Question Bank

Course: Blockchain Architecture Design Course Code: KIT-061

Programme: B. Tech. (IT) Semester: 6th

UNIT I: Introduction to Blockchain

Q.1 What is blockchain technology?

Ans- Blockchain technology is a decentralized, distributed ledger system used to record
transactions across multiple computers in a way that ensures transparency, security, and
immutability. In essence, it's a chain of blocks, where each block contains a list of
transactions. These blocks are linked together cryptographically, forming a chain. Once a
block is added to the chain, it cannot be altered retroactively without altering all subsequent
blocks, making the data stored in a blockchain resistant to modification.
Blockchain technology eliminates the need for intermediaries in transactions, as trust is
established through consensus mechanisms among participants in the network. This makes it
particularly useful for industries like finance, supply chain management, healthcare, and
more, where secure and transparent record-keeping is essential.

Q.2 How does blockchain work?

Ans- Blockchain works through a combination of cryptographic principles, consensus
mechanisms, and decentralized network architecture. Here's a simplified overview of how it
works:
Decentralized Network: A blockchain network consists of multiple nodes (computers)
distributed across the globe. Each node maintains a copy of the entire blockchain.
Transactions: Transactions are initiated by participants on the network. These transactions can
represent various types of digital assets or information.
Block Formation: Transactions are grouped together into blocks. Each block contains a
timestamp, a reference to the previous block (forming a chain), and a cryptographic hash of
its contents.
Consensus Mechanism: Before a block is added to the blockchain, the network must reach a
consensus on its validity. Different blockchain networks use various consensus mechanisms,
such as Proof of Work (PoW), Proof of Stake (PoS), or others, to achieve this.

Mining (in PoW): In a Proof of Work system, miners compete to solve complex mathematical
puzzles. The first miner to solve the puzzle broadcasts the solution to the network. Other
nodes verify the solution, and if validated, the block is added to the blockchain.
Validation (in PoS and other mechanisms): In other consensus mechanisms like Proof of
Stake, validators are chosen to create new blocks based on factors like the number of tokens
they hold or their reputation within the network. Validators propose and validate blocks rather
than compete through computational power.

Adding to the Blockchain: Once a block is validated, it is added to the blockchain, forming a
permanent and immutable record of transactions.

Decentralization and Security: The decentralized nature of blockchain ensures that no single
entity has control over the network, making it resistant to censorship.

Q.3 What are the key components of a blockchain network?

A blockchain network consists of several key components, each playing a crucial role in its
operation:
Nodes: Nodes are individual computers or devices that participate in the blockchain network.
Each node maintains a copy of the entire blockchain and communicates with other nodes to
propagate transactions and blocks.
Blockchain Protocol: The blockchain protocol defines the rules and procedures that govern
the operation of the network, including how new blocks are created, how consensus is
reached, and how transactions are validated.
Consensus Mechanism: Consensus mechanisms are protocols used to achieve agreement
among nodes on the validity of transactions and the addition of new blocks to the blockchain.
Common consensus mechanisms include Proof of Work (PoW), Proof of Stake (PoS),
Delegated Proof of Stake (DPoS), and Practical Byzantine Fault Tolerance (PBFT), among
others.
Transactions: Transactions are records of data exchanged between participants in the
blockchain network. These transactions can represent the transfer of digital assets (such as
cryptocurrencies), smart contract executions, or any other type of data exchange.
Blocks: Blocks are collections of transactions that are grouped together and added to the
blockchain at regular intervals. Each block contains a cryptographic hash of the previous
block, forming a chain that links all blocks together in chronological order.
Cryptographic Hash Functions: Cryptographic hash functions are mathematical algorithms
used to generate unique identifiers (hashes) for blocks and transactions. These hashes ensure
the integrity and security of the blockchain by making it computationally infeasible to alter
the contents of a block without affecting its hash.
Smart Contracts (in some blockchains): Smart contracts are self-executing contracts with the
terms of the agreement directly written into code. They automatically execute and enforce the
terms of the contract when predefined conditions are met. Smart contracts are a key feature of
platforms like Ethereum and enable a wide range of decentralized applications (DApps).
Wallets and Addresses: Wallets are software applications or hardware devices used to store
and manage digital assets, such as cryptocurrencies. Each wallet is associated with one or
more unique addresses, which are cryptographic identifiers used to send and receive
transactions on the blockchain.

Q.4 What is the difference between public and private blockchains?

Aspect Public Blockchain Private Blockchain

Accessibility Open to anyone without permission Restricted access, permissioned network

Decentralized decision-making Centralized governance by a single entity

Governance through consensus or consortium
Varies; can range from centralized to
Decentralization High degree of decentralization decentralized

Fully transparent; anyone can view Transparency depends on network rules

Transparency transactions and permissions
Security through controlled access and
Security Security through distributed consensus permissions

Cryptocurrencies, DeFi, global Enterprise applications, supply chain,

Use Cases payments private transactions

Examples Bitcoin, Ethereum Hyperledger Fabric, Corda

Q.5 What are the benefits of using blockchain technology?

Blockchain technology offers several benefits across various industries and applications:
Transparency: Blockchain provides a transparent and immutable ledger of transactions. Once
recorded, data cannot be altered retroactively without the consensus of the network
participants. This transparency increases accountability and trust among participants.
Security: Blockchain uses cryptographic techniques to ensure the security of transactions and
data. Each block is linked to the previous one through a cryptographic hash, making it
resistant to tampering. Additionally, consensus mechanisms prevent unauthorized changes to
the blockchain.
Decentralization: Blockchain operates on a decentralized network of nodes, eliminating the
need for a central authority or intermediary. Decentralization reduces the risk of single points
of failure and enhances resilience against censorship and cyber-attacks.
Efficiency and Cost Savings: By eliminating intermediaries and automating processes
through smart contracts, blockchain can streamline operations and reduce transaction costs.
Processes that traditionally require manual reconciliation can be automated, leading to
increased efficiency.
Traceability and Accountability: Blockchain enables the traceability of assets and transactions
throughout their lifecycle. This feature is particularly valuable in industries like supply chain
management, where stakeholders need to track the origin and movement of goods.
Faster Transactions: Blockchain transactions can be executed and settled more quickly
compared to traditional financial systems, which may involve multiple intermediaries and
delays. This speed is particularly beneficial for cross-border payments and remittances.
Immutable Record-Keeping: Once data is recorded on the blockchain, it cannot be altered or
deleted. This immutability ensures the integrity and accuracy of the data stored on the
blockchain, reducing the risk of fraud and manipulation.
Increased Trust: Blockchain's transparent, secure, and decentralized nature fosters trust
among participants in transactions and interactions. This trust enables new business models
and collaborations that were previously hindered by concerns over transparency and
reliability.

Q.6 What are the challenges or limitations of blockchain technology?

Scalability: One of the major challenges facing blockchain technology is scalability. As the
number of transactions and participants on a blockchain network grows, the capacity to
process and validate transactions may become limited. This can lead to slower transaction
times and higher fees, hindering widespread adoption, particularly in high-volume
applications.
Energy Consumption: Proof of Work (PoW) consensus mechanisms, used by some
blockchains like Bitcoin, require significant computational power and energy consumption
for mining activities. This energy-intensive process has raised concerns about the
environmental impact of blockchain technology. Efforts to develop more energy-efficient
consensus mechanisms, such as Proof of Stake (PoS), are ongoing but face technical and
implementation challenges.
Interoperability: Many blockchain platforms and networks operate in silos, lacking
interoperability with each other. This fragmentation limits the seamless transfer of assets and
data between different blockchains, inhibiting the growth of the ecosystem and the realization
of its full potential.
Regulatory Uncertainty: The regulatory landscape surrounding blockchain and
cryptocurrencies is complex and constantly evolving. Regulatory uncertainty can create
barriers to adoption and investment, as businesses and individuals navigate legal and
compliance requirements across jurisdictions. Clarity and consistency in regulations are
needed to foster innovation and adoption while addressing concerns about illicit activities and
consumer protection.
Privacy Concerns: While blockchain offers transparency and immutability, it also raises
privacy concerns, particularly in public blockchains where all transactions are visible to
anyone. While some blockchain networks incorporate privacy features, such as zero-
knowledge proofs or confidential transactions, balancing privacy with transparency remains a
challenge.
Security Risks: While blockchain is often touted for its security features, it is not immune to
security risks and vulnerabilities. Smart contract bugs, coding errors, and vulnerabilities in
blockchain protocols can lead to exploits and security breaches. Additionally, the
decentralized nature of blockchain networks can make it difficult to address security incidents
and coordinate responses.
User Experience: Blockchain technology is still relatively complex for the average user,
requiring technical expertise to navigate wallets, transactions, and smart contracts. Improving
the user experience and making blockchain applications more accessible to non-technical
users is essential for mainstream adoption.

Q.7 What role does cryptography play in blockchain?

