can validate the
transactions. However, this
validate transactions. participate with validate transaction.
is only within the enterprise.
transactions.
Public and Permissionless Public and Permissioned Private and Permissionless Private and Permissioned

Transactions are anonymous Transactions are anonymous Transactions are not anonymous Transactions are not anonymous
and transparent. and not read transparent. and are read transparent. and not transparent.

Write transactions can be A write transaction is performed

authored or initiated by anyone; by few and it can be read by A write transaction can be
Write transactions can be
for example, I'm casting my anyone. For example, an authored or initiated by
authored or initiated by anyone;
vote. However, whom I have authorized party writes about authorized users; for example,
for example, I'm sending 10
cast my vote for can be counted the source of the inventory, and I'm sending 10 USD to Bill.
Bitcoin to Bill. Everyone will
by the authorized institution subsequent writes are performed Authorized institutions will
know that 10 bitcoins were
only. Another example is that a by a few other intermediary know that 10 USD was
transacted.
write can be performed by few parties or devices; however, it transacted.
and it can be read by all. can be read by anyone.

Everyone will participate in

Nobody can participate in Nobody can participate in Nobody can participate in
transaction validation, and the
transaction validation, and the transaction validation, and the transaction validation, and the
validators are not the chosen
validators are the chosen ones. validators are the chosen ones. validators are the chosen ones.
ones.

Truly democratic: full equity. Full write equity. Full read equity. Restricted.

Transaction approval is long. It Transaction approval is long. It

Transaction approval is short. Transaction approval is short.
usually takes minutes. usually takes minutes.
Public and Permissionless Public and Permissioned Private and Permissionless Private and Permissioned

Open and decentralized. Open and controlled. Restricted. Closed and restricted.

Only individual or selected

Not just anyone can run a full
members can run a full node to Only members of the
node to transact, validate, and
Anyone can run a full node to transact, validate, and read consortium can run a full node
read transactions. Everyone can
transact, validate, and read transactions. A few can execute to transact, validate, and read
execute write transactions,
transactions. write transactions and validate transactions. In addition, only
while few can validate and read
transactions, while everyone can permissioned users can read.
transactions.
read.

For example, Bitcoin, For example, Hyperledger For example, Hyperledger

For example, Ethereum.
Ethereum, and Litecoin. Fabric. Fabric, R3, and Corda.

Use case—supply chain

Use case—cryptocurrency, Use case—tax returns,
Use case—voting, poll records. provenance, government record
video games. consortium, federations.
keeping, and assessor records.
 Tiers of
Blockchain
 BlockChain Version 1.0 was introduced in 2005 by Hall Finley, who
implements DLT (Distributed Ledger Technology) represents its first
application based on Crypto currency.

This allows Financial Transaction based on BlockChain technology or

DTL which is executed with the help of BitCoin.

This type of Version is permissionless as any participant will perform

BlockChain 1.0 valid transaction of Bitcoin. This type is mainly used in Currency and
Payments.

(Cryptocurrency)
Blockchain 1.0 or Blockchain Version 1.0 aimed to introduce a
– transparent, publicly accessible, completely decentralised, immutable
ledger and distributed system of transactions in the global financial
market.

Blockchain 1.0 is developed over the idea and structure of Bitcoin. It

primarily focused on the development and creation of new
cryptocurrencies.

Blockchain 1.0 is often termed a digital, decentralised, distributed ledger

that records transactions in a database shared by all nodes, updated by
blockchain miners and maintained and monitored by everyone with no
individual ownership.
 The new Version of BlockChain come because there is a problem in
version 1.0 which was Mining of BitCoin was Wasteful and there
was also lack of Scalability of Network in it.

So problem is improved in Version 2.0. In this version, the

BlockChain
BlockChain is not just limited to Cryptocurrencies but it will extend
up to Smart Contracts.

2.0 ( Smart Thus, Small Contracts are small Computer’s which live in the Chains
of Blocks. These small Computer’s are free computer programs that
executed automatically, and check the condition defined earlier like

Contracts) – facilitation, verification or enforcement and reduce transactions cost

efficiency.

In BlockChain 2.0, BitCoin is replaced with Ethereum. Thus,

BlockChain 2.0 was successfully processing high number of
Transactions on Public network rapidly.
 After Version 2.0, new version was introduced which
includes DApps which is known as Decentralized Apps.

