MCs01s CRYPTOCURRENCY AND BLOCK CHAIN TECHNOLOGIES UNTE- IT UNIT HT CRYPTOCURRENCY YS - Value of Bitcoin - Community, Biteoin: Bitcoin Working - Bitcoin Transactions - Bitcoin Minin; Politics and Regulations ~ Advantages ~ Disadvantages. £thereum: Overview — Decentralized Application. Components of Ethereum: Smart contracts ~ Ether - Ethereum Clients - Ethercum Virtual Machine ~ Etherseripter PART - A Define Cryptocurrency. Cryptocurrency, also known as crypto, is a type of online payment method that can be exchanged online to purchase goods and services. It is much similar to real-world currency, but it docs not have any physical appearance. It is encrypted, transparent, and decentralized digital! money, which is basi in technology., There are approximately 5000 different types of cryptocurrencies, among, which Bitcoin and Ethereum are the popular ones. 2. What is Cryplography Cryptography is a methed of using encryption and deeryption to secure communication in the presence of third parties with ill intent—that is, third parties who want to steal your data or eavesdrop on your conversation. Cryptography uses computational algorithms such as SHA-256, which is the hashing algorithm that Bitcoin uses; a public key, which like a digital identity of the user shared with everyone; and a private key, which is a digital signature of the user that is kept hidden 3. What is Bitcoin? A bitcoin is a type of digital currency which can be bought, sold, and transfer between the two parties securely over the internet. It cannot be touched and seen, but it can be traded electronically. We can store it in our mobiles, computers or any other storage media as a virtual currency. Bitcoin can store values much like fine gold, silver, and some other type of investments. It can be used to buy products and services as well as make payments and exchange values clectroniealty. It is the most popular eryptocurrency in the world. 2 4. What is a Bitcoin walle ‘A Bitcoin wallet(digital wallet) is software program Technically, a Bitcoin wallet is stored a private key(secret number) for every Biteoin address. The owner of the wallet can send. receive, and exchange bitcoins. The Bitcoi wallet is of many forms, and some of them ae a desktop wallet, mobile wallet, web wallet, and hardware wallet. are stored. e Biteoin . What do you mean by Bitcoin Minin; Bitcoin mining is performed by bitcoin miners(a group of people). The procedure of bitcoin mining is done by specialized computers equipped for solving algorithmic Miners achieve bitcoin mining by solving a computational problem which d computers help miners to equations, makes the chain of blocks of transactions. These speciatia authenticate the block of transaction held within cach biteoin network, Whenever 4 new Prepared by hare ® Indhumathy &P/MCAMCs01S CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES NIv- 1 get rewanis for this new block, The block added into the blockchain, immed ely miners miners get rewands in biteoin along with transaction fees What are the basic components of biteoi * Software «Cryptography Hardware © Miners(Gaming Theory) How do bitcoin transactions work? A transaction is a transter of value between Biteoin wallets of sender and receiver in the blockehain network, Fach bitcoin transaction is composed of an amount, The amount is the input (sending address), an output (receiver's address), and the private Keys that allow spending of Bitcoins from an individual's account 8. How is Biteoin Used? Below are some of the ways of using bitcoin: Payment: Bitcoin is accepted as a mode of payment for goods and services at many merchants, and retailers, To use bitcoin, wallets are required, cryptocurrency wallet Contain private Keys 0 the biteoin, which need to be entered while conducting transaction. Investing: portfolio: Biteoin grew in popularity which made Investors and Individuals interested in investing in the cryptoctirrency Bitcoin, Individuals can invest in Bitcoin to help diversify their portfolio of stocks and bonds, 9. Write the difference between Blockehain and Bitcoin. Blockchain Bitcoin | chain is a ledger wil jographic a 1. | Blockchain is a ledger with eryprosrapnic Bitcoin is a cryptocurreney. integrity. 2 es 2. lockchai ‘ily transfer ing from | ec rei Blockchain can easily transfer anything {OM | yRi:cojn js limited to trading as currene currencies to property rights of stocks. . = ° 3 “Tehas a limited scope and is i Ithas a broad scope because of open-source. | Aecible con 4. MYo simplify and increase the speed of It provides a low cost safe and secure i . transaction without much of government environment for a peer-to-peer transaction. Ss chioleovern-d ictions. Fes ; Itean be termed as anonyt Mis transparent as it must comply with KYC | there are no regulatory framework and for every business. standards that have been followed by bitcoin. nous becauseMC4013 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOG! UNIT-U 10. What are the advantages of bitcoin? Following are the benefits of Bitcoins: I is accepted worldwide at the same rates, appreciation: — a thas the Ipwest transaetional fees in the world Wthas fewer risks and irreversible transaction benefitting merchants. ILis fully Secured and control by the cryptographic eneryption algorithm: Wis the transparent & neutral mode of administration as anyone can check data in real~ and there is no risk of depreciation or “AL. What are the disadvantages of Bitcoin? Pollowing are the disadvantages: of biteoins + Degree of Acceptance: In Bitcoin, the Degree of Acceptance is very low because many people are still unaware of its benefits. + Volatile: Total number of Bitcoins in circulation is very small, so even a small change can make the price of the Bitcoin volatile. * Ongoing Development: Bitcoins software is still in beta form, and many incomplete features are in active development 12. What is Ethereum? Ethereum is a blockchain-based computing platform that enables developers to build and deploy decentralized applications—meaning not run by a centralized authority. You can create a decentralized application for which the participants of that particular application are the decision-making authority. ~ a 13. What are the fearutes of Ethereum? Ether: This is Ethereum’s cryptocurrency. _ Smart contracts: Ethereum allows the dévelopment