Blockchain Technology

Introduction

Dr. S. Poovarasan
Assistant Professor
Department of CS (AI & DS)
Sri Ramakrishna College of Arts & Science
Coimbatore- 641 006
Blockchain Introduction
• A blockchain is a digital, decentralized, distributed public ledger
database where blocks are linked cryptographically, and transactions
are digitally signed and managed using consensus model.
• Each block contains a timestamp and a link to the previous block,
forming a chain of blocks that cannot be altered once they are added
to the blockchain.
Key vocabulary while discussing Blockchain
• Blockchain: a decentralized, distributed ledger that records transactions on multiple computers so that the record
cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.
• Cryptocurrency: a digital or virtual currency that uses cryptography for secure financial transactions.
• Bitcoin: a decentralized cryptocurrency that uses peer-to-peer technology to facilitate instant payments. It is the
first and most widely used cryptocurrency.
• Distributed ledger: a ledger of digital transactions that is stored and maintained by a network of computers rather
than a central authority.
• Mining: the process of adding transaction records to a blockchain's public ledger. In the case of Bitcoin, mining
involves solving complex mathematical problems in exchange for a reward in the form of cryptocurrency.
• Node: a computer that participates in the operation of a blockchain network.
• Smart contract: a self-executing contract with the terms of the agreement between buyer and seller being directly
written into lines of code. The code and the agreements contained therein are stored and replicated on the
blockchain network.
• Consensus: the agreement of the majority of nodes on a blockchain network to the validity of a transaction or
block of transactions.
• Hash: a unique fixed-size alphanumeric string that represents the contents of a block in a blockchain.
• Private key: a secret piece of data that is used to access the cryptocurrency stored in a wallet. It should be kept
secret and secure, as it allows the owner to spend or transfer their cryptocurrency.
Blockchain integrate with following innovations
• In 1982, David Chaum proposed the first-ever blockchain-like protocol in his dissertation, Computer
Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.
• In 1991,researcher scientists named Stuart Haber and W. Scott Stornetta introduce Blockchain
Technology. In this System, the time-stamped documents are stored in a Chain of Blocks.
• After that in 1992, Merkle Trees formed a legal corporation by using a system developed by Stuart
Haber and W. Scott Stornetta with some more features. Merkle used a Secured Chain of Block which
stores multiple data records in a sequence.
• in the year 2004, Cryptographic activist Hal Finney introduced a system for digital cash known as
"Reusable Proof of Work". This System helps others to solve the Double Spending Problem by
keeping the ownership of tokens registered on a trusted server.
• After that in 2008, Satoshi Nakamoto conceptualized the concept of "Distributed Blockchain" under
his white paper: "A Peer to Peer Electronic Cash System". He modified the model of Merkle Tree and
created a system that is more secure and contains the secure history of data exchange. His System
follows a peer-to-peer network of time stamping. His system became so useful that Blockchain
become the backbone of Cryptography.
The History of Bitcoin
Fundamentals of Blockchain
Types of Blockchain
Public Blockchain
• It is a permissionless distributed ledger on which anybody can join
and conduct transactions.
• It is a non-restrictive form of the ledger in which each peer has a
copy. This also means that anyone with an internet connection can
access the public Blockchain.
• This user has access to historical and contemporary records and the
ability to perform mining operations.
• These complex computations must be performed to verify
transactions and add them to the ledger.
• On the blockchain network, no valid record or transaction may be
altered. Because the source code is usually open, anybody can check
the transactions, uncover problems, and suggest fixes.
Advantages & Disadvantages of Public Blockchain
• Advantages
• Trustable: Public Blockchain nodes do not need to know or trust each other
because the proof-of-work procedure ensures no fraudulent transactions.
• Secure: A public network can have as many participants or nodes as it wants,
making it a secure network. The higher the network's size, the more records
are distributed, and the more difficult it is for hackers to hack the entire
network.
• Open and Transparent: The data on a public blockchain is transparent to all
member nodes. Every authorized node has a copy of the blockchain records
or digital ledger.
Disadvantages
• Lower TPS: The number of transactions per second in a public blockchain is
extremely low. This is because it is a large network with many nodes which
take time to verify a transaction and do proof-of-work.
• Scalability Issues: Its transactions are processed and completed slowly. This
harms scalability. Because the more we try to expand the network's size, the
slower it will become.
• High Energy Consumption: The proof-of-work device is expensive and requires
lots of energy. Technology will undoubtedly need to develop energy-efficient
consensus methods.
Uses of Public Blockchain
• Voting: Governments can use a public blockchain to vote, ensuring
openness and trust.