A DApp is like a conventional app, it can have frontend

written in any language that makes calls to its backend,
and its backend code is running on decentralized Peer-To-
Peer Network.

BlockChain It makes use of decentralized storage and communication

3.0 which can be Ethereum Swarm etc.

(DApps) – DApps is decentralised, i.e. no single owner/authority that

ensures transparency, improved security, data accessible to
all, no censorship and flexible development.

DApps brings many benefits such as zero downtime,

ensuring privacy, data integrity and trustless yet secure
communication (business, transaction, etc.).
There are many decentralized Applications like
BitMessage, BitTorrent, Tor, Popcorn, etc.
CAP Theorem
CAP Theorem stands for

 Consistency,
 Availability and
 Partition Tolerance

According to the theory, a distributed system cannot

always ensure consistency, availability, and partition
tolerance.

When things go wrong, we must prioritize at most two

distributed system features and trade-offs between
them.
 Contd…

With blockchain technology, immediate consistency is frequently

sacrificed for availability and partition tolerance. By requiring a
specific amount of “confirmations,” blockchain consensus
techniques are simply simplified to eventual consistency.

Consistency is sacrificed in Blockchain due to the priority given

to Availability and Partition Tolerance. In this case, Partition
tolerance (P), Availability (A), and Consistency (C) on the
blockchain are not attained simultaneously; instead, they are
acquired over time.
Partition Tolerance

A communication breakdown—a momentary delay or lost

connection between nodes—is referred to as a partition in a
distributed system. Partition tolerance describes the ability of a
cluster to function even in the face of numerous
communication failures between system nodes.
The different database of CAP Theorem fits in
different software:

• AP: Dynamo, Cassandra, Elastic Search, CouchDB, Riak, MongoDB.

• CP: HBase, MongoDB, Redis, Memcached.

• CA: Postgres, MySQL.

 Decentralization is the distribution of functions,
control and information instead of centralizing them in
a single entity.

 Centralized and decentralized structures are polar

opposites.

Decentralization
 A centralized structure implies control of the
central entity by people who have the power to
manage, control and oversee it.

 Decentralization is the opposite of that, where no

one person or entity owns, manages or controls the
network or structure.
 A blockchain usually exhibits one of the
following levels of decentralization:

Fully centralized. Entirely controlled and

managed by a single, central authority.
Types of
decentralization Semi-decentralized. Controlled and managed
in blockchain by multiple authorities.

Fully decentralized. No middlemen or central

authorities to manage or administer the
network.
Decentralization SubCategories

Physical Transactional Political

Decentralization Decentralization Decentralization
Physical
Decentralization
It involves the geographical
dispersion of blockchain servers
across the globe as much as
possible, so no single party will
own the network, and the loss of
physical servers -- for whatever
reason -- won't impact the
network.
Transactional
Decentralization
is specifically to improve the
efficiency and transparency of
B2B networks. Through the use
of unalterable ledgers and
smart contracts, a decentralized
transactional system can provide
a more secure, consensus-based
environment for executing,
verifying and recording
transactions.
Political
Decentralization
Political decentralization is
more concerned with how many
people or organizations control
the system rather than the
number of servers. The fewer
people or organizations
controlling the network, the less
decentralized it is.
Blockchain Platforms

IBM Hyperledger
Ethereum R3 Corda
Blockchain Fabric

ConsenSys
Tezos EOSIO Stellar
Quorum
Consensus Algorithm in
Blockchain
 In blockchain, where recorded data
is stored, managed and distributed
across several computers in a peer-
to-peer network scattered across the
Why is it globe, there needs to be a way to
required? resolve disputes when participants in
the network disagree.
 A consensus mechanism is a protocol that
brings all nodes of a distributed blockchain
network into agreement on a single data set.

WHAT IS A They act as the verification standards through

CONSENSUS which each blockchain transaction gets
approved.
MECHANISM?
A consensus mechanism is a self-regulatory
stack of software protocols written into a
blockchain’s code that synchronizes a network
into agreement about the state of a digital
ledger.
How Does a Consensus Mechanism Work? - UseCase
Nodes input data from a pending transaction, then report back with an approval or
disapproval status once the request is cross-checked with its records.

For example, if a user is trying to process a transaction using previously spent

coins that have already been accounted for, this request would easily be denied
against an immutable ledger, confirmed by majority disapproval.