Ans- Cryptography plays a crucial role in blockchain technology, providing the foundation
for security, privacy, and integrity within the system. Here are some key roles that
cryptography serves in blockchain:
Data Encryption: Cryptography is used to encrypt sensitive data stored on the blockchain,
such as transaction details and user identities. This ensures that data remains confidential and
secure, even if the blockchain is publicly accessible.
Digital Signatures: Cryptographic digital signatures are used to verify the authenticity and
integrity of transactions on the blockchain. Each participant in a transaction uses their private
key to create a digital signature, which can be verified by others using the corresponding
public key. This allows participants to prove ownership and authorization without revealing
their private keys.
Hash Functions: Cryptographic hash functions are used to create unique identifiers (hashes)
for blocks and transactions on the blockchain. These hashes are deterministic, meaning that
the same input will always produce the same output, and they are cryptographically secure,
making it computationally infeasible to reverse-engineer the input from the output. Hash
functions ensure the integrity of data on the blockchain by detecting any changes or
tampering.
Proof of Work (PoW): In PoW-based blockchains like Bitcoin, cryptography is used to solve
complex mathematical puzzles as a mechanism to achieve consensus and validate
transactions. Miners compete to find a hash value that meets certain criteria, requiring
significant computational effort. This process helps secure the network against attacks and
ensures the immutability of the blockchain.
Key Management: Cryptography is used to generate and manage public-private key pairs for
participants on the blockchain. Public keys are shared openly and used for verification, while
private keys are kept secret and used for signing transactions. Proper key management
practices are essential for maintaining security and preventing unauthorized access.
Zero-Knowledge Proofs: Advanced cryptographic techniques such as zero-knowledge proofs
allow participants to prove the validity of a statement without revealing any additional
information beyond the fact that the statement is true.
Q.8 How scalable is blockchain technology?
Ans- Blockchain technology faces scalability challenges, particularly in public blockchains,
due to limitations in transaction throughput, latency, and resource requirements. The
scalability of blockchain depends on various factors, including the consensus mechanism,
block size, network architecture, and the specific use case. Here are some key considerations
regarding blockchain scalability:
Transaction Throughput: Public blockchains like Bitcoin and Ethereum have limited
transaction throughput compared to traditional payment systems like Visa or Mastercard.
Bitcoin, for example, can process around 4-7 transactions per second (TPS), while Ethereum
can handle around 15-30 TPS. This limitation is due to the block size, block time, and
consensus mechanism.
Consensus Mechanism: The consensus mechanism used by a blockchain network can
significantly impact its scalability. Proof of Work (PoW) consensus mechanisms, while
secure, require significant computational resources and have limited transaction throughput.
Alternative consensus mechanisms like Proof of Stake (PoS) or Delegated Proof of Stake
(DPoS) offer higher scalability by reducing energy consumption and increasing transaction
throughput.
Block Size and Block Time: Increasing the block size and reducing the block time can
improve transaction throughput but may also introduce centralization risks and reduce
network security. Larger blocks require more storage and bandwidth, making it more
challenging for network participants to run full nodes. Additionally, shorter block times may
increase the likelihood of forks and orphaned blocks.
Network Architecture: The architecture of the blockchain network, including the number of
nodes, their geographical distribution, and the quality of network connections, can impact
scalability. A more decentralized network with a larger number of geographically distributed
nodes may face challenges in achieving consensus and propagating transactions efficiently.
Off-Chain Scaling Solutions: Off-chain scaling solutions, such as payment channels (e.g.,
Lightning Network for Bitcoin) and sidechains, aim to improve scalability by processing
transactions off the main blockchain. These solutions enable faster and cheaper transactions
by reducing the burden on the main blockchain while still leveraging its security.
Interoperability and Layer 2 Solutions: Interoperability protocols and layer 2 scaling
solutions enable different blockchain networks to communicate and transact.

Q.9 How does blockchain ensure the security and integrity of data?
Blockchain ensures the security and integrity of data through several key mechanisms:
Cryptographic Hash Functions: Blockchain uses cryptographic hash functions to create
unique identifiers (hashes) for blocks and transactions. These hashes are generated based on
the contents of the data being hashed and are cryptographically secure, meaning it's
computationally infeasible to reverse-engineer the input from the output. Each block in the
blockchain contains the hash of the previous block, creating a chain of blocks that is tamper-
evident. Any alteration to the data in a block would result in a change to its hash, which
would be detectable by the network.
Decentralization and Consensus: Blockchain operates on a decentralized network of nodes,
each maintaining a copy of the entire blockchain. Consensus mechanisms, such as Proof of
Work (PoW) or Proof of Stake (PoS), ensure that transactions are validated and added to the
blockchain in a distributed and secure manner. Consensus mechanisms prevent malicious
actors from tampering with the blockchain by requiring network participants to agree on the
validity of transactions through a predefined set of rules.
Immutable Ledger: Once data is recorded on the blockchain, it becomes immutable and
cannot be altered or deleted retroactively. Each block is cryptographically linked to the
previous block, creating a chronological and immutable record of transactions. This
immutability ensures the integrity of the data stored on the blockchain, making it resistant to
tampering and fraud.
Public Key Cryptography: Blockchain uses public-key cryptography to secure transactions
and provide authentication and authorization. Each participant on the blockchain has a unique
public-private key pair. Digital signatures generated using private keys are used to verify the
authenticity and integrity of transactions. Only the owner of the private key can sign
transactions, providing a secure method for proving ownership and authorizing transactions.
Consensus Incentives and Disincentives: In Proof of Work (PoW) blockchains like Bitcoin,
miners are incentivized to follow the rules and validate transactions honestly through block
rewards and transaction fees. Attempting to tamper with the blockchain or perform malicious
actions would require significant computational resources and would not be economically
viable.

Q.10 What is the concept of "forking" in blockchain, and what are its implications?
In blockchain technology, "forking" refers to the process of diverging from the existing
blockchain to create a new blockchain with a separate set of rules or protocol changes. Forks
can be broadly categorized into two types: hard forks and soft forks.
Hard Fork: A hard fork occurs when a change to the protocol is implemented that is not
backward compatible with the existing rules. As a result, nodes that do not upgrade to the
new rules will no longer be able to validate blocks on the new blockchain. Hard forks often
result in the creation of a new cryptocurrency, as the new blockchain continues to follow its
own path separate from the original blockchain. Examples of hard forks include Bitcoin Cash
(a fork of Bitcoin) and Ethereum Classic (a fork of Ethereum).
Soft Fork: A soft fork occurs when a change to the protocol is backward compatible with the
existing rules. Nodes that do not upgrade to the new rules can still validate blocks on the new
blockchain, although they may not be able to fully utilize new features. Soft forks typically
result in a temporary chain split, as nodes eventually converge on the longest valid chain.
Community Divisions: Forks can lead to divisions within the blockchain community, as
different stakeholders may have varying opinions on the proposed changes. Disagreements
over protocol changes can result in contentious forks, where factions split off to form
separate blockchains.
Network Security: Forks can impact the security of the blockchain network, particularly if the
fork leads to a decrease in hash power or network nodes. In the case of a hard fork, the split
in the network may result in reduced security for both the original and forked chains, as
miners and validators may shift their resources between the two chains.
Market Dynamics: Forks can affect the market dynamics of cryptocurrencies, as investors and
traders may react to the news of a fork by buying or selling tokens. The value of existing
tokens may fluctuate leading up to and following a fork, depending on factors such as
community sentiment, adoption, and the perceived utility of the forked chain.
Innovation and Experimentation: Forks can foster innovation and experimentation within the
blockchain ecosystem by allowing developers to propose and test new ideas or improvements
to the protocol. However, not all forks are successful or widely adopted, and some may
ultimately fail to gain traction or support from the community.

UNIT II: Consensus

Q1. What is the Consensus protocol? What are the objectives of Consensus Protocol?
The consensus protocol is a fundamental mechanism in blockchain technology that enables
all participants in a decentralized network to agree on the validity of transactions and the state
of the distributed ledger. It ensures that all nodes in the network reach a consensus or
common understanding of the current state of the blockchain despite the lack of a central
authority.
The objectives of a consensus protocol are as follows:
Decentralization: One of the primary objectives of a consensus protocol is to maintain
decentralization within the blockchain network. Decentralization ensures that no single entity
or group of entities has undue control over the network, fostering trust, resilience, and
censorship resistance.
Immutability: Consensus protocols aim to ensure the immutability of the blockchain ledger.
Once transactions are confirmed and added to the blockchain, they should be tamper-proof
and irreversible. Immutability guarantees the integrity and trustworthiness of the data stored
on the blockchain.
Security: Consensus protocols employ cryptographic techniques and economic incentives to
secure the network against malicious actors and attacks. They prevent unauthorized
transactions and ensure that only valid transactions are included in the blockchain. Security is
essential for protecting the integrity of the network and the assets stored on it.
Scalability: Scalability is another objective of consensus protocols, as blockchain networks
need to handle increasing transaction volumes efficiently without compromising performance
or decentralization. Scalable consensus mechanisms enable networks to grow and
accommodate a higher number of transactions over time.
Finality: Consensus protocols aim to achieve finality, meaning that once a transaction is
confirmed and added to the blockchain, it is considered irreversible and cannot be reversed or
undone. Finality provides certainty to users and prevents double-spending or other forms of
fraud.
Efficiency: Consensus protocols strive to achieve efficiency in terms of transaction
processing speed, resource utilization, and energy consumption. Efficient consensus
mechanisms enable fast and cost-effective transaction validation while minimizing the
computational and energy resources required to maintain the network.
Overall, the objectives of consensus protocols are to establish trust, maintain integrity, and
ensure the smooth operation of decentralized blockchain networks by enabling agreement
among network participants on the state of the ledger. Different consensus mechanisms
prioritize these objectives in various ways, leading to diverse approaches to achieving
consensus in blockchain networks.

