LAKIREDDY BALI REDDY COLLEGE OF ENGINEERING

(AUTONOMOUS)
Accredited by NAAC & NBA (Under Tier - I) ISO 9001:2015 Certified Institution
Approved by AICTE, New Delhi. and Affiliated to JNTUK, Kakinada
L.B. REDDY NAGAR, MYLAVARAM, KRISHNA DIST., A.P.-521 230.
DEPARTMENT OF COMPUTER SCIENCE & ENGINEERING

20CS29 BLOCKCHAIN TECHNOLOGIES

Program & Semester: B.Tech & VII SEM

Academic Year: 2024 - 25

UNIT I
Module 1: INTRODUCTION
Introduction
A blockchain is an open, distributed ledger that
can record transactions between two parties
efficiently in a verifiable and permanent way
without the need for a central authority.
Open : Accessible to ALL
Distributed Ledger : No Single party control
Efficiently : Fast and Scalable
Verifiable : Everyone can check the
validity of Information
Permanent : Information is Persistent

“A blockchain is a continuously growing list of

records, called blocks, which are linked and
secured using cryptography.”
The concept is introduced by Satoshi Nakamoto in
2009
Blockchain Features
 Blockchain is simply a data structure where
each block is linked to another block in a time-
stamped chronological order
 It is a distributed digital ledger of an immutable
public record of digital transactions.
Every new record is validated across the
distributed network before it is stored in a block.
All information once stored on the ledger is
verifiable and auditable but not editable .
 Each block is identified by its cryptographic
signature.
The first block of the blockchain is known as
Genesis block

Blockchain is used for the secure transference

of items like money, contracts, property rights,
stocks, and even networks without any
requirement of Third Party Intermediaries like
Governments, banks, etc.
Basic ideas behind Block
Chain
How trading happens Using Current System

Ledger
A ledger is a record-keeping book that stores all
the transactions of an organization
Problems with the current system
Banks and other third parties take fees
for transferring money.
Mediating costs increases transaction
costs.
Minimum practical transaction size is
limited.
System is opaque and lacks
transparency and fairness.
Also, central authority in control can
overuse the power and can create money
as per their own will.
Distributed Ledger
Peer to Peer
The ledger is stored, updated, and maintained by a
peer network. Nodes form the infrastructure of a
blockchain network.
They store, spread and preserve the blockchain
data, so a blockchain exists on nodes.
All nodes on a network follow the same rules of
operation or protocols, but nodes have different
roles.
A full node contains a copy of the blockchain
protocol, transaction history of the blockchain and
aids in the maintenance of the blockchain.
User node interacts with the ledger. With blockchain
technology, a lack of a centralized authority is
replaced with a peer-to-peer network.
Different Network Systems
Centralized System
Centralized systems are conventional (client-
server) IT systems in which there is a single
authority that controls the system, and who is
solely in charge of all operations on the system.
All users of a centralized system are dependent
on a single source of service.
The majority of online service providers,
including Google, Amazon, eBay, and Apple's
App Store, use this conventional model to deliver
services.
Advantages
Disadvantages
Command chain Not 100% Trustable
Reduced Costs Single point of Failure
Consistent Output Scalability Limitation
Decentralized System
A decentralized system is a type of network
where nodes are not dependent on a single
master node; instead, control is distributed
among many nodes.
This is analogous to a model where each
department in an organization is in charge of its
own database server, thus taking away the
power from the central server and distributing it
to the sub-departments, who manage their own
databases.
Advantages
Disadvantages
Full Control Costly
Immutable Data Misuse of
Authority