Users that fail to adhere to consensus are often banned from a network.

In the event a node wanted to challenge the record, they would have to request a
network-wide recall.

If more than two thirds of their peer nodes approve, then the transaction is
confirmed, distributed and permanently written into the blockchain.
“Without consensus, I
could spend money in one
place and then spend that
same money again before
the first transaction
settles.”
Types of Blockchain platforms have written
Consensus and rewritten the rules of consensus
Mechanisms in their search for the holy grail — a
perfect equilibrium of
decentralization, scalability and
security.
 PROOF OF WORK
PROOF OF STAKE
DELEGATED PROOF OF
STAKE
PROOF OF AUTHORITY
Contd… PROOF OF HISTORY
 Proof of work depends on an army of miners, or
validators, to verify transactions through solving
arbitrary mathematical problems in the race for a
block prize.
PROOF OF Essentially, the energy-intensive process hires a
network of specialized computers to solve for x,
WORK with x being a 64-digit hexadecimal number, known
as a hash, which is encoded by cryptography.
Crypto mining, the block generative process
described above that can reap thousands in rewards
in the form of new crypto tokens, is a popular use
case for proof-of-work systems.

Examples: Bitcoin, Dogecoin, Litecoin

PROOF OF STAKE
In a proof-of-stake model, users pledge a designated number of tokens in a process known as staking to receive
validator privileges.
When a user’s coins are staked, this means that they are locked away for the time being.
Staked coins passively earn rewards and contribute to the network until the user unfreezes them, most often for
the purpose of trade.
Validating opportunities are rewarded at random, in a sort of lottery pool, to eligible validators.
The more tokens staked, the likelier a users’ chances are to win the raffle.
In addition to processing trades and adding blocks to the blockchain, validators stand in as active community
members responsible for storing data.
If any user breaks consensus, their stake is forfeited.

Examples: Ethereum, Cardano, Tezos, Algorand

DELEGATED PROOF OF STAKE
Imagine proof of stake, but with an electoral process.

In this approach to determining consensus, network participants cast votes via staking
pools for their favored delegate, those who are presumed to be best equipped to protect the
network, based on reputation.

As a result, validating privileges are reserved and awarded at random only to a team of top
tier candidates.

At any point in time, a validator can be surpassed by someone deemed more trustworthy.

Examples: EOS, Lisk, Ark, Tron, BitShares, Steem

PROOF OF AUTHORITY

Favored by private or permissioned blockchains, a proof-of-authority

consensus mechanism selects validators based on reputation rather than
a user’s digital assets.

In this system, a group of validators are pre-approved in a vetting

process that often includes a background check.

Examples: Xodex, JP Morgan (JPMCoin), VeChain (VET) and Ethereum Kovan testnet
 During the verification process, timestamps are
embedded into the hash of each generated block,
chronicling a network’s transaction history in a
PROOF OF singular, unbroken chain.

HISTORY It’s important to note that this verification method

is only viable as a supplement to another protocol.

The hybrid consensus algorithm is most often seen

working in tandem with a proof-of-work or proof-
of-stake system.
 • Decentralized structure
• Improved security and privacy
Benefits of
Blockchain • Immutability
• Visibility and traceability
 • Scaling Up: A Daunting Challenge
• Energy Consumption: The Environmental
Dilemma
Challenges • Interoperability: The Missing Link
and • Regulatory Landscape: Navigating Uncertainty
Limitations
of
Blockchain https://www.linkedin.com/pulse/decoding-paradox-
challenges-limitations-blockchain-technology/
How Blockchain Works?
Hash
Function in a
blockchain Cryptographic hash functions
generate a fixed-length character
transaction? string from data records of any
length. A data record can be a word,
a sentence, a longer text or an entire
file.
Example
A mathematical function is used to illustrate an expression or a relationship involving one or more
variables or sets. Consequently, a function relates an input to an output.
• An example of this would be the size and price of burgers at a restaurant.
• The cost of a burger is determined by its size.
• Therefore, in this case, the cost is a function of the size.
• Let’s say you can buy small, medium and large burgers and their respective costs are $1.50, $2.50
and $3.50.
• The input is the size of the burger.
• The output is the cost of the burger.

