Sure, Deepa!

Here's an even more detailed and well-structured explanation of each topic

with additional points, examples, diagrams (to visualize), and conclusion remarks — all
suitable for 10-mark long answers in your semester exam. Each section is broken into clear
parts to help you write confidently.

1. Blockchain or Distributed Trust – (10 Marks)

Introduction:

Blockchain is a digital, decentralized ledger that allows data or transactions to be recorded

across many computers in such a way that they cannot be changed or deleted once
confirmed. This builds a new kind of trust—called distributed trust—which does not rely on
any single authority.

What is Distributed Trust?

Distributed trust means that participants in a blockchain network trust the system itself,
not a central authority (like a bank or notary).

Blockchain provides:

• A single version of truth, visible to all.

• Data that is tamper-proof and cryptographically secured.

• Verification by a community (nodes), not a third party.

5 Key Promises of Blockchain:

1. Distributed trust – All users rely on the system, not a central authority.

2. Decentralized transactions – No single point of failure or control.

3. Community consensus – Transactions are verified by multiple nodes.

4. Elimination of middlemen – No need for banks, notaries, or centralized servers.

5. Protocol-based automation – Smart contracts enable auto-execution of agreements.

Example:
 • If two people want to transfer money, instead of trusting a bank, the blockchain
verifies the transaction using a consensus mechanism (e.g., Proof of Work), records it
in a block, and adds it to a chain—visible and agreed upon by all.

Advantages:

• Transparency: Every transaction is recorded and visible.

• Security: Difficult to hack due to distributed nature.

• Efficiency: Faster settlements, especially for cross-border payments.

• Cost saving: Reduces need for third-party services.

Conclusion:

Blockchain enables a shift from centralized systems to distributed models, offering a more
transparent, secure, and reliable method for building trust between unknown parties.

2. Protocol in Blockchain – (10 Marks)

Introduction:

A protocol is a set of rules that defines how blockchain operates. It determines how blocks
are created, validated, and added to the chain, and how nodes communicate with each
other.

Protocols ensure that all participants behave correctly in a decentralized environment.

Key Functions of Blockchain Protocols:

1. Transaction Validation: Rules that decide whether a transaction is valid.

2. Consensus Mechanism: Ensures all nodes agree (e.g., Proof of Work, Proof of Stake).

3. Security Enforcement: Protects against hacking or double-spending.

4. Block Creation Rules: Decides block size, time interval, rewards, etc.

5. Smart Contract Execution: Enables automatic running of code when conditions are
met.

6. Data Propagation: Manages how data spreads in the network.

 Examples of Protocols:

• Bitcoin Protocol: Uses Proof of Work to validate transactions. Block size = 1MB.

• Ethereum Protocol: Uses smart contracts. Moving from Proof of Work to Proof of
Stake.

• Hyperledger Fabric: A permissioned blockchain used in enterprises with private

channels.

Layers in Blockchain Protocol:

1. Network Layer – Connects and communicates between nodes.

2. Consensus Layer – Ensures agreement on data.

3. Application Layer – Smart contracts and user interface.

4. Data Layer – Stores actual blocks and transactions.

Additional Features:

• Protocols also define token economics (e.g., mining rewards, transaction fees).

• They determine scalability, energy usage, and speed of the blockchain.

Diagram (suggested if allowed in exam):

User → Transaction Request

→ Validation via Protocol (Consensus + Rules)

→ Transaction added to a new Block

→ Block added to Blockchain

Conclusion:

Protocols form the backbone of blockchain networks. Without them, there would be no
order or security in a decentralized system. They ensure all parts of the system follow
agreed-upon rules for smooth and fair operation.
Sure, Deepa! Here's a simple and detailed explanation of the difference between Digital
Currency and Cryptocurrency, written clearly for a 10-mark answer. This version is exam-
friendly, includes examples, diagrams (in text), and is easy to remember.

3. Currency (Digital Currency vs Cryptocurrency) – (10 Marks)

What is Currency?

Currency is anything that is used as a medium of exchange for goods and services. There are
two modern types of currency:

1. Digital Currency (also called Digital Fiat)

2. Cryptocurrency

Let’s understand each of them separately.

A. Digital Currency (Fiat Currency in Digital Form)

Digital currency is the online version of the money we use every day, like ₹500 or ₹1000,
but instead of carrying cash, it’s stored in bank accounts, apps, or wallets.

Key Points:

• It is issued and controlled by a central authority like the Reserve Bank of India (RBI).

• It is legal tender, meaning everyone must accept it.