Q2. Discuss the key design goals of blockchain technology and explain why they are
essential for achieving the vision of decentralized systems. Identify and describe at least
three design goals, such as decentralization, immutability, transparency, security,
scalability, and privacy.
The key design goals of blockchain technology are essential for achieving the vision of
decentralized systems. These design goals are foundational principles that shape the
architecture and functionality of blockchain networks. Here are three design goals and their
significance.
Decentralization:
Definition: Decentralization refers to the distribution of control and authority across multiple
nodes in a network, rather than relying on a single central authority. In blockchain
technology, decentralization ensures that no single entity or group of entities has absolute
control over the network.
Significance: Decentralization fosters trust, resilience, and censorship resistance within
blockchain networks. By distributing control among network participants, decentralization
eliminates single points of failure and prevents any single entity from manipulating or
controlling the system. Decentralized systems promote inclusivity, openness, and
democratization, empowering individuals and communities to participate in decision-making
and governance processes.
Immutability:
Definition: Immutability refers to the property of data being tamper-proof and unchangeable
once recorded on the blockchain. Once transactions are confirmed and added to the
blockchain, they become immutable and cannot be altered or deleted without consensus from
the majority of network participants.
Significance: Immutability ensures the integrity and trustworthiness of the data stored on the
blockchain. It provides a tamper-resistant ledger where historical transactions are securely
recorded and cannot be modified retroactively. Immutability enhances transparency,
accountability, and auditability within blockchain networks, enabling users to verify the
integrity of transactions and data without relying on intermediaries or trusted third parties.
Security:
Definition: Security encompasses the measures and mechanisms implemented to protect
blockchain networks against various threats, including cyber attacks, fraud, and unauthorized
access. Security ensures the confidentiality, integrity, and availability of data and assets
stored on the blockchain.
Significance: Security is paramount in blockchain technology to safeguard against malicious
actors and ensure the trustworthiness of transactions and data. Blockchain networks employ
cryptographic techniques, consensus mechanisms, and economic incentives to mitigate
security risks and maintain the integrity of the system. Security enhances trust and confidence
among network participants, enabling them to transact and interact with each other securely
and reliably.
These design goals collectively contribute to the vision of decentralized systems by fostering
trust, transparency, resilience, and inclusivity within blockchain networks. By prioritizing
decentralization, immutability, and security, blockchain technology enables the creation of
transparent, tamper-resistant, and trustless systems that empower individuals and
organizations to transact and collaborate in a secure and decentralized manner.

Q3. Compare and contrast two consensus protocols used in blockchain networks, such
as Proof of Work (PoW), Proof of Stake (PoS), Practical Byzantine Fault Tolerance
(PBFT), or Delegated Proof of Stake (DPoS).
Ans. Let's compare and contrast Proof of Work (PoW) and Proof of Stake (PoS), two
prominent consensus protocols used in blockchain networks:
Proof of Work (PoW):
Algorithm:
PoW requires network participants (miners) to solve complex mathematical puzzles in order
to validate and add new blocks to the blockchain. This process involves significant
computational work and consumes a considerable amount of energy.
Security:
PoW is renowned for its security due to the high computational power required to perform a
51% attack. A malicious actor would need to control the majority of the network's
computational power to alter the blockchain's history, making it economically infeasible.
Decentralization:
PoW typically promotes decentralization because anyone with computational resources can
participate in the mining process. However, it has been criticized for centralization tendencies
due to the concentration of mining power in large mining pools and the need for specialized
hardware.
Scalability:
PoW consensus is often criticized for its scalability limitations, as the process of mining
becomes increasingly resource-intensive as the network grows. This can lead to slower
transaction processing times and higher fees during periods of high network activity.
Proof of Stake (PoS):
Algorithm:
PoS selects block validators based on the amount of cryptocurrency they hold and are willing
to "stake" as collateral. Validators are chosen to create new blocks and validate transactions
based on their stake in the network, rather than computational power.
Security:
PoS relies on economic incentives to secure the network, where validators are financially
invested in maintaining the integrity of the blockchain. However, PoS has faced criticism
regarding potential security vulnerabilities, such as the "Nothing at Stake" problem, where
validators may attempt to validate multiple conflicting chains to maximize their rewards.
Decentralization:
PoS has the potential to be more centralized compared to PoW, as validators are selected
based on their wealth. Critics argue that PoS may lead to a concentration of power among a
small number of wealthy stakeholders, potentially compromising the network's
decentralization.
Scalability:
PoS consensus mechanisms generally offer better scalability compared to PoW, as they do not
rely on computationally intensive mining processes. PoS can achieve higher transaction
throughput with lower energy consumption, making it more scalable in theory.
In summary, PoW and PoS are two distinct consensus protocols with different approaches to
achieving consensus in blockchain networks. While PoW is known for its security and
decentralization but criticized for its energy consumption, PoS offers potential scalability
benefits but raises concerns about centralization and security vulnerabilities. Each consensus
protocol has its strengths and weaknesses, and the choice between them depends on the
specific requirements and goals of the blockchain network.

Q4. What are the scalability aspects of Blockchain consensus protocols?

Ans. Scalability is a critical aspect of blockchain consensus protocols, as it determines the
network's ability to handle increasing transaction volumes efficiently without compromising
performance, security, or decentralization. Several scalability aspects are relevant to
blockchain consensus protocols:
Transaction Throughput: Scalability concerns the network's capacity to process a high
volume of transactions per second (TPS). Consensus protocols impact transaction throughput
by influencing the speed at which transactions can be validated and added to the blockchain.
Higher transaction throughput allows blockchain networks to accommodate more users and
applications, facilitating widespread adoption and use.
Latency: Scalability also relates to transaction latency, which refers to the time taken for a
transaction to be confirmed and added to the blockchain. Consensus protocols that minimize
latency enable faster transaction processing, enhancing the overall user experience and
facilitating real-time applications such as payments or gaming.
Block Size and Frequency: Some consensus protocols dictate the size and frequency of
blocks added to the blockchain. Scalable protocols may allow for larger block sizes or more
frequent block production to accommodate a higher number of transactions within each
block. Adjusting block size and frequency can impact transaction throughput, latency, and
network resource utilization.
Parallelization: Scalable consensus protocols may leverage parallel processing techniques to
execute transactions concurrently, improving the overall efficiency and throughput of the
network. Parallelization enables multiple transactions to be processed simultaneously,
reducing bottlenecks and enhancing scalability, particularly in large-scale blockchain
networks.
Sharding: Sharding is a scalability technique that involves partitioning the blockchain
network into smaller, independent segments called shards. Each shard processes a subset of
transactions, allowing the network to handle a higher overall transaction throughput.
Sharding distributes the computational workload and improves scalability by enabling
parallel transaction processing across multiple shards.
Off-Chain Solutions: Scalability solutions may involve conducting transactions off-chain or
through secondary layers built on top of the main blockchain. Off-chain solutions such as
state channels, sidechains, or payment channels enable faster and cheaper transactions while
reducing the burden on the main blockchain. These solutions improve scalability by
processing transactions off-chain and settling them periodically on the main blockchain.
Consensus Mechanism Efficiency: The efficiency of the underlying consensus mechanism
directly impacts the scalability of a blockchain network. Scalable consensus mechanisms
minimize the computational and energy resources required to validate transactions and reach
consensus, allowing the network to scale without significant resource constraints.
Overall, scalability aspects of blockchain consensus protocols are essential for ensuring that
blockchain networks can accommodate increasing transaction volumes while maintaining
performance, security, and decentralization. Scalable consensus protocols enable blockchain
technology to realize its potential as a scalable and efficient platform for a wide range of
applications and use cases.