and deployment of these types of contracts. Ethereum Virtual Machine: Ethereury provides the underlying technology—the architecture and the sofiware—that understands smart contracts and allows you to interact with it. Decentralized applications (Dapps): A decentralized application is called a Dapp (also spelled DAPP, App, or DApp) for short. Ethereum allows you to create consolidated applications, called decentralized applications. Decentralized autonomous organizations (DAOs): democratic decision-making. Ethereum allows you to create these for 14, What is a Smart Contract? A smart contract is 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 exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible, Smart contracts permit trusted transactions and 1 disparate, anonymous parties without the need for w c ements (0 be carried out among -entral authority.MC4OI3 UNIT <1 15. What is Ethereum Accounts? ‘There are two types of Ethereum account: Externally owned account — —-Phese-accounts-are-used to store: transactions: ———---— Contract account — As the name itself suggests, these accounts store the details of Smart Contracts. Phey are as follows. 16. Write the differences between Ethereum Node and Ethereum Client. SNo. Ethereum Node Ethereum Client A machine running therm | cents an Ether implementation 1. | client software isetered toasan | Mt aidan all ranssetons in each clesteonuare ed Jock, enstring the network's security an data accuracy. The three types of Ethereum , The three types of Ethereum Clients are | Nodes are Full, Light, Archive, Full, Light, and Remote Clients ‘The Ethereum node operating ‘The Ethereum client computer allows a 3... | system allows us to access the = user to access the’node operating system. internet. ans 17. What is Etherscripter? | Etherscripter is a visual smart contract builder tool in Ethereum. It provides a GUI for creating smart contracts in simple steps. Etherscripter provides a simple drag and drop interface where the corresponding backend codes in Serpent, LLL, and XML will be generated automatically. Using Etherscripter even a non-programmer can create smart contracts,MC4O1S CRYPTOCURRENCY AND BLOCKCHAIN UNIT-11 ECHNOLOG PART-B What is Crypto in Cryptocurre -y? Explain about the working of eryptocurrecy. Crypto is used for cryptography, which is a technique of eneryption and decryption for secure communication beneen two parties. The cryptography technology usually uses « computational algorithm such as SHA256, a public key, and a private key _ ~ ‘The public key is shared with everyone, and a private key is like the digital signature of the user A general bitcoin transaction occurs in the below steps shown in Fig 2.1 A normal bitcoin transaction: S00 bo —> feat. gm Dtnbuting the Veetteaion ra enaeacon esusse Pansed tough 2 Gone spare iin tae ig 2.1 Bitcoin Transaction Fi co The first step is the user has the transaction details, which means to whom bitcoin needs to be shared and how much, _ © The transaction is passed through the hashing algorithy to validate the transaction. In bitcoin, the SHA256 hashing algorithm is used. © The output of hashing algorithm goes to the signature algorithm with the user's private ke: This uniquely identifies the user. — o The output of the above step is distributed over the network for the people to verify the transaction, The transaction is verified using the sender's public key, and those who verify it are Known as minors. © After the verification, the bitcoin is added into the blockchain, which cannot be reversed Pees Types of Cry rency 0! * | After the creation of bitcoin, there are various types of cryptocurrencies available in the market Below is the list of popular types of cryptocurrencies: —— ee es 1. Biteoin Bitcoin is the most recognizable type of cryptocurrency system. As per the studies, there are approximately more than 18.5 million bitcoin tokens available for circulation. with a capped limit of 21 million.MC4013 2. Bitcoin Cash Bitcoin cash was introduced in the year 2017, and it is one of the most popul: ar types of Cryptocurrencies available in the mark: Litecoin is gaining popularity day by day, nnd it works the same as biteoin. I was developed by Charlie Lee(former employee of Google) in the year 201]. 40Ethereum Etherum is heard in the same context as Bitcoin, but itself, it is not a cryptocurrency. Instead, it is an online programmable platform that uses blockchain technology. It helps the developer to develop and run DAapps within the system. Ethereum ean be understood as an app store ‘S: Ripple Ripple is also type of eryptocurrency, but it does not use Blockchain technology. I isnot forthe Particular user; rather, it mainly works tor large companies or corporations to move a huge amount of money across the world. ‘6. Stellar Stellar is an open network, which is mainly used to store and transfer money, It is designed ina Way that all the financial systems across the world can work together over the same network. It allows to create, send and trade all possible digital forms of money, whether itis dollar, pesos, bitcoin, or anything, - : It does not charge users to use its network. 7.NEO NEO was formally called Antshares and created in China, Its main goal is towards smart contract, Which enable the users to ereate and execute agreements without involving the intermediary “8. Cardano Cardano or ADA is a type of cryptocurrency, “It was created by Charles Hoskinson. It is philosophy and research-driven approach." It which is used for sending or receiving digital funds. the only coin that is available with the "Scientific means it is reviewed by scientists and programmers. IOTA stands for Internet of Things Application. It w: difference between IOTA and other blockchain technol blocks and chains; rather, it works with smart devices on as launched in the year 2016, The main logies is that IOTA does not work with n the internet of things. To use it, we need to verify two previous transactions on the IOTA ledger, which is known as Directed Acyclic Graph(DAG), also known as Tangle. Cryptocurrency Mining In cryptocurrency, mining means the validation of a transaction. Since cryptocurrency works rT a decentralized network, which doesn’ have any central auTMOTITy to validate the task, anyone in th: / —_—_———~M4013 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES