AY 24-25 | Term III | 2 Credits

Introduction to
Blockchain
Goa Institute of Management
Prof. Shubhendu Singh

AY 24-25 | Term III Digital Technologies and Digital Businesses | Shubhendu Singh
 Blockchain Current Status
Source: https://www.marketsandmarkets.com/

AY 24-25 | Term III Digital Technologies and Digital Businesses | Shubhendu Singh
 What is Blockchain?
❑ Blockchain is a distributed ledger technology (DLT) that securely records
and verifies transactions across multiple computers or nodes in a network.
❑ Transactions (information, cryptocurrency, contracts) are stored in a series of
connected blocks, forming a chain.

AY 24-25 | Term III Digital Technologies and Digital Businesses | Shubhendu Singh
 Blockchain Architecture
Block

Nodes

Transaction
 Blockchain Architecture
Block
Definition: A block is the fundamental unit of blockchain. It contains data related to transactions
and other essential information.
Each block is cryptographically linked to the previous block, forming a chain.
Blockchain Architecture
Structure of a Block:

Source: https://blocktpoint.com/cdata/blockchain/images/structure%20of%20block.png
 Blockchain Architecture
NODE
A node is any device connected to the blockchain network that participates in
validating, storing, and relaying data.

Nodes help maintain the integrity and security of the blockchain.

Types of NODE
Full Nodes: Nodes that store the complete copy of the blockchain.
Light Nodes: Nodes that store only the headers of the blockchain, not the full data.
 Blockchain Architecture
Transaction
A transaction is a record of an exchange of assets (cryptocurrency, information,
contracts, etc.) between participants in the network.

Transaction Process
Transactions are broadcasted to the network, validated by nodes, and added to
blocks after verification.
 Key features of Blockchain
Security

Transparency

Immutability

Consensus Mechanisms
 Key features of Blockchain
Security
Blockchain uses cryptographic hashing to ensure data integrity.
Each block is cryptographically linked to the previous one, making it tamper-resistant.
 Key features of Blockchain
Transparency
All transactions are visible to participants in the network, fostering trust.
 Key features of Blockchain
Immutability
Once a block is added, it is nearly impossible to alter, providing a permanent and
verifiable record of transactions.

Source: https://infinite-vigilant.github.io/blockchain.html
 Key features of Blockchain
Consensus Mechanisms
These are algorithms that ensure all participants/nodes in the network agree on the validity of
transactions.

Consensus algorithm is responsible for:

1. Validating transactions: Ensuring that all transactions are legitimate.
2. Adding new blocks: Deciding which node gets to add the next block to the blockchain.
3. Preventing double spending: Ensuring that the same asset (e.g., cryptocurrency) is not
spent more than once.
4. Securing the network: Preventing attacks by bad actors and maintaining trust without the
need for intermediaries.
 Consensus Algorithm
Proof of Work Proof of Stake Delegated Proof of Proof of Authority Practical Byzantine
Stake (DPoS) (PoA) Fault Tolerance
BITCOIN ETHEREUM (PBFT)
EOS Used in Private
Blockchain Hyperledger
Fabric

DOGECOIN SOLANA

Use Case
Supply Chain
Industry
Walmart, BMW
Types of Blockchain
Permissionless Permissioned

Access Open to anyone Restricted

Decentralization Broad Limited

Transparency More Transparent Less Transparent

Security High security, but Risk of internal

and lower speed due to manipulation but
Speed public validation faster validation

Use Cases Cryptocurrency Enterprise

(Blockchain) Application
 Public vs Private Blockchain
PUBLIC PRIVATE
Access Open to everyone. Anyone can join network, participate in Restricted access. Only authorized participants can access the
consensus, and view transactions. network and interact with the blockchain.

Decentralization Fully decentralized. No single entity controls the network. Partially centralized. Controlled by one or more organizations,
depending on the network setup.

Security High security is maintained by a large number of participants Security is managed by a smaller group of trusted nodes, but
through mechanisms like PoW. vulnerable to attacks if those nodes are compromised.

Transaction Speed Slower transaction speeds due to the need for a global Faster transaction speeds since fewer nodes are required to
consensus mechanism. reach consensus.

Transparency Completely transparent. All participants can view all Restricted transparency. Only authorized participants can
transactions. view transactions.

Immutability Strong immutability. Once transactions are validated, they are Limited immutability. Because fewer participants are
nearly impossible to alter. involved, there is more flexibility to reverse or alter
transactions, which can compromise security.
Consensus Algorithm
Proof of Work (PoW)
Key Concepts
Mining
❑ Miners compete to solve a computationally difficult puzzle.
❑ The first miner to solve the puzzle earns the right to add a new
block to the blockchain and is rewarded with newly created
cryptocurrency (block reward) and transaction fees.
Hashing Algorithm
❑ A hash function is a mathematical function that converts an input
(block's data) into a fixed-length string of numbers and letters,
called a hash.
 Source: “Deconstructing Blockchains: A Comprehensive
Survey on Consensus, Membership and Structure” (Natoli
et al., 2019)