Q6. How do smart contracts enhance transparency and efficiency in business processes?
Ans. Smart contracts enhance transparency and efficiency in business processes through
several mechanisms:
Transparency:
Immutable Execution: Smart contracts execute predefined actions automatically when certain
conditions are met, without the need for intermediaries. Once deployed on the blockchain,
smart contract code is immutable and transparent, meaning that anyone can inspect the code
and verify its functionality. This transparency ensures that the terms and conditions of the
contract are clear and enforceable, reducing the potential for disputes or misunderstandings.
Publicly Auditable: Smart contracts operate on public blockchain networks, where all
transactions and contract executions are recorded on a distributed ledger that is visible to all
participants. This transparency enables stakeholders to audit and verify the integrity of
transactions and business processes, ensuring accountability and trustworthiness.
Real-time Updates: As transactions are executed and recorded on the blockchain, the state of
smart contracts is updated in real-time. This allows all parties to monitor the progress of
transactions and contract executions, providing visibility into the status of ongoing processes.
Stakeholders can track the flow of assets, monitor transaction history, and verify compliance
with contractual obligations.
Efficiency:
Automation of Processes: Smart contracts automate complex business processes by codifying
rules and logic directly into the contract code. This streamlines processes by eliminating
manual tasks and reducing administrative overhead, resulting in faster and more efficient
transaction processing. Smart contracts execute predefined actions automatically, reducing
the need for human intervention and minimizing the risk of errors or delays.
Elimination of Intermediaries: Smart contracts eliminate the need for intermediaries, such as
lawyers, brokers, or escrow agents, who traditionally facilitate and oversee business
transactions. By executing transactions directly between parties based on predefined rules,
smart contracts reduce transaction costs, eliminate delays caused by intermediaries, and
increase the efficiency of business processes.
Faster Settlement: Smart contracts enable faster settlement of transactions by automating the
execution of contractual obligations and reducing the time required to process and verify
transactions. Transactions settled through smart contracts are executed in real-time or near-
real-time, enabling faster and more efficient transaction processing compared to traditional
methods.
Overall, smart contracts enhance transparency and efficiency in business processes by
providing transparent and auditable transaction execution, automating complex processes,
eliminating intermediaries, and enabling faster settlement of transactions. By leveraging
blockchain technology and programmable contracts, smart contracts empower organizations
to streamline operations, reduce costs, and improve the overall efficiency and transparency of
business processes.
Q7. Describe the role of cryptographic techniques such as hashing and digital signatures
in securing transactions on a blockchain.
Ans. Cryptographic techniques such as hashing and digital signatures play a crucial role in
securing transactions on a blockchain. Here's how they work:
Hashing:
Definition: A hash function takes an input (or message) of arbitrary length and produces a
fixed-size output, known as a hash value or hash digest. Hash functions are deterministic,
meaning the same input will always produce the same output.
Role in Blockchain: In the context of blockchain, hashing is used to create a unique and
tamper-resistant representation of data. Each block in the blockchain contains a hash of the
previous block's header, creating a chain of blocks linked together by their hashes (hence the
term "blockchain"). This ensures the integrity of the entire chain because any alteration to the
data in a block would change its hash, rendering the chain invalid.
Properties: Hash functions have several important properties for blockchain security,
including:
 Collision Resistance: It should be computationally infeasible to find two different
inputs that produce the same hash value.
 Deterministic Output: The same input should always produce the same hash value.
 Avalanche Effect: A small change in the input should produce a significantly different
hash value.
 Pre-image Resistance: Given a hash value, it should be computationally infeasible to
determine the original input.
Digital Signatures:
Definition: Digital signatures are cryptographic techniques used to verify the authenticity and
integrity of digital messages or documents. They involve the use of public key cryptography,
where a signer uses their private key to create a signature, and anyone with access to the
signer's public key can verify the signature.
Role in Blockchain: Digital signatures are used in blockchain transactions to prove ownership
of cryptocurrency assets and authorize the transfer of those assets from one party to another.
When a user initiates a transaction, they sign the transaction data with their private key. The
recipient can then verify the signature using the sender's public key to ensure that the
transaction is legitimate and has not been tampered with.
Properties: Digital signatures provide several security properties, including:
 Authentication: The signature proves the identity of the signer.
 Integrity: The signature ensures that the message has not been altered since it was
signed.
 Non-repudiation: The signer cannot deny having signed the message, providing
accountability for their actions.

 Public Key Infrastructure (PKI): Digital signatures rely on a PKI, which includes
mechanisms for generating key pairs, distributing public keys, and verifying
signatures. In blockchain networks, the PKI is decentralized, with each participant
managing their own keys.
By leveraging hashing and digital signatures, blockchain networks ensure the integrity,
authenticity, and security of transactions, providing trust in a decentralized and distributed
environment. These cryptographic techniques form the foundation of blockchain security,
enabling secure and tamper-proof record-keeping and transaction processing.

Q8. Discuss the potential risks associated with public and private key management in
blockchain systems.
Ans. Effective management of public and private keys is crucial for maintaining security in
blockchain systems. However, there are several potential risks and challenges associated with
key management:
Loss of Keys: If a user loses access to their private key (e.g., by forgetting it or losing the
hardware device storing it), they may permanently lose access to their cryptocurrency assets
or sensitive data stored on the blockchain. This risk is particularly significant in self-custody
scenarios where users are solely responsible for managing their keys.
Theft or Unauthorized Access: If a private key is stolen or compromised, attackers can gain
unauthorized access to the associated cryptocurrency assets or sensitive information. This risk
can arise from various sources, including phishing attacks, malware infections, or physical
theft of hardware wallets or storage devices.
Key Generation Weaknesses: Weaknesses in key generation algorithms or random number
generators can lead to the generation of predictable or non-random keys, making them
susceptible to brute-force attacks or other cryptographic attacks. Insecure key generation
practices can compromise the security of blockchain systems and undermine the
confidentiality and integrity of transactions.
Mismanagement or Negligence: Poor key management practices, such as storing keys in
insecure locations, sharing keys with unauthorized parties, or failing to rotate keys regularly,
can increase the risk of unauthorized access or compromise. Negligence in key management
can result in security breaches and financial losses for individuals or organizations. Supply
Chain Attacks: In hardware-based key management solutions, such as hardware wallets or
secure elements, supply chain attacks pose a significant risk. Malicious actors may tamper
with the hardware or firmware during the manufacturing process, implanting backdoors or
vulnerabilities that compromise the security of the keys stored on the device.
Key Recovery Mechanisms: Some blockchain systems implement key recovery mechanisms
or multi-signature schemes to mitigate the risk of key loss. However, these mechanisms
introduce additional complexities and potential points of failure, such as reliance on third-
party custodians or the need for consensus among multiple parties to authorize transactions.
Regulatory Compliance: Compliance with regulatory requirements, such as anti-money
laundering (AML) and know-your-customer (KYC) regulations, can pose challenges for key
management in blockchain systems. Regulatory scrutiny may require users to maintain
control over their keys while also adhering to legal and compliance obligations, creating
tensions between privacy and regulatory compliance.
Overall, effective key management is essential for ensuring the security, integrity, and
confidentiality of blockchain systems. Mitigating the risks associated with key management
requires robust security measures, adherence to best practices, and ongoing diligence in
protecting private keys from unauthorized access or compromise.

Q9. Differentiate between permissioned and permissionless blockchains. Discuss the

advantages and disadvantages of each type. Provide examples of industries or use cases
where permissioned blockchains are preferred over permissionless ones, and vice versa.
Ans. Permissioned Blockchains.
Definition: Permissioned blockchains restrict access to participate in the network and perform
transactions. Participants must be granted explicit permission or authorization to join the
network and access its functionalities.
Advantages:
Enhanced Privacy: Permissioned blockchains can offer greater privacy and confidentiality, as
access to the network and transaction data is restricted to authorized participants.
Scalability: Since permissioned blockchains have a limited number of participants, they can
often achieve higher transaction throughput and scalability compared to permissionless
blockchains.
Regulatory Compliance: Permissioned blockchains can facilitate compliance with regulatory
requirements by implementing access controls and identity verification mechanisms for
participants.
Disadvantages:
Centralization: Permissioned blockchains may be more centralized compared to
permissionless blockchains, as access control and governance are typically managed by a
central authority or consortium of organizations.
Limited Decentralization: The level of decentralization in permissioned blockchains may be
lower, as control over the network is concentrated among a smaller number of trusted
participants.
Potential for Collusion: In consortium or private permissioned blockchains, there is a risk of
collusion or bias among participating entities, which may compromise the integrity and
trustworthiness of the network.
Permissionless Blockchains:
Definition: Permissionless blockchains allow anyone to participate in the network, transact,
and validate transactions without requiring explicit permission or authorization. Participants
can join the network anonymously and interact with it pseudonymously.
Advantages:
Decentralization: Permissionless blockchains are inherently decentralized, with no single
entity or authority controlling the network. This decentralization enhances censorship
resistance, resilience, and trustlessness.
Open Access: Permissionless blockchains offer open access to anyone, enabling global
participation and inclusivity. Anyone with internet access can join the network and transact
without barriers.
Security: Permissionless blockchains leverage consensus mechanisms, such as Proof of Work
(PoW) or Proof of Stake (PoS), to achieve security through distributed validation and
verification of transactions.
Disadvantages:
Scalability Challenges: Permissionless blockchains often face scalability challenges, as the
open and decentralized nature of the network can lead to slower transaction processing times
and higher fees during periods of high network activity.
Lower Privacy: Permissionless blockchains provide pseudonymity rather than anonymity,
meaning that transaction data is publicly visible on the blockchain. While participants'
identities are not directly linked to their addresses, transaction details are still accessible to
anyone.
Regulatory Uncertainty: Permissionless blockchains may face regulatory scrutiny and
uncertainty, particularly in industries subject to strict regulatory requirements, such as finance
and healthcare.
Use Cases:
Permissioned Blockchains: Industries or use cases where privacy, scalability, and regulatory
compliance are paramount may prefer permissioned blockchains. Examples include supply
chain management, healthcare data sharing, financial services, and government applications.
Permissionless Blockchains: Use cases that prioritize decentralization, censorship resistance,
and open access may be better suited for permissionless blockchains. Examples include
cryptocurrency networks (e.g., Bitcoin and Ethereum), decentralized finance (DeFi)
applications, digital identity solutions, and peer-to-peer lending platforms.
In summary, permissioned and permissionless blockchains offer different trade-offs in terms
of decentralization, privacy, scalability, and regulatory compliance. The choice between the
two depends on the specific requirements, use cases, and preferences of stakeholders in
different industries and applications.