A hash function turns an input (for example text) into a string of bytes with a fixed length and structure. The
output or value created is called a ‘hash value’ or ‘checksum.’ Any hash value created from data using a specific
hashing algorithm is always the same length and one-way - it cannot be reversed.
Purpose of Hash Functions originated from the
Hash need to make content uniform in
Functions length on one hand, and for usage as
singularly unique identifiers on the
other.
 Properties of Hash Functions

A cryptographic hash function should be computationally efficient,

meaning that it must be quick in performance to create the hash value.

It has to be deterministic - every time you put in a certain input, it has to

produce the same output and to be pre-image resistant which means it
cannot reveal any information about the input in the output.

Finally, a hash function has to be collision-resistant which ensures that it

has to be impossible for two different inputs to produce the same output.
 In cryptography, puzzle friendliness is a property
of cryptographic hash functions.

Not all cryptographic hash functions have this property.

Puzzle SHA-256 is a cryptographic hash function that has this

property.
Friendliness
Informally, a hash function is puzzle friendly if no
solution exists, which is better than just making random
guesses and the only way to find a solution is the brute
force method.

Although the property is very general, it is really important only in Bitcoin mining.
 Here is the formal technical definition of the puzzle friendliness property.

A hash function H is said to be puzzle friendly if for every

possible n-bit output value y, if k is chosen with a
distribution with high min-entropy, then it is infeasible to
Definition find x such that H( k || x ) = y (where the symbol "||"
denotes concatenation) in time significantly less than 2n.

In the above definition, the distribution has high min-entropy means that the
distribution from which k is chosen is hugely distributed so that choosing some
particular random value from the distribution has only a negligible probability.
 Cryptography is the process of hiding or
coding information so that only the
Cryptography person a message was intended for can
read it.
 Encryption is a way of scrambling data so that
only authorized parties can understand the
Encryption information. In technical terms, it is the
process of converting human-readable
plaintext to incomprehensible text, also known
as ciphertext.
 The conversion of encrypted data into its
original form is called Decryption. It is
generally a reverse process of encryption. It
Decryption decodes the encrypted information so that an
authorized user can only decrypt the data
because decryption requires a secret key or
password.
Types of Cryptographic Algorithms

SECRET KEY PUBLIC KEY

CRYPTOGRAPHY CRYPTOGRAPHY
Secret Key Cryptography

Secret key cryptography/Private key

cryptography, also known as
symmetric encryption, uses a single
key to encrypt and decrypt a
message. The sender encrypts the
plaintext message using the key and
sends it to the recipient who then
uses the same key to decrypt it and
unlock the original plaintext
message.
Public-key cryptography

Public-key cryptography, or asymmetric cryptography, is the field of

cryptographic systems that use pairs of related keys. Each key pair consists
of a public key and a corresponding private key. Key pairs are generated
with cryptographic algorithms based on mathematical problems. Security
of public-key cryptography depends on keeping the private key secret; the
public key can be openly distributed without compromising security.

In a public-key encryption system, anyone with a public key can encrypt a

message, yielding a ciphertext, but only those who know the corresponding
private key can decrypt the ciphertext to obtain the original message.
RSA ALGORITHM
1. Choose two prime number p and q.
2. Compute n = p * q
3. Compute φ(n) = (p-1)*(q-1)
4. Choose e such that 1 < e < φ(n) and e and φ (n) are coprime.
5. Compute a value for d such that (d * e) % φ(n) = 1.
6. Public key is (e, n)
7. Private key is (d, n)
8. A plaintext message m is encrypted using public key <e, n>.
To find ciphertext from the plain text following formula is
used to get ciphertext C.
C = m pow e mod n
9. A ciphertext message c is decrypted using private key <d, n>.
To calculate plain text m from the ciphertext c following
formula is used to get plain text m.
m = C pow d mod n
 Digital Signature
A digital signature is an electronic,
encrypted, stamp of authentication on
digital information such as email messages,
macros, or electronic documents. A
signature confirms that the information
originated from the signer and has not been
altered.
Verifiable
A verifiable random function (VRF) is a
Random cryptographic function that takes a series of
Functions inputs, computes them, and produces a
pseudorandom output and proof of authenticity
that can be verified by anyone.
• Inputs for a VRF typically include a public/private key pair (also known as a
verification key and secret key) and a seed.
• A public/private key pair is created and a seed is selected.
• Those values are passed into the VRF, where the private key and seed are used to
generate a random number.
• The VRF then outputs a random number along with a proof. Critically, the
generation of a proof makes the function verifiable, while keeping the private key
hidden ensures the number is unpredictable.
• Anyone can verify that the random number generated by a VRF is valid.
• All they need to do is inspect the proof and verify the correctness of the hash
output.
• While only the holder of the VRF secret key can compute the hash, anyone with
the public key can verify the correctness of the hash.
Zero In cryptography, a zero-knowledge
proof or zero-knowledge protocol is a method
Knowledge by which one party (the prover) can prove to
Proof another party (the verifier) that a given
statement is true, while avoiding conveying to
the verifier any information beyond the mere
fact of the statement's truth.
Zero-knowledge protocols are probabilistic
assessments, which means they don’t prove
something with as much certainty as simply
revealing the entire information would.