Block Validation Difficulty Adjustment

❑ Once a miner successfully solves the puzzle and creates a valid ❑ The network adjusts the difficulty of the puzzle
block, it is broadcasted to the entire network. dynamically to ensure that blocks are added at a consistent
rate (e.g., every 10 minutes in Bitcoin).
❑ Other nodes validate the block by verifying that the solution is
correct and that all transactions within the block are valid. ❑ This adjustment is based on the total computational power
in the network.
❑ After validation, the new block is added to the blockchain, and the
network moves on to the next block. ❑ As more miners join the network, the puzzle becomes
more difficult, requiring more computational resources to
solve.
 BITCOIN
Bitcoin has a maximum supply of 21 million BTC.
These coins are gradually released through mining.
Bitcoin follows a 10-minute mining rule, meaning
that, on average, a new block is mined every 10
minutes.
Each block contains transactions and a reward for the
miner.
❑ Blocks per hour = 6 (since 60 min / 10 min = 6)
❑ Blocks per day = 6×24=1446
❑ Blocks per year = 144×365=52,560
 Consensus Algorithm
Drawbacks Proof of Work (PoW)
Energy Consumption:
❑ PoW is highly energy-intensive, as miners need to perform vast amounts of
computations to find the correct nonce.
❑ This has raised concerns about the environmental impact of blockchain networks like
Bitcoin.
 Consensus Algorithm
Drawbacks Proof of Work (PoW)
Scalability Issues:
❑ PoW networks can be slow and inefficient when handling large numbers of
transactions, as only one block can be mined at a time.
❑ This limits the throughput of transactions and increases confirmation times.

Mining Centralization
❑ Over time, PoW mining has become dominated by specialized hardware, leading to
centralization of mining power in large mining pools or regions where electricity is
cheap.
 Where is Bitcoin mining
concentrated?
❑ Until mid-2021, China accounted for over 65% of the global Bitcoin mining due to cheap
electricity, particularly from hydropower.
❑ However, after the Chinese government’s ban on cryptocurrency mining in June 2021,
many operations were shut down or relocated.
CURRENT STATUS
❑ U.S. is the leading hub for Bitcoin mining, contributing over 35-40% of the global mining.
❑ Kazakhstan quickly became a mining hotspot post-China ban, leveraging its low energy
costs and favorable regulations.
❑ Countries like Canada, Iceland and Norway are gaining attention for their renewable
energy use and cool climates.
 Consensus Algorithm
Proof of Stake (PoS)
Key Concepts
Validators
❑ Instead of miners (as in PoW), PoS uses validators who are chosen to propose and validate new blocks
based on the number of coins they hold and are willing to "stake" or lock up.

Staking
❑ Validators must lock up a certain amount of cryptocurrency as collateral.
❑ The more cryptocurrency a validator stakes, the higher the chance they have to be selected to validate
the next block.
 Consensus Algorithm
Proof of Stake (PoS)
Key Concepts
Block Validation Rewards Slashing
When a validator is chosen
to create a new block, they
If validators act
are responsible for Validators are rewarded
dishonestly, they may lose
verifying transactions. with transaction fees and
part or all of their staked
Other validators then additional cryptocurrency
assets, a process known as
confirm the accuracy of the for validating a block
slashing
block.
 Consensus Algorithm
Proof of Stake (PoS)
Key Features
Energy Efficient Security Lower Barrier to Entry

Validators have a financial

PoS requires significantly Becoming a validator
incentive to behave
less energy compared to requires holding and
honestly, as they risk losing
PoW, as it doesn’t involve staking coins rather than
their staked assets if they
competitive mining and investing in expensive
attempt to attack the
solving complex puzzles. hardware.
network.
 Proof of Work (PoW) Proof of Stake (PoW)

Mechanism Requires miners to solve complex Validators are chosen based on the amount
cryptographic puzzles to validate transactions of cryptocurrency they stake.

Consensus Participants Miners: Compete to solve puzzles and mine Validators: Chosen to validate blocks
new blocks. based on the amount they stake.

Transaction Speed Generally slower due to the time it takes to Generally faster as validation is based on
solve cryptographic puzzles. staking, not solving puzzles.

Energy Consumption Extremely energy-intensive due to the Energy-efficient, requiring little

computational work required. computational power.

Examples Bitcoin, Ethereum (before switching to PoS), Ethereum 2.0, Solana, Cardano, Polkadot,
Litecoin. Tezos.
 DPoS vs PoA vs PBFT
Delegated Proof of Stake Proof of Authority (PoA) Practical Byzantine Fault
(DPoS) Tolerance (PBFT)
Mechanism Network participants vote to A limited number of trusted Designed to handle a network
select a small number of validators are selected based with faulty or malicious
delegates who are responsible on their reputation or nodes. Consensus is achieved
for validating transactions and identity to validate through a series of message
adding blocks. transactions. exchanges where nodes agree
on the validity of transactions.
Advantages Higher scalability and faster High speed and efficiency, High throughput, low energy
consensus. suitable for private consumption.
blockchains.
Challenges Can lead to centralization as More centralized, less Works well in small
a few delegates control the censorship-resistant compared networks but is less efficient
network. to PoW and PoS. in large, public networks.
 Cryptocurrency Regulatory and Tax
Considerations in India
Legal Status

❑ Bitcoin is not illegal in India, but it is unregulated..

❑ The government has not provided a clear legal framework but has imposed strict taxation.
Taxation
❑ 30% tax on profits from crypto transactions.
❑ 1% TDS (Tax Deducted at Source) on all crypto transactions above ₹10,000.
❑ Profits are considered "Income from Other Sources" and must be reported during tax filing.
RBI Stance

The Reserve Bank of India (RBI) has raised concerns about cryptocurrencies but does not
prohibit individuals from holding or trading Bitcoin.
 AY 24-25 | Term III | 2 Credits

End of lecture
Goa Institute of Management
Prof. Shubhendu Singh

AY 24-25 | Term III Digital Technologies and Digital Businesses | Shubhendu Singh