Distributed Systems
A System where two or more nodes work with
each other in a coordinated fashion in order to
achieve a common outcome
It’s modeled in such a way that end users see it
as a single logical platform
For example, Google's search engine is based on
a large distributed system; however, to a user, it
looks like a single, coherent platform.
How Blockchain is changing the
landscape of digitalization
Digital Advertising
The world of digital advertising continues to
change around us. consumers are demanding
more effort be made to secure their data and
privacy.
Blockchain enables a new kind of digital
advertising platform through which consumers
can ‘own’ their own data,
With blockchain, “users can choose which
advertising they want to see and are rewarded in
tokens for doing so in this type of browser.”
An example of a blockchain-based browser is the
Brave browser, which blocks ads and web trackers
by default. Users can also opt to receive Brave
Rewards by choosing the ads they want to see.
Digital Marketing
Blockchain can optimize the way we track
customer interactions, increase targeting
accuracy, and even manage online advertising
campaigns.
Blockchain offers better traceability, transparency,
and accountability than existing methods.
Strengthens Content Monetization
Boosting Transparency
Fraud Prevention
You can expect greater transparency and security
in online transactions, provide customers with
more control over their data, and reduce digital
advertising costs. Clearly, the future of blockchain
is bright when it comes to digital marketing.
Digital Ownership
“Digital ownership” describes the legal rights
and authority a person or organization has over
a digital asset or piece of property.
Blockchain technology allows people to own and
control their digital assets without intermediaries
like banks or governmental organizations.
Democratizing ownership could open new
avenues for value production and trade in the
digital economy.
Blockchain technology is beneficial for digital
ownership because it provides a secure and
decentralized ledger of transactions that can be
used to record ownership and transfer of Web3
digital assets
Introduction to
cryptographic concepts
required for Blockchain
Basic cryptographic primitives behind the
blockchain technology
Cryptographically Secured Hash Function
Digital Signature

Hash Function
Used to connect the “blocks” in a
blockchain in a tamper-proof way

Digital Signature
Digitally sign the data so that no one can
“deny” about their own activities
Cryptography: Basic
Terminology
Plaintext (or clear text) : The message.
Encryption (encipher) : Encoding of
message.
Ciphertext : Encrypted
message.
Decryption (decipher) : Decoding of
ciphertext

Encryption / Decryption Model

Key Based
Encryption/Decryption

Symmetric Case
Both keys are the same or derivable from
each other. K1 = K2.
Asymmetric Case
keys are different and not derivable from
each other. K1 != K2
Hash function
 We need to remember just the hash value
rather than the entire message – we call this
as the message digest
 SHA256 is used in Bitcoin mining – to
construct the Bitcoin blockchain
 Secure Hash Algorithm (SHA) that generates
256 bit message digest
Digital Signature
A digital code, which can be included with an
electronically transmitted document to verify
The content of the document is authenticated
The identity of the sender
Prevent non-repudiation – sender will not be
able to deny about the origin of the document
Only the signing authority can sign a document,
but everyone can verify the signature
Signature is associated with the particular
document
Signature of one document cannot be
transferred to another document
 Digital Signature using Public Key
Cryptography
 Sign the message using the Private key

Only Alice can know her private key

 Verify the signature using the Public key

Everyone has Alice’s public key and they

can verify the signature

Use the message digest to sign, instead

of the original message
Used Digital signature in Blockchain is used to
validate the origin of a transaction, Prevent
non-repudiation
Alice can not deny her own transactions
No one else can claim Alice’s transaction
as his/her own transaction
Block chain or distributed trust
A blockchain is a decentralized, distributed
public ledger where all transactions are verified
and recorded.
Blockchain is a system consists of
Transactions
Immutable ledgers
Decentralized peers
Encryption processes
Some Blockchains allow for “BYOE”
Consensus mechanisms
Optional Smart Contracts
Consensus mechanisms
Consensus algorithm is a process in computer
science used to achieve agreement on some
information among the distributed systems.
The consensus algorithm was designed for the
blockchain technology to achieve reliability in a
blockchain network having multiple nodes.
Building trust with Blockchain:
Blockchain builts trust through the following five
attributes:
Distributed
Secure
Transparent
Consensus-based
Flexible

Distributed
The distributed ledger is shared and updated with
every incoming transaction among the nodes
connected to the Blockchain. All this is done in real-
time.
Secure
There is no unauthorized access to Blockchain
made possible through Permissions and
Cryptography. The data will be tampered proof.
Transparent
Because every node or participant in Blockchain
has a copy of the Blockchain data, they have
access to all transaction data. They themselves
can verify the identities without the need for
mediators.

