Blockchain Technology

Public ledger
•A public ledger is an open-access network; anyone can join at any time.
•The public ledger is fully decentralized, and no single entity controls the
blockchain network.
• The Bitcoin and Ethereum blockchains are both considered public ledgers.
The public ledger was available for general public viewing as well as for
verification
The public ledger is utilized as a record-keeping system that supports
participants' identities in a more secure and (pseudo-)anonymous form, their
respective cryptocurrency balances, and a record book of all the genuine
transactions completed between network participants.
public ledger is a record-keeping system
 Smart Contracts
 Smart contracts are simply programs stored on a blockchain that run when
predetermined conditions are met. They typically are used to automate the
execution of an agreement so that all participants can be immediately certain of
the outcome, without any intermediary's involvement or time loss.
Smart contracts are self-executing contracts in which the contents of the buyer-
seller agreement are inscribed directly into lines of code.
Using it makes the transactions traceable, transparent, and irreversible.
Benefits of Smart Contracts

Accuracy, Speed, and Efficiency

•The contract is immediately executed when a condition is met.
•Because smart contracts are digital and automated, there is no paperwork to deal with, and
•No time was spent correcting errors that can occur when filling out documentation by hand .
Trust and Transparency
There's no need to worry about information being tampered with for personal gain because
there's no third party engaged and
 Security
•Because blockchain transaction records are encrypted, they are extremely difficult to hack.
•Furthermore, because each entry on a distributed ledger is linked to the entries before and after it,
hackers would have to change the entire chain to change a single record.
Savings
•Smart contracts eliminate the need for intermediaries to conduct transactions, as well as the time
delays and fees that come with them.
 Bitcoin
“Satoshi Nakamoto” is presumed to be the pen name for the person or people who designed the
original bitcoin. Bitcoin was first introduced in the year 2009 as a medium of exchange. Bitcoin
then started as a peer-to-peer network to generate a system for electronic transactions. Since then,
there has been a rapid growth in the usage as well as the value of bitcoin which is a popular
system of digital currency.
Bitcoin is an innovative digital payment system. It is an example of a cryptocurrency a
It is a virtual currency designed to act as money and outside the control of any person or group
thus eliminating the need for third-party in financial transactions. next big thing in
finance.
 Features:

• Distributed: All bitcoin transactions are recorded in a public ledger known as the blockchain. There are nodes in
the network that maintain copies of the ledger and contribute to the correct propagation of the transactions
following the rules of the protocols making it impossible for the network to suffer downtime.
• Decentralized: There is no third party or no CEO who controls the bitcoin network. The network consists of
willing participants who agree to the rules of a protocol and changes to the protocol are done by the consensus of
its users. This makes bitcoin a quasi-political system.
• Transparent: The addition of new transactions to the blockchain ledger and the state of the bitcoin network is
arrived upon by consensus in a transparent manner according to the rules of the protocol.
• Peer-to-peer: In Bitcoin transactions, the payments go straight from one party to another party so there is no need
for any third party to act as an intermediary.
• Public: All bitcoin transactions are available publicly for everyone to see. All the transactions are recorded, which
eliminates the possibility of fraudulent transactions.
• Permissionless: Bitcoin is completely open access and ready to use for everyone, there are no complicated rules of
entry. Any transaction that follows the set algorithm will be processed with certainty.
 Drawbacks of bitcoins

•Bitcoins are a new emerging currency whose work is still in progress.

•Their value is highly volatile and unstable seeing wild fluctuations.
•It is internet-based, without which it cannot function.
•Losing your private key can result in losing your bitcoins.
•There is no way that the transactions can be reversed or cancelled once completed.
•There can be misuse of anonymity of bitcoin transactions for criminal activities.
•Governments can ban bitcoins and make transactions in bitcoins difficult.
Bitcoin System vs. Current Banking System
Decentralized System
◦ The Blockchain system follows a decentralized approach when compared to banks and financial organizations which are controlled and
governed by Central or Federal Authorities.
◦ Here, everyone who is involved with the system holds some power.

Public Ledgers
◦ The ledger which holds the details of all transactions which happen on the Blockchain, is open and completely accessible to everyone who
is associated with the system.
◦ Even though the complete ledger is publicly accessible, the details of the people involved in the transactions remains completely
anonymous.

Verification of Every Individual Transaction

◦ Every single transaction is verified by cross-checking the ledger and the validation signal of the transaction is sent after a few minutes.
◦ Through the usage of several complex encryption and hashing algorithm, the issue of double spending is eliminated.