Q10. Discuss the scalability challenges facing blockchain networks and potential
solutions to address them. Explain the concepts of on-chain scaling and off-chain
scaling, providing examples of each.
Ans. Scalability is a critical challenge facing blockchain networks as they strive to handle
increasing transaction volumes while maintaining performance, security, and
decentralization. Several scalability challenges exist, along with potential solutions to address
them:
Scalability Challenges:
Transaction Throughput: Traditional blockchain networks, such as Bitcoin and Ethereum,
have limited transaction throughput, resulting in congestion and slower transaction
processing times during periods of high network activity.
Latency: Slow transaction confirmation times can lead to delays in transaction finality,
reducing the usability and efficiency of blockchain networks, especially for applications
requiring real-time transaction settlement. Block Size and Frequency: Fixed block sizes and
block creation intervals in blockchain networks limit the number of transactions that can be
included in each block, hindering scalability. Network Congestion: During peak usage
periods, blockchain networks may experience congestion, resulting in higher transaction fees
and longer confirmation times.
Potential Solutions:
On-chain Scaling:
Increased Block Size: On-chain scaling solutions aim to increase the block size limit to
accommodate more transactions per block. For example, Bitcoin Cash (BCH) increased its
block size from 1 MB to 8 MB to improve transaction throughput. Segregated Witness
(SegWit): SegWit is a protocol upgrade implemented in Bitcoin and Litecoin that separates
transaction signatures (witness data) from transaction data, effectively increasing the block's
capacity to include more transactions.
Sharding: Sharding is a scaling technique that partitions the blockchain network into smaller,
independent subsets called shards. Each shard processes a portion of the network's
transactions, allowing for parallel processing and increased transaction throughput. Ethereum
2.0 is implementing sharding to improve scalability.
Off-chain Scaling:
Payment Channels: Off-chain scaling solutions such as payment channels (e.g., Lightning
Network for Bitcoin) enable users to conduct a series of off-chain transactions before settling
the final balance on the main blockchain. Payment channels reduce on-chain transaction
volume and improve scalability by enabling faster and cheaper micropayments.
Sidechains: Sidechains are separate blockchains that are interoperable with the main
blockchain but operate independently. Sidechains can process transactions off-chain, reducing
the burden on the main blockchain and improving scalability. Examples include the Liquid
sidechain for Bitcoin.
State Channels: State channels allow participants to conduct off-chain transactions and only
settle the final state on the main blockchain when necessary. State channels enable fast and
inexpensive transactions while preserving the security and decentralization of the main
blockchain. Examples include the Raiden Network for Ethereum.
On-chain scaling and off-chain scaling are complementary approaches to addressing
scalability challenges in blockchain networks. On-chain scaling focuses on optimizing the
main blockchain's capacity to process transactions, while off-chain scaling solutions enable
transactions to be conducted off-chain to reduce congestion and improve efficiency. By
implementing both on-chain and off-chain scaling solutions, blockchain networks can
achieve higher transaction throughput, reduced latency, and improved scalability without
compromising security or decentralization.

UNIT III: Hyperledger Fabric

Q.1 What Is Hyperledger? Discuss the core goals of Hyperledger.

Ans- Hyperledger is an umbrella open-source collaboration project managed by The Linux
Foundation. It offers a Hyperledger Greenhouse ecosystem, which consists of many projects
ranging from tools, frameworks, and libraries. As it is open-source, it is actively developed,
and hundreds of developers all across the world work together to improve it. It was
introduced in Feb 2016 and has 30 founding members, including IBM, VMWare, SWIFT, R3,
and others.
Hyperledger technology works as an open-source project to build blockchain solutions. It
supports the development of this distributed ledger and applications and delivers high
performance, security, flexibility, and scalability to various platforms. Also, it has a modular
architecture that creates the frameworks, libraries, standards, and tools required to build
blockchains.
The core goals of Hyperledger are as below.
 Create codebases and distributed ledger technology that is enterprise-grade and open
source. These should help support business transactions.
 Build technical communities so that they can work towards building and developing
shared ledger POCs, Blockchain, field trials, and much more!
 Educate the public about the blockchain technology market opportunity.
 Go for a community-driven architecture that is open and neutral. It should be
supported by business and technical governance.
 To promote the community so that it can reach as many frameworks and platforms.

Q.2 What is Hyperledger fabric? What Are the Key Characteristics of Hyperledger
Fabric?
Ans- Hyperledger Fabric is hosted by The Linux Foundation for enterprise blockchain
platforms. The modular blockchain framework is used to develop industry solutions and
enterprise-grade applications. Also, they are responsible for using plug-and-play components
when permissioned for all participating member’s identities.
Hyperledger Fabric is an open-source enterprise-grade permissioned distributed ledger
technology (DLT) platform, designed for use in enterprise contexts, that delivers some key
differentiating capabilities over other popular distributed ledger or blockchain platforms.

 One key point of differentiation is that Hyperledger was established under the Linux
Foundation, which itself has a long and very successful history of nurturing open
source projects under open governance that grow strong sustaining communities and
thriving ecosystems. Hyperledger is governed by a diverse technical steering
committee, and the Hyperledger Fabric project by a diverse set of maintainers from
multiple organizations. It has a development community that has grown to over 35
organizations and nearly 200 developers since its earliest commits.

 Fabric has a highly modular and configurable architecture, enabling innovation,

versatility and optimization for a broad range of industry use cases including banking,
finance, insurance, healthcare, human resources, supply chain and even digital music
delivery.

 Fabric is the first distributed ledger platform to support smart contracts authored in
general-purpose programming languages such as Java, Go and Node.js, rather than
constrained domain-specific languages (DSL). This means that most enterprises
already have the skill set needed to develop smart contracts, and no additional training
to learn a new language or DSL is needed.

 The Fabric platform is also permissioned, meaning that, unlike with a public
permissionless network, the participants are known to each other, rather than
anonymous and therefore fully untrusted. This means that while the participants may
not fully trust one another (they may, for example, be competitors in the same
industry), a network can be operated under a governance model that is built off of
what trust does exist between participants, such as a legal agreement or framework for
handling disputes.

 One of the most important of the platform’s differentiators is its support for pluggable
consensus protocols that enable the platform to be more effectively customized to fit
particular use cases and trust models. For instance, when deployed within a single
enterprise, or operated by a trusted authority, fully byzantine fault tolerant consensus
might be considered unnecessary and an excessive drag on performance and
throughput. In situations such as that, a crash fault-tolerant (CFT) consensus protocol
might be more than adequate whereas, in a multi-party, decentralized use case, a more
traditional byzantine fault tolerant (BFT) consensus protocol might be required.
  Fabric can leverage consensus protocols that do not require a native cryptocurrency to
incent costly mining or to fuel smart contract execution. Avoidance of a
cryptocurrency reduces some significant risk/attack vectors, and absence of
cryptographic mining operations means that the platform can be deployed with
roughly the same operational cost as any other distributed system.
The combination of these differentiating design features makes Fabric one of the better
performing platforms available today both in terms of transaction processing and transaction
confirmation latency, and it enables privacy and confidentiality of transactions and the smart
contracts (what Fabric calls “chain code”) that implement them.

Q.3 What Are the Key Components of Hyperledger Fabric? Define nodes and Channels
in Hyperledger Fabric?
Ans- The two components of Hyperledger fabric are as follows:
 State data
 Transaction log
Nodes in a Hyperledger fabric mean the communication entries in Hyperledger. On the other
hand, channel means the subnet of a Hyperledger network. However, a blockchain network
consists of multiple channels in a single network.

Q.4 Hyperledger Fabric has been specifically architected to have a modular

architecture. Justify the statement.
Ans- Hyperledger Fabric has been specifically architected to have a modular architecture.
Whether it is pluggable consensus, pluggable identity management protocols such as LDAP
or OpenID Connect, key management protocols or cryptographic libraries, the platform has
been designed at its core to be configured to meet the diversity of enterprise use case
requirements.
At a high level, Fabric is comprised of the following modular components:
 A pluggable ordering service establishes consensus on the order of transactions and
then broadcasts blocks to peers.
 A pluggable membership service provider is responsible for associating entities in the
network with cryptographic identities.
 An optional peer-to-peer gossip service disseminates the blocks output by ordering
service to other peers.
 Smart contracts (“chain code”) run within a container environment (e.g. Docker) for
isolation. They can be written in standard programming languages but do not have
direct access to the ledger state.
 The ledger can be configured to support a variety of DBMSs.
 A pluggable endorsement and validation policy enforcement that can be
independently configured per application.
There is fair agreement in the industry that there is no “one blockchain to rule them all”.
Hyperledger Fabric can be configured in multiple ways to satisfy the diverse solution
requirements for multiple industry use cases.

