Module 2

FUNDAMENTALS OF BLOCKCHAIN
TECHNOLOGY
Syllabus…
Blockchain Technology
 The blockchain is a distributed database of records of all transactions that have been executed and
shared among participating parties.
 Each transaction is verified by the majority of participants of the system.
 It contains every single record of each transaction.
 Bitcoin is the most popular cryptocurrency and is an example of the blockchain.
 It integrates P2P (Peer-to-Peer) protocol, digital encryption technology, consensus mechanism,smart
contract and other technologies together.

A blockchain is a chain of blocks connected to each other.

 Blockchain(The Chain of Blocks)
• In 2008, a groundbreaking paper, entitled Bitcoin: A Peer-to-Peer Electronic Cash System,
was written on the topic of peer-to-peer e-cash under the pseudonym of Satoshi Nakamoto

This paper is available at https://bitcoin.org/bitcoin.pdf.

Blockchain Defined…
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.
Peer-to-peer(P2P)
 There is no central controller in the network, and all participants (nodes) talk to each other directly.

 This property allows for transactions to be conducted directly among the peers without third-party
involvement, such as by a bank.

Distributed ledger
 A ledger is spread across the network among all peers in the network, and each peer holds a copy of the
complete ledger.

Cryptographically secure
 Cryptography has been used to provide security services that make this ledger secure against tampering and
misuse.
 These services include non- repudiation, data integrity, and data origin authentication.
Append-only
 Data can only be added to the blockchain in time- sequential order. This property implies that once data is added to the
blockchain, it is almost impossible to change that data and it can be considered practically immutable.
 Blocks added to the blockchain cannot be changed, which allows blockchain to become an immutable and tamper-proof
ledger of transactions.

Updatable via consensus

 The most critical attribute of a blockchain that gives the power of decentralization.

 No central authority is in control of updating the ledger.

 Instead, any update made to the blockchain is validated against strict criteria defined by the blockchain protocol and
added to the blockchain only after a consensus has been reached among all participating peers/nodes on the network.
 To achieve consensus, there are various consensus facilitation algorithms that ensure all parties agree on the final state of
the data on the blockchain network and resolutely agree upon it to be true.
What is a block in a blockchain?
● A block in a blockchain is a digital safe to store the data and lock it forever. The data added
on the block is immutable, i.e., data cannot be altered or deleted.
What is a block in a blockchain?
● Each block contains a cryptographic hash of the data of the previous block.
● The nonce is selected by the miners to solve a cryptographic puzzle for generating the next
block in the chain. It is known as proof of work.
Blockchain Architecture
•Blockchain by layers
•Blockchain can be thought of as a layer of a
distributed peer-to-peer network running on top of
the internet, as can be seen in the following
diagram.
• It is analogous to SMTP, HTTP, or FTP running on
top of TCP/IP:
Layers Explained…
The lowest layer is the Network, which is usually the internet and provides a base
communication layer for any blockchain.
A peer-to-peer network runs on top of the Network layer, which consists of
information propagation protocols such as gossip or flooding protocols.
After this comes the Cryptography layer, which contains crucial cryptographic
protocols that ensure the security of the blockchain.
These cryptographic protocols play a vital role in the integrity of blockchain
processes, secure information dissemination, and blockchain consensus
mechanisms.
This layer consists of public key cryptography and relevant components such as
digital signatures and cryptographic hash functions..
• Consensus layer

 Concerned with the usage of various consensus mechanisms to ensure

agreement among different participants of the blockchain.
This is another crucial part of the blockchain architecture, which consists of
various techniques such as SMR(State Machine Replication), proof-based
consensus mechanisms, or traditional (from traditional distributed systems
research) Byzantine fault-tolerant consensus protocols.
Execution Layer
 Consist of virtual machines, blocks, transaction, and smart contracts.
This layer, as the name suggests, provides executions services on the blockchain and performs
operations such as value transfer, smart contract execution, and block generation.
Virtual machines such as Ethereum Virtual Machine (EVM) provide an execution environment
for smart contracts to execute.