Low or No Transaction Fees

◦ These transaction fees are however relatively quite less when compared to the fees implied by banks and other financial organizations.
◦ If a transaction needs to be completed on priority then an additional transaction fees can be added by the user so as to have the transaction
verified on priority.
 Block in Blockchain
Block is a place in a blockchain where data is stored. In the case of cryptocurrency blockchains, the
data stored in a block are transactions.
These blocks are chained together by adding the previous block's hash to the next block's header.
It keeps the order of the blocks intact and makes the data in the blocks immutable.
Each block contains a set of transactions and other essential details.
 A block consists of the following two main parts:
•Header
•Body
Header
A block's header contains information about the block and the miner. It is further divided into
subparts which are as follows:

a) Previous block's hash

This is the hash of the previous block. It chains the blocks together and makes the data in the previous
blocks immutable. If data in the previous blocks is changed, then the hash of that block will change
causing the unchaining of the blockchain.
 b) Other block header fields
These fields can vary depending on the different requirements of different blockchains. Some of the
common fields are as follows:
Nonce: This is an integer that a miner changes to change the hash of the block to achieve the
network's difficulty.
Timestamp: This is the time at which the block was mined. It is usually in the Unix time.
Difficulty: It is the current difficulty level of the network. It is stored in different formats in every
blockchain.
Block height: The number of blocks mined between the genesis block and the current block.
 Body
It includes all the data stored in the block, such as transactions. Every blockchain has a different
format for storing transactions. An array of transactions is stored in the body of the block.
 Transactions
When a transaction is recorded in the blockchain, details of the transaction such as
price, asset, and ownership, are recorded, verified and settled within seconds across
all nodes. A verified change registered on any one ledger is also simultaneously
registered on all other copies of the ledger.
The process of a transaction can be broken down into six steps:
1.Someone requests a transaction. The transaction could involve cryptocurrency, contracts, records, or
other information.
2.Transaction is broadcast to all P2P participation computers in the specific blockchain network. These
are called Nodes. All transactions are published to the Mempool or memory pool, where they are
considered ‘pending’. Gas fees are paid by users as part of the transaction to compensate for the
computing energy required to process and validate transactions on the blockchain.
3.Miners verify the transaction. Every computer in the network checks the transaction against some
validation rules that are set by the creators of the specific blockchain network.
4. Validated transactions are stored into a block and are sealed with a lock referred to as the Hash.
5. New block is added to the existing Blockchain. This block becomes part of the blockchain when
other computers in the network validate if the lock on the block is correct.
6. The transaction is complete. Now the transaction is part of the blockchain and cannot be altered in
any way.
 Distributed Consensus
Distributed consensus is necessary for the functioning of a network or machine in a
decentralized manner.
Consensus is easy to agree between, say, two parties (Alice invites Bob to her house; Bob
agrees.) But as the number of parties (or nodes on a network) increases, consensus becomes
more difficult to achieve.
In order to coordinate in their common goal, all the nodes on a network need to agree on a
"single source of truth" — that is, they need to be confident that the information they are
getting is accurate, even in the event that multiple other nodes on the network fail.
Every node in the network (or every participant in, for example, the Bitcoin blockchain) needs
to have an identical copy of the ledger, and there must be agreement that the version of the
ledger held by every node is accurate. In order to achieve this, blockchain projects use
distributed consensus algorithms.
 Public BlockChain
Basis of Comparison Private BlockChain

In this type of blockchain anyone can

In this type of blockchain read and
read, write and participate in a
Access – write is done upon invitation, hence it
blockchain. Hence, it is permissionless
is a permissioned blockchain.
blockchain. It is public to everyone.

Network Actors – Don’t know each other Know each other

A private blockchain is more
Decentralized Vs Centralized – A public blockchain is decentralized.
centralized.
Speed – Slow Fast

Transactions per second are lesser in a Transaction per second is more as

Transactions pre second –
public blockchain. compared to public blockchain.

A public network is more secure due to

decentralization and active A private blockchain is more prone to
participation. Due to the higher hacks, risks, and data breaches/
Security – number of nodes in the network, it is manipulation. It is easy for bad actors
nearly impossible for ‘bad actors’ to to endanger the entire network. Hence,
attack the system and gain control it is less secure.
over the consensus network.
 Public BlockChain
Basis of Comparison Private BlockChain

A public blockchain consumes more

energy than a private blockchain as it
Private blockchains consume a lot less
Energy Consumption – requires a significant amount of
energy and power.
electrical resources to function and
achieve network consensus.

In a public blockchain, no one knows

In a private blockchain, there is no
who each validator is and this increases
chance of minor collision. Each
the risk of potential collision or a 51%
Attacks – validator is known and they have the
attack (a group of miners which
suitable credentials to be a part of the
control more than 50% of the
network.
network’s computing power.).