Q. 5 How does Hyperledger Fabric Work?

Ans- Hyperledger fabric is an enterprise-level permission blockchain network. It is made up
of various unique organizations or members that interact with each other to serve a specific
purpose. For example, these organizations can be a bank, financial institution, or a supply
chain network. Each organization is identified and they have a fabric certificate authority.
These organizations are called members. Each member of the fabric can set up one or more
authorized peers to participate in the network using the fabric certificate authority. All of
these peers must be authorized properly.

Workflow:
For each and every transaction in the fabric, the following steps are followed-
Creation of the proposal: Imagine a deal between a smartphone manufacturer company and
a smartphone dealership. The transaction begins when a member organization proposes or
invokes a transaction request with the help of the client application or portal. Then the client
application sends the proposal to peers in each organization for endorsement.
Endorsement of the transaction: After the proposal reaches the endorser peers (peers in
each organization for endorsement of a proposal) the peer checks the fabric certificate
authority of the requesting member and other details that are needed to authenticate the
transaction. Then it executes the chain code (a piece of code that is written in one of the
supported languages such as Go or Java) and returns a response. This response indicates the
approval or rejection of the following transaction. The response is carried out to the client.
Submission to ordering service: After receiving the endorsement output, the approved
transactions are sent to the ordering service by the client-side application. The peer
responsible for the ordering service includes the transaction into a specific block and sends it
to the peer nodes of different members of the network.
Updating the ledger: After receiving this block the peer nodes of such organizations update
their local ledger with this block. Hence the new transactions are now committed.

Q.7 Discuss the various Consensus Algorithms used with Hyperledger Fabric.
Ans- Hyperledger Fabric uses a consensus algorithm to achieve agreement among the
participants in a network on the contents of the shared ledger. The consensus algorithm in
Hyperledger Fabric is pluggable, which means that it can be replaced with a different
algorithm as needed. The most commonly used consensus algorithms in Hyperledger Fabric
are:
 Practical Byzantine Fault Tolerance (PBFT): PBFT is a consensus algorithm that
provides fault tolerance and reliability in a network. It is well-suited for networks with
a limited number of participants who are trusted and well-known.
 RAFT: RAFT is a consensus algorithm that is used to maintain a consistent state
across multiple nodes. It is well-suited for networks where the participants are
unknown and potentially untrusted.
 Solo: Solo is a consensus algorithm that is used for testing purposes in a single-node
network. It is not suitable for production use.

Q.8 Discuss Industry Use Cases for Hyperledger Fabric.

Ans- The Hyperledger Fabric is used with variety of domains. The most popular use cases of
it are:

1. Supply Chain: Supply chains are global or regional webs of suppliers, manufacturers, and
retailers of a particular product. Hyperledger Fabric networks can improve the transaction
processes of the supply chain by increasing the clarity and traceability of transactions within
the fabric. On a Fabric network, enterprises having authentication to access the ledger can
view the data of the previous transactions. This fact increases accountability and reduces the
risk of counterfeiting of the transactions. Real-time production and shipping updates can be
updated to the ledger. Which can help us to track the product condition in a much faster,
simpler, and efficient way.

2. Trading and Asset Transfer: Trading and asset transfer requires many organizations or
members like importers, exporters, banks, brokers. They work with one another. And even in
the era of digitalization a lot of paperwork is going on in this sector. But using Hyperledger
they can transact and interact with each other in a paperless way. The Hyperledger fabric can
add the same layer of trust as the document signed by a trusted authority. This also increases
the performance of the system. Another benefit of Hyperledger fabric is that assets can be
dematerialized on the blockchain network with the help of Hyperledger fabric. Due to this
traders or stakeholder will be able to have direct access to their financial securities and they
can trade it anytime.
3. Insurance: The insurance industry spends billions to avoid insurance frauds or falsified
claims. With the help of Hyperledger fabric, the Insurance company can refer to the
transaction data that is stored inside the ledger. Hyperledger Fabric can also make the
processing of claims faster using the chain code and automate the payment. This process will
be also helpful for multi-party subrogation claims processing. Where it can automate
repayment from the fault party back to the insurance company. Verification of identity or
KYC process will be easy using this private blockchain.

Q.9 Discuss the benefits and limitations of Hyperledger Fabric.

Ans- Benefits of Hyperledger Fabric

1. Open Source: Hyperledger fabric is an open-source blockchain framework hosted by the

Linux foundation. It has an active community of developers The code is designed to be
publicly accessible. Anyone in the community can see, modify, and distribute the code as
they see fit. People across the world can come and help to develop the source code.

2. Private and Confidential: In a public blockchain network each and every node in the
network is receiving a copy of the whole ledger. Thus, keeping privacy becomes a much
bigger concern as everything is open to everyone. In addition to this one, the identities of all
the participating members are not known and authenticated. Anyone can participate as it is a
public blockchain. But in the case of Hyperledger fabric, the identities of all participating
members are authenticated. And the ledger is only exposed to the authenticated members.
This benefit is the most useful in industry-level cases, like banking, insurance, etc where
customer data should be kept private.

3. Access Control: In the Hyperledger fabric, there is a virtual blockchain network on top of
the physical blockchain network. It has its own access rules. It employs its own mechanism
for transaction ordering and provides an additional layer of access control. It is especially
useful when members want to limit the exposure of data and make it private. Such that it can
be viewed by the related parties only. As an example when two competitors are on the same
network. The fabric also offers private data collection and accessibility, where one competitor
can control the access to its own data such that the data do not get exposed to the other
competitor.

4. Chaincode Functionality: It includes a container technology to host smart contracts called

chain code that defines the business rules of the system. And it’s designed to support various
pluggable components and to accommodate the complexity that exists across the entire
economy. This is useful for some of the specific types of transactions like asset ownership
change.

5. Performance: As the Hyperledger fabric is a private blockchain network, There is no need

to validate the transactions on this network so the transaction speed is faster, resulting in a
better performance.

Limitation of Hyperledger Fabric

Hyperledger Fabric is a robust and flexible platform for developing blockchain applications,
but like any technology, it has certain limitations:
  Scalability: Hyperledger Fabric is designed for permissioned networks, where the
participants are known and trusted, which can limit its scalability for large-scale
public networks.
 Performance: The performance of Hyperledger Fabric can be impacted by factors
such as network size, network configuration, and the complexity of chaincode, which
can limit its ability to handle high volumes of transactions.
 Complexity: Setting up and configuring a Hyperledger Fabric network can be
complex, requiring a deep understanding of the technology and its components.
 Compatibility: Hyperledger Fabric is designed to be used with specific programming
languages, such as Go and JavaScript, which can limit its compatibility with other
technologies and programming languages.
 Cost: Running a Hyperledger Fabric network requires infrastructure and resources,
which can add costs to the deployment and operation of blockchain applications.
 Interoperability: Hyperledger Fabric is designed to be used within a single network,
and its interoperability with other blockchain platforms is limited.

Q.10 What are the types of nodes in Hyperledger Fabric? Can the Orderers Within the
Hyperledger Network See the Transaction Data?

Ans- The three types of nodes in Hyperledger Fabric are as follows:

 Peer node
 Client node
 Order node

Among these three nodes, the peer commits the transaction initiated by the client node. No,
the orderers don’t have access to open the transactions. They can only order the transactions.
You can also avoid the orderers by using the private data feature available within the
network. On the other hand, you can also encrypt or hash the data before calling the
chaincode.

Q.11 what are Hyperledger Fabric SDKs? How to Create and deploy a blockchain
network using Hyperledger Fabric SDK for Java?

Ans- Hyperledger Fabric offers a number of SDKs for a wide variety of programming
languages. The first three delivered are the Node.js, Java, and Go SDKs. In a Blockchain
solution, the Blockchain network works as a back-end with an application front-end to
communicate with the network using a SDK. To set up the communication between front-end
and back-end, Hyperledger Fabric community offers a number of SDKs for a wide variety of
programming languages like the NodeJS SDK and Java SDK. This code pattern explains the
methodology to create, deploy and test the blockchain network using Hyperledger Fabric
SDK Java.
Create and deploy a blockchain network using Hyperledger Fabric SDK for Java:

The SDK also provides a means to execute user chaincode, query blocks and transactions on
the channel, and monitor events on the channel. For example, to create a code pattern for a
network consisting of two organizations, each maintaining two peer nodes, two certificate
authorities (ca) for each organization and a solo ordering service, follow the given steps:

 Setup the Blockchain Network

 Build the client based on Fabric Java SDK
 Create and Initialize the channel
 Deploy and Instantiate the chaincode
 Register and enroll users
 Perform Invoke and Query on network

Example Work Flow: Generate the artifacts using cryptogen and configtx for peers and
channel in network. Currently these are already generated and provided in the code repository
to use as-is.