Application Layer

Composed of smart contracts, decentralized applications, DAOs(Decentralized Autonomous

Organizations), and autonomous agents.
This layer can effectively contain all sorts of various user level agents and programs that
operate on the blockchain.
Users interact with the blockchain via decentralized applications.
Blockchain in business

•From a business standpoint, a blockchain can be defined as a platform where peers can exchange
value/e-cash using transactions without the need for a centrally trusted arbitrator.
• For example, for cash transfers, banks act as a trusted third party. In financial trading, a central
clearing house acts as a trusted third party between two or more trading parties.
Generic elements of a blockchain

 Address: Addresses are unique identifiers used in a blockchain transaction to denote senders
and recipients. An address is usually a public key or derived from a public key
 Transaction: A transaction is the fundamental unit of a blockchain. A transaction represents a
transfer of value from one address to another.
Blocks…
Blocks…
• A block is composed of multiple transactions and other elements, such as the
previous block hash (hash pointer), timestamp, and nonce.
• A block is composed of a block header and a selection of transactions bundled
together and organized logically.
• Block Elements…
• A reference to a previous block is also included in the block unless it is a
genesis block. This reference is the hash of the header of the previous block.
• A genesis block is the first block in the blockchain that is hardcoded at the time
the blockchain was first started.
• The structure of a block is also dependent on the type and design of a
blockchain.
• Nonce…
• A number that is generated and used only once.
• A nonce is used extensively in many cryptographic operations to provide replay
protection, authentication, and encryption.
• In blockchain, it's used in PoW consensus algorithms and for transaction replay
protection.
• A block also includes the nonce value.
• Timestamp
• Creation time of the block.
Merkle Root
• Hash of all of the nodes of a Merkle tree. In a blockchain block, it is the
combined hash of the transactions in the block.
• Merkle trees are widely used to validate large data structures securely and
efficiently.
• In the blockchain world, Merkle trees are commonly used to allow efficient
verification of transactions.
• Merkle root in a blockchain is present in the block header section of a
block, which is the hash of all transactions in a block.
• This means that verifying only the Merkle root is required to verify all
transactions present in the Merkle tree instead of verifying all transactions one by
one.
Transaction…
• A transaction is a record of an event, for example, the event of transferring
cash from a sender's account to a beneficiary's account.
• A block contains transactions and its size varies depending on the type and
design of the blockchain.
• Peer-to-peer network: As the name implies, a peer-to-peer network is a network
topology wherein all peers can communicate with each other and send and receive
messages.
• The scripting or programming language: Scripts or programs perform various
operations on a transaction in order to facilitate various functions.
• For example, in Bitcoin, transaction scripts are predefined in a language called
Script, which consists of sets of commands that allow nodes to transfer bitcoins
from one address to another.
• Script is a limited language, in the sense that it only allows essential operations
that are necessary for executing transactions, but it does not allow for
arbitrary program development.
Virtual Machine(Blockchain Virtual Machine" (BVM) or
"Blockchain Runtime Environment" (BRE))

• A virtual machine allows Turing complete code to be run on a blockchain (as

smart contracts); whereas a transaction script is limited in its operation.
• Virtual machines are not available on all blockchains.
• Various blockchains use virtual machines to run programs such as Ethereum
Virtual Machine (EVM) and Chain Virtual Machine (CVM).
• EVM is used in the Ethereum blockchain, while CVM is a virtual machine
developed for and used in an enterprise-grade blockchain called "Chain Core."
• State machine:
• The "state machine" in the context of blockchain refers to the system's ability to transition between
different states based on transactions and other inputs.
• A blockchain can be viewed as a state transition mechanism whereby a state is modified from its initial form
to the next one by nodes on the blockchain network as a result of transaction execution.
• Smart Contracts…
• These programs run on top of the blockchain and encapsulate the business logic to be executed when certain
conditions are met.
• These programs are enforceable and automatically executable.
• The smart contract feature is not available on all blockchain platforms, but it is now becoming a very
desirable feature due to the flexibility and power that it provides to blockchain applications.