Bitcoin, Ethereum, Monero, Zcash, R3 (Banks), EWF (Energy), B3i

Examples –
Dash, Litecoin, Stellar, Steemit etc. (Insurance), Corda.
Permissioned Model of
blockchains
Closed networks with limited decentralization, an additional access control layer, and designated
entities
This additional layer of security means that the blockchain can only be accessed by users with
permissions.
Permissioned users are only able to perform blockchain operations within the strict confines of roles
assigned to them by the ledger administrators and require that they authenticate themselves through
certificates or digital identifier methods.
 Aspects of a permissioned blockchain
Security- Permissioned blockchains provide the operating organization granular control over permissions, data
access, and the scope of user roles.
Decentralization isn’t fixed- Permissioned blockchains can either be fully centralized or partially decentralized.
Its members typically decide on the network’s level of decentralization and the mechanisms for consensus.
Transparency is not required- permissioned blockchain networks are specifically intended to not be transparent
for security purposes. Levels of transparency usually depend on the goals of the organization running the
blockchain network.
 Advantages of permissioned blockchain
One of the most significant advantages of permissioned blockchains is the high level of privacy and
security they can provide. Without a verified set of credentials and access, no user can access or alter
transaction information without permission.
Another advantage is flexibility when it comes to decentralization. It can be incremental or fully
centralized, giving businesses more freedom to participate without having to worry about the risks
associated with a highly centralized network.
Permissioned blockchains are also highly customizable and can accommodate configurations and
integrations based on an organization’s needs. And with knowledge of every user and their actions on the
network, a verifiable chain of custody can be established for every transaction.
Lastly, these types of blockchains are both scalable and highly performant due to the limited number of
nodes needed to manage transaction verifications.
 Cryptocurrency

Cryptocurrency is a digital payment system that doesn't rely on banks to

verify transactions. It’s a peer-to-peer system that can enable anyone
anywhere to send and receive payments. Instead of being physical
money carried around and exchanged in the real world, cryptocurrency
payments exist purely as digital entries to an online database describing
specific transactions. When you transfer cryptocurrency funds, the
transactions are recorded in a public ledger. Cryptocurrency is stored in
digital wallets.
Cryptocurrency received its name because it uses encryption to verify
transactions. This means advanced coding is involved in storing and
transmitting cryptocurrency data between wallets and to public ledgers.
The aim of encryption is to provide security and safety.

The first cryptocurrency was Bitcoin, which was founded in 2009 and
remains the best known today. Much of the interest in cryptocurrencies is
to trade for profit, with speculators at times driving prices skyward.
How does cryptocurrency work
Cryptocurrencies run on a distributed public ledger called blockchain, a
record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining,
which involves using computer power to solve complicated
mathematical problems that generate coins. Users can also buy the
currencies from brokers, then store and spend them using cryptographic
wallets.
If you own cryptocurrency, you don’t own anything tangible. What you
own is a key that allows you to move a record or a unit of measure from
one person to another without a trusted third party.
 Cryptographic primitives
Hashing Functions
A hashing function is a mathematical function that takes an input and returns a fixed-size string of
characters, or hash. Hashing functions are commonly used in cryptography to create digital signatures
and to verify the integrity of data.
SHA3-256 is a commonly used hash function.
SHA3-256(“Hello world”) =
“369183d3786773cef4e56c7b849e7ef5f742867510b676d6b38f8e38a222d8a2”
SHA3-256(“hello world”) =
“644bcc7e564373040999aac89e7622f3ca71fba1d972fd94a31c3bfbf24e3938”
Determinism: A given input will always produce the same output.
Pre-image resistance: Given a hash, it is computationally infeasible to find an input that would produce
that hash.
Collision resistance: It is computationally infeasible to find two different inputs that produce the same
hash.
Fixed-length output: Regardless of the size of the input string, the hash function will always generate an
output string of the same length.
 Hash Pointer
.
A hash pointer is a data structure that is used a lot in the systems.
· It is basically a pointer to the place where some information is stored.
· Together with the pointer, a cryptographic hash of the information is
stored.
Hash Pointer is comprised of two parts:
•Pointer to where some information is stored.
•Cryptographic hash of that information.
The pointer can be used to get the information, the hash can be used to
verify that information hasn't been changed
 Merkle tree
Merkle tree is a fundamental part of blockchain technology.
· A Merkle tree is a data structure that is used in computer science
applications.
· It is composed of hashes of different blocks of data, and which serves as a
summary of all the transactions in a block.
· It also helps to verify the consistency and content of the data.
· Both Bitcoin and Ethereum use Merkle Trees structure.
· Merkle Tree is also known as Hash Tree.
· It serves to encode blockchain data more efficiently and securely.
· They are also referred to as binary hash trees.
 A Merkle tree stores all the transactions in a block by producing a digital fingerprint of
the entire set of transactions.