 Build the network using docker-compose and the generated artifacts.

 Use Hyperledger Fabric Java SDK APIs to work with and manage the network.
 Create and initialize the channel
 Install and instantiate the chaincode
 Register and enroll the users
  Perform invoke and query to test the network

Q. 12 Discuss the requirement for Hyperledger Composer. Also discuss its architecture.
Ans- Hyperledger Composer is a framework for building blockchain business networks. It
provides a high level of abstraction for designing the network so the organizations can focus
on the specific application and get it running quickly. There is flexibility to use the toolkit
provided and it can be shared with other players in same industry space so that users don’t
have to reinvent the wheel.

Features Of Hyperledger Composer

 Hyperledger composer is a modular toolkit with pre-built components to build

blockchain business networks. With its help, blockchain business networks can be
created in days and not weeks.
 It is easy to create a smart contract using composer and get it running in only two
days.
 It also supports plug-in features that improve debugging experience by enabling users
to troubleshoot network-related issues effectively. It also lets developers assess the
network communication flows easily with network packet traces and decoding of the
payloads generated by different applications connected to the distributed ledger
system.
 One can use one of these sample plug-ins to troubleshoot the system runtime
environment of your choice on Mac, Linux, or Windows systems.

Hyperledger Composer Architecture

 Developers of the Hyperledger Composer platform utilize Apache Cassandra as a tool

for providing access to a set of services that form the underlying architecture of this
platform.
 These services include the ledger, storage interface, and event service.
 In order to interact with these services and make use of the Hyperledger Composer
platform, developers can make use of the application called “Composer Playground”
which allows them to get used to the workflow and perform certain tasks like creating
contracts or running different transactions through an IDE (Integrated Development
Environment).
 UNIT IV: USE CASE 1 & 2

Q.1 List out the problems associated with traditional supply chain management. How
are these problems overcome by the decentralization of supply chain management?

Answer:-
Problems associated with traditional supply chain management:
The existing supply chain management system is outdated. It is unable to match the pace of
changes happening across the globe. The speed of existing supply chain is extremely slow.
Following are the major problems which have been face by the industry in supply chain
management :
 Problem of transparency related to supply of goods from one place to other.
 No surety of goods genuineness as "real and "certified".
 Identifying the true value of transaction.
 Expensive and inefficient systems.
 Risk of counterfeiting and fraud, lack of trust, unreliability, and insecurity in data are
also problems which have been observed.

Decentralization of supply chain management:

 There are numerous benefits of decentralization of supply chain management.
 Major benefits are bringing traceability and transparency into the system.
 Real-time tracking of data is possible which helps to locate the items and their
conditions, resulting in reduction of human error.
 There would be a change in the speed of transactions and efficiency level will also be
enhanced.
 Since blockchain is trustless chain therefore it provides more security and eliminates
the chances of fraud and errors.
 Other benefits of decentralized supply chain are improved inventory management,
lower courier costs, less paperwork, and faster issue identification.

Q.2 What are the advantages and limitations of blockchain in supply chain finance ?

Answer:- Advantages of blockchain in supply chain finance include :

a) Decentralized and secure databases

b) Anonymous and inexpensive transactions.
c) Smart contracts and product traceability.

Limitations of blockchain in supply chain finance:

a) Integration with existing IT systems.
b) Validation of successful adoption of blockchain technology.
c) Scalability.
 d) Lack of computing power.
e) Regulatory and legal governance.

Q.3 Discuss application of blockchain in financial software and systems with respect to
settlements.

Answer:
 Settlement can be defined as the process of transferring of funds through a central
agency, from payer to payee, through participation of their respective banks.
 In the current financial system, some payments can take up to a week to finally settle.
 These intermediaries can be front and back offices of a bank, third parties like
currency exchangers in case of cross-border payments.
 The presence of these intermediaries is a way to ensure security and authenticity in a
centralized system, but it leads to long settlement time.
 The reason behind it is mainly the presence of multiple intermediaries in the system.
 Present financial system is multi-layered, which means that every transaction has to
go through at least a couple of intermediaries in order to settle.
 Using block chain peer-to-peer (P2P) transactions are possible.
 It eliminates the need of intermediaries as smart contracts will be able to manage
transactions successfully.
 As the "layers" of the system will be reduced, instant settlements of payments will be
facilitated.

Q.4 Mention the benefits of blockchain in KYC process.

Answer:
KYC (Know Your Customer) processes are the backbones of a financial institution's anti-
money laundering efforts. Regulatory compliance committee in India has enforced KYC for
every bank. However, KYC process takes long time for collecting and uploading the data
individually in the system. It is estimated that 80% of KYC efforts go on gathering
information and processing. Also, there is high possibility of false entry and duplication of
the data. Blockchain carries the key to eliminating inefficiencies and duplication in KYC
processes. Blockchain stores this data in a central repository and generates a reference
number. This reference number is shared among all banks and financial institutions in near
real time. Banks can access the same data for due diligence related to any customer's request
for any other service in the same bank or with other banks. This helps in removing the efforts
of collecting and checking KYC information again and again. Since the data are stored in
encrypted form, security is maintained.

Q.5 Discuss blockchain in financial software and systems.

Answer:- Blockchain has been applied to banking and financial services in various ways and
getting numerous benefits. Smart contract service helps in conducting financial transactions
without an intermediary. It has the potential to manage securities, deeds, settlements, and
claims in an automated manner. Most people know the term "blockchain" in relation to the
cryptocurrency Bitcoin.
However, mainstream financial institutions have started to use blockchain technology without
Bitcoin to make their own transactions more efficient and secure. Blockchain is essentially a
ledger of recorded financial transactions. This ledger is distributed, published, and stored in
multiple locations. When a transaction occurs, it is added to each copy of the ledger. This
helps ensure an accurate record of transactions. Because there are many copies of the ledger,
blockchain is practically immutable and highly secure. To alter any part of the record, a
hacker would have to change every copy of the ledger simultaneously, which would be
extremely difficult.

Q.6 Discuss application of blockchain technology in trade/ supply chain.

Answer: With manufacturing process taking place across the globe and the need of
transparency between suppliers and supply chains are must. Supply chain is integrated with
logistics industry, freight, trucking, shipping, and other modes of transportation. There is a
strong need to streamline and make its system transparent. Blockchain is perfectly suitable
for supply chain management, with real-time tracking of goods. It is especially appealing to
companies having multiple supply chains. With the help of BCT, all inefficient and
incompetent supply chain will be eliminated. Businesses are getting transformed with the
help of blockchain-based supply chain solutions which offer end-to-end decentralized
processes through DLT and digital public ledger.

Q.7 What does visibility in supply chain mean ? Explain how blockchain helps in supply
chain visibility (SCV)?

Answer: Supply Chain Visibility (SCV) is the ability to track individual components, sub-
assemblies and final products as they travel from supplier to manufacturer to consumer. This
data helps companies maneuver around inventory shortages, avoid bottlenecks, meet
compliance directives and track products through to delivery.
Blockchain and supply chain visibility (SCV): A significant motivation for companies
investing in blockchain for SCV is increasing consumer demand for information about
product origins. The internet has enabled information sharing among customers, and
blockchain offers the potential for the kind of visibility that can be corroborated by the
system. The level and quality of visible data that blockchain might offer could increase
service quality to consumers, creating greater value. Blockchain is demonstrated as an
enabler of visibility in supply chains. Blockchain potentially offers the upstream visibility in
supply chains. This is largely a result of the decentralised, consensus-based trust mechanism
underpinning the technology. The visibility provided by blockchain solutions aids decision-
making by enabling stakeholders to see timely, accurate, and reliable information. Blockchain
integrated with product labelling solutions offers a level of visibility that was previously not
possible.

Q.8 What is invoice discounting? Describe the role of blockchain in invoice discounting.
Answer: Invoice discounting is a funding option provided to businesses that are issued by
finance companies. Under the invoice discounting process, the business uses the unpaid
invoices of its customers as collateral to access advances on cash funds that improve the
working capital and cash flow position of their business. Invoice discounting significantly
improves the cash flow and growth of business. This is because the business obtains fast
funding as immediate cash rather than having to wait the usual 30-60 days.
Role of blockchain in invoice discounting:
1. Blockchain adoption enhances the overall invoice discounting process.
2. The trust and security mechanisms of the blockchain allow for the elimination of on-
site audits of receivables and debtors.
3. Using blockchain, debtor's verification of the invoice validity, reduces significantly
the risk of dispute and non-payment of that invoice.
4. The blockchain provides a complete and transparent record of a supplier's completed
transactions and their success rate on which to ground funding and recourse decisions.

Q.9 List down the Pros and Cons of using Blockchain in the Trade/Supply Chain
System.

Answer:
Pros of blockchain in trade/supply chain include:
 Decentralized and secure databases
 Anonymous and inexpensive transactions.
 Smart contracts and product traceability.

Cons of blockchain in trade/supply chain:

 Integration with existing IT systems.
 Validation of successful adoption of blockchain technology.
 Scalability.
 Lack of computing power.
 Regulatory and legal governance.