A smart contract is defined as a digital agreement that is signed and stored

on a blockchain network, which executes automatically when the contract's
terms and conditions (T&C) are met. The T&C is written in blockchain-specific
programming languages such as Solidity.
Nodes….
• A node in a blockchain network performs various functions depending on the role that it takes
on.
• A node can propose and validate transactions and perform mining to facilitate consensus
and secure the blockchain.
• This goal is achieved by following a consensus protocol (most commonly PoW).
• Nodes can also perform other functions such as simple payment verification (lightweight
nodes), validation, and many other functions depending on the type of the blockchain used and
the role assigned to the node.
• Nodes also perform a transaction signing function.
• Transactions are first created by nodes and then also digitally signed by nodes using private
keys as proof that they are the legitimate owner of the asset that they wish to transfer to
someone else on the blockchain network.
• This asset is usually a token or virtual currency, such as Bitcoin, but it can also be any real-
world asset represented on the blockchain by using tokens.
• There are also now standards related to tokens; for example, on Ethereum, there are ERC20,
ERC721, and a few others that define the interfaces and semantics of tokenization
 Nodes are either miners who create new blocks and mint cryptocurrency
(coins) or block signers who validate and digitally sign the transactions.
 A critical decision that every blockchain network has to make is to figure
out which node will append the next block to the blockchain.
 This decision is made using a consensus mechanism.
How does blockchain works?
 Blocks can be recognized by their block height(Block No.) and block header
hash. The data in the block is detected through a computerized algorithm
known as a Hash function.
 It not only locks the data to be seen by the participants in the Blockchain but
also makes the data immutable. Every block has its hash function.
 In Blockchain, once the data has been recorded, it will not be changed.
Blockchain works like a digital notary with timestamps to avoid tampering
with information.
How Blockchain Works?
1. Transaction is initiated:
 A node starts a transaction by first creating it and then digitally signing it with its private key.
 A transaction can represent various actions in a blockchain.
 Most commonly, this is a data structure that represents the transfer of value between users on the
blockchain network.
 The transaction data structure usually consists of some logic of transfer of value, relevant rules, source
and destination addresses, and other validation information.
 Transactions are usually either a cryptocurrency transfer (transfer of value) or smart contract
invocation that can perform any desired operation.
 A transaction occurs between two or more parties.
 In cryptocurrency blockchains such as Bitcoin, the
miner who solves the mathematical puzzle is also
rewarded with a certain number of coins as an
incentive for their effort and the resources they spent
in the mining process.
2.Transaction is validated and broadcast:
• A transaction is propagated (broadcast) usually by using data-dissemination protocols, such as
Gossip protocol, to other peers that validate the transaction based on preset validity criteria.
• Before a transaction is propagated, it is also verified to ensure that it is valid.
3.Find new block:
• When the transaction is received and validated by special participants called miners on the
blockchain network, it is included in a block, and the process of mining starts.
• This process is also sometimes referred to as "finding a new block." Here, nodes called miners race
to finalize the block they've created by a process known as mining.
4.New block found:
• Once a miner solves a mathematical puzzle (or fulfills the requirements of the consensus
mechanism implemented in a blockchain), the block is considered "found" and finalized.
• At this point, the transaction is considered confirmed.
• Add new block to the blockchain: The
newly created block is validated,
transactions or smart contracts within it are
executed, and it is propagated to other
peers.
• Peers also validate and execute the block.
• It now becomes part of the blockchain
(ledger), and the next block links itself
cryptographically back to this block.
• This link is called a hash pointer.
How transaction happens?
Key Components of Blockchain
Merkle
Tree
● A merkle tree is a binary tree with hash
pointers.
● A Hash trees or Merkle tree is a tree in
which every leaf node is labelled with the
cryptographic hash of a data block, and
every non-leaf node is labelled with the
cryptographic hash of the labels of its child
nodes.
● Hash trees allow efficient and secure
verification of the contents of large data
structures. Hash trees are a generalization
of hash lists and hash chains.
Distributed Ledger Technology
● A ledger is a file which keeps the record of all the transactions taking place between the two
parties on the blockchain network.
● Keeps continuously growing
● The common types of ledgers considered by the users in the Blockchain are as follows:
1. Centralized Ledgers
2. Decentralized Ledgers
3. Distributed Ledgers
 Ledger
Types
•Centralized ledgers-
◦ Also known as general ledger
◦ Contains all the accounts for recording transactions relating to a company's assets, liabilities,
owners' equity, revenue, and expenses.
◦ Every party is dependent on one central party who hold the ledger.
◦ Central party has power to over the data.
•Decentralized ledgers-
◦ Every party holds the ledger, reducing the power of any one party over the data and providing
accountability over who has altered the data and when.
•Distributed Ledgers-
◦ Each node processes and verifies every item, thereby generating a record of each item and
creating a consensus on its veracity
Blockchain platforms
Characteristics Of Blockchain…
 Benefits, features, and limitations of blockchain