UNIT network can be minor, and to do this, a successful minor gets a new cryptocurrency as the reward. Minors need to find a hash, which is a product of a eryptographic function that connects the new block with its predecessor. The minor reward is given to the miner who finds the solution to the -complex hashing puziic first. Once the minor gets-the solution, he-can-build-a-bleek- and add it to-———— the blockchain. ‘Yo set-up a mining rig. users need either a GPU or an app! tion-specific integrated circuit Buying Cryptocurrencies There are two ways to buy a cryptocurrency, r_by US dollars or by_another eryptocurrency. It means some cryptocurrencies, including bitcoins, can be purchased using US dollars, while others can be purchased using the other eryptocurrencies, To purchase it, the user needs an online app to contain the currency and the digital wallet Generally, a user creates an account on an exchange and transfer real money to buy cryptocurrencies Risks of investing in Cryptocurrency ‘Some of the advantageous features of cryptocurrency also become risky when investing in it. The three major risks are given below: o Operates withoutzmy government Authority . As we have discussed above, it works in a decentralized way and hence does not contain any central authority or government role in it. This fact raises many questions, such that what type of taxes are to be paid for any gain or loss of the assets. So, this is the main risk for investing in cryptocurrency. o No physical existence cryptocurrency is a virtual currency, and hence there is no physical existence of this. It neither represents a company like stock or bond nor a tangible asset like Gold. It is not printed on papers similar to other currencies. Hence, it does not have its fundamental value but only its trading value. o Volatile in Nature st risk factor of cryptocurrency is its volatile nature. The prices of crypto vary very irregularly, and it may sometimes get reduced or increased by 100 $ in an hour. In contrast, other currencies have a limited variation. Cryptocurrency Working Cryptocurrencies are decentralized systems that work on blockchain technology. A cryptocurrency is a medium of exchange that is digital, encrypted, and decentralized. Unlike other currencies such as U.S, Dollar or the Euro, there is no central authority involves that manages and maintains the value of a cryptocurrency. Instead, managing and maintaining tasks are broadly distributed among cryptocurrency's usérs via the internet.UNIT. ™~ caols en below shown in Fi transaction is giv rea ¢ transaction. i ein eee ind funds to another user starts the ans 7 ye working ‘ m ia T oO: user or sender who wants 10 ee ad tis Sear — od tion is represente 7 In this, each transact —plockchain network. - a validated by the users of th «to the chain 2 chain, and once it is verified as a valid transaction, ie chain, ois block is v k is a . _ .d contains a unique set of keys, and whoever has those set of keys, ed and contai encrypt tach transaction is eneryP ie a enc. he can only own the amoun! Clock ie broadcasted to Tamoction s epresented ioe inthe matt ‘A warts to vanser asin erepenelnine & eee 5 Approved as vail fom eae Blocks then added tone ‘everyone in ie network chain, proncing an indole How Cryptocurrency transaction works ses Fig 2.2 Cryptocurrency transaction works Advantages of Cryptocurrency Last several years, cryptocurrencies are being more popular among the public because of their _ several advantages over paper money. Some of these advantages are given below: vr Mf. Fraud-Proof 2. User ownership Since the cryptocurrency is decentralize: control over it. There is d, the user i also not any ela Owns it, e No, any government or bank has any Ctronic cash system, vs 3. Easy transaction In the traditional econom -nOMY system, for doing any ‘ransaction fees applicable that we need te n> YPE Of business or deal, there is always a lot of to pay for each transacti part from this, there are als? Mrs. B indhumathy apf. SeeMC4013 CRYPTOCURRENCY AND BLOCKCH N TECHNOLOGIES UNIT - 11 various paper works, brokerage fees, commissions, ete., users nced to pay. But when we use Cryplocurrency, all these things are removed; as for any transaction, there is no middle man. b-vers transaction is performed between one 1 one within a secured network. [his one-to-one transaction makes it- easier and-more transparent than-the traditional one 4. Confidential Transactions When we perform any transaction in a traditional transaction system with cither cash or credit each transaction is recorded in our bank history. It means each transaction data remains with banks. In cryptocurreney, every transaction with the recipients would be unique. The information is exchanged on the basis of the push concept, It means we are allowed 10 share only that information that we want to disclose to the recipients, 5. Instant Settlement The easy use of cryptocurrency is making it more popular among people. For starting any transaction, we just need a smart device such as a Mobile phone, internet connection, and instantly we will become our own bank to make online payments and transactions. 6. Identity theft In cryptocurrency, it is ensured by the ledger that all transactions performed between digital wallets can calculate the accurate balance. This public ledger is also known as a "t tion blockchain." Blockchain technology makes secure digital transactions through encryption and “smart contracts" that make the entity virtually unhackable and immunc to fraud. Explain about the Bitcoin and its working? Satoshi Nakamoto introduced the bitcoin in the year 2008. Bitcoin is a cryptocurrenc: a currency), or a digital currency that uses rules of cryptography for regulation and generation of units of currency. A Bitcoin fell under the scope of cryptocurrency and became the first and most valuable among them. It is commonly called decentralized digital currency. 