• Fundraising: Businesses or initiatives can use the public Blockchain to
improve transparency and trust.
Private Blockchain
• A blockchain network operates in a private context, such as a
restricted network, or is controlled by a single identity.
• While it has a similar peer-to-peer connection and decentralization to
a public blockchain network, this Blockchain is far smaller.
• They are often run on a small network within a firm or organization
rather than open to anybody who wants to contribute processing
power.
• Permissioned blockchains and business blockchains are two more
terms for them.
Advantages & Disadvantages of Private Blockchain
• Advantages
• Speed: Private Blockchain transactions are faster. This is because a private network
has a smaller number of nodes, which shortens the time it takes to verify a
transaction.
• Scalability: You can tailor the size of your private Blockchain to meet your specific
requirements. This makes private blockchains particularly scalable since they allow
companies to easily raise or decrease their network size.
• Disadvantages
• Trust Building: In a private network, there are fewer participants than in a private
network.
• Lower Security: A private blockchain network has fewer nodes or members, so it is
more vulnerable to a security compromise.
• Centralization: Private blockchains are limited in that they require a central Identity
and Access Management (IAM) system to function. This system provides full
administrative and monitoring capabilities.
Uses of Private Blockchain
• Supply Chain Management: A private blockchain can be used to
manage a company's supply chain.
• Asset Ownership: A private blockchain can be used to track and verify
assets.
• Internal Voting: Internal voting is also possible with a private
blockchain.
Hybrid Blockchain
• Organizations who expect the best of both worlds use a hybrid
blockchain, which combines the features of both private and public
blockchains.
• It enables enterprises to construct a private, permission-based system
alongside a public, permissionless system, allowing them to choose
who has access to certain Blockchain data and what data is made
public.
• In a hybrid blockchain, transactions and records are typically not
made public, but they can be validated if necessary by granting access
via a smart contract.
Advantages & Disadvantages of Hybrid Blockchain
• Advantages
• Secure: Hybrid Blockchain operates within a closed environment, preventing
outside hackers from launching a 51 percent attack on the network.
• Cost-Effective: It also safeguards privacy while allowing third-party contact.
Transactions are inexpensive and quick and scale better than a public
blockchain network.
• Disadvantages
• Lack of Transparency: Because information can be hidden, this type of
blockchain isn't completely transparent.
• Less Incentive: Upgrading can be difficult, and users have no incentive to
participate in or contribute to the network.
Uses of Hybrid Blockchain
• Real Estate: Real-estate companies can use hybrid networks to run
their systems and offer information to the public.
• Retail: The hybrid network can also help retailers streamline their
processes.
• Highly Regulated Markets: Hybrid blockchains are also well-suited to
highly regulated areas like the banking sector.
Consortium Blockchain
• In the same way that a hybrid blockchain has both private and public
blockchain features, a Consortium blockchain, also known as a
federated blockchain, does.
• However, it differs because it involves various organizational members
working together on a decentralized network.
• Predetermined nodes control the consensus methods in a consortium
blockchain.
• It has a validator node responsible for initiating, receiving, and
validating transactions. Transactions can be initiated or received by
member nodes.
Advantages & Disadvantages of Consortium
Blockchain
• Advantage
• Secure: A consortium blockchain is more secure, scalable, and efficient than a
public blockchain network. It, like private and mixed blockchains, has access
controls.
• Disadvantages
• Lack of Transparency: The consortium blockchain has a lower degree of
transparency. If a member node is infiltrated, it can still be hacked, and the
Blockchain's rules can render the network inoperable.
Uses of Consortium Blockchain
• Banking and Payments: A consortium can be formed by a group of
banks working together. They have control over which nodes will
validate transactions.
• Research: A consortium blockchain can be employed to share
research data and outcomes.
• Food Tracking: It is also apt for food tracking.
Characteristics of blockchain
• Data immutability: This is the top-most feature as it ensures that no
data is corrupted. How this works is that every node on the system
has a copy of the ledger. So, to alter any data, there must be an
unanimous agreement of every node. This makes blockchain secure
and transparent.
• Decentralized: Blockchain is decentralized, meaning that no authority
or government, a group of persons, or a single individual controls this
technology. Rather, it is a group of nodes that manage the whole
transaction.
• Single source of truth: In a blockchain, there is only one source of
truth, the distributed ledger. So, to know who owns what, or to study
a particular transaction, you only need to go to one place.
 Cont…
• Transparency or provenance: Every transaction, be it tangible or
non-tangible, can be traced from the start to the finish with blockchain.
