INTRODUCTION TO BLOCKCHAIN

What is Blockchain?
Definition 1: A blockchain is a chain of blocks, where each block contains a list of transactions or
data. These blocks are linked together in a chronological order, forming an unbreakable chain. Once
a block is added to the chain, it cannot be altered or deleted, ensuring that the data within it is
immutable.

Definition 2: A blockchain is a decentralized and distributed ledger that securely records

transactions
across a network of computers.

Key Characteristics:
o Decentralized
o Immutable (Data cannot be altered)
o Transparent
o Secure
 What is Block & Chain

Block: A collection of data or transactions. It contains:
o
A list of transactions (or data).
o
A timestamp (indicating when the block was created).
o
A hash (a unique identifier for the block, created from the block’s
data).
o
The hash of the previous block (which connects the blocks together).

Chain: The chain of blocks forms the blockchain, where each block is
linked to its predecessor using the previous block’s hash.
 DR L K INDUMATHI

An abstract digital structure showing the concept of blockchain technology with

hexadecimal hash data inside each block. This image represents a conceptual design in the
domain of IT, cyberspace, cyber security, cryptocurrency or similar industry sectors. The
image is a made up 3D concept render.
How Does Blockchain Work?

Step 1: Transaction Creation

Step 2: Transaction Verification (by network nodes)

Step 3: Block Formation (validated transactions grouped
together)

Step 4: Consensus Mechanism (PoW, PoS)
 In the context of blockchain technology, trees are often used to efficiently organize, verify, and secure data. A
tree-based structure within blockchain plays a crucial role in ensuring the integrity and quick validation of
transactions and blocks. Here are some key tree structures used in blockchain technology:

1. Merkle Trees (Hash Trees)

Merkle Trees are one of the most significant tree-based structure in blockchain technology. They are used
to efficiently verify the integrity of data in a blockchain.
What is a Merkle Tree?
 A Merkle Tree is a binary tree (or sometimes a generalized tree) where each leaf node contains a hash
of a data block (such as a transaction), and each non-leaf node contains a hash of its children.
 The topmost node of the tree is called the Merkle Root. It is a single hash that represents the entire tree.
This root is included in the block header, providing a compact and secure way to represent the
integrity of all the transactions in that block.
How Merkle Trees Work:
1. Leaf Nodes: Each transaction in a block is hashed using a cryptographic hash function (e.g., SHA-
256).
2. Parent Nodes: Pairs of transaction hashes are combined and hashed again to create parent nodes.
This process continues until a single hash is produced at the top of the tree (the Merkle Root).
3. Merkle Root: The Merkle Root is a cryptographic fingerprint of all transactions in the block. It
is stored in the block header and helps to verify that the block's contents have not been altered.
4. Efficient Validation: Merkle Trees allow for efficient verification of whether a transaction is
included in a block without having to download the entire block. Only the hashes along the path
from the transaction to the root need to be checked, saving computational resources.
Here are some of the most common consensus algorithms used in blockchain networks:
1. Proof of Work (PoW)
How it works: In PoW, miners solve complex cryptographic puzzles to validate transactions and add
new blocks to the blockchain. This process requires significant computational power and energy.
• Security: PoW is secure because altering any part of the blockchain would require redoing
the cryptographic work for all subsequent blocks.

•Drawback: High energy consumption and slower transaction times.

2. Proof of Stake (PoS)

• How it works: Instead of mining, participants in PoS networks (called validators) are chosen to create
new blocks based on the amount of cryptocurrency they "stake" as collateral. The more tokens you hold
and are willing to lock up, the more likely you are to be selected to validate a new block.
• Security: Validators have a financial incentive to act honestly, as they can lose their stake if they attempt
to cheat or validate invalid transactions.

•Benefit: More energy-efficient than PoW.

 Cryptography:
 Hash Functions: Cryptographic hash functions (e.g., SHA-256) are fundamental to blockchain, enabling
data integrity and security.
 Public Key Infrastructure (PKI): Understanding public and private key pairs and how they’re used to
authenticate users and transactions.
 Digital Signatures: Learn how digital signatures work to verify the identity of participants and ensure
the authenticity of transactions.

In blockchain technology, hashing is a crucial mechanism used to ensure data integrity, security, and
immutability. It involves taking an input (or "message") and using a cryptographic hash function to produce a
fixed-length string of characters, typically a hexadecimal number. This string is known as the hash value or
hash digest. Even a small change in the input data will result in a completely different hash value, making it
an effective way to detect changes in data.
How Hashing Works in Blockchain:
1. Creating a Block:
1. A block in a blockchain typically contains a list of transactions and a previous block hash (except
the first block, called the genesis block).
2. The hash of the block is generated by hashing the contents of the block (transactions, timestamp,
etc.) along with the previous block’s hash.
3. This creates a unique identifier (the hash) for the block.
2. Chain of Blocks:
1. Each block contains the hash of the previous block, which forms the blockchain.
2. If someone tries to alter the data in any block, the hash of that block will change, causing a
mismatch in the "previous block hash" of the following block.
3. Since each block is linked to the previous one, altering one block will change all subsequent
blocks’
hashes, making it easily detectable.

