Blockchain Notes
- What is blockchain ?
It is a time-stamped series of records of data that is managed by a
cluster of nodes (computers) not owned by any single entity. Hence it is
a democratized system.
- Created by Satoshi Nakamura.
- Blockchain allows peer-to-peer transfer of digital assets in a
decentralized network.
- With every new block 6.25 BTCs are added in the system. Mining
reward is given to every successful miner who creates a block.
- Bitcoin halving : every four years, mining reward becomes half which
started with 50BTC in 2009.
- Every 10 minutes, a new block is mined.Every 2 weeks; av. Block time
over the last 2048 blocks are checked; if av. time between two
successive blocks is less than 10m, difficulty is increased else
decreased.
- blockchain ledger provides a permanent record of all transactions, and
the open-source accessibility of the ledger allows anyone to view and
verify previous or ongoing transactions and addresses.
- Whenever a block is mined, its colour changes from red to green, the
nonce changes and there are leading zeros (19) in the hash.
- Real case of stolen keys : A theft of nearly USD 73 million worth of
bitcoin from hong kong based exchange called Bitfinex. The reason was
stolen private keys.
- There are many peers keeping the updated copy of a blockchain. A
peer can only make changes in a block in his/her personal copy has to
fix all subsequent blocks in his/her copy, but other’s copy still stays
original.
- UTXO - Unspent Tx Output :
UTXO stands for Unspent Transaction Output.
It is the amount of digital currency someone has left remaining after
executing a transaction.
When a transaction is completed, the unspent output is deposited back
into the database as input which can be used later for another
transaction.
- Example of Hash function (cryptographic) -> SHA256
- Practical Applications of bitcoin :
(1) Tackles illicit usage and drives inclusive economy.
(2) Cross border payments.
(3) Funding Micro-grids for access to electricity in Rural Africa.
(4) Financial inclusion - Paying in bitcoin where formal banking is
broken.
- Block Cipher :
A block cipher is a function which maps n-bit plaintext blocks to n-bit
plaintext blocks ton-bit ciphertext blocks.
Possible encryption algorithms used in SKC (Symmetric Key
Cryptography) : DES (64 bit), AES, DDES.
Aspects of complexity -> Data, storage, processing.
- SKC Model :
Hence in SKC the same key is used in encryption as well in decryrption.
Here the key is distributed by the sender to the recipient. Let’s say we
want to secure communication between n people, then we would need
a total of n(n-1)/2 keys by the handshaking lemma. The key is kept a
secret between the sender and the reciever.
- PKC model :
It is also called assymetric key cryptography.
Let’s say we want to send messages from bob to alice securely.
Bob and Alice each would have two keys that is their own public
key (to be used by all) and their private key.
When ever Bob wants to send a text to Alice securely, then first
Bob checks the public key ring where everyone’s public key is
present and pulls out Alice’s public key and then encrypts the
cipher text using Alice’s public key and sends it.
Alice receives the text and then decrypts it using her own private
key, hence completing the process. Private key is never shared.
- RSA Algorithm
- Hashlocks :
Hashlocks are used to secure payments in payment channels so
neither partty can cheat each other.
Hashed timelock contracts (HTLCs): HTLCs are a type of smart
contract that allows for secure and instant payments.
Non-Fungible Tokens (NFT) : are a type of digital asset that is
unique and cannot be replaced. Hash Locks can be used to prove
the ownership of an NFT.
- Elliptic Curve Cryptography (ECC) :
ECC is based on the algebraic structure of elliptic curves over
finite fields. ECC is a public key cryptography method. Based on :
‘elliptic curve discrete logarithm problem’ (ECDLP).
- Consensus mechanisms :
A consensus mechanism is a program used in blockchain
systems to achieve distributed agreement about the ledger's
state.
Bitcoin blockchain uses a mechanism called Proof-of-Work
(PoW), which requires computational power to solve an encrypted
puzzle, called the hash.
The proof of stake (PoS) is another common consensus algorithm
that evolved as a low-cost, low-energy consuming alternative to
the PoW algorithm eg - Eth2.