 Benefits

Decentralization:
 Core concept and benefit of blockchain.
 There is no need for a trusted third party or intermediary to validate transactions;
 instead, a consensus mechanism is used to agree on the validity of transactions.
Transparency and trust:
 As blockchains are shared and everyone can see what is on the blockchain, this
allows the system to be transparent.
 As a result, trust is established. This is more relevant in scenarios such as the
disbursement of funds or benefits where personal discretion in relation to selecting
beneficiaries needs to be restricted.
 Immutability:
 Once the data has been written to the blockchain, it is extremely difficult to change
it back.
 It is not genuinely immutable, but because changing data is so challenging and
nearly impossible, this is seen as a benefit to maintaining an immutable ledger of
transactions.
 High availability:
 As the system is based on thousands of nodes in a peer-to-peer network, and the
data is replicated and updated on every node, the system becomes highly available.
 Even if some nodes leave the network or become inaccessible, the network as a
whole continues to work, thus making it highly available.
 This redundancy results in high availability.
 Smart property:
 It is possible to link a digital or physical asset to the blockchain in such a secure
and precise manner that it cannot be claimed by anyone else.
Highly secure:
All transactions on a blockchain are cryptographically secured and thus provide
network integrity.
Any transactions posted from the nodes on the blockchain are verified based on a
predetermined set of rules.
Only valid transactions are selected for inclusion in a block.
The blockchain is based on proven cryptographic technology that ensures the
integrity and availability of data
Simplification of current paradigms:
The current blockchain model in many industries, such as finance or health, is
somewhat disorganized.
In this model, multiple entities maintain their own databases and data sharing can
become very difficult due to the disparate nature of the systems.
blockchain can serve as a single shared ledger among many interested parties, this
can result in simplifying the model by reducing the complexity of managing the
separate systems maintained by each entity.
Faster dealings:
In the financial industry, especially in post-trade settlement functions,
blockchain can play a vital role by enabling the quick settlement of trades.
Blockchain does not require a lengthy process of verification, reconciliation,
and clearance because a single version of agreed-upon data is already available
on a shared ledger between financial organizations.
Cost-saving:
As no trusted third party or clearing house is required in the blockchain model,
this can massively eliminate overhead costs in the form of the fees, which are
paid to such parties.
Platform for smart contracts:
A blockchain is a platform on which programs can run that execute business
logic on behalf of the users.
This is a very useful feature but not all blockchains have a mechanism to
execute smart contracts; however, this is a very desirable feature.
It is available on newer blockchain platforms such as Ethereum and MultiChain,
but not on Bitcoin.
 Limitations…
1. Scalability: Blockchain networks currently struggle with handling a large number of transactions
quickly, unlike traditional financial networks. This is a big area for research.
2. Adoption: Blockchain is still considered a new technology by many people. Making blockchain
networks easier to use is a challenge, but it's necessary for more people to start using them.
Solving scalability issues is also important for increasing adoption.
3. Regulation: Because blockchain is decentralized, it's hard to regulate. Unlike traditional systems
where there are authorities to hold accountable, blockchain doesn't have that. This makes some
people hesitant to adopt it.
4. Immature Technology: Blockchain is still relatively new compared to other IT systems. It needs
more research to become more mature and reliable.
5. Privacy and Confidentiality: On public blockchains like Bitcoin, everyone can see every
transaction. This isn't good for industries like finance, law, or healthcare. While there are some
solutions, more research is needed to make blockchain more suitable for these industries.
Types Of Blockchain…
Blockchain can be categorized into different types based on technical and business
perspectives.
These types include :
Distributed Ledgers
Public Blockchains
Private Blockchains
Semi-private Blockchains
 Sidechains
 Permissioned Ledgers
Shared Ledgers
Tokenized Blockchains.
Distributed ledgers
• Distributed ledgers are shared databases where all blockchains fall under this
category.
• Unlike blockchains, distributed ledgers do not necessarily consist of blocks of
transactions.
• All blockchains are fundamentally distributed ledgers, all distributed ledgers are
not necessarily blockchains
• A critical difference between a distributed ledger and a blockchain is that a
distributed ledger does not necessarily consist of blocks of transactions to keep the
ledger growing.
• Example: R3's Corda is a distributed ledger that does not use blocks of
transactions.
Distributed Ledger Technology