3 centralized digital A bitcoin is a type of digital assets which can be bought, sold, and transfer between the two parties sequrely everthe-internet. Bitcoin can be used to store values much like fine gold, silver, and-some other type of investments. We can also use bitcoin to buy products and services as well as make payments and exchange values electronically. A bitcoin is different from other traditional currencies such as Dollar, Pound, and Euro, which can also be used to buy things and exchange values electronically, There are no physical coins for bitcoins or paper bills. When you send bitcoin to someone or used bitcoin to buy anything, you don’t need to use a bank, a credit card, or any other third-party. Instead, you can simply send itcoin directly to another party over the internet with securely and almost instantly. 4 ( Basic Components of Bitcoin nS hese four clements will help us to understand the bitcoin ‘The four basic components of bitcoin. blockchain in a more clear wayCRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES yyy MC4013 i object that we have learned previously ina single sey ve ing to put up every object that ' h = Mie Rhow thts block fe male up of hash and complex cryptography environment. by the one side of the coin, The bitcoin blockchain is more interesting than we thoughn, e : than we isis oa : We can sce the basic components of bitcoin in the following image: A 1. Software . Cryptography . Hardware . Miners(Gaming Theory) BED Fig 2.3 Components of bitcoin First Component: Software Bitcoin is basically a software at the core that defines what a bitcoin is, as well as how a biteoin gets transferred. It identifies what the rules of a valid bitcoin, who ean be inside biteoin, who cannot be inside bitcoin, what is valid, what is not, etc. Everything is based on software, whichis the bitcoin software. The bitcoin software is always operated in 24*7. Second component: Cryptography The software, at its core, uses cryptography and bitcoin as a cryptocurrency. Bitcoin ust® cryptography to regulate the transfer of bitcoin between Parties, as well as the creation of new unils of bitcoin. Without cryptography, Bitcoin would simply not be possible. So, we've got that this sofiware uses cryptography to control the transfer of bitcoin over the internet. Cryptography is a mathematical approach which is solvable by computers and not by humans. S° all the stuff that protects your data is served by the cryptography, Third Component: Hardware To run and solve cryptography, it need: of those 5 s HARDWARE. This hardware is composed 2 f thousands of miners around the world running their computers. So there are thousands Preoared by 10 Indhumathy, AP/MCA pageMC4013 CRYPTOCURR ICY AND BLOCKCHAIN TECHNOLOGIES —-UNIT-I computers around the world that are basically running the Bitcoin software or the Bitcoin client. This hardware is specially designed for finding Nonce to validate block and hash, It requires a lot of CPU power to complete a simple task on the bitcoin blockchain. If you try to mine bitcoin right now with your smartphone or home computer, then you will End up losing your computer along with a hefty clectric bill. Fourth Component: Mining(Gaming Theory) Miners are users who involved in a gaming theory because bitcoin is truly a game which is run by these miners around the world. In the ahove, we have seen that the first component is software for biteoin that issues a cryptography challenge in every 10 minutes. The cryptography challenge involves in trying to find a Nonce which will make the hash for a specific block valid. All the hashes and validations are done by these miners. Afier successful creation of the block, the new block is added to the blockchain. > Bitcoin Working” When you send an email to another person, you just type an email address and can communicate directly to that person. It is the same thing when you send an instant message. This type of communication between two parties is commonly known as Peer-to-Peer communication. Whenever you want to transfer money to someone over the internet, you need to use a sérvice of third-party such as banks, a credit card, a PayPal, or some other type of money transfer services The reason for using third-party is to ensure that you are transferring that money. In other words, you need to be able to verify that both partics have done what they need to do in real exchange. For example, Suppose you click on a photo that you want to send it to another person, so you can simply attach that photo to an email, type the receiver email address and send it. The other person will receive the photo, and you think it would end, but it is not. Now, we have two copies of photo, one is a simple email, and another is an original file which is still on my computer. Here, we send the copy of the file of the photo, not the original file. This issue is commonly known as the double spend problem. The double-spend problem provides a challenge to determine whether a transaction is real or not. How you can send a bitcoin to someone over the internet without needing a bank or some other institution to certify the transfer took place. The answer arises in a global network of thousands of computers called a Bitcoin Network and a special type of decentralized laser technology called blockchain. In Bitcoin, all the information related to the transaction is captured securely by using maths, protected cryptographically, and the data is stored and verified across the entire network of computers. In other words, instead of having a centralized database of the third-party such as banks to certify the transaction took place. Bitcoin uses blockchain technology across a decentralized network of computers to securely verify, confirm and record each transaction. Since data is stored _in a decentralized manner across a wide network, there is no single point of failure. This makes“> Getting Started With Bitcohr CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES UNry_ 1 — MC4013 blockchain more secure and less prone to fraud, tampering or general system failure than keeping them ina single centralized location. The objective is to show you about how you can get started with Bitcoin. The below Fig 2.4 shows you how to start with bitcoin. Fig 2.4 The Objectives of Bitcoin 1. Learn About Bitcoin Bitcoin has some peculiar qualities. It behaves a lot like money, but it is different from money. For example: with bitcoin, we cannot reverse any transactions after adding on the blockchain. Every transaction in the blockchain network is permanent. It makes the blockchain different from actually sending of money with a bank where you may issue a stop payment or reversal of it's a wrong payment. Bitcoin is also fast.and efficient as compared to physical currency. 