Blockchain Technology

Module 1
Syllabus

• Blockchain 101

Mastering Blockchain, Third Edition by Imran Bashir

Chapter 1

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Introduction to Distributing Computing
• A distributed system consists of multiple independent nodes (computers,
servers, or devices) that communicate and coordinate to function as a single
system. These systems are designed to enhance performance, scalability,
and fault tolerance.
• Examples of Distributed Systems:
– Clusters – A group of computers working together as a single system (e.g., HPC
clusters).
– Cloud Computing – Services distributed across multiple servers (e.g., AWS, Google
Cloud).
– Blockchain Networks – Decentralized systems for secure transactions.
– Microservices Architecture – Applications composed of independent services
communicating over a network.

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CAP Theorem
• CAP Theorem states that in a distributed system, it is impossible
to achieve all three of the following properties simultaneously:
– Consistency (C) – Every read receives the most recent write (or an error).
– Availability (A) – Every request (read/write) receives a response, even if
some nodes fail.
– Partition Tolerance (P) – The system continues to function despite
network partitions (communication failures between nodes).

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CAP Theorem
• A network partition happens when nodes in a distributed system
cannot communicate with each other due to network failures.
• When such a partition occurs, a system must choose between
Consistency and Availability:
– CP (Consistency + Partition Tolerance): Ensures consistency across all
nodes but may sacrifice availability (e.g., a database might deny
reads/writes until the partition is resolved).
– AP (Availability + Partition Tolerance): Ensures system availability but may
return stale or inconsistent data.
– CA (Consistency + Availability): This is only possible in systems without
partitions, which is unrealistic in distributed networks.

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Byzantine Generals Problem
• The Byzantine Generals Problem is a fundamental issue in distributed
systems and fault-tolerant computing, particularly in scenarios where nodes
(or agents) must reach consensus despite failures or malicious actors.
• The Problem:
– Imagine a group of Byzantine generals commanding different sections of an army. They
must decide on a coordinated attack or retreat to succeed. However:
• Some generals may be traitors who send conflicting or false messages.
• The loyal generals must reach a unanimous decision despite possible misinformation.
• The system must function correctly even if some participants are unreliable or malicious.

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Byzantine Generals Problem
• Key Challenges:
– Faulty or Malicious Nodes: Some nodes may provide incorrect
information.
– Communication Failures: Messages may be delayed, lost, or altered.
– Consensus Requirement: All non-faulty nodes must agree on a common
decision.
• Byzantine Fault Tolerance (BFT):
– A system is Byzantine Fault Tolerant if it can function correctly even when
some nodes exhibit arbitrary (malicious or faulty) behavior. The famous
result states that at least 3f + 1 nodes are required to tolerate f faulty
nodes in a synchronous system.

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Consensus
• Consensus is the process by which multiple nodes in a distributed system
agree on a single data value or decision, even in the presence of failures. It is
crucial for maintaining consistency and reliability in distributed computing
environments.
• Key Properties of a Consensus Algorithm
– Agreement – All non-faulty nodes must agree on the same value.
– Validity – The agreed value must be one that was proposed by at least one node.
– Integrity – Once a decision is made, it cannot be changed.
– Termination – Every correct (non-faulty) node must eventually decide on a value.
– Fault Tolerance – The system should function despite failures, including Byzantine
failures (in some cases).

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Consensus in the Presence of Failures
• Crash Fault Tolerance (CFT) – Nodes may fail by stopping execution but do
not behave maliciously (e.g., Paxos, Raft).
• Byzantine Fault Tolerance (BFT) – Some nodes may behave arbitrarily,
including sending misleading information (e.g., PBFT, Blockchain).