• Consensus algorithm: Every blockchain technology has a consensus
algorithm which makes the blockchain technology highly effective. All the
actions are verified and approved on the blockchain using the consensus
algorithm.
• Distributed Shared Ledger: A Ledger is a record of all relevant transactions.
A shared ledger allows the authorized participants to access monitor and
analyze the state of a transaction in its lifecycle.
• Security: SHA - 256 cryptography algorithm is used for hashing. Further
fixed-length has output value is generated irrespective of the input data
length. This makes it difficult to hack. Also, the components that go into
block generation increases the difficulty level for hacking.
 Cont…
• Auditability (Provenance): The chain acts as a trail of the transactions.
Timestamp helps in proving the sequence. The Blockchain acts as an
archive. The blocks are read-only for their lifetime. Therefore the system
facilitates Auditability and Provenance any time.
• Anonymous: It is true that every transaction is transparent and open to the
public, but the actual persons are kept anonymous through the addresses.
• For example, suppose a person sends a sum of money, the receiver will
know that the sender is linked to a bitcoin address, but they will not know
the actual address. There are several reasons for this one of them is
privacy.
• Privacy and Security: Privacy in the blockchain is one of the key aspects of
the features of blockchain. The network allows the users to keep their data
in control while also providing a secure data storage option.
Distributed Ledger Technology (DLT)
• The idea of a distributed ledger is not totally new, and many organizations
do maintain data at different locations. However, each location is typically
on a connected central system, which updates each one of them
periodically. This makes the central database vulnerable to cyber-crime
and prone to delays since a central body has to update each distantly
located note.
• Distributed Ledger Technology (DLT) refers to a type of database that is spread
across a network of computers.
• Each computer in the network has a copy of the database, and all copies are
updated simultaneously when a new transaction is added.
• DLT is used to create decentralized systems that do not rely on a central authority
to process transactions.
• The most well-known example of DLT is blockchain, which is the technology that
powers cryptocurrencies like Bitcoin.
• Other examples of DLT include Hashgraph, Tangle, and Corda.
DLT decentralized Applications & Database
• Private Vs Public DLT
• Examples of decentralized Applications & Databases are
• BitTorrent, Interplanetary File System(IPFS), and eMule.
• DLT network groups individual practice that administrates the
guidelines for participation, authenticates the record of transactions,
and manages the ledger.
• This sharing can be public or private.
• Public DLT allows entry by any user, party, or node.
• Private DLT entry is based on permission control.
• Public DLT utilize high distributed consensus
Blockchain Architecture
• These are the core blockchain architecture components:
• Node: user or computer within the blockchain architecture (each has an
independent copy of the whole blockchain ledger)
• Transaction: smallest building block of a blockchain system (records,
information, etc.) that serves as the purpose of blockchain
• Block: a data structure used for keeping a set of transactions which is
distributed to all nodes in the network
• Chain: a sequence of blocks in a specific order
• Miners: specific nodes which perform the block verification process before
adding anything to the blockchain structure
• Consensus (consensus protocol): a set of rules and arrangements to carry out
blockchain operations.
Blockchain Architecture cont..
• Hashing: A hash is like a fingerprint (long record consisting of some digits and letters). Each
block hash is generated with the help of a cryptographic hash algorithm (SHA 256).
Consequently, this helps to identify each block in a blockchain structure easily.
• The moment a block is created, it automatically attaches a hash, while any changes made in
a block affect the change of a hash too. Simply stated, hashes help to detect any changes in
blocks.
• Blockchian employs some famous hash algorithms such as:
• SHA 256, Federal Information Processing (FIPS), Elliptic Curve Digital Signature Algorithm
(ECDSA)
• Cryptographic primitives: Public key and private key
• Digital signature: owner unique identity
• Network: interconnection of nodes
• Ledger: stores the transaction details.
Any new record or transaction within the blockchain implies the building of a new
block. Each record is then proven and digitally signed to ensure its genuineness.
Before this block is added to the network, it should be verified by the majority of
nodes in the system.
Transactions
• Transaction is a record that transfers assets such as currency and inventory
units from one party to another.
• A viable transaction happens when these data fields are contained in any
operation.
• Amount: total quantity of assets
• Inputs: list of assets in a transaction, with unique value
• Outputs: hash processed assets when transaction is occurred
• Hash id: unique identity for any transaction
• Asymentric key public-private key cryptography:
• Address : its used to transfer the digital assets.
• Privatekey storage: the software wallet can store private keys, public keys and
corresponding address.
• Ledgers: Stores group of transactions
• Blocks: users submit entrant transactions to the leadger by sharing these
transactions.