Mahavir Polytechnic CO6I-ETI-UNIT 3

Mahavir Polytechnic, Nashik

Department of Computer Engineering
Year: TY Subject: ETI (22618)

UNIT 3: Blockchain Technology Marks: 10

Course Outcome 3: Describe Blockchain technology.

Syllabus:
3.1 Introduction to Blockchain
Backstory of Blockchain
What is Blockchain?
3.2 Centralize versus Decentralized System
3.3 Layers of Blockchain
Application Layer, Execution Layer, Semantic Layer, Propagation Layer, Consensus Layer
3.4 Importance of Blockchain
Limitations Systems of Centralized, Blockchain Adoption So Far
3.5 Blockchain Use and Use Cases

Imagine you and your friends are playing a game, and you need to keep track of who has what points.
Instead of one person writing it down and being in charge, everyone has a copy of the list.

Now, here's how it works:

1. The List (Blockchain): Think of this list as a chain of blocks, where each block contains
information about the game's transactions, like who got points and when.
2. No Boss, Everyone's in Charge (Decentralization): Since everyone has a copy of the list, no
one person is in charge. This means no one can cheat or change the list without everyone
noticing.
3. Transparent Transactions: Everyone can see the list, but they don't know who made each
transaction. It's like having a secret code for each player, so you know who did what, but others
can't tell.
4. Locked and Secure (Cryptography): Each block in the list is locked with a special code,
making it super hard to change. Once a transaction is added to the list, it's there forever.

Dept. Of Computer Engineering Page 1

Mahavir Polytechnic CO6I-ETI-UNIT 3

5. Smart Rules (Smart Contracts): Imagine setting up rules for the game that automatically apply.
For example, if someone wins a certain number of points, they automatically get a prize. These
are like smart contracts—they run on their own once certain conditions are met.
6. Lots of Uses: Just like you can use the list for your game, blockchain can be used for many
things, like making digital money (like Bitcoin), keeping track of items in a store, or even voting
in elections securely.

So, in simple terms, Blockchain is like a super secure and fair way to keep track of information and
transactions without needing a boss to oversee it all. It's like a digital notebook that everyone shares, but
no one can cheat in.

Blockchain is a revolutionary technology that has gained significant attention in recent years due to its
potential to transform various industries and sectors. At its core, blockchain is a decentralized and
distributed ledger technology that enables secure and transparent record-keeping of transactions and
data. Here's an introduction to blockchain:

1. Decentralization: Unlike traditional centralized systems where data is stored and controlled by a
single authority, blockchain operates on a decentralized network of computers (nodes). Each
node in the network maintains a copy of the entire blockchain, ensuring redundancy and
resilience.
2. Distributed Ledger: Blockchain uses a distributed ledger to record transactions across multiple
nodes in a chronological and immutable manner. Each transaction is bundled into a block and
added to the blockchain through a process called consensus, where nodes in the network agree on
the validity of the transaction.
3. Cryptographic Security: Blockchain employs cryptographic techniques to secure transactions
and data stored on the network. Each block in the blockchain is cryptographically linked to the
previous block, creating a chain of blocks that cannot be altered or tampered with without
consensus from the majority of nodes.
4. Transparency and Traceability: Blockchain provides transparency by allowing anyone to view
the entire transaction history recorded on the blockchain. Each transaction is timestamped and
verified by the network, providing a transparent and auditable trail of ownership and transaction
history.

Dept. Of Computer Engineering Page 2

Mahavir Polytechnic CO6I-ETI-UNIT 3

5. Smart Contracts: Blockchain supports programmable contracts called smart contracts, which
are self-executing contracts with predefined rules and conditions. Smart contracts automate and
enforce the terms of an agreement without the need for intermediaries, reducing the risk of fraud
and increasing efficiency.
6. Use Cases: Blockchain has a wide range of potential applications across industries such as
finance, supply chain management, healthcare, real estate, and voting systems. Some common
use cases include cryptocurrency transactions, supply chain tracking, identity management,
digital voting, and asset tokenization.
7. Challenges and Scalability: Despite its potential, blockchain technology faces challenges such
as scalability, interoperability, and regulatory uncertainty. Scaling blockchain networks to handle
large transaction volumes while maintaining decentralization and security remains a significant
technical challenge.