• DLT is commonly used in the finance industry to describe blockchain.

• DLTs serve as shared databases without a cryptocurrency and do not
require mining.
• DLT is commonly used in the finance industry to describe blockchain.
• DLTs serve as shared databases without a cryptocurrency and do
not require mining.
• Example: DLT is actively researched in the finance sector.
Public blockchains
 Public blockchains are open to everyone, and anyone can participate in decision-making.
 Public blockchains are not owned by anyone.
 They are open to the public, and anyone can participate as a node in the decisionmaking process.
Users may or may not be rewarded for their participation.
 All users of these "permissionless" or "un-permissioned" ledgers maintain a copy of the ledger on
their local nodes and use a distributed consensus
 mechanism to decide the eventual state of the ledger. Participants maintain a copy of the ledger
and use distributed consensus mechanisms.
 Example: Bitcoin and Ethereum are examples of public blockchains.
Private Blockchains
• Private blockchains are open only to a consortium or group of individuals or organizations.
• They are used for private purposes and can optionally run in public mode.
• Example: Various blockchains offer private modes for specific groups(Kadena and Quorum)
Semi-private blockchains (Hybrid/Semi-decentralized Model)
• Have both private and public components.
• With a semi-private blockchain, the private part is controlled by a group of
individuals, while the public part is open for participation by anyone.
• The private part is shared among known participants, while the public part is open.
• This hybrid model can be used in scenarios where the private part of the blockchain
remains internal and shared among known participants, while the public part of the
blockchain can still be used by anyone, optionally allowing mining to secure the
blockchain.
• This way, the blockchain as a whole can be secured using PoW, thus providing
consistency and validity for both the private and public parts.
• This type of blockchain can also be called a "semi-decentralized" model, where it is
controlled by a single entity but still allows for multiple users to join the network by
following appropriate procedures.
• Example: This concept is still theoretical, and no real-world examples exist.
Sidechains(Pegged Side chains)
 A concept whereby coins can be moved from one blockchain to another and then back again.
 Typical uses include the creation of new altcoins (alternative cryptocurrencies) whereby coins are burnt
as a proof of an adequate stake.
 "Burnt" or "burning the coins" in this context means that the coins are sent to an address that is un-
spendable, and this process makes the "burnt" coins irrecoverable.
 This mechanism is used to bootstrap a new currency or introduce scarcity, which results in the
increased value of the coin.
 This mechanism is also called "Proof of Burn" and is used as an alternative method for distributed
consensus to PoW and Proof of Stake (PoS).
 The example provided previously for burning coins applies to a one-way pegged sidechain. The
second type is called a two-way pegged sidechain, which allows the movement of coins from the main
chain to the sidechain and back to the main chain when required.
 This process enables the building of smart contracts for the Bitcoin network.
 Rootstock is one of the leading examples of a sidechain, which enables smart contract development for
Bitcoin using this paradigm.
 Example: Bitcoin’s Rootstock sidechain that allows a two-way peg for the Bitcoin blockchain, and this
results in much faster throughput
 Permissioned ledger
 A permissioned ledger is a blockchain where participants of the network are
already known and trusted.
 Permissioned ledgers do not need to use a distributed consensus mechanism;
 An agreement protocol is used to maintain a shared version of the truth about
the state of the records on the blockchain.
 In this case, for verification of transactions on the chain, all verifiers are already
preselected by a central authority and, typically, there is no need for a mining
mechanism.
 By definition, there is also no requirement for a permissioned blockchain to be
private, as it can be a public blockchain but with regulated access control.
 For example, Bitcoin can become a permissioned ledger if an access control
layer is introduced on top of it that verifies the identity of a user and then allows
access to the blockchain.
• Shared ledger :This is a generic term that is used to describe any