2. Choose Your Wallet After Icarning about Bitcoin, the first thing you need to do is to install a wallet. The wallet is 2 type of software that you install on your mobile device or your computer. It enables you to get into Bitcoin and create your own addresses. 3. Get an Address An address in Bitcoin is very similar to an e-mail address, which is used to receive bitcoin. AS opposed to an e-mail address where you have one e-mail address, you can have multiple address*s in bitcoin, It's a good practice to have multiple addresses for different nceds. You may use biteo!" address for every single transaction you use. ~MC4013 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES UNIT -15 4. Public and Private Key When you open up your wallet, you will receive two valuable pieces of information. One of thesn ~is-the-public-key,-and-anothor-one-is-the- private key.- This information make. Brome interesting, With most businesses and different organizations, you need to have a password «hich you share with the people who are Tunning the organization. So you can click on Retrieve my Password, and you can get it hack. But in the case of bitcoin, you will get keve inttead of 3 password. The public key that you can share with eversbudy, and a private key which only yu know. The private key is an alphanumeric sequence which knows only vou. and w 1. Y can remain completely in control of all the funds that go into your wallet 5. Get bitcoins Once you have your wallet. you can get bitcoins. There are different ways to get bitenins. You « carn Bitcoins by doing a job or getting paid. You can also buy bitcoins it means you could an exchange and get bitcoin by put in dollars or whatever currency into bitcoin. You ¢: bitcoins and can receive them from others. So these are ways of getting bitcoin also gift Spend bitcoins Here, we are going to know about how you can spend bitcoin. You can send bitcoin to 2n You can use bitcoin over millions of businesses at this moment Worldwide. Many of the > known brands like Microsoft and Dell take bitcoin as payment. You can also use bitcoin payments and paying bills. It works great if you are actually sending payments to people in different currencies globally. You don't have to worry about having to change into different currencies. You can just pay in Bitcoin, and it’s universal around the world. > To Choose Bitcoin Wallet The process of choosing the bitcoin wallet. If you want to involve in bitcoin, you need to have 2 wallet. A wallet allows you to receive bitcoins. send bitcoins, store bitcoins. Here. is en example of a page called bitcoin.org to choose the wallet. Bitcoin.org is a website that was developed by Satoshi Nakamoto and Martti Malmi. Now. Mantti’s is no longer an active developer. but he maintains the Bitcoin.org websites. He is not involved in developing bitcoin. Bitcoin.org website is not tied into any specific core de It’s an open-source project which is handled by a global community Bitcoin.org is a very good starting point to explain how to choose your wallet because there is 2 Jot of options available. In this page, we will go to an option called Choose your wallet shown in Fig 2.5. We can see this in the below image.TECHNOLOGIES UNEP.) ~ MC40I3, CRYPTOCURRENCY AND BLOCKCH kp 8 i T Te ie Fig 2.5 choose your Wallet In the above image, we can see that there are different types of wallets that_ you can choose, like Desktop wallet, Mobile wallet, Web wallet, Hardware wallet, ctc > Mobile wallet In the mobile wallet, you can run any type of application, whether it is on Android, iOS, Windows, or even on Blackberry. They are significantly smaller and simpler and serve as a convenient on- the-go wallet for daily usage. Popular Mobile wallets are Bitpay, BTC.com, Edge, Electrum, Mycelium, Bitcoin Wallet, ete > Desktop wallet In the desktop wallet, you can run it on your desktop or laptop computer for Windows, Mac, and Linux. Generally, they are secure, but sometimes they are vulnerable to various malware a” computer viruses. Popular Desktop wallets are Bitcoin Core, Bitcoin Knots, mSIGNA, Armory, ete. > Hardware wallet edware wallels are Ina hardware wallet, there are devices which contain your private keys. The the most secure wallets, but it will also cost money. Popular hardware wallets are BitBox, Keepkey. Trezor, Ledger Nano §, etcMeso1s CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES — UNIT - II > Web wallet The web wallets are online wallets that are considered less secure than other types of wallets, yet __—they.can be highly convenient... Popular web wallets are Guarda, Coinbase, GreenAddres Binance, etc. There are multiple different wallet options available which you can have and install on your mobile device or on your computer or a web one. There is not necessary tv have only one wallet. You can iltiple wallets for different needs. It helps you to spread the risk by not keeping all of your | crypto's in onc location but across different locations(wallets) You can create a wallet in any of these options that you find. If you wish, you ean open up anothe: wallet elewhere and cary send coins to a different wallet, To select a reliable Bitcoin wallet, one should judge it based on the following criteria: 3. Explain about the Bitcoin Transaction.) — Hot/Cold Wallet: Whether a wallet is a hot(Online storage) or cold(offline storage). Control private keys: A wallet where you own and control your keys Backup & security features: Here, you can seed backup keys and pin codes. Developer community: It is an active development community for maintenance. ‘Compatibility: It can be compatible with different operating systems. HD Wallet: It isa wallet that generates new. addresses itselt KYC: A wallet that doesn't require KYC. Transaction Bitcoin transaction means sending bitcoin from one person (o the other in the secured blockchain network. These are messages that are digitally signed using cryptography and are verified by the miners that are present in the blockchain network. The miner is the person who solves mathematical puzzles(also called proof of work) to validate the transaction. Anyone with mining hardware and high processing power can take part in this. Numerous miners take part simultaneously to solve the complex mathematical puzzle, the one who solves it first, wins 12.5 bitcoin as a reward. miner veri ies the transactions(after solving the puzzle) and then adds the block to the blockchain when confirmed. ‘The transaction input is the bitcoin address from which the money was sent. The transaction output is the bitcoin address to Which the money was sent. —_—_ Generally, a bitcoin transaction fakes 10 t0 20 minutes to confirm any transactions. if network congestion takes place, then time might take even 60 minutes. Transactions are created through mobile, desktop or hardware wallets. a Pranared hw —_—— _——_— ——-Ln MCsO13 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES wey The transiction has three main parts: ditevin addres the addre: that contains the bitcoin Alice wants t send. To be mo from which Alice had previow ved biteoin to and ig 2. Ourpilts: Bob's public key or bitcoin address. 