ए .
ए . घ
. ए
. .
, , .

The backstory of Blockchain

The backstory of blockchain dates back to the introduction of Bitcoin, the first and most well-known
crypto currency, which was created by an anonymous person or group of people under the pseudonym
Satoshi Nakamoto in 2008. While Bitcoin was primarily designed as a digital currency, its underlying
technology, blockchain, laid the foundation for a wide range of applications beyond cryptocurrency.

Here's a brief backstory of blockchain:

1. Bitcoin Whitepaper: In October 2008, Satoshi Nakamoto published a whitepaper titled

"Bitcoin: A Peer-to-Peer Electronic Cash System." The whitepaper outlined the concept of a
decentralized digital currency that operates without the need for a central authority or
intermediary.

Dept. Of Computer Engineering Page 3

Mahavir Polytechnic CO6I-ETI-UNIT 3

2. Genesis Block: On January 3, 2009, Nakamoto mined the first block of the Bitcoin blockchain,
known as the "genesis block," marking the beginning of the Bitcoin network. The genesis block
contained a message embedded in its data, referencing a headline from The Times newspaper:
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
3. Decentralized Ledger: The blockchain serves as a decentralized ledger that records all
transactions made on the Bitcoin network. Each transaction is verified by network participants
(miners) through a process called mining, and then added to a block, which is cryptographically
linked to the previous block, forming a chain of blocks (hence the name "blockchain").
4. Expansion Beyond Bitcoin: While blockchain technology was initially developed for Bitcoin,
its potential applications quickly expanded beyond cryptocurrency. Developers and
entrepreneurs recognized the technology's ability to securely and transparently record
transactions, manage digital assets, and automate processes without the need for intermediaries.
5. Ethereum and Smart Contracts: In 2015, Vitalik Buterin introduced Ethereum, a blockchain
platform that enables the creation of decentralized applications (dApps) and smart contracts.
Smart contracts are self-executing contracts with predefined rules and conditions that
automatically execute when certain criteria are met, further expanding the capabilities of
blockchain technology.
6. Rapid Growth and Adoption: Over the years, blockchain technology has gained rapid growth
and adoption across various industries, including finance, supply chain management, healthcare,
real estate, and government. Companies and organizations are exploring blockchain solutions to
enhance transparency, security, efficiency, and trust in their operations.
7. Continued Innovation: The development of blockchain technology continues to evolve, with
ongoing research, experimentation, and innovation aimed at addressing scalability,
interoperability, and regulatory challenges. New blockchain platforms, protocols, and
applications are being developed to unlock the full potential of decentralized and distributed
systems.

Dept. Of Computer Engineering Page 4

Mahavir Polytechnic CO6I-ETI-UNIT 3

What is Blockchain?

In blockchain technology, a block is a fundamental component of the decentralized ledger system.

Here's an explanation of what a blockchain block is and how it functions:

1. Definition: A block is a data structure containing a collection of transactions that are bundled
together and added to the blockchain. Each block contains a cryptographic hash of the previous
block, forming a chain of blocks, hence the name "blockchain."
2. Components:
o Transactions: A block typically includes a set of transactions that represent data
exchanges or operations on the blockchain network. These transactions can involve the
transfer of digital assets, execution of smart contracts, or other types of data operations.
o Header: The header of a block contains metadata about the block, including a timestamp,
a nonce (a random number used in mining), and the hash of the previous block.
o Hash: Each block has a unique identifier called a hash, which is generated using
cryptographic hashing algorithms such as SHA-256. The hash serves as a digital
fingerprint of the block and ensures its integrity and immutability.
o Merkle Root: The Merkle root is a hash of all the transactions included in the block. It
acts as a summary of the transactions and is used to efficiently verify the integrity of the
block's transactions.

