Module 1:

introduction to blockchain

Prepared By: Prof. Swapnil S. Sonawane

Basic of BLOCKCHAIN

Prepared By: Prof. Swapnil S. Sonawane

Bitcoin and BLOCKCHAIN

Prepared By: Prof. Swapnil S. Sonawane

 BLOCKCHAIN structure

Trust

Prepared By: Prof. Swapnil S. Sonawane

BLOCKCHAIN structure (Contd.)

Prepared By: Prof. Swapnil S. Sonawane

How BLOCKCHAIN technology works

Prepared By: Prof. Swapnil S. Sonawane

 Definition of BLOCKCHAIN

Blockchain is defined as a distributed, replicated and peer-to-

peer network of databases that allows multiple non-trusting
parties to transact without a trusted intermediary and maintains
an ever-growing, append-only, temper-resistant list of time-
sequenced records.

Prepared By: Prof. Swapnil S. Sonawane

Basic operations on BLOCKCHAIN

✓Broadcasting transactions

✓Validation of transactions

✓Gathering transactions for a block

✓Consensus on new block creation

✓Chaining blocks
Prepared By: Prof. Swapnil S. Sonawane
 components of BLOCKCHAIN
1. Node:
A node is an electronic device (computer or mobile device) that
are connected to the internet.
In blockchain, any computer or hardware device that is
connected to blockchain network is called as a node.
All the nodes in the network have a copy of blockchain ledger
and are interconnected

Prepared By: Prof. Swapnil S. Sonawane

A node can be:
A. Full Node:
A node maintains a full copy of the transaction history of the
blockchain. They also help the network by processing and accepting
transactions or blocks, validating those transactions or blocks and then
broadcasting them to the network.
B. Partial/ Lightweight/ Light Node:
It maintains only partial copy of a blockchain and normally used when
user do not have sufficient disk space for full blockchain. They only
download the block headers to validate transactions.
Prepared By: Prof. Swapnil S. Sonawane
2. Ledger:
It is digital database of information that is immutable
Its properties are:
a. Ledger is public as anyone can access the ledger and can
read or verify the transactions
b. Ledger is distributed because all the nodes in the blockchain
have a copy of blockchain ledger
c. Ledger is decentralized so no node have excessive control
over ledger and hence no single point of failure
Prepared By: Prof. Swapnil S. Sonawane
3. Wallet:

It is a digital wallet that allows user to manage cryptocurrency like bitcoin, ether etc. One
can send and receive cryptocurrency using wallet

Its features are:

a. Privacy is maintained: When wallet is created, user's public and private key also
generated. We need to share public key to receive funds

b. Transactions are secured: Private key is used to send funds as well as open encrypted
message

c. Ease of usage: Wallets can be installed and accessed from web, desktop or mobile
device without intermediatory like banks

d. Currency conversion: We can transact over various types of cryptocurrencies like BTC,
ETH, LTC etc.
Prepared By: Prof. Swapnil S. Sonawane
4. Nonce:
It is an arbitrary number generated randomly that can be used while block is
added. It is a key for creating block in blockchain
5. Hash:
A hash function can take data of any size, perform an operation on it and return a
“hash” of that data of fixed size. It has following characteristics:
a. It creates unique hash for data
b. It is one dimensional, means we can not recreate data from its hash
c. A very minute change in data gives different hash
d. It keeps database small
Prepared By: Prof. Swapnil S. Sonawane
6. Mining:
It is the mechanism, where miners or forgers validate new
transactions and add them to the blockchain ledger.
It is done by solving complex cryptographic hash puzzles to
verify blocks of transactions that are updated on the
decentralized blockchain ledger.
Solving these puzzles requires powerful computing power and
sophisticated equipment. In return, miners are rewarded with
bitcoins.
Prepared By: Prof. Swapnil S. Sonawane
7. Consensus protocol:
Consensus for blockchain is a procedure in which the peers of a
Blockchain network reach agreement about the present state of
the data in the network.
Through this, consensus algorithms establish reliability and
trust in the Blockchain network.
Example: Proof-of-work, Proof-of-stake etc.