application or database that is shared by the public or a consortium.
Generally, all blockchains fall into the category of a shared ledger.
• Fully private and proprietary blockchains
• There is no mainstream application of these types of blockchains, as
they deviate from the core concept of decentralization in blockchain
technology.
• Nonetheless, in specific private settings within an organization, there
could be a need to share data and provide some level of guarantee of
the authenticity of the data.
• An example of this type of blockchain might be to allow for
collaboration and the sharing of data between various government
departments.
• Tokenized blockchains
• These blockchains are standard blockchains that generate
cryptocurrency as a result of a consensus process via mining or initial
distribution.
• Bitcoin and Ethereum are prime examples of this type of blockchain.
Tokenless blockchains
These blockchains are designed in such a way that they do not have the basic unit
for the transfer of value.
They are still valuable in situations where there is no need to transfer value between
nodes and only the sharing of data among various trusted parties is required.
This is similar to fully private blockchains, the only difference being that the use of
tokens is not required.
This can also be thought of as a shared distributed ledger used for storing and
sharing data between the participants.
 Benefits: when it comes to immutability, tamper proofing, security, and consensus-
driven updates but is not used for a common blockchain application of value transfer
or cryptocurrency.
Most of the permissioned blockchains can be seen as an example of tokenless
blockchains, for example, hyperledger fabric or quorum.
Tokens can be built on these chains as an application, but intrinsically these
blockchains do not have a token associated with them.
DLT Hierarchy….
Types Of Blockchain
Types Of Blockchain
• Blockchains are categorized based on user identity/authentication and user
rights/authorization.
• Public and Private Blockchain
• A blockchain is considered to be either public or private, based on whether the
network is open or accessible to anyone with an internet connection. In a public
blockchain, anyone can join the network.
• They can download a copy of the ledger and initiate, broadcast, or mine blocks.
Users are anonymous
• In a private blockchain, membership or association with the blockchain is restricted.
• One has to meet certain pre-requisite conditions to be a part of the blockchain
network.
• Users are not anonymous.
Public Blockchain….
Permissionless and Permissioned Blockchain
 This category is based on the type of rights the user or node has within the blockchain
network.
 The rights, if any, are defined by a central entity or group of entities.
 A Blockchain is considered permissionless if no such control entity exists, and all the
nodes have equal rights to the network, i.e., they can all read, receive and send
transactions and participate in the consensus mechanism.
 In a permissioned blockchain, the central entity or group restricts the roles that the
nodes can play. It can vary from nodes having rights to only initiate transactions to
those who validate transactions and to still others that deploy or execute smart
contracts.
 In other words, only selected nodes will participate in the consensus mechanism for
permissioned blockchain.
 In contrast, in a permissionless blockchain, all or majority nodes in the network need
to agree on the validity of a record collectively.
Based on the authentication and authorization privileges,
Blockchain can be classified as below:
 Public Blockchain (or Public Permissionless Blockchain)
 Private Blockchain (or Private Permissioned Blockchain)
 Consortium Blockchain (or Public/Private Permissioned Blockchain)
Hybrid Blockchain (interconnected Public-Private Blockchain)
Public Blockchain(public
permissionless blockchain )
• Synonymous with a public blockchain.
• Bitcoin, the first blockchain created, is a public permissionless blockchain.
• In a public blockchain, anyone in the world can access the blockchain,
download a copy of the code, and run a node.
• It is a fully decentralized distributed network.
• One does not need any permission to read/access a transaction, initiate a
transaction, or participate in the consensus process (PoW) to create a block.
• Participants or nodes remain anonymous through high cryptographic
protocols.
• Anonymity, transparency, and immutability are valued over efficiency
 Features…