Dept. Of Computer Engineering Page 5

Mahavir Polytechnic CO6I-ETI-UNIT 3

3. Verification and Validation:

o Before a block is added to the blockchain, it undergoes a verification process to ensure
that the transactions included in the block are valid and adhere to the consensus rules of
the network.
o Miners or validators in the network compete to solve complex mathematical puzzles
(Proof of Work in Bitcoin, for example) to validate transactions and create new blocks.
Once a miner successfully solves the puzzle, they broadcast the new block to the network
for validation and inclusion in the blockchain.
4. Immutable Record:
o Once a block is added to the blockchain, it becomes immutable, meaning its contents
cannot be altered or tampered with without consensus from the majority of nodes in the
network.
o The cryptographic hash of each block is linked to the hash of the previous block, forming
a chain of blocks that ensures the integrity and security of the entire blockchain.
5. Size and Frequency:
o The size and frequency of blocks vary depending on the blockchain protocol. For
example, in the Bitcoin blockchain, blocks are created approximately every 10 minutes,
with a maximum size limit of 1 MB (though this can vary with protocol updates).
o Other blockchain platforms may have different block sizes, frequencies, and consensus
mechanisms tailored to their specific use cases and requirements.

Blockchain is a decentralized and distributed digital ledger technology that records transactions across
multiple computers in a way that makes them secure, transparent, and tamper-resistant.

Here's how it works:

1. Decentralized Network: Unlike traditional centralized systems where data is stored and
controlled by a single entity, blockchain operates on a decentralized network of computers,
known as nodes. Each node maintains a copy of the entire blockchain, ensuring redundancy and
resilience.

Dept. Of Computer Engineering Page 6

Mahavir Polytechnic CO6I-ETI-UNIT 3

2. Blocks and Transactions: Transactions are grouped together into blocks and added to the
blockchain in a chronological order. Each block contains a list of transactions, a timestamp, and
a reference to the previous block, creating a chain of blocks.
3. Cryptographic Security: Blocks in the blockchain are linked together using cryptographic
hashes, which are unique identifiers generated from the contents of the block. This cryptographic
linkage ensures the integrity of the blockchain and makes it virtually impossible to alter past
transactions without consensus from the majority of nodes in the network.
4. Consensus Mechanisms: Blockchain networks rely on consensus mechanisms to validate and
agree on the validity of transactions before they are added to the blockchain. Common consensus
mechanisms include Proof of Work (PoW), Proof of Stake (PoS), and Byzantine Fault Tolerance
(BFT), among others.
5. Transparency and Immutability: Transactions recorded on the blockchain are transparent and
can be viewed by anyone with access to the network. Once a transaction is added to the
blockchain, it cannot be altered or deleted, ensuring immutability and trustworthiness of the data.
6. Smart Contracts: Some blockchain platforms support programmable contracts called smart
contracts, which are self-executing contracts with predefined rules and conditions. Smart
contracts automatically execute and enforce the terms of an agreement without the need for
intermediaries, reducing the risk of fraud and increasing efficiency.

Overall, blockchain technology provides a secure, transparent, and decentralized way to record and
verify transactions, making it suitable for a wide range of applications across industries such as finance,
supply chain management, healthcare, real estate, and voting systems.

Dept. Of Computer Engineering Page 7

Mahavir Polytechnic CO6I-ETI-UNIT 3

Centralize versus Decentralized System

Layers of Blockchain- Application Layer, Execution Layer, Semantic Layer,

Propagation Layer, Consensus Layer

Blockchain technology can be understood in terms of different layers, each serving a specific purpose in
the overall architecture. Here are the main layers of a blockchain system:

1. Application Layer:
o The application layer is the top layer of the blockchain stack and includes all the user-
facing applications and interfaces built on top of the blockchain protocol.
o This layer consists of various decentralized applications (dApps) and services that
interact with the blockchain network to provide specific functionalities and services to
users.
o Examples of applications built on the blockchain include cryptocurrency wallets,
decentralized exchanges, voting systems, supply chain tracking platforms, and identity
management solutions.