3. Proof of Work (PoW) and Hashing:

1. In PoW, miners compete to find a nonce (a random value) that, when hashed along with the block's
data, produces a hash that meets certain criteria (usually, a hash that starts with a certain number of
zeroes).
2. This process requires significant computational effort and energy because it involves trial and error
to find the correct nonce.
SHA-256 (Secure Hash Algorithm 256-bit) is a cryptographic hash function in the SHA-2 family, developed by the
National Security Agency (NSA) and widely used in various applications, including blockchain technology, data
integrity verification, and digital signatures. SHA-256 generates a fixed-length 256-bit hash value (64
hexadecimal characters) for any given input, regardless of its size.

Example of Hashing:
Let’s take a simple example:
• Input: “Hello, Blockchain!”
• SHA-256 Hash: a591a6d40bf420404a011733cfb7b190d62c65bf0bcda2959fb6b62e1ed2d1a4

Even a slight change in the input:

• Input: “hello, Blockchain!” (lowercase 'h')
• SHA-256 Hash: 2cf24dba5fb0a30e26e83b2ac5b9e29e1b167f1c4d3a8edeb8e7c9e7d5174d6b
Distributed Systems:
 Decentralization: Understand the concept of decentralization where control is distributed
across multiple participants, rather than a centralized authority.
 Peer-to-Peer (P2P) Networks: Familiarity with how decentralized networks operate, where nodes
communicate directly without a central server.
 Fault Tolerance: Understanding how distributed systems are designed to handle failures or malicious
behavior without crashing or losing data.
 Networking Basics:
 Internet Protocols: Knowledge of how data is transmitted over networks (TCP/IP, HTTP, etc.).
 Nodes and Consensus: Understanding how network nodes communicate and reach consensus on the
validity of transactions.
Databases:
 Ledger Technology: Understanding of how databases records transactions, particularly immutable or
append-only ledgers.
 Transaction Validation: Learn how transactions are validated and stored within the blockchain,
ensuring data integrity.
Economics and Incentives:
 Proof of Work (PoW) / Proof of Stake (PoS): Learn how consensus mechanisms like PoW and PoS
are used to secure the blockchain and validate transactions.
 Smart Contracts and Decentralized Applications (DApps): A basic knowledge of how blockchain
can be used to facilitate self-executing contracts and applications.
Basic Understanding of Cryptocurrencies:
 Bitcoin and Ethereum: While not mandatory, familiarity with the basics of popular cryptocurrencies like
Bitcoin and Ethereum will help in understanding the practical applications of blockchain technology.
Smart Contracts:
 Logic and Code: Some knowledge of programming languages (e.g., Solidity for Ethereum) can be helpful to
understand how smart contracts work and how they are deployed to the block chain network.
Security and Privacy:
 Security Protocols: Familiarity with security standards and practices to prevent attacks (e.g., double-spending,
Sybil attacks).
 Privacy Considerations: Knowledge of how blockchain can provide privacy, along with challenges in terms
of public transparency.
Regulatory and Legal Considerations:
 Regulation of Blockchain and Cryptocurrencies: A basic understanding of the legal landscape
around
blockchain technology and its impact on finance, governance, and compliance.
Applications of Blockchain Technology
 Cryptocurrencies: Bitcoin, Ethereum
 Supply Chain Management: Transparent product tracking
 Smart Contracts: Self-executing contracts (e.g., Ethereum)
 Healthcare: Secure medical records
 Voting Systems: Transparent and secure elections
Advantages of Blockchain
 Reduced Costs: No intermediaries like banks.
 Faster Transactions: 24/7 transactions without waiting for business hours.
 Enhanced Security: Cryptographic encryption and decentralization.
 Improved Transparency: Public access to transaction records.
Challenges of Blockchain
 Scalability: Some blockchains struggle with high transaction volumes (e.g., Bitcoin).
 Energy Consumption: PoW consumes a lot of energy (e.g., Bitcoin mining).
 Regulation: Legal uncertainties around blockchain and cryptocurrencies.
 Complexity: Understanding and implementing blockchain can be difficult.
Blockchain Data Structures
 Hashing: Using cryptographic functions to secure data.
 Merkle Trees: Organizing and verifying large amount of data efficiently.
 Patricia Tries: Efficient storage of key-value pairs (used in Ethereum).
Conclusion
 Blockchain is a transformative technology with potential far beyond cryptocurrency.
 Its key benefits include decentralization, security, transparently and immutability.
 Blockchain has the power to reshape industries like finance, healthcare, and logistics.

 Challenges remain, particularly around scalability, energy usage, and legal issues.
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