- Supply Chain Management (SCM) :
Supply chain management (SCM) is the centralized management
of the flow of goods and services and includes all processes that
transform raw materials into final products. Each asset can be
monitored and tracked through the supply chain, since they carry
an unique identification number associated with it.
- TE Food :
A platform that offers solutions for farm-to-table food traceability
with the help of blockchain technology.
Aims to make food supply chains more transparent.
Farm —> Processor —> Retailer. They are the stake holders.
It improves operational efficiency and enables quicker product
recalls.
Provide proofs of your product quality claims.
- IBM Food trust :
A solution built on blockchain, benefiting all network people with a safer,
smarter and more sustainable food ecosystem.
It is a collaborative network of growers, processors, wholesalers,
distributors, manufacturers, retailers, and others, enhancing visibility of
the food supply chain. It is built on IBM blockchain. Permissioned,
immutable and shared record of trransactions.
- Examples of Blockchain explorers are: blockchain.com, etherscan,
solscan, polygonscan etc.
- Bitcoin Blacklist :
The Bitcoin blacklist is a list of Bitcoin addresses that have been
designated by Office of Foreign Assets Control (OFAC) as being
associated with sanctioned entities or activities.
These are blocked addresses and anyone trying to transact from
them are sanctioned by the government.
Eg : The silk road darknet drug market, Larzus North Korera
group, Mt. Gox cryptocurrency etc.
Cryptocurrency compliance tool is used to scan for blacklisted
addresses.
- Bitcoin Whitelist :
A Bitcoin whitelist is a list of Bitcoin addresses that are allowed to
interact with a particular service or platform.
Uses :
● To prevent fraud and theft
● To comply with regulatory requirements
● To improve security
Crypto exchanges, and crypto companies need to have reserve of
good Bitcoins.
Since blockchain is stitched through hashlocks, it is possible that
tainted coins can be sent to good addresses. Time stamped
records can help identifying such attacks.
- Each block in a blockchain can be linked to the previous one using
hashlock ( SHA256 hash function) hence it is impossible to alter data.
- Tokenization is the process of substituting a sensitive data element
with a non-sensitive equivalent, referred to as a token.
- Ethereum :
● Ether is a decentralized digital currency, known as ETH.
● Ethereum is a distributed public block chain network that focuses
on running programming code of any decentralized application.
● Ether powers the Ethereum network by paying for transaction
fees and computational services.
- Hash rate :
Hashrate is a measure of the computational power that is being
used to solve a cryptographic hash function. It is measured in
hashes per second (H/s).
Hashrate of a network can be increased by adding more miners.
Hashrate of a network is also an important factor indetermining
the speed of transactions.
When the hashrate is high, the profitability of mining is low. This is
because there are many miners competing for the same block
rewards.
- Mining Pool :
A mining pool is a group of miners who join forces to increase
their chances of solving a block and earning the reward, the
reward is then divided among the pool members.
Benefits :
● increases chances of solving a block
● Reduces your electricity costs,
● Easier to manage your mining operation.
Factors to consider before joining a pool :
● Size of the pool
● fees charged by the pool
● reputation of the pool
- Solana :
Solana is a blockchain platform that is designed to be
scalable, secure, and energy-efficient.
It uses a proof-of-history consensus.
Solana is also designed to be censorship-resistant.
- Use cases of Solana :
● Decentralized finance ( eg : lending platforms ).
● NFTs
● Gaming
- Different applications have different requirements for decentralization,
security, scalability, and privacy.
Eg : cryptocurrency needs to be highly decentralized and secure, while
a supply chain management application may need to be more scalable
and private.
- Classification of Blockchains :
● Public : open for anyone to join
● Private : only authorized participants can join and
participate.
● Consortium : Hybrid of public and private.
- Bitcoin and Ethereum are examples of Public blockchains.
- Hyperledger Fabric and R3 Corda are examples of private blockchains.
- IBM Food Trust and TE-Food are consortium blockchains.
- Privacy coins use encryption techniques to hide the sender, receiver,
and amount of a transaction.