3. Amounts: The amount of biteoin Alice wants to send, A Bitcoin Transaction Work Bitcoin makes use af public. ey cryptography te ensure the integrity of transactions one: nenwOrK. Th onder to Fanster biteoin, each participant has pairs of public key Keys that contol pieces of biteoin they own, A public key is a series of letters and numbers thata Ser must share in onécr to receive funds. In contrast, a private hey must be hep secret as it authorizes the spending of any funds received by the associated public key Using the private key the value to a new owner. The transaction is then broadcast to the network to be included inthe blockchain. sited on the and private ociated with their bitcoin, a user can sign transactions and thereby transfer Unspent Transaction Output (UTXO) a. are owned by individuals, Each UTXO has an amount associated with it, These are the discrete units of bitcoin which sre spent and received in every transaction, ‘When a UTXO is spent in a transaction it is destroyed, and one or more new U TXOs are created. All nodes maintain a set of existing UTXOs, called the UTXO set, which they update every time a block of transactions creates and destroys UTXOs, Ths allows nodes vo independently verify whether a given transaction and the bitcoin itis attempting to spend are valid, Transaction inputs and Qutputs parakeet g ‘Transaction inputs are the UTXOs being used, and transaction Outputs are the UTNO payment © the recipient plus any change (see illustrati ion below). The differen is the fee, which miners collect for doing tI jee between inputs and outputs the work, The UTXO Database GS It contains all the Bitcoin known as the UTX “blockchain represent the total numbe “os on the ( set or UTXO database, all the UTXOs on th changing as coins are sent from one a antl T of bitcoins in existence The UTXOs are constants User to anoth Prepared by Mrs. B. Indhumathy, AP/MCAUNIT- MC4013 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES Unlocking and Locking Scripts A script in the Bitcoin transaction unlocks the input UTXOs by verifyin —— tocking script sets the conditions for tow the UFXO outputs can be spent, Transactions Types There are mainly three types of bitcoin addresses: 1. P2PKH - Pay to a Public Key Hash: P2PKH is the common format that pays to a hashed Bitcoin address. 2. P2SH - Pay to Public Key: ‘The first type of Bitcoin transaction paid to a public key. ‘Subsequent transaction types obscured the public key by hashing it so that future quantum computers cannot generate the private key from the public key. 3. Bech32 for Segregated Witness : Bitcoin adopted the SegWit protocol, which enabled Taster validation, among other enhancements. The SegWit native wansaction is Bech32, and crypto wallets that support SegWit generally incur lower fees. 4- Explain about the concept of Bitcoin Mining. } *> i Bitcoin_mining refers to the process of authenticating and adding transactional records to the public ledger. The public ledge is known as the blockchain because it comprises a chain of the block. Before we understand the Bitcoin mining concept, we should understand what Bitcoin is. Bitcoin is virtual money having some value, and its value is not static, it varies according to time. There is no Bncom regulatory body that regulates the Bitcoin transactions. Let's understand the bitcoin concept with an example. The company manager takes a dummy thing and announces that who will get this thing will be the happiest employer of the organization and get an international holiday ticket. So everyone trying to buy that dummy thing that has no value and in this way, this dummy thing will have some value may be lies between 10$ to 20$ or anything. We can relate these things with the Bitcoin if the number of purchasers of Bitcoin increases, then the value of Bitcoin also increases to a saturated value afterward it stops. Bitcoin was created under the pseudonym(False name) Satoshi Nakamoto, who announced the invention, and later it was implemented as open-source code. An only end-to-end version of electronic moncy would enable online payments to be sent directly from one person to another without the interference of an economic body.Bitcoin is a network practice that empowers people to transfer assets rights on account units called Biteoin's, made in limited quantity. When an individual sends a couple of bitcoins to another individual, this data is communicated to the peer- jo-peer bitcoin network.MC4013 CRYPTOCURRENCY A’ ND BLOCKCHAIN TECHNOLOGIES Miners Mining Niner Bitcoin Fig 2.6 process of Mining This technology remains similar to purchasing something with virtual currency. However, one advantage of Bitcoins is that the arrangement remains unidentified. The personal identity of the sender and the beneficiary (receiver) remain encrypted. It is the primary reason that's why it has become a trusted form of money transaction on the web. By convention, the complexity in making distributed money is the requirement for a proposal to avoid double-spending. One individual may simultaneously transmit two transactions. sending similar coins to two distinct parties on the network. Bitcoin settles this difficulty and ensures agreement of rights by keeping up a community ledger of all transactions, called the blockchain. New transactions are grouped mutually and are checked against the existing record to make sure all new communications are valid. Bitcoin's accuracy is