Prepared By: Prof. Swapnil S. Sonawane

 Block in blockchain

Each block containing the data, its own hash value and a
pointer to the hash of the previous block

Prepared By: Prof. Swapnil S. Sonawane

Prepared By: Prof. Swapnil S. Sonawane
A block is a place in a blockchain where information is stored and
encrypted.
Blocks are identified by long numbers that include encrypted
transaction information from previous blocks and new transaction
information.
Blocks and the information within them must be verified by a
network before new blocks can be created.
Blocks and blockchains are not used solely by cryptocurrencies.
They also have many other uses.
Prepared By: Prof. Swapnil S. Sonawane
The header of the block is divided into six components:
1. The version number of the software
2. The hash of the previous block
3. The root hash of the Merkle tree
4. The time in seconds since 1970–01–01 00:00 UTC
5. The goal of the current difficulty
6. The nonce

Prepared By: Prof. Swapnil S. Sonawane

Merkle tree

Prepared By: Prof. Swapnil S. Sonawane

Merkle trees, also known as Binary hash trees, are a prevalent
sort of data structure in computer science.
In bitcoin and other cryptocurrencies, they're used to encrypt
blockchain data more efficiently and securely.
It's a mathematical data structure made up of hashes of various
data blocks that summarize all the transactions in a block.
It also enables quick and secure content verification across big
datasets and verifies the consistency and content of the data.
Prepared By: Prof. Swapnil S. Sonawane
Prepared By: Prof. Swapnil S. Sonawane
Prepared By: Prof. Swapnil S. Sonawane
 Types of BLOCKCHAIN
Public Blockchain:
It is public permissionless blockchain
In public blockchain, anyone in the world can access the
blockchain, download a copy and run the node.
One does not need any permission to read/access a transaction,
initiate the transaction or participate in the consensus process to
create a block.

Prepared By: Prof. Swapnil S. Sonawane

Features of public blockchain:
1. Anyone can join the network and be the participant
2. No permissions are required for anyone to read/send transactions
3. The standard consensus algorithm used is Proof-of-Work (PoW) where
nodes (miners) solve the hash puzzle and submit their resultant block to
the rest of the network participants for consensus
4. High cryptographic methods are used to secure data
5. It has low transaction processing speed
6. Consensus mechanism requires an immense amount of energy and
computation power
Prepared By: Prof. Swapnil S. Sonawane
Private Blockchain:
It is private permissioned blockchain
The network is not open to anyone.
Features of decentralization and openness is lost as all the
permissions are controlled by few nodes in organization
Here owner has sole control over who can read, write or
validate the data, it stands to reason why many may not
consider it to be a real blockchain

Prepared By: Prof. Swapnil S. Sonawane

Features of private blockchain:
1. It is not open to public
2. All participants are pre-approved by the organization
3. The owner or central authority controls the permission to read,
write or audit the ledger
4. It has high transaction processing speed
5. A central authority means single point of failure
6. The organization must agree on who has the highest power to be
the central authority.
Prepared By: Prof. Swapnil S. Sonawane
Consortium Blockchain:
It is also known as Federated blockchain
It is permissioned blockchain and considered to be hybrid
between public and private blockchain
It is a distributed ledger that anyone can download, or access
and the consensus process is not controlled by one company
but by the predetermined consortium of companies or
representative individuals.

Prepared By: Prof. Swapnil S. Sonawane

Features of consortium blockchain:
1. Any member node can initiate and receive transactions but
permission to audit the ledger is done by pre-approved
individuals only
2. They are faster as compared with public blockchain
3. They are not fully decentralized
4. Agreement on a standard set of rules may get challenging

Prepared By: Prof. Swapnil S. Sonawane

 Consensus algorithms
Proof of Work:
Proof of Work(PoW) is the original consensus algorithm in a blockchain
network.
The algorithm is used to confirm the transaction and creates a new block to
the chain. In this algorithm, minors (a group of people) compete against
each other to complete the transaction on the network.
The process of competing against each other is called mining. As soon as
miners successfully created a valid block, he gets rewarded.
The most famous application of Proof of Work(PoW) is Bitcoin.

Prepared By: Prof. Swapnil S. Sonawane

Proof of Elapsed Time:

Proof of elapsed time (PoET) is a consensus algorithm developed by Intel Corporation that
enables permissioned blockchain networks to determine who creates the next block.

