Introduction to

Blockchain
Introduction to Blockchain
• A blockchain is a digitized, decentralized, public ledger of all
cryptocurrency transactions.
• Constantly growing as ‘completed’ blocks (the most recent
transactions) are recorded and added to it in chronological order, it
allows market participants to keep track of digital currency
transactions without central recordkeeping.
• Each node (a computer connected to the network) gets a copy of the
blockchain, which is downloaded automatically.”
Blockchain technologies
• Blockchain technologies are the rules or standards for how a ledger is
created and maintained.
• Different technologies have different rules for participation, different
network rules, different specifications for how to create transactions,
different methods of storing data, and different consensus
mechanisms
• When a network is created, the blockchain or
• ledger of record is initially empty of transactions
What Makes Blockchain Secure
• The database is distributed across different computers
• Transmission from peer-to-peer
• Transparency with some anonymity
• The records are permanent
• Computational Logic
History Of The Blockchain &
Bitcoin
• The first incarnation of the blockchain was developed in 2008 as a backbone
for the Bitcoin cryptocurrency
• In 2009, though, that the blockchain was first made public. There was, and still
is, a lot of confusion surrounding blockchain
• In 2014, Blockchain 2.0 was released. The focus here was more on creating a
differentiation between Bitcoin and Blockchain and to define their roles more
fully. The changes were to make it clearer that Blockchain is infrastructural,
while Bitcoin is an asset.
• 2015 saw the introduction of Ethereum. This is a software platform that is
entirely decentralized and open-ended. It is now the most well-established and
largest application of its sort and can be considered an advancement of
Blockchain technology
Public, Permissionless Blockchains
• cryptocurrencies and some other tokens use public blockchains as
their medium of record—that is, their respective transactions are
recorded in blocks on a replicated ledger.
• Public blockchains are also described as permissionless primarily
because anyone may create blocks or be a bookkeeper without
needing permission from an authority.
• In these public networks, there is also permissionlessness in another
sense—anyone may create an address for receiving funds and create
transactions for sending funds
Private Instances of Public
Blockchains
• blockchain software on a private network to create a fresh ledger.
• For example, you could take the Ethereum code and run it, but instead of pointing
your node to some computers already running the public Ethereum blockchain, you
could point it instead to a few other computers that are not on the public Ethereum
network.
• Computers are concerned, they are starting with a fresh ledger with no entries.
• Could you set up a small private network running Ethereum, then mine some ETH
and transfer them to the public network? No.
• Private network would use the same set of rules as the public blockchain,
• they have different records of account balances. Nodes on each network can only
validate what they see in their own blockchain, and they are not able to see coins
on the other blockchain.
Permissioned (or permissionable)
blockchains
• Platforms are designed to allow groups of participants to create their
own blockchains in a private context.
• They do not have a global public network. These are called ‘private
blockchains’ and they are designed to only allow pre-approved
participants to participate.
• Hence the term ‘permissioned’
Introduction to Bitcoin
SYSTEM MODEL
1. Alice Transfer the Coins to Bob. This called Transaction.
2. Alice announces the transaction in bitcoin network.
3. The transaction is added to Block chain i.e Distributed ledger.
4. The Transaction is verified by miner and bundled in new block
5. Miner vary the nonce to find a hash that meets the current
difficulty. This proof of work.
6. Bob waits for confirmation .More the confirmation it is harder
to cheat.
Traditional Digital Currencies

• In a centralized scenario this is what is generically called a bank:

the bank issues coins with unique serial numbers and maintains a
ledger including all ownerships, i.e., the mapping between user
accounts and serial numbers.

• Person 1(Alice) intends to transfer a coin to Person 2 (Bob). Such a

contract may be called transaction (TX)
Case
• A signed contract, which is verifiable using Alice’s public key.

• Case 1: if a duplicate copy of the contract appears, it cannot be decided whether

Alice tries to fool Bob.

• Case 2:She (perfectly honestly) aims to transfer a second coin to Bob

• Case 3:Bob performs a replay attack in order to claim multiple coins from Alice’s
account
Decentralizing the Currency

• Every participant keeps a copy of the record which would classically be stored at
the central bank.

• Its a distributed ledger reflecting all transactions and ownerships.

• In Bitcoin, the so-called block chain takes the role of this distributed ledger.