They provide unlinkable information that can

together show the validity of the assertion is
probable.
 Case 1: Currently, a website takes the user password
as an input and then compares its hash to the stored
hash.

Case 2: Similarly, a bank requires your credit score to

provide you the loan leaving your privacy and
Use case for information leak risk at the mercy of the host servers.

ZKP If ZKP can be utilized, the client’s password is

unknown the to verifier and the login can still be
authenticated. Before ZKP, we always questioned the
legitimacy of the prover or the soundness of the proof
system, but ZKP questions the morality of the verifier.
What if the verifier tries to leak the information?
BLOCKCHAIN 1.0
Bitcoin
• Bitcoin is a cryptocurrency(virtual currency), or a digital currency that uses rules of
cryptography for regulation and generation of units of currency.

• A Bitcoin fell under the scope of cryptocurrency and became the first and most valuable among
them. It is commonly called decentralized digital currency.

• A bitcoin is a type of digital assets which can be bought, sold, and transfer between the two
parties securely over the internet.

• There are no physical coins for bitcoins or paper bills.

• When you send bitcoin to someone or used bitcoin to buy anything, you don?t need to use a
bank, a credit card, or any other third-party.

• Instead, you can simply send bitcoin directly to another party over the internet with securely
and almost instantly.
How Bitcoin
Works?
DigiCash
Whenever you want to transfer money to
someone over the internet, you need to use a
service of third-party such as banks, a credit card,
a PayPal, or some other type of money transfer
services.

The reason for using third-party is to ensure that

you are transferring that money.

In other words, you need to be able to verify that

both parties have done what they need to do in
real exchange(peer to peer communication).
A Usecase
Suppose you click on a photo that you want to send it to another person, so you can simply
attach that photo to an email, type the receiver email address and send it.
The other person will receive the photo, and you think it would end, but it is not.
Now, we have two copies of photo, one is a simple email, and another is an original file which
is still on my computer.
Here, we send the copy of the file of the photo, not the original file. This issue is commonly
known as the double-spend problem.
The double-spend problem provides a challenge to determine whether a transaction is real or
not.
How you can send a bitcoin to someone over the internet without needing a bank or some
other institution to certify the transfer took place.
The answer arises in a global network of thousands of computers called a Bitcoin Network
and a special type of decentralized laser technology called blockchain.
Basic • Software
Components • Cryptography
of Bitcoin • Hardware
• Miners(Gaming Theory)
Software
Bitcoin is basically a software at the core that defines what a bitcoin is,
as well as how a bitcoin gets transferred.

It identifies what the rules of a valid bitcoin, who can be inside bitcoin,
who cannot be inside bitcoin, what is valid, what is not, etc.

Everything is based on software, which is the bitcoin software.

The bitcoin software is always operated in 24*7.

Cryptography
• The software, at its core, uses cryptography and bitcoin as a cryptocurrency.
Bitcoin uses cryptography to regulate the transfer of bitcoin between parties, as
well as the creation of new units of bitcoin.

• Without cryptography, Bitcoin would simply not be possible. So, we've got that
this software uses cryptography to control the transfer of bitcoin over the internet.