PoET follows a lottery system that spreads the chances of winning equally across network
participants, giving every node the same chance.

The PoET algorithm generates a random wait time for each node in the blockchain network;
each node must sleep for that duration.

The node with the shortest wait time will wake up first and win the block, thus being
allowed to commit a new block to the blockchain.

The PoET workflow is similar to Bitcoin's proof of work (PoW) but consumes less power
because it allows a node to sleep and switch to other tasks for the specified time, thereby
increasing network energy efficiency.
Prepared By: Prof. Swapnil S. Sonawane
Proof of Stake:
With proof-of-stake (POS), cryptocurrency owners validate block transactions
based on the number of coins a validator stakes.
Proof-of-stake (POS) was created as an alternative to Proof-of-work (POW), the
original consensus mechanism used to validate a blockchain and add new blocks.
An algorithm chooses from the pool of candidates the node which will validate
the new block.
This selection algorithm of Validators or Forgers combines the quantity of stake
(amount of cryptocurrency) with other factors (like coin-age based selection,
randomization process) to make the selection fair to everyone on the network.

Prepared By: Prof. Swapnil S. Sonawane

Delegated Proof of Stake:
Delegated Proof of Stake (DPoS) is a variation of the POS consensus
mechanism.
Here, the network participants or nodes use their cryptocurrency or tokens
to vote for the delegates.
Just as in POS, the delegates are responsible for validating transactions and
maintaining the blockchain ledger. These elected delegates are called
witnesses. The more the crypto-coins or tokens, the more the voting power.
Any fraudulent activity by the witnesses can be easily detected by the
voters and penalized. As it is a democratic system, it is not only the rich,
but all users have a chance to be elected as witnesses and earn rewards.
This makes DPOS more decentralized than either PoS or PoW
Prepared By: Prof. Swapnil S. Sonawane
Proof of Authority:
In PoA, rights to generate new blocks are awarded to nodes that
have proven their authority to do so.
These nodes are referred to as “Validators” and they run software
allowing them to put transactions in blocks.
Process is automated and does not require validators to be
constantly monitoring their computers but does require maintaining
the computer uncompromised.
Here block validators are not staking coins but their own reputation
instead. PoA is secured by trust on the identities selected.
Prepared By: Prof. Swapnil S. Sonawane
 Pros and cons of blockchain
Decentralized and Distributed:
Blockchain technology works on the principle of ledger data distributed to all nodes that are
non-hierarchical with no single central control.
Pros:
✓ Removes any single point of failure
✓ Fosters transparency, faster consensus and synching of data
✓ More engagement as everyone is involved in the decision-making process
Cons:
✓ In some cases, the traditional database may be more suited and do the work a lot faster
and cheaper
✓ If a time-tested and fully functional database and the operational network are already in
place, the benefits of replacing or introducing blockchain may not produce the required
return on investment.
✓ Stronger players can take control of the network, impacting decentralization
Trust-lessness:
In the blockchain, cryptography completely replaces the need for third parties to ensure
trust.
Pros:
✓ Allows for multiple entities or key players who do not trust each other to transact directly
with one another.
✓ Ensures valid and accurate data
✓ Disintermediation (removal of the middleman) reduces the overall cost of transacting.
Cons:
✓ Every node needs to run the blockchain to verify transactions and maintain consensus.
✓ Significant computing power is expended by miners leading to substantial energy
consumption and wastage.
✓ Nodes may prioritize transactions with higher rewards.
Prepared By: Prof. Swapnil S. Sonawane
Immutability:
In blockchain technology, one cannot modify data or transactions once they are
recorded in the blockchain database.
Pros:
✓ Contains a verifiable record of all transactions made that is auditable
✓ Consensus algorithms mitigate the risk of double-spending, fraud, and
manipulation of data.
✓ There is provenance, i.e., ability to track transaction or product movement across
accounts.
Cons:
✓ Not every node has the capacity to maintain and run a full copy of the blockchain.
✓ In smaller blockchains, there is a risk of a 51% attack.
Prepared By: Prof. Swapnil S. Sonawane