• It is open to the public, as the name suggests.

• Anyone can join the network and be a participant/node.

• – No permissions are required for anyone to read/send transactions
• – 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
Public Blockchain Features…
• There is no single point of failure (SPOF) as validation (consensus) is done by all the
nodes.
• – High cryptographic methods are used to secure data
• – It establishes a process of trust. The downside of a public blockchain is its poor
scalability:
• – It has low transaction processing speed
• – ten minutes to create a block.
• – Consensus mechanism requires an immense amount of energy and computational
power.
• – Participants with supercomputers or more powerful ASICs have a better chance of
mining than the others
• Example: Bitcoin, Litecoin, Ethereum
Private Blockchain(private permissioned
blockchain)
• Differs from the public blockchain in its accessibility and permission where the
network is not open to everyone.
• It leverages the blockchain features of distributed database, immutability, and
security.
• However, the innovative blockchain feature of decentralization and openness is lost
as all the permissions are controlled by a few nodes in the organization.
• Blockchain technology was invented to remove the power of central authority.
• So in the case of a private blockchain network or organization where the owner has
sole control over who can read, write, and validate data, it stands to reason why many
may not consider it to be a real blockchain.
• In public blockchain, efficiency and immutability take precedence over anonymity
and transparency
Features…
• All participants are pre-approved
by the organization. The ledger and
access therein are distributed
within the network of participants.
• – The owner or central authority
controls the permission to read,
write, or audit the ledger.
• – The central authority controls
the consensus process.
• – High cryptographic methods
secure the data.
Features…
• – It has high transaction processing speed, taking only seconds to create a block.
• – Very low energy consumption as supercomputers are not required for processing.
• Challenges of a private blockchain:
• – They are not decentralized.
• The trade-off is better scalability and security.
• – Blockchain is supposed to function in a trustless environment. If nodes are trusted, it may be
cheaper to go with a traditional database
• – A central authority means a single point or point of failure, unlike the public blockchain, where
there is zero downtime.
• – Not considered a legitimate blockchain as it is permissioned, and there is the inherent
skepticism on the immutability and trust of transactions, if controlled by a singular authority.
• – The organization must agree on who has the highest power to be the central authority.
• The private blockchain is scalable and cryptographically secured from
the organization’s point of view and hence more cost-effective.
• It is mostly used by organizations that have strict privacy and
compliance requirements.
• Examples of private blockchain are Multichain and Monax
Consortium Blockchain(Federated
Blockchain)
• Apermissioned blockchain and considered to be a hybrid between public and private
blockchain.
• It is a distributed ledger that anyone can download and access. It has the security features
inherent to public blockchains while also maintaining a fair amount of control over the
network.
• Unlike private blockchain, the consensus process is not controlled by one company but by a
predetermined consortium of companies or representative individuals.
• Only the predetermined group has the right to take part in the validation process to create a
block. For example, in a supply chain user case, the consortium may be the importer, the
exporter, the shipping company, the customs, the participating banks, and inspectors.
• Based on the type of enterprise, there may be an overlay of smart contracts and/or other
protocols in place that restrict user access.
• This type of blockchain is best used in government applications.
Features…
Any member node can initiate and receive transactions.
 Permission to write or audit the ledger is determined by a group of
pre- approved individuals or organizations (consortium).
 The consensus process is done by a group of pre-approved nodes
that have full access to the ledger.
 High cryptographic methods secure data.
 They are faster with higher scalability as compared to a public