• You can withdraw it from an ATM, use it for UPI payments, or transfer via net
banking.

• The value is fixed and stable because it is backed by the government.

Example:

• ₹500 in your Paytm wallet or SBI account is digital currency.

• UPI, Google Pay, Paytm, and Netbanking all use digital currency.

B. Cryptocurrency
Cryptocurrency is a completely digital form of money, but it is not issued or controlled by
any government. It runs on a blockchain, which is a public digital ledger.

Key Points:

• Not backed by RBI or any central bank.

• Value is decided by demand and supply in the market.

• Built using cryptographic algorithms and managed by users (miners).

• Can be bought, sold, or traded but not used as legal tender in India.

• Stored in digital wallets, and each transaction is recorded on blockchain for

transparency.

Examples:

• Bitcoin (BTC) – First cryptocurrency.

• Ethereum (ETH) – Supports smart contracts and NFTs.

• Others: Litecoin, Ripple, Dogecoin.

Comparison Table:

Feature Digital Currency Cryptocurrency

Issued By Central Bank (RBI in India) No central authority

Legal Tender in India Yes No

Stability Stable Volatile (keeps changing)

Control Centralized Decentralized

Uses Shopping, payments, salary Trading, investing, DeFi, NFTs

Technology Central databases, bank software Blockchain

Diagram (Text-based Format):

Government-Backed Community-Backed
 (RBI) (Users)

Digital Crypto

Currency Currency

| |

[Bank Account] [Blockchain Ledger]

| |

Used for real-world use Used for trading online

Real-World Examples:

• Digital Currency: When you pay ₹100 via UPI for Swiggy.

• Cryptocurrency: When you buy 0.001 BTC on WazirX and sell it later for a profit.

Conclusion:

• Digital Currency is like online cash, managed by the government.

• Cryptocurrency is like digital gold, created by users and driven by technology.

• Both are digital, but only one is regulated and widely accepted in the real world.

• As blockchain grows, cryptocurrency may play a big role in future finance, even if it’s
not legal tender today.

4. How Cryptocurrency Works (10 Marks)

Introduction:

Cryptocurrency is digital money that operates without a central bank or government. It is

built on blockchain technology and protected using cryptography.

To understand how cryptocurrency works, we need to first understand three key concepts:

1. Blockchain – a shared digital record of all transactions.

2. Decentralization – no single person or organization controls the system.

3. Cryptography – mathematical techniques used to secure data and transactions.

 A. How Blockchain Powers Crypto

• Blockchain is a distributed ledger shared among all participants.

• It stores every transaction permanently and transparently.

• Once recorded, data is immutable (cannot be changed).

Example: If you send Bitcoin to a friend, that transaction is stored publicly on the Bitcoin
blockchain.

B. Working Process of Cryptocurrency:

1. Mining

• Mining is how new cryptocurrency is created.

• Special computers solve complex mathematical puzzles.

• The first computer to solve it adds a new block to the blockchain and gets rewarded
with cryptocurrency.

• Example: It can take ~10 minutes to mine 1 Bitcoin, but in real-world conditions it
could take days or weeks.

2. Buying, Selling, and Storing

• People can buy crypto on exchanges like Coinbase, WazirX, or Binance.

• After buying, it’s stored in digital wallets, which are of two types:

o Hot Wallet: Connected to internet, easier to access but less secure.

o Cold Wallet: Offline, more secure but slower to use.

3. Sending and Receiving Crypto

• Each user has a public key (like an account number) and a private key (like a
password).

• To send crypto:

1. The sender signs the transaction using their private key (creating a digital
signature).

2. The transaction is sent to the receiver’s public key.

3. Miners verify and add it to the blockchain.

 4. Receiver uses their private key to access the crypto.

C. Important Terminologies:

Term Meaning

Public Key Like an account number – used to receive funds

Private Key Like a password – used to authorize and send crypto

Digital Signature Mathematical proof that a transaction is genuine and from the sender

Hash A unique digital fingerprint of each block

D. Step-by-Step Workflow Diagram:

[Sender Wallet] → [Signs Transaction with Private Key]

[Broadcasted to Network]

[Miners Validate the Transaction]

[Transaction Added to Blockchain]

[Receiver Confirms with Private Key]

[Transaction Complete]

E. Record and Tracking

• Every transaction is permanently stored on the blockchain.

• Anyone can use a blockchain explorer (like blockchain.com) to check the status.