• Cryptography is a mathematical approach which is solvable by computers and not

by humans. So all the stuff that protects your data is served by the cryptography.
Hardware
• To run and solve cryptography, it needs HARDWARE. This hardware
is composed of those thousands of miners around the world running
their computers.
• So there are thousands of computers around the world that are
basically running the Bitcoin software or the Bitcoin client.
• This hardware is specially designed for finding Nonce to validate
block and hash. It requires a lot of CPU power to complete a simple
task on the bitcoin blockchain.
• If you try to mine bitcoin right now with your smartphone or home
computer, then you will End up losing your computer along with a
hefty electric bill.
 • Miners are users who involved in a gaming
theory because bitcoin is truly a game which is
run by these miners around the world.
• In the above, we have seen that the first
component is software for bitcoin that issues a
cryptography challenge in every 10 minutes.
Mining(Gaming
• The cryptography challenge involves in trying to
Theory) find a Nonce which will make the hash for a
specific block valid.
• All the hashes and validations are done by these
miners.
• After successful creation of the block, the new
block is added to the blockchain.
Byzantine Generals Problem in Blockchain
Byzantine Generals Problem is an impossibility result which means that the solution
to this problem has not been found yet as well as helps us to understand the
importance of blockchain. It is basically a game theory problem that provides a
description of the extent to which decentralized parties experience difficulties in
reaching consensus without any trusted central parties.
• The Byzantine army is divided into many battalions in this classic problem called
the Byzantine General’s problem, with each division led by a general.
• The generals connect via messenger in order to agree to a joint plan of action in
which all battalions coordinate and attack from all sides in order to achieve
success.
• It is probable that traitors will try to sabotage their plan by intercepting or
changing the messages.
• As a result, the purpose of this challenge is for all of the faithful commanders to
reach an agreement without the imposters tampering with their plans.
 Money is one such commodity whose value
should be same throughout the society, that is
Money and everyone should agree upon the value of a certain
amount of money, with a central party which
Byzantine would be highly trustable chosen by the people in
the society to establish and maintain the system
General’s of money.

Problem
But with time it was later realized that those
central parties, how much-ever qualified were
still not completely trustworthy as it was so
simple for them to manipulate the data.
Contd..
Centralized systems do not address the Byzantine Generals problem,
which requires that truth be verified in an explicitly transparent way, yet
centralized systems give no transparency, increasing the likelihood of
data corruption.
They forgo transparency in order to attain efficiency easily and prefer to
avoid dealing with the issue entirely.
The fundamental issue of centralized systems, however, is that they are
open to corruption by the central authority, which implies that the data
can be manipulated by anyone who has control of the database itself
because the centralized system concentrates all power on one central
decision maker.
Therefore, Bitcoin was invented to make the system of money decentralized using
blockchain to make money verifiable, counterfeit-resistant, trustless, and separate
from a central agency.
 • In the Byzantine Generals Problem, the untampered agreement that
all the loyal generals need to agree to is the blockchain.
• Blockchain is a public, distributed ledger that contains the records
How Bitcoin of all transactions.
• If all users of the Bitcoin network, known as nodes, could agree on
Solves the which transactions occurred and in what order, they could verify
the ownership and create a functioning, trustless money system
Byzantine without the need for a centralized authority.

General’s
Due to its decentralized nature, blockchain relies heavily on a
Problem? consensus technique to validate transactions. It is a peer-to-peer
network that offers its users transparency as well as trust. Its
distributed ledger is what sets it apart from other systems.
Blockchain technology can be applied to any system that requires
proper verification.
Byzantine Fault Tolerance (BFT)
• The Byzantine Fault Tolerance was developed as inspiration in order
to address the Byzantine General’s Problem. The Byzantine General’s
Problem, a logical thought experiment where multiple generals must
attack a city, is where the idea for BFT originated.
• Byzantine Fault Tolerance is one of the core characteristics of
developing trustworthy blockchain rules or features is tolerance.
• When two-thirds of the network can agree or reach a consensus and
the system still continues to operate properly, it is said to have BFT.
• Blockchain networks’ most popular consensus protocols, such as
proof-of-work, proof-of-stake, and proof-of-authority, all have some
BFT characteristics.
• In order to create a decentralized network, the BFT is essential.
 Cryptocurrencies are digital tokens. They are a
type of digital currency that allows people to
Cryptocurrencies make payments directly to each other through
an online system. Cryptocurrencies have no
legislated or intrinsic value; they are simply
worth what people are willing to pay for them
in the market.
How Does a Cryptocurrency Transaction
Work?