Q.10 What is invoice management/processing? Explain problems associated with

manual invoice processing. Describe the role of blockchain in invoice management.

Answer: Invoice management (invoice processing) is the method by which companies track
and pay supplier invoices. The process involves receiving an invoice from a third party,
validating it as legitimate, paying the supplier, and noting the payment in company records.
Problems associated with manual invoice processing :
 Lack of Process Transparency: The status of manual invoice processing is opaque.
The status of the entire process and the duration it will take to mature often lacks
transparency.
  Hidden Costs: Hidden costs often linger in manual invoice processing, where one
invoice is handled several times, even before an approval decision is made.
 High Error Rates: Manual invoicing is vulnerable to numerous errors with accuracy
plainly in the hands of the invoice processing handlers. This can give rise to costly
problems.
 Unnecessarily Complex Processing: During the early stages, a business might handle
invoices as they arrive. However, as a company grows, its processes become
unnecessarily complex.

Role of blockchain in invoice processing: Blockchain technology can streamline invoice

processing, save costs, minimize settlement times, and improve the business agility. In an
environment where businesses experience errors and fraud attempts concerning invoice
processing, guaranteeing trust becomes obligatory. For this purpose, blockchain offers an
invoicing solution that brings trust to every step of the invoicing process. The solution
leverages blockchain technology to gather and process data in a faster and effective
manner.

UNIT V: USE CASE 3

Q.1 Give the application of blockchain in notary services.

Answer: Notary services may be transformed using blockchain. These administrative time
stamps actually validate an action that happens in a person's life including:

 birth and death details,

 documentation for new identity,
 receiving educational certificate,
 transfer of ownership titles.
As of now, many of these practices are done on secluded databases or through brick-and-
mortar offices, which are generally prone to errors. Due to the encryption of the data and
information stored in a blockchain all these recorded data will be stored safely.

Q.2 What are the benefits of blockchain in government sector?

Answer:
 Government adoption of blockchain can be viewed from regulatory, consumer, and
developer perspectives.
 As a governing body, a state may wish to monitor how blockchains are used.
 As a user of applications, governments may use blockchains to improve processes
 A blockchain-based government can protect data, streamline processes, and reduce
fraud, waste, and abuse while simultaneously increasing trust and accountability.
 On a blockchain-based government model, individuals, businesses, and governments
share resources over a secured distributed ledger.
  This structure eliminates a single point of failure and inherently protects sensitive
data.

A blockchain-based government enables the following advantages:

a) Secure storage of government, citizen, and business data.
b) Reduction of labour-intensive processes.
c) Reduction of excessive costs associated with managing accountability.
d) Reduced potential for corruption and abuse.
e) Increased trust in government and online civil systems.

Q.3 What do you understand by Public Distribution System (PDS)? Give the process
flow for PDS.

Answer:

Public Distribution System (PDS): Public distribution system is a government-sponsored

chain of shops entrusted with the work of distributing basic food and non-food commodities
to the needy sections of the society at very cheap prices. Subsidised ration distribution takes
place each month to the ration card holders under public distribution system (PDS).
Blockchain technology can be useful in managing supply chain effectively using distributed
ledger technology. Entire supply chain starting from procurement till disbursement can be
part of blockchain. Blockchain provides an effective way to combat corruption, exclusion
errors of targeted beneficiaries, leakage of PDS food grains and is cost-effective.

Process flow for PDS:

 Farmer cultivates the food grains which are then procured by the government under
minimum support price (MSP).
 Millers identified by the government collect food grains initially and then hull it to be
returned to government.
 It is then moved to state go downs to be distributed to various block go downs.
 From the block go downs these commodities gets distributed to various fair price
shops (FPS) for beneficiary distribution

Q.4 Explain how blockchain uses cryptography? How cryptography provides trustless
environment in blockchain network?

Answer: Blockchain uses cryptography to derive most of its properties. Each participant on
the network is categorized as a node and has a pair of public and private keys. The public key
acts as a public address of the node, and private key is used for authentication. When a
transaction is created, it will have the public key of the sender, public key of the receiver, and
the transaction message. Then the transaction is cryptographically signed using the private
key
and transmitted over the blockchain network. This completes one transaction.

Trustless Environment:
Cryptography is method for protecting information through the use of encrypting and
decrypting the data. Blockchains mainly make use of two types of cryptographic algorithms:
 Hash functions
 Asymmetric-key algorithms
Hashing is mainly used in linking of blocks and in consensus algorithms. Asymmetric key
cryptography is driving the blockchain applications for identifying the contributors of the
network and proof of their ownership. So cryptography is an excellent way for replacing the
provides third parties and trustless environment in blockchain network.

Q.5 Explain SHA-256 hashing algorithm.

Answer: Secure Hashing Algorithm (SHA)-256 is the hash function and mining algorithm of
the Bitcoin protocol. It refers to the cryptographic hash function that outputs a 256 bits long
value. It moderates the creation and management of addresses, and is also used for
transaction verification. It is a Secure Hashing Algorithm, commonly used for digital
signatures and authentication. 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. The algorithm is a
variant of the SHA-2 (Secure Hash Algorithm 2). SHA-256 is also used in popular encryption
protocols such as SSL, TLS, SSH and open source operating systems such as Unix/Linux.

Q.6 Elaborate the working of Merkle trees and its application.

Answer: A Merkle tree totals all transactions in a block and generates a digital fingerprint of
the entire set of operations, allowing the user to verify whether it includes a transaction in the
block. Merkle trees are made by hashing pairs of nodes repeatedly until only one hash
remains. This hash is known as the Merkle Root or the Root Hash. They're built from the
bottom, using Transaction IDs, which are hashes of individual transactions. Each non-leaf
node is a hash ofits previous hash, and every leaf node is a hash of transactional data.

Application of Merkle trees:

 Merkle trees are used in distributed systems for efficient data verification.
 Merkle trees can be used to verify any kind of data stored, handled and transferred in
and between computers.
 Merkle trees help ensure that data blocks received from other peers in a peer-to-peer
network are received undamaged and unaltered.
 Merkle trees can be used to check that other peers in a peer-to-peer network do not lie
and send fake blocks.
 Merkle trees can be used to check inconsistencies

Q.7 What are the key principles in blockchain that are helpful in eliminating the
security threats that needs to be followed?

Answer: The fundamental principles in blockchain that must be followed to eliminate

security threats are:
A. Auditing: An audit involves an assessment that recorded transactions are
supported by evidence that is relevant, reliable, objective, accurate, and
verifiable.
 B. Securing applications: Blockchain technology produces a structure of data with
inherent security qualities. It's based on principles of cryptography,
decentralization and consensus, which ensure trust in transactions.
C. Database security: The records on a blockchain are secured through
cryptography. Network participants have their own private keys that are
assigned to the transactions they make and act as a personal digital signature.
D. Digital workforce training: The digital workforce is use to describe a variety
robotic and automated solutions for driving productivity efficiencies in the
workplace. Digital workforce training helps in making blockchain security more
efficient.

Q.8 Explain the use of cryptography Hash function/Hashing in blockchain network.

Answer: Data in blockchain are cryptographically hashed. Hash function is a one-way

function which means that hash can be generated from the plain text, but deriving the plain
text from the hash is extremely difficult. Thus, tracking of information and unauthorized
tampering of data cannot be done. Hash value denotes a numeric value of a fixed length that
will be generated
using cryptographic hash algorithm. It identifies the data uniquely and blockchain state is
represented by hash function SHA256. Hashing generates a fixed length hash value that
uniquely represents the contents of an arbitrary length string. Identical strings are generating
the same hash value. Retrieving the original string from hashed values is not possible, since it
is a one-way function. Genesis block hash is calculated using initial transactions. Index of the
block, previous block hash, timestamp, block data, and nonce are used for calculating the
hash value of the consecutive blocks.

Q.9 Describe the role of cryptographic digital signature in blockchain network.

Answer: Asymmetric cryptographic mechanism is used to verify the credibility of the

transaction in a deceitful environment. Digital signature works on the principle of asymmetric
cryptography. Each transaction member is provided with a private and public key. In digital
signature there are two levels involved: verification phase and signing. During the phase of
signing, the encryption of the data is carried out using the private key by the sender.
Encrypted result and native data are delivered, which are sent to the receiver of the
transaction. Elliptic Curve Digital Signature Algorithm (ECDSA) is used to implement digital
signature mechanism in blockchains. The private key is used to sign and record various
messages, while the digital signature is validated using the public key.

Q.10 Discuss privacy issues of blockchain technology.

Answer: Different blockchain applications present different and unique privacy challenges.
Following three general categories currently concern legal privacy experts:
 The first involves the necessary bridge between the physical and cyberspace
limits.
 The second involves sensitive information that is actually stored on
the blockchain.
  The third involves the very existence of blockchains.
The "physical cyberspace boundary" refers to the concept that when a person interacts in
cyberspace, he do so through an "online identifier." While any sensitive information stored on
the blockchain will be encrypted, hackers may target those specific nodes that can be more
easily compromised to access the encrypted information. Privacy risks can be mitigated by
operating in closed networks.