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

Flexible
Smart Contracts which are executed based on
certain conditions can be written into the
platform. Blockchain Network can evolve in pace
with business processes.
How Block Chain Works
Blockchain Evolution
Benefits of Blockchains
Types of blockchain
 Public Blockchains
 Private Blockchains
 Consortium Blockchains
 Hybrid Blockchains

Public Blockchains
 Public blockchains are open, decentralized
networks of computers accessible to anyone
wanting to request or validate a transaction (check
for accuracy).
 Those (miners) who validate transactions receive
rewards.
 Public blockchains use proof-of-work or proof-of-
stake consensus.
 permission-less distributed ledger system.

Example : Bitcoin and Ethereum

Private Blockchains
A Private Blockchain is just like a relational
database i.e. fully centralized and owned by a single
organization.
Private blockchains are not open, they have access
restrictions.
People who want to join require permission from
the system administrator.
Example: Hyperledger is a private, permissioned
blockchain.
Consortiums Blockchain
Validation is conducted by known and
identified members of the limited network of
nodes
greater privacy since the information from
verified blocks is not exposed to the public.
There are no transaction fees.
A consortium platform is more flexible.
Voting-based system, it ensures low latency
and superb speed.
Hybrid Blockchain
Hybrid blockchain is best defined as a
combination of a private and public blockchain.

It has use-cases in an organization that neither

wants to deploy a private blockchain nor public
blockchain and simply wants to deploy both
worlds’ best.

Example of Hybrid Blockchain:

Dragonchain, XinFin’s Hybrid blockchain
Cryptocurrency
Cryptocurrency is digital money that doesn’t require a
bank or financial institution to verify transactions and
can be used for purchases or as an investment.
Transactions are then verified and recorded on a
blockchain, an unchangeable ledger that tracks and
records assets and trades.
Cryptocurrencies are fungible, meaning the value
remains the same when bought, sold, or traded.
Although government regulations are absent from
the cryptocurrency market, they are taxable assets.
Mining is the term used to describe the process of
creating cryptocurrency. Transactions made with
cryptocurrency need to be validated, and mining
performs the validation and creates new
cryptocurrency.
Example: Bitcoin, Ethereum,altcoins, include Cardano,
Solana, Dogecoin, and XRP
How Does Cryptocurrency Work
Mining
Cryptocurrencies (which are completely digital)
are generated through a process called
“mining”. This is a complex process.
Transactions made with cryptocurrency need to
be validated, and mining performs the validation
and creates new cryptocurrency.
Mining uses specialized hardware and software
to add transactions to the blockchain.
Buying, selling, and storing

Users today can buy cryptocurrencies from

central exchanges, brokers, and individual
currency owners or sell it to them.
An exchange is an online platform where you
can trade cryptocurrencies. Brokers use
interfaces that interact with exchanges.
An exchange allows you to trade without a
third party. Should you decide to use an
exchange, you’ll need to find buyers for your
cryptocurrency.
Exchanges or platforms like Coinbase are the
easiest ways to buy or sell cryptocurrencies.
Once bought, cryptocurrencies can be stored in
digital wallets. Digital wallets can be “hot” or
“cold”.

Hot wallets
A hot wallet offers online storage that you can
access from a computer, phone, or tablet. A hot
wallet has a security risk because it’s stored on
the internet and is more susceptible to cyber-
attacks.