• Distributed storage of multiple copies of the blockchain opens up new possibilities

for Alice to cheat.
Decentralizing the Currency

• Alice could issue two separate transactions to two different receivers (say, Bob
and Charlie), transferring the same coin.

• If Bob and Charlie verified and accepted the transactions independently (based on
their respective local copy of the block chain), this would drive the block chain
into an inconsistent state.

• This is called double spending

Decentralizing the Currency

• Alice could set up many instances all confirming the transaction (thus
constituting the “majority”), even though it is, in fact, a double spend.
Bob would believe them and accept the transaction.

• The Bitcoin protocol makes use of proof of work to prevent Sybil

attacks
Simplified Block Chain
Block

• Before verifying a transaction and spreading the news about it, participants have
to perform some work to prove they are “real” identities.

• The work consists of a cryptographic puzzle, which artificially increases the

computational cost to verify transactions.

• Thereby, the ability of verification depends on the computing power, and not on
the number of (potentially fake) identities.
Block
• New Bitcoin transactions are communicated to all participants in the network.
Given they are valid, these transactions are collected to form a so-called block.

• The puzzle used in the proof of work-based distributed validation process

consists of calculating a hash of the thus formed block and adjusting a nonce in
such a way that the hash value is lower than or equal to a certain target value.

• Once one participant has found such a nonce, the block with the respective nonce
will be distributed in the network, and participants will update their local copy of
the block chain.
SECURITY

• Wallets and Cryptography

• The wallet holds a public/private key pair

• Double Spending

• Transaction Malleability
Wallets and Cryptography
• A user needs is a wallet.

• The wallet holds a public/private key pair, which is the best approximation of the
user’s account.

• Multi-signature transactions can be used to increase the security of wallets.

• For example BitGo (bitgo.com) offers online wallets with 2-of-3 multi-signature
transactions
Double Spending
Transaction Malleability
Mining Methods

• Bitcoin mining involves scanning for a value which when hashed with SHA-256,
is lesser than a specific value

• The average work required is exponential to the number of zero bits required and
can be verified by executing a single hash

• The number of initial zeros and upper limit of value specified for the computation
of a new block required to head the publicly accessible Blockchain

• Function is to essentially prevent double spending by maintenance of a public

transaction ledger, is determined by the Difficulty Factor
Honest Mining
Dishonest Mining
Smart contracts
• “Smart contracts” is a term used to describe computer code that
automatically executes all or parts of an agreement and is stored on a
blockchain-based platform
• The code can either be the sole manifestation of the agreement
between the parties or might complement a traditional text-based
contract and execute certain provisions, such as transferring funds
• Smart contracts are presently best suited to execute automatically
two types of “transactions” found in many contracts: (1) ensuring the
payment of funds upon certain triggering events and (2) imposing
financial penalties if certain objective conditions are not satisfied.
features of smart contracts
• Self-Executing: Smart contracts are self-executing, meaning they automatically perform their functions
when specific conditions are met.
• Decentralization: Smart contracts are stored and executed across a distributed network of nodes
(computers).
• Immutable: Once deployed on a blockchain, smart contracts are immutable, meaning they cannot be
altered or tampered with by any party.
• Transparency: All actions and transactions involving a smart contract are recorded on the blockchain and
are visible to anyone with access to the network.
• Trustless Transactions: Smart contracts eliminate the need for intermediaries, such as banks, lawyers, or
notaries, to validate and execute agreements. Instead, participants trust the code and the blockchain
network itself to enforce the terms of the contract.
• Programmable: Smart contracts can be programmed to handle a wide range of
scenarios, from simple financial transactions to complex, multi-step agreements
• Cost-Efficiency: By removing intermediaries and automating processes, smart contracts can reduce
transaction costs associated with traditional contracts.
Real-world applications across
various industries.
• Decentralized Finance (DeFi):
• Platforms like Compound and Aave use smart contracts to facilitate peer-to-peer lending and borrowing of
cryptocurrencies
• DEXs like Uniswap and SushiSwap employ smart contracts to enable users to trade cryptocurrencies without
the need for a centralized exchange
• Supply Chain Management:
• Companies like IBM's Food Trust and VeChain use smart contracts to track the origin and journey of products
in the supply chain.
• Real Estate
• Voting Systems
• Insurance
• Tokenization of Assets
• Automated Agreements
• Identity Verification and Authentication
Thank You