Popular Consensus Algorithms

• Leader-Based Consensus • Blockchain-Based Consensus
• Raft (Leader Election & Log Algorithms
Replication) – Proof of Work
• Practical Byzantine Fault Tolerance – Proof of Stake
(PBFT) – Delegated Proof of Stake
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History of Blockchain

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Introduction to Blockchain
• Layman's definition: Blockchain is an ever-growing, secure, shared recordkeeping system in
which each user of the data holds a copy of the records, which can only be updated if all
parties involved in a transaction agree to update.
• Technical definition: Blockchain is a peer-to-peer distributed ledger that is
cryptographically-secure, append-only, immutable (extremely hard to change), and
updateable only via consensus or agreement among peers.
• Key Features of Blockchain
– Decentralization – No central authority; data is distributed across a peer-to-peer (P2P)
network.
– Immutability – Once recorded, transactions cannot be altered or deleted.
– Transparency – Every participant in the network can verify transactions.
– Security – Uses cryptographic hashing and consensus mechanisms to prevent fraud.

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Introduction to Blockchain
• How Blockchain Works?
– Transaction Initiation – A user initiates a transaction (e.g., sending cryptocurrency).
– Transaction Verification – Nodes in the network validate the transaction using a consensus
mechanism (e.g., Proof of Work).
– Block Creation – Verified transactions are grouped into a block.
– Block Addition to the Chain – The block is added to the existing blockchain in a chronological order.
– Immutable Record – The transaction is now permanent and publicly visible on the blockchain.
• Types of Blockchain
– Public Blockchain – Open to everyone (e.g., Bitcoin, Ethereum).
– Private Blockchain – Restricted access, controlled by a single entity (e.g., Hyperledger).
– Consortium Blockchain – Semi-decentralized, controlled by a group of organizations.
– Hybrid Blockchain – Combines public and private blockchain features.

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13
Introduction to Blockchain
• Blockchain Applications
– Cryptocurrency – Bitcoin, Ethereum, and other digital currencies.
– Smart Contracts – Self-executing contracts with pre-defined conditions.
– Supply Chain Management – Enhances transparency and reduces fraud.
– Healthcare – Secure patient records and data sharing.
– NFTs (Non-Fungible Tokens) – Unique digital assets in art, music, and gaming
• Features of Blockchain
– Decentralized – No central authority; data is shared across – Anonymity & Privacy – Users interact with cryptographic
nodes. addresses.
– Transparency – Transactions are visible to all participants. – Tokenization – Digital assets and cryptocurrencies are supported.
– Immutability – Once recorded, data cannot be altered or – Fault Tolerance – Network remains operational even if some
deleted. nodes fail.
– Security – Uses cryptographic hashing and digital signatures. – Faster Transactions – No intermediaries, reducing transaction
– Consensus Mechanism – Transactions are validated through time.
PoW, PoS, etc. – Reduced Costs – Eliminates third-party fees.
– Distributed Ledger – Data is stored across multiple nodes. – Traceability – Ensures tracking and auditing of transactions.
– Smart Contracts – Self-executing contracts automate – Interoperability – Cross-chain communication between
transactions. blockchains.
– Eco-Friendly Options – PoS and energy-efficient models
emerging.

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Blockchain Architecture View

15
Generic Elements
of Blockchain

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Generic Structure of a Block

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 Tiers of Blockchain
• Blockchain 1.0: Cryptocurrency • Blockchain 3.0: Beyond Finance
– Introduced with Bitcoin (2009). – Expanded blockchain use cases to non-financial
– Primarily focused on cryptographic currencies. industries in 2012.
– Key applications: Payments and financial transactions. – Applied in government, healthcare, media, arts, and
– Includes Bitcoin and all alternative cryptocurrencies. justice.
– Platforms supporting smart contracts enable this
• Blockchain 2.0: Smart Contracts & Financial Services
expansion.
– Emerged in 2010 as blockchain applications expanded
beyond currency. • Blockchain X.0: Future Vision
– Introduced smart contracts and financial services. – A future public blockchain service, like a universal
Google search engine for blockchain.
– Key applications:
– Envisions a decentralized, open ledger with
– Financial assets: Derivatives, bonds, swaps, and
self-regulating smart contracts.
options.
– Concept of Machina Economicus:
– Platforms: Ethereum, Hyperledger, and other blockchain
frameworks. – AI-driven rational agents making autonomous decisions.
– Blockchain governance via code-based regulations
rather than laws.
– Technical challenges remain before achieving this
vision.

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Types of Blockchain

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Consensus in
Blockchain

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 Benifits and Limitations of Blockchain

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