Dept. Of Computer Engineering Page 8

Mahavir Polytechnic CO6I-ETI-UNIT 3

2. Protocol Layer:
o The protocol layer, also known as the consensus layer, is the core of the blockchain
system and defines the rules and protocols governing the operation of the network.
o This layer includes the underlying blockchain protocol, such as Bitcoin, Ethereum, or
other blockchain platforms, which determines how transactions are validated, recorded,
and secured.
o The protocol layer also includes the consensus mechanism used to achieve agreement
among network participants on the validity of transactions and the state of the blockchain.
3. Network Layer:
o The network layer is responsible for facilitating communication and data transfer
between nodes in the blockchain network.
o This layer includes the peer-to-peer (P2P) network protocol used by nodes to connect,
communicate, and exchange data with each other.
o Nodes in the network relay transactions and blocks to each other, ensuring that all nodes
have a consistent view of the blockchain and its current state.
4. Data Layer:
o The data layer stores the actual data of the blockchain, including transactions, blocks, and
other relevant information.
o This layer typically consists of a distributed database or ledger that maintains a copy of
the blockchain on each node in the network.
o The data layer ensures data redundancy, integrity, and availability, allowing all network
participants to access and verify the data independently.
5. Consensus Layer:
o The consensus layer is responsible for achieving agreement among network participants
on the validity and order of transactions in the blockchain.
o This layer includes the consensus mechanism, such as Proof of Work (PoW), Proof of
Stake (PoS), or other consensus algorithms, used to validate transactions and secure the
network against attacks.
o The consensus layer ensures that all nodes in the network reach a common understanding
of the state of the blockchain and agree on the next valid block to be added to the chain.

Dept. Of Computer Engineering Page 9

Mahavir Polytechnic CO6I-ETI-UNIT 3

These layers work together to form a robust and decentralized blockchain system, enabling secure,
transparent, and tamper-resistant record-keeping and transaction processing. Each layer plays a crucial
role in the overall functionality and operation of the blockchain network.

Importance of Blockchain

Blockchain technology holds significant importance across various industries and sectors due to its
unique features and capabilities. Here are some key reasons why blockchain is considered important:

1. Decentralization: One of the most notable features of blockchain is its decentralized nature.
Unlike traditional centralized systems, blockchain operates on a network of distributed nodes,
eliminating the need for a central authority or intermediary. This decentralization promotes
transparency, resilience, and trust, as no single entity has control over the entire network.
2. Security: Blockchain provides robust security through cryptographic techniques such as hashing,
encryption, and digital signatures. Transactions recorded on the blockchain are immutable and
tamper-proof, making it extremely difficult for unauthorized parties to alter or manipulate data.
This enhances data integrity and protects against fraud, hacking, and unauthorized access.
3. Transparency: Transactions on the blockchain are transparent and publicly accessible, allowing
anyone to view the entire transaction history. This transparency fosters trust and accountability
among network participants, as all transactions are recorded in a transparent and auditable
manner. It also helps prevent fraud and corruption by enabling real-time monitoring and
verification of transactions.
4. Trust and Traceability: Blockchain enables trust and traceability by providing a secure and
transparent record of transactions and data. Each transaction is timestamped and
cryptographically linked to previous transactions, creating an immutable chain of records. This
enables users to verify the authenticity and provenance of data, assets, and products throughout
their lifecycle, enhancing trust and accountability in supply chains, financial transactions, and
other processes.
5. Efficiency and Cost Savings: Blockchain can streamline and automate processes by eliminating
intermediaries, reducing paperwork, and minimizing manual reconciliation efforts. This
improves efficiency, reduces errors, and accelerates transaction processing times. Additionally,

Dept. Of Computer Engineering Page 10

Mahavir Polytechnic CO6I-ETI-UNIT 3

blockchain can lower transaction costs by eliminating fees associated with intermediaries and
reducing the need for manual intervention.
6. Innovation and Disruption: Blockchain technology has the potential to drive innovation and
disrupt traditional business models across various industries. It enables new use cases and
business models, such as decentralized finance (DeFi), digital identity management, supply chain
tracking, and tokenization of assets. By enabling peer-to-peer transactions and removing barriers
to entry, blockchain empowers individuals and organizations to innovate and create new value
propositions.
7. Data Privacy and Ownership: Blockchain empowers individuals to have greater control over
their data and digital assets. With blockchain-based identity solutions, users can securely manage
and share their personal data while maintaining privacy and ownership. This reduces reliance on
centralized authorities and platforms for data management and enhances user sovereignty over
personal information.

