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Chapter 1

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29 views12 pages

Chapter 1

Uploaded by

vaishnavishitre
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 1

FUNDAMENTALS OF
BLOCKCHAIN

Blockchain Technology Chandramouli, Asha, Abhilash, Meena 1


Blockchain is defined as a distributed, replicated peer-
to-peer network of databases that allows multiple non-
trusting parties to transact without a trusted
intermediary and maintains an ever-growing, append-
only, tamper-resistant list of time-sequenced records.

Blockchain can be considered as a type of a distributed


ledger that sits on the internet for recording transactions
and maintaining a permanent and verifiable record-set
of information.
Blockchain Technology Chandramouli, Asha, Abhilash, Meena
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Though the terms ‘Bitcoin’ and ‘Blockchain’ are often used
to interchangeably, they are not the same. Blockchain is
the underpinning technology that the Bitcoin was built on.

“A purely peer-to-peer version of electronic cash would allow online


payments to be sent directly from one party to another without going
through a financial institution. Digital signatures provide part of the
solution, but the main benefits are lost if a trusted third party is still
required to prevent double spending. We propose a solution to the double-
spending problem using a peer-to-peer network.”
- Part of the abstract from the paper “A Peer-to-Peer Electronic Cash
System."
Blockchain Technology Chandramouli, Asha, Abhilash, Meena
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Key Concepts of Blockchain

1. Peer-to-peer network
2. Public Key Cryptography
3. Distributed Consensus

Blockchain Technology Chandramouli, Asha, Abhilash, Meena


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Components of Blockchain

1. Node
2. Ledger
3. Wallet
4. Nonce
5. Hash
6. Mining
7. Consensus protocol

Blockchain Technology Chandramouli, Asha, Abhilash, Meena


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Characteristics of Blockchain

Blockchain Technology Chandramouli, Asha, Abhilash, Meena


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What is a Block?
The block is a record that contains the transaction data
details. It comprises of following details:
• Hash of the block – Alphanumeric number to identify the
block
• Hash of the previous block.
• Timestamp
• Nonce – the random number used to vary the value of
the hash
• Merkle Root – hash of all the hashes of all the
transactions in the block
• Transaction data. (Note: This contains details of several
transactions)
Blockchain Technology Chandramouli, Asha, Abhilash, Meena
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Double-spending
• Double-spending is spending the money more than once.
• The double-spend problem is circumvented in blockchain
through its consensus mechanism and the basic
chronological structure of how the blocks are chained
together.
• A transaction is verified and added to a block via the
consensus mechanism after a considerable amount of
computational power and resources are spent.
• Once a transaction is confirmed, it is nearly impossible to
double-spend it
• The more confirmed blocks in the chain, the harder it is to
double-spend the crypto.
Blockchain Technology Chandramouli, Asha, Abhilash, Meena
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Blockchain Layers

Blockchain Technology Chandramouli, Asha, Abhilash, Meena


9
Decentralized and Distributed
Blockchain technology works on the principle of ledger data distributed to all nodes that are
non-hierarchical with no single central control.

Pros
- Removes any single point of failure by replicating the ledger on every node in the network
- Better communication between nodes fosters transparency and faster consensus and
synching of data
- It allows for more engagement as everyone is involved in the decision-making process and
keeping the network honest.

Cons
- In some cases, the traditional database may be more suited and do the work a lot faster and
cheaper
- Specific and trusted third parties exist in some domains that may guarantee more efficient
and specialized services using other technologies
- If a time-tested and fully functional database and the operational network is already in place,
the benefits of replacing or introducing blockchain may not produce the required return-on-
investment. Blockchain Technology Chandramouli, Asha, Abhilash, Meena
- Stronger players (nodes with higher computing power or with pooling) can take control of the 10
Trustlessness
In the blockchain, cryptography completely replaces the need for third parties to ensure
trust. Also, the complex consensus protocols that are run within the blockchain network
to unanimously and securely agree on what should be added and should not be added to
the ledger secures it further, thus ensuring its integrity at all times.

Pros
• Allows for multiple entities or key players who do not trust each other (i.e., unknown to
each other or across borders) to transact directly with one another
• Ensures valid and accurate data
• Disintermediation (removal of the middleman) reduces the overall cost of transacting.

Cons
• The integrity of data is obtained at the expense of time. Every node needs to run the
blockchain to verify transactions and maintain consensus. Currently, blockchain can,
on an average, process only 5 transactions/sec.
• Significant computing power is expended by miners leading to substantial energy
consumption and wastage. Hence it is not suitable for organizations that require
instant transaction results within milliseconds.
• Nodes may prioritize transactions with higher rewards.
Blockchain Technology Chandramouli, Asha, Abhilash, Meena
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Immutability
In blockchain technology, one cannot modify data or transactions once they are recorded in the
blockchain database. It becomes a permanent record that is close-to-impossible to undo. Any
change required can be addressed only by adding a new block of data to the existing chain of
blocks in chronological order ensuring that the database is complete and consistent.

Pros
• Contains a verifiable record of all transactions made that is auditable
• Consensus algorithms and block propagation mitigate the risk of double-spending, fraud, and
manipulation of data.
• There is provenance, i.e., ability to track transaction or product movement across accounts.

Cons
• Not every node has the capacity to maintain and run a full copy of the blockchain. This can
potentially affect consensus and immutability.
• In smaller blockchains, there is a risk of a 51% attack. If one or a group of malicious nodes can
get 51% of the mining hash rate, they can manipulate the transactions.
• Quantum computing can potentially break the cryptographic algorithm to reverse engineer
public keys of blockchain networks to obtain the private keys.
Blockchain Technology Chandramouli, Asha, Abhilash, Meena
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