· It allows the user to verify whether a transaction can be included in a block or not.

· Merkle trees are created by repeatedly calculating hashing pairs of nodes until there is
only one hash left.

· This hash is called the Merkle Root, or the Root Hash.

· The Merkle Trees are constructed in a bottom-up approach.

· Every leaf node is a hash of transactional data, and the non-leaf node is a hash of its
previous hashes.

· Merkle trees are in a binary tree, so it requires an even number of leaf nodes.

· If there is an odd number of transactions, the last hash will be duplicated once to
create an even number of leaf nodes.
The above example is the most common and simple form of a Merkle tree,
i.e., Binary Merkle Tree.

· There are four transactions in a block: TX1, TX2, TX3, and TX4.

· There is a top hash which is the hash of the entire tree, known as the Root Hash,
or the Merkle Root.

· Each of these is repeatedly hashed, and stored in each leaf node, resulting in Hash
0, 1, 2, and 3.

· Consecutive pairs of leaf nodes are then summarized in a parent node by

hashing Hash0 and Hash1, resulting in Hash01, and separately
hashing Hash2 and Hash3, resulting in Hash23.

· The two hashes (Hash01 and Hash23) are then hashed again to produce the Root
Hash or the Merkle Root.
Merkle Root is stored in the block header.
· The block header is the part of the bitcoin block which gets hash in the
process of mining.
· It contains the hash of the last block, a Nonce, and the Root Hash of all the
transactions in the current block in a Merkle Tree.
· So having the Merkle root in block header makes the transaction tamper-
proof.
· As this Root Hash includes the hashes of all the transactions within the
block, these transactions may result in saving the disk space.
The Merkle Tree maintains the integrity of the data.

· If any single detail of transactions or order of the transaction's changes, then these changes reflected
in the hash of that transaction.

· This change would cascade up the Merkle Tree to the Merkle Root, changing the value of the
Merkle root and thus invalidating the block.

· So everyone can see that Merkle tree allows for a quick and simple test of whether a specific
transaction is included in the set or not.
 Public key cryptography isPublic Key Cryptography
an asymmetric type of cryptography where we
use a pair of keys (public key and private key). It uses them to
encrypt/decrypt the information and verify the users.
Encryption of the information at the sender’s end using the public key (of
the receiver). This ensures that no third party can access or understand the
encrypted information in or out of the network. Only the intended receiver
ca
public-key cryptography is a way of providing a digital identity to the user.
Through this one can carry out secure transactions within a blockchain
networkn decrypt and read the message using its own private key.
A public key is the counterpart of a private key as it is cryptographically
derived from it. A public key is available for all the nodes in the network.
This helps in the verification of a transaction by all the nodes in a
blockchain network. Let’s suppose that you are a node in the network and
you want to send a message or information to another node.
To carry out a secure transaction you will sign the message from your
private key and send it for verification from the entire network. Each node
can access your public key and so they will verify the transaction as
authentic and pass it. When all the nodes verify your transaction using your
public key the transaction can take place. Generally, a public address is used
for transactions rather than the public key because of its length. The public
key is long and not easily shareable. So, a shorter version of it is created by
hashing which is the public address.
The two main functions of a public key in providing security in a
blockchain network are:
a. To encrypt a message or information using the public key of the
receiver. This ensures that only the receiver who has its
corresponding private key can decrypt and read the message.
b. To verify if the sender is authentic by confirming the digital
signature. A digital signature is done by the sender’s private key. A
public key verifies the sender’s identity by matching
(complementing) with his private key.
Suppose you are a legitimate node on a blockchain network. Now, you need to
have three things in order to carry out secure transactions within the network; a
private key, a public key, and a wallet address, or a public address.
For this, you need to install a blockchain wallet software that will automatically
create a pair of private key and public key and a wallet address. This software is an
independent platform from the blockchain.
It gives you a digital identity and a safe place to keep your keys.
Furthermore, your public address is like a mailbox and your private key is like the
key of that mailbox.
Your mailbox or its address is known to everyone and anyone can send you things
using the mailbox. But, only you can open your mailbox and access the contents
inside it using the key to the mailbox. Similarly, anyone within the blockchain
network can send you tokens or messages to your public address. But only you can
decrypt and read that message using your private key.
 Digital signature
digital signature is created by the Elliptic Curve Digital Signature
Algorithm (ECDSA)
the purpose of doing a digital signature before sending the information is
to state authority over the information and tokens (cryptocurrency). It is
like signing a cheque where you state that it is your money that you are
giving from your authorized bank account.
when you digitally sign the information you send in a blockchain
network, you say that you are an authorized node. And you rightfully own
the tokens or currency you wish to give to someone in the
network. Therefore, the digital signature proves the ownership of the funds
and the account and protects them from forgery