Blockchain Limitations Systems of Centralized

Limitations of Centralized Systems:

1. Single Point of Failure: Centralized systems have a single point of failure. If the central
authority or server experiences a disruption, the entire system can fail, leading to downtime and
service interruptions.
2. Vulnerability to Attacks: Centralized systems are vulnerable to cyber-attacks and security
breaches. Since all data is stored in a central location, it becomes a prime target for hackers
looking to exploit vulnerabilities.
3. Lack of Transparency: Centralized systems lack transparency, as data and decision-making
processes are controlled by a single entity. Users have limited visibility into how their data is
used or accessed by the central authority.
4. Data Privacy Concerns: Centralized systems raise concerns about data privacy, as users must
trust the central authority to protect their sensitive information from unauthorized access or
misuse.

Dept. Of Computer Engineering Page 11

Mahavir Polytechnic CO6I-ETI-UNIT 3

5. Slow and Inefficient: Centralized systems can be slow and inefficient, especially during periods
of high demand. Processing times may be delayed due to bottlenecks and congestion in the
centralized infrastructure.

Advantages of Blockchain:

1. Decentralization: Blockchain eliminates the need for a central authority by distributing control
and decision-making among network participants. This decentralization enhances resilience and
eliminates single points of failure.
2. Security: Blockchain provides robust security through cryptographic techniques, making
transactions immutable and tamper-proof. It protects against fraud, hacking, and unauthorized
access by securing data across a distributed network.
3. Transparency: Blockchain enables transparency by providing a transparent and auditable record
of transactions. All transactions are publicly accessible and verifiable, fostering trust and
accountability among network participants.
4. Data Privacy: Blockchain empowers individuals to have greater control over their data and
digital assets. With blockchain-based identity solutions, users can securely manage and share
their personal information while maintaining privacy and ownership.
5. Efficiency: Blockchain streamlines and automates processes by eliminating intermediaries and
reducing paperwork. It improves efficiency, accelerates transaction processing times, and
reduces costs associated with centralized systems.

In summary, while centralized systems have limitations such as single points of failure, security
vulnerabilities, and lack of transparency, blockchain offers advantages such as decentralization, security,
transparency, data privacy, and efficiency. By leveraging blockchain technology, organizations can
overcome the limitations of centralized systems and unlock the benefits of a decentralized and
distributed infrastructure.

Dept. Of Computer Engineering Page 12

Mahavir Polytechnic CO6I-ETI-UNIT 3

Blockchain Adoption So Far

Blockchain adoption has been steadily increasing across various industries and sectors, driven by
growing recognition of its potential to revolutionize business processes, enhance security, and foster
innovation. Here's a summary of blockchain adoption so far:

1. Finance and Banking: The finance and banking sector has been one of the early adopters of
blockchain technology. Major financial institutions have been exploring blockchain for various
use cases, including cross-border payments, trade finance, securities settlement, and Know Your
Customer (KYC) compliance. Some banks have even launched blockchain-based platforms and
services to streamline operations and improve efficiency.
2. Supply Chain Management: Blockchain has gained traction in supply chain management,
where it is used to enhance transparency, traceability, and accountability across the supply chain.
Companies are leveraging blockchain to track the movement of goods, verify product
authenticity, and ensure compliance with regulations. This helps reduce fraud, counterfeiting,
and inefficiencies in supply chain processes.
3. Healthcare: In the healthcare industry, blockchain is being explored for applications such as
medical records management, pharmaceutical supply chain tracking, and patient identity
management. Blockchain can securely store and share sensitive healthcare data, ensuring
privacy, security, and interoperability among healthcare stakeholders.
4. Real Estate: Blockchain is disrupting the real estate industry by enabling transparent and secure
property transactions, title transfers, and land registry management. Blockchain-based platforms
streamline real estate transactions, reduce paperwork, and eliminate intermediaries, making
property transactions more efficient and cost-effective.
5. Government and Public Sector: Governments around the world are exploring blockchain for
various use cases, including identity management, voting systems, land registration, and public
procurement. Blockchain offers governments the opportunity to enhance transparency, reduce
fraud, and improve efficiency in public services.
6. Digital Identity: Blockchain-based digital identity solutions are gaining traction as a secure and
decentralized way to manage digital identities and authentication. Blockchain enables individuals
to control their own identity data, reducing reliance on centralized identity providers and
improving privacy and security.