Cold wallets
A cold wallet doesn’t connect to the internet.
You can store your cryptocurrency in an external
drive, such as a USB device. You’ll receive a
keycode to keep in a safe place. You lose the
keycode, you may lose your cryptocurrency
Transacting or investing
Cryptocurrencies like Bitcoins can be easily
transferred from one digital wallet to another,
using only a smartphone. Once you own them,
your choices are to:
a) use them to buy goods or services
b) trade in them
c) exchange them for cash

If you are using Bitcoin for purchases, the

easiest way to do that is through debit-card-type
transactions. You can also use these debit cards
to withdraw cash, just like at an ATM.
Types of
Cryptocurrencies
Bitcoin
Bitcoin is the world’s first widely accepted form
of cryptocurrency. Bitcoin is so popular, there
was a time when its name was synonymous with
cryptocurrency. But potential investors need to
know bitcoins have become very expensive.

Altcoin
Altcoin is the term used for any alternative
digital currency to bitcoin. The most popular in
this ecosystem is Ethereum – one of the fastest-
growing cryptocurrencies in the market. There is
also a range of other altcoins in the market
today such as Luckyblock, Shiba Inu and Terra
Crypto tokens
Crypto tokens are assets that exist on a
blockchain.
Coins and tokens appear the same. However,
the two have many differences
Coins can be mined, but tokens cannot be
mined.
Coins are linked to blockchains, tokens are
not.
In terms of utility, they vary in the type of
product or service they allow users to purchase.
Advantages:
They are private and secure:
The blockchain technology that fuels
cryptocurrencies ensures user anonymity. It also
assures high levels of security through
cryptography.
They are decentralized, immutable, and
transparent
The entire system functions on shared
ownership, where data is available to all
permissioned members and is tamper-proof.
They are a hedge against inflation
Cryptocurrency makes for a great investment in
times of inflation.
Disadvantages:
They are not widely understood
They are a relatively new concept and
the long-term sustainability of
cryptocurrencies remains to be seen.
They are prone to high risks
Needless to say, cryptocurrencies bring in
as many rewards as risks. Their highly
volatile and speculative nature makes
them prone to sharp downward spirals.
Factors Effecting Crypto Markets
Economic conditions: Economic conditions, such
as inflation, interest rates, and unemployment, can
affect the crypto market. For example, if inflation is
high, people may be more likely to invest in
cryptocurrencies to hedge against inflation.
Government regulations: Government regulations
can significantly impact the crypto market. For
example, if governments impose strict regulations on
the use of cryptocurrencies, it could discourage
people from using them and cause the market to
decline.

Security Concerns: 2022 alone accounts for over

$3Bn worth of losses due to several crypto hacks and
scams that have plunged the crypto market. Later, a
significant event of FTX collapse was the last nail in
the coffin. This has led to a bleeding crypto market for
an extended period now.
 Hype and Fear: Crypto market is quite volatile.
This is due to the two prominent driving factors of
hype and fear. A blooming crypto market creating
a positive sentiment pushes investors to buy
even at high prices in the hope that the market
would go up. In fact, crypto has seen investors
flocking to the market regardless of crypto
fundamentals. Vice versa is true in the case of a
bleeding crypto market when the fear triggers a
mass sell-off, which triggers a higher price fall.

 Federal Bank Interest Rate: A higher interest

rate is inversely proportional to the appetite for
high-risk assets such as crypto. Theoretically, this
signifies a decline in crypto investors. 2022 has
been the same, and one can easily observe a
bearish crypto market for a long time. However, it
has been affected by other factors as well.
 Technological developments: Technological
developments, such as improvements in
blockchain technology or the development of
new cryptocurrencies, can affect the crypto
market. For example, suppose a new
cryptocurrency is developed with significant
advantages over existing ones. In that case, it
could cause people to shift their investments to
the new cryptocurrency, leading to changes in
the market.

 Media coverage: Media coverage of the crypto

market can also significantly impact market
sentiments. For example, if the media reports
positive news about the market, it could
encourage more people to invest in
cryptocurrencies and cause the market to rise.