blockchain.
 They have better transaction privacy and traceability.
Challenges of a consortium
blockchain:
• They are not fully decentralized.
• The trade-off is better scalability and security.
• – Different organizations have different requirements. Agreement on
a standard set of rules may get challenging.
• Examples of consortium blockchain platforms are R3 Corda and
Hyperledger Fabric
Hybrid Blockchain
The public blockchain is fully decentralized, tamper-proof,
anonymous, transparent, immutable, and open to the public.
 These features are achieved at the cost of low throughput, poor
scalability, expensive hardware, and significant energy consumption.
The private blockchain boasts of higher speeds, lower costs, and
better scalability while being criticized for its centralization and
restricted access.
 The hybrid blockchain (as the name suggests, incorporates the best
practices of both models. It takes the benefits of both the public and
private blockchain, thus attempting to neutralize the negatives.
• Hybrid blockchain is best suited for highly regulated enterprises or government organizations that
require control over what data is kept private and what can be shared with the public
• The hybrid blockchain consists of a public blockchain and a private network that is restricted to only
those nodes that are invited by a centralized body.
• The private network(s) generate the hashed data blocks that are then shared with the public network
without compromising the privacy of data.
• The public blockchain does the verification and time-stamping.
• It can be considered as a private network(s) sitting within the main public blockchain.
• The private network does the creation of transactions, thus maintaining the privacy of data while the
public blockchain stores and verifies the blocks, ensuring disintermediation.
• Privacy is a concern in public blockchain as all the data are visible to everyone. This risk is mitigated
in the hybrid blockchain.
• If members do not want their transaction data to be accessible without their permission, they can assign
exclusive rights for view or modification, in which case it goes to the different members for acceptance
and consensus.
• The public network uses Delegated Proof-of-Stake as its consensus
protocol. However, the private network can use any consensus
protocol of its choice
Features…
• It is open to the public; hence the public blockchain is an element where
anyone can participate.
• It also has the private network element that consists of participants
invited by a central authority.
• The ledger is distributed within the network of participants. Either the
central body or the network members (based on the application need)
can decide which transaction data can be public and which needs to be
confined to specific members.
• –The private network creates the hash of transactions and passes it on
to the public network for validation and approval, thus maintaining the
trustless nature of blockchain.
Features…
As a combination of a public and private blockchain, some processes are public while
others are private.
The processes can be changed by the private or central authority to fit the purpose, with
the consensus of all the nodes in the network.
Consensus protocols are available in both public and private networks. The main public
network uses the DPoS consensus while the private network can have its own.
 Data is immutable and secured by high cryptographic methods.
 It has the highest transaction processing speed.
 Practically hack-proof as no malicious actor can enter either the private network or the
robust consensus mechanism of the public network.
 Data is auditable. Though the privacy of transactions is maintained, it is open for
verifiability as and when required.
Challenges In Hybrid Model…
• It is a relatively new ecosystem, with XinFin being the only genuinely
functional hybrid blockchain protocol/platform currently available for
highly regulated markets.
• XinFin, a non-profit organization based in Singapore, with a focus on
cross-border trade and finance, has built the first hybrid blockchain
platform, TradeFinex, combining Ethereum (for the public blockchain
state) and Quorum (for the private blockchain state). Organizations
like Ripple, IBM, and other technology companies are exploring hybrid
blockchains
Comparison: Public, Private, Consortium and Hybrid Blockchain
Live demo of blockchain

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