Dept. Of Computer Engineering Page 13

Mahavir Polytechnic CO6I-ETI-UNIT 3

7. Education: Blockchain is being explored in the education sector for applications such as
credential verification, academic records management, and secure online certifications.
Blockchain-based platforms can provide tamper-proof records of academic achievements,
improving trust and credibility in education credentials.
8. Energy and Utilities: Blockchain is being used in the energy and utilities sector for applications
such as peer-to-peer energy trading, grid management, and renewable energy certificate tracking.
Blockchain enables decentralized energy transactions, empowers consumers, and supports the
transition to a more sustainable energy future.

Overall, blockchain adoption is still in its early stages, but the technology has the potential to disrupt and
transform a wide range of industries and sectors in the coming years. As more organizations and
governments recognize the benefits of blockchain, we can expect to see continued growth and
innovation in blockchain adoption across various domains.

Blockchain Use and Use Cases

Blockchain technology has a wide range of potential use cases across various industries and sectors.
Here are some common use cases where blockchain is being applied:

1. Cryptocurrencies: Blockchain gained prominence with the emergence of cryptocurrencies like

Bitcoin and Ethereum. These digital currencies leverage blockchain technology to facilitate peer-
to-peer transactions without the need for intermediaries like banks.
2. Supply Chain Management: Blockchain is used to track and trace products throughout the
supply chain, ensuring transparency and authenticity. It enables stakeholders to verify the origin,
production, and distribution of goods, reducing fraud, counterfeiting, and inefficiencies.
3. Smart Contracts: Smart contracts are self-executing contracts with predefined rules and
conditions. They automate and enforce the terms of an agreement without the need for
intermediaries. Blockchain platforms like Ethereum support smart contract functionality,
enabling a wide range of decentralized applications (dApps).
4. Identity Management: Blockchain-based identity management solutions offer a secure and
decentralized way to manage digital identities. Users can control their own identity data and
share it securely with trusted parties, reducing the risk of identity theft and fraud.

Dept. Of Computer Engineering Page 14

Mahavir Polytechnic CO6I-ETI-UNIT 3

5. Digital Voting: Blockchain can be used to create secure and transparent voting systems,
enabling tamper-proof and verifiable elections. Blockchain-based voting systems ensure the
integrity and auditability of voting processes, enhancing trust and participation in democratic
processes.
6. Supply Chain Finance: Blockchain facilitates supply chain finance by providing transparent
and reliable data on supply chain transactions. This enables financial institutions to offer
financing and lending services based on real-time supply chain data, reducing risk and improving
access to capital for businesses.
7. Cross-Border Payments: Blockchain enables fast, secure, and cost-effective cross-border
payments by eliminating intermediaries and reducing transaction fees. Cryptocurrencies and
blockchain-based payment platforms offer a decentralized alternative to traditional banking
systems for international remittances and transfers.
8. Healthcare Data Management: Blockchain can improve healthcare data management by
securely storing and sharing patient records, medical histories, and other sensitive information.
Blockchain-based healthcare platforms ensure data privacy, security, and interoperability among
healthcare stakeholders.
9. Digital Asset Tokenization: Blockchain enables the tokenization of real-world assets such as
real estate, artwork, and commodities. Tokenized assets are represented as digital tokens on the
blockchain, enabling fractional ownership, liquidity, and efficient trading of assets.
10. Decentralized Finance (DeFi): DeFi platforms leverage blockchain technology to create
decentralized financial services and applications, such as lending, borrowing, trading, and asset
management. DeFi offers users greater financial autonomy, transparency, and accessibility
compared to traditional finance.

These are just a few examples of how blockchain technology is being applied in various industries and
sectors. As the technology continues to evolve, we can expect to see further innovation and adoption of
blockchain-based solutions in diverse areas of the economy.

Dept. Of Computer Engineering Page 15