ensured by individuals who give computation authority to its system known as miners to validate and affix transactions to a public ledger. Bitcoins don't exist physically and are only an arrangement of virtual data. It can be exchanged for genuine money, and are broadly acceptable in most countries around the globe. There is no central authority for Bitcoins, similar to a central bank(RBI in India) that controls the monetary policy, Alternatively, developers solve complex puzzles to support Bitcoin transactions. This process is called Bitcoin mining shown in Fig 2.6. > How to Mine Bitcoins? It is quite a complex process, but if you want to take it directly, then here is the process of how it works. You need to get a CPU(Central Processing Unit) with excellent processing power and a speedy web interface. In the next step, there are numerous online networks that list out the latest Bitcoin transactions taking place in real-time. Afterward, Sign in with a Bitcoin customer and attempt to approve those transactions by assessing blocks of data, called hash. Now, communication goes through several systems, called nodes, which are simply blocks of data, and since the data is encoded, a miner is needed to check if his answers are accurate,eee Mca4o13 CRYPTOCURRENCY AND BLOCK‘ TAIN 1 OLOGIES —UNIT-11 Itis quite a complex process, but if' you want to take it directly, works. You need to get a CPU(Central Processin speedy web interface. In the next step, there are numerous online networks that list out the latest ——Bitcoin-transactions-taking_place in-real-time.- Rterward, Sign-in-with-a Bitesin-eustomer and-—— attempt 10 approve those transactions by assessing blocks of data, called hash, Now, communication goes through several systems, called nodes, which are simply blocks of data, and since the duta is encoded, a miner is needed to check if his answers are accurate ) > How the Bitcoin Mining Works? 25/7) | Mui) then here is the process of how it 1g Unit) with excellent processing power and a Bitcoin Mining requires a task that is exceptionally tricky to perform, but simple to verify. It uses cryptography, with a hash function called double SHA-256( a one-way function that converts a text of any dimension into a string of 256 bits). A hash accepts a portion of data as input and reduces it down into a smaller hash value (256 bits). With a cryptographic hash, there is no other option to get a hash value we want without attempting a ton of sources. Once we find an input that gives the value we want, it is a simple task for anybody to validate the hash. So, cryptographic hashing tums into a decent method to apply the Bitcoin "Proo!-of-work" (data that is complex to produce but easy for others to verify). a Treraveioy com sleek | Puzzle BlockChain Works? y i ron L oe ee How the Bitcoin ED Bock veitcaion. QO byMiners ~*. Proofofwork Miners Broadcasting proof of workin network Fig 2.7 Bitcoin mining works If we consider a block to mine first, we need to collect the new transactions into a block, and then we hash the block to form a 256-bit block hash value. When the hash initiates with sufficient zeros, the block has been successfully mined and is directed to the Bitcoin network, and that has turned into the identifier for the block. In many cases, the hash is not successful, so we need to alter the block to some extent and try again and again shown in Fig 2.7.C4013 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIES MC. Explain about the Value of Bitcoin. ically inet ched new heights in the last couple of value in has drastically increased and touched new h — The value Se ahem ein -anyone’s-mind- is +who-determines-the-value-(o) Soa snically speaking exchange rate) of bitcoin. As we know there is no central bank orany att Gesignated agency to control it; then how the value is determined, or who determines ion arnver ay inthe and and supply. Following 1s the simples, my answer lays in the basic economics, which is dem: to determine the value of bitcoin. T : Total bitcoin transaction/second , D : Duration that a BTC needed by a transaction S : Supply of the bitcoin P : Price of the bitcoin We have S/D=Bitcoins available per Second T/P= Bitcoins needed per Second According to demand-supply rule, when the supply of the bitcoin increases the demand decrease consequently the price will also decrease. And when the demand increases the supply of bitein will also decrease, consequently the price of the bitcoin will also increase. At an equilibrium state, where the supply S over D, is equal to the demand T over P. We can deduce the price P as ° . S(D)=T/P Equilibrium state:- P=TD/S That is at equilibrium, the price should be equal to T times D divided by S. This is the very basic equation to calculate bitcoin exchange rate. The value of the biteoin basically depends on the demand and supply. However, there are many other factors including publie perceptions, mining difficulty level, energy consumption for mining process ete. that are taken into consideration while calculating the actual exchange rate. So that there will be some slight variations in exchange rate across the different market. It is evident that a single authority can’t control the value of bitcoin, rather it is determined strictly based on the user transaction. . What are the Community, Politics, and Regulation in Bitcoin? ton Community’s intemal polities as well asthe Ways that Bitcoin interacts with tradition! polities, namely; law enforcement and regulation iscars CONSENSUS IN BITCOIN First, consider consensus in Bitcoin, that i formation of consensus among ny tt iS the way that the operation of Bitcoin relies on sus among indivi . itcoin 10 be successful shown in Fig .