Cryptocurrency transactions occur through electronic messages that are

sent to the entire network with instructions about the transaction. The
instructions include information such as the electronic addresses of the
parties involved, the quantity of currency to be traded, and a time stamp.
 Features of Money: Cryptocurrency versus CBDCs
CHARACTERISTIC CRYPTOCURRENCIES CBDCs

Means of payment Accepted by a small number of retailers Universally accepted, legal tender

Store of value Tend to be volatile, depends on market price Stable, consistent with central bank price stability
mandate

Unit of account Own unit of account Flat Currency (e.g. Indian Rupee)

Governance Typically decentralised, relies on consensus Centralised

between large number of entities.

Transaction verification Typically a large number of competing entities Small number of trusted entities
 • Crypto wallets store your private keys,
allowing you to store your crypto safely
while keeping it accessible. You can send and
receive currencies like Bitcoin, Ethereum,
What is a Doge, etc. Crypto wallets could be in the
form of a Ledger (similar to a USB drive) or
crypto a mobile app.
wallet?
• Unlike normal cash wallets, you don’t
technically store your crypto coins within
your wallet. It is more like a key or code
used to access your crypto holdings on the
blockchain.
 Anonymous crypto wallets allow users to sell
and trade using their wallets without
revealing private information about the users
What is an or transactions made.
anonymous It is also referred to as a dark crypto wallet or
a stealth crypto wallet.
crypto Most users prefer anonymous crypto wallets
wallet? that do not require any private user
information to be added. Some anonymous
crypto wallets offer IP address obfuscation and
VPN masking support.
 Wallets in the Market

Ledger
Zengo Uphold
Nano X

Ledger Prime
Electrum
Nano S XBT
 • Lack of Understanding of What
Cryptocurrency is and How it
Works
• Volatility
Challenges of • Lack of Regulatory Frameworks
Cryptocurrency • Uncertainty Regarding Taxation
• Security Risks
• Scalability Issues
• Lack of Merchant Adoption
• Network Congestion
 What is expected?

FASTER SIMPLIFIED REDUCED RISK SINGLE-SOURCE

DELIVERY OF CROSS BORDER BY AVOIDING INTEGRATION
FUNDS TRANSFERS CRYPTOCURREN FOR
CY VOLATILITY SETTLEMENT
AND REPORTING
Statistics….
 Fiserv has the experience and knowledge to be your trusted
partner
Fiserv works with a variety of companies to facilitate
incorporating cryptocurrency into the digital payment process,
including:

• Bakkt: enabling practical uses of crypto and emerging asset

classes.
Use Case • New York Digital Investment Group: integrating an enterprise
services framework that streamlines customer and employee
experiences.
• First Foundation Bank: helping consumers manage bitcoin
transactions directly within their financial institutions' online and
mobile banking portals.

Fiserv is at the forefront of enabling digital payment acceptance;

adding cryptocurrency or any other form of digital payment into
the mix is what we do best.
 • DevOps orchestration is the coordination of your
entire company’s DevOps practices and the
automation tools you use to complete them.
• The aim is to minimize production issues and
reduce the time it takes to get new releases to
market.
Orchestration • Orchestrating your automated tasks helps
is the Key… maximize the potential of your automation tools.
• This brings us back to the orchestration vs
automation question: Basically, you can
maximize efficiency by automating numerous
functions to run at the same time, but
orchestration is needed to ensure those functions
work together.
 • Save money on credit card processing fees: Credit card
processing fees—usually between 3% and 4%—are a big
expense for merchants. For every $10,000 a business owner
earns, $300 goes straight to fees. It makes sense that owners
are incentivized to find ways to cut these costs. Bitcoin
Reasons To transactions do not require a processing fee (though crypto
payment gateway merchants will charge a 1% fee).
Accept • Transact with new and international customers: Offering
bitcoin as a payment method will open your business to new
Bitcoin customers. It will also make it easy to transact with
international customers without paying steep international fees.
Payments The more payment options you have, the easier you make it for
customers to pay you.
• No risk of chargebacks or disputes: Bitcoin works similar to
cash in the sense that all payment is final. This means, as a
merchant, you will not have to worry about paying steep
chargeback fees (usually $25 per chargeback) or dealing with
payment disputes.
Pros and Cons of Bitcoin Payments
Bitcoin Payments vs. Credit Card Payments