§. ua Thee kinds of consensus have to operate for Bil Consensus about rules. B: the core protocols and d; y rul ve + : valid, ata ae Mean things like what makes a transaction or a block i : SS involved in making Bitcoin work. You need 10h __——_—_— a - Mcao13 CRYPTOCURRENCY AND BLOCKCHAIN INOLOGIE UNIT Ether— Ethereuny~ Hyperledgef™ Ripple Rootstock Ether is a type of cryptocurrency used in the Ethereum network just like a bitcoin is used in ‘a blockchain network. It is a peer-to-peer currency, similar to Bitcoin. It tracks and promotes, each transaction in the network. It is the second-largest cryptocurrency in the world. The first one is Bitcoin. Other cryptocurrencies can be used to get ether tokens, but vice versa is not true. , It means that ether tokens can’t be interchanged by other cryptocurrencies to render ‘ion for any execution computing power for Ethereum transactions. Ether is paid as a commis that affects the state in Ethereum.MC4013 CRYPTOCURRENCY AND BLOCKCHAIN TECHNOLOGIE UNIT - 11 Wt is used in the Ethereum algorithm as an incentive for miners who connect blocks to the blockchain using a proof-of-work method. Itis the only currency that can be used to pay —Fhe-block-reward,as well as-transaction-fees- blockchain rising saction costs, which go to miners as well, rovide miners-with-an-opportunity lo-keep the Aside from paying for transactions, ether is often used to purchase gas, which is used to bay for the computation of any transaction on the Ethereum network. Gas — + Gas is an internal currency of the Ethereum network. We need gas Lo run applications on the Ethereum network, much as we need gas to run a vehicle. To complete every transaction on the Lthereum network, payment—send out ethers—and the intermediate monetary value is known as gas. + Gas, unit of measurement on the Ethereum network for the computing power used to execute a smart contract or a transaction. The price of gas is very low compared to Ether. The execution and resource utilization costs are predetermined in Fthereum in terms of Gas units, called gwei, Gas is used as a metric for paying for computational resources on the network, the network has a set maximum amount of gas that it can use for its com; putation: as the “Gas Li s. This is known it” Other associated Gas terms are as follows: - 4 consumer must first make a very contract on ‘ple detean th wamacn ob stcustad in ter which gine an GAs Fig 2.10 Gas Limit Hence, if someone tri its gas limit and the statem shown in Fij to run a piece of code that runs forever, the contract wi ntire transaction that invoked tt 2.10. ill eventually exceed he contract will be rolled back to its previousan ERNPIOL URRENCY AND BLOCKCHAIN TECHNOLOGIES UNIT IT ¢ Etherenm Virtual M: 1. Explain about th ine. uF ahereun Virtual Machine (EVM) is designed as the runtime environment for smart ceonsracts-in-Fthereum-H-is-sandboxed and ssolated from the-other-parts-of the systemr—Fhis means that any operation on PYM should oot affect your data or programs in any way, no matter how many times You call a particular function on it shown in Fig 2.11 ‘An EVM is the runtime environment that exceutes Ethereum smart contracts Fthereum contains its own Turing-complete scripting language, called Solidity. and with this comes a need to execute this code A program called the Pthereum Virtus! Machine (EVM) can do this task Itruns on top of the Ethereum network meaning that all nodes reach a consensus about what code should be executed at every given time So) ] eli s' eres) 2.11 Fthereum Virtual Machine Purpose of EVM ~The Ethereum Virtual Machine (EVM) 1s Turing complete programmable machine, which can “execute scripts to produce arbitrary outcomes. It has been built with the purpose of being a “world computer” and has immense power It is the computer that stores data on blockchain, like bitcoin, but it also executes code in smart contracts on the Ethereum network The machine is made to be able to run any kind of Crypto-contract that can be built on Ethercum’s blockchain. It does this by using # programming language called Solidity, which is compiled into the EVM for execution ‘The intention behind writing code on the Ethereum network is to create smart contracts and programs that automatically execute things when certain conditions are met. If a terms or condition is not met, the system can execute it in an “exit” function as well. For example, if an account has been hached, the hacker cannot steal money from the system, because they don’t have the budget or authority to do so.—— KCI ECHNOLOGIES UNE — eNCY 3LOCKCHAIN TE: RENCY AND B cRYPTOC UR! MCaors How Does EVM Works? 1 executes scripts used to implement certain :VM) i am whic Ethereum Virtual Machi VM) aes wm whe! fons usually 1 Ethereum blockchain- : - -operatio ; kes the process of creating new tokens on Ethercum teat ae of instructions or an algorithm which tells the computer ripk means a ine to work properly. The EVM requires that one has der For som ane to cxccutc the desired commands and create new The Ethereum Vit Blockchain casy. Here, sc what it needs to do in or access over any network node so as to be ab tokens on the blockchain without any difficulties. in Fthereum, there is something called a smart contract. These contracts have some computer + In Fthereum, s e c code which facilitates the exchange of money and information. ‘These contracts are predefined by the creator of the smart contract, in order to ensure that a certain outcome will happen based on either what happens or doesnt happen. Ethereum Virtual Machine provides Turing, complete environment for xecution of scripts and smart contracts. This means that anything that can be implemented with a computer can be run on EVM. | ; In the Ethercum ecosystem, EVM plays a vital role by providing a platform for decentralized applications (DApps) to be built on top of it. Ethereum Virtual Machine ensures that all transactions and smart contracts made on the Ethereum blockchain are executed in correct and expected manner as desired by the smart contract code. It serves as a platform for applications to be executed on. In simple words, it can be said that Ethereum Virtual Machine facilitates DApp creation and execution on the blockchain, Ethereum Virtual Machine (EVM) has two parts: + EVM (the part that runs solidity source code): The EVM is written in C++ and uses LLVM as its compile It is a full-featured virtual machine with all the features that you would want in a general purpose Smart Contract Virtual Machine, such as support for multiple programming languages, Security features, runtime environments and more. It also VM bytecode . Uncles: These are s: ieces rt ce 's or re SI mal Pieces of smart contracts or data stored on the blockchain. This is a Useful feature because it allows for you to store metadata about your program. EVM “an use as your programming language. allows you to write custom E! Assembly: This is the bytecode of EVM, which youc