• Example: You can search by wallet address and see all confirmed/pending
transactions.
 F. Bitcoin: The First Cryptocurrency

• Created in 2008 by Satoshi Nakamoto.

• Goal: Create a system that doesn’t depend on banks or governments.

• First transaction: 10 BTC sent to Hal Finney in 2009.

• Fun fact: The first real-world purchase using Bitcoin was two pizzas bought for
10,000 BTC!

G. Cryptocurrency in Financial Services

1. Financial Inclusion: Crypto helps the unbanked population (~1.4 billion globally) to
access digital money.

2. Cross-Border Transfers: Fast and low-cost remittances for migrant workers.

3. Smart Contracts: Auto-execute agreements without intermediaries (e.g., loans,

insurance).

4. Anti-Corruption: Transparent public ledger prevents fraud and bribery.

H. Prediction Markets in Crypto

• A prediction market is where people bet on future outcomes like elections or sports.

• Example: If token A = ₹0.30 and token B = ₹0.70, the market believes team B has a
70% chance of winning.

• Blockchain-based prediction markets:

o Are decentralized

o Don’t have betting limits

o Avoid legal restrictions like KYC in many countries

o Charge lower fees

Final Summary:
Step Description

Get a wallet Download and create a crypto wallet

Generate keys Get your public and private key

Buy cryptocurrency From an exchange or a broker

Send/Receive Use public key to receive, private key to send

Verified by miners Miners confirm the transaction and add it to blockchain

Transaction tracking All transactions are publicly visible and permanent

Conclusion:

Cryptocurrency is a decentralized, secure, and innovative financial system that runs on

blockchain and cryptography. It gives users complete control over their money and is
changing the way the world thinks about finance, investment, and even governance. As
crypto adoption grows, it will continue to disrupt traditional finance and promote global
financial inclusion.

6. Crowdfunding (10 Marks)

What is Crowdfunding?

Crowdfunding is a method of raising small amounts of money from a large number of

people, typically via the internet, to fund a project, startup, cause, or idea.

Instead of borrowing from banks or relying on a few large investors, individuals or

businesses collect funds directly from the public.

How Crowdfunding Works:

1. A person or company creates a campaign (e.g., to build a product or launch a

startup).

2. The campaign is hosted on a crowdfunding platform or blockchain.

3. Supporters or investors donate or invest small amounts.

4. Funds are used for the purpose described in the campaign.

 Types of Crowdfunding:

Type Description

Donation-based Donors give money without expecting anything in return (e.g., charity).

Reward-based Donors receive rewards, like early access or a product sample.

Equity-based Investors get shares in the business in return for their money.

Debt-based Investors give money as a loan, expecting it back with interest.

Token-based (ICO) Investors receive crypto tokens which may increase in value later.

Crowdfunding with Blockchain

Traditional crowdfunding platforms (like Kickstarter, GoFundMe) charge high fees and have
limitations. Blockchain-based crowdfunding offers better alternatives:

Benefits of Blockchain Crowdfunding:

• Transparency: All donations and transactions are recorded on the blockchain.

• No middlemen: No banks or intermediaries are involved.

• Smart Contracts: Automatically release funds when targets are met.

• Global Access: Anyone from anywhere in the world can invest.

• Low Fees: Fewer transaction charges compared to traditional banks or platforms.

Example: ICO (Initial Coin Offering)

• A startup launches a new crypto token.

• Investors buy the token in exchange for Bitcoin or Ethereum.

• If the project succeeds, the value of the token increases.

• Example: Ethereum was funded using an ICO in 2014.

Text Diagram – Crowdfunding on Blockchain

[Project Owner] → [Launches Campaign on Blockchain]

 ↓

[Investors Fund Project with Crypto]

[Smart Contract Locks Funds Until Target is Met]

[Funds Released to Project Owner] → [Project Updates Investors]

Real-World Applications

• Startups: Raise seed money to build apps or products.

• Healthcare: Raise funds for surgeries or emergencies.

• Films & Music: Fund creative projects from fans directly.

• Innovation: Help inventors, researchers, or tech creators.

• Social Causes: Environmental, educational, or humanitarian campaigns.

Comparison with Traditional Crowdfunding

Feature Traditional Crowdfunding Blockchain Crowdfunding

Platform Kickstarter, GoFundMe ICOs, DAOs, Web3 Projects

Fees High platform charges Low to zero

Security Platform-controlled Based on smart contracts

Access Limited to specific countries Global

Transparency Low High (all records on blockchain)

Use of Smart Contracts

A smart contract is a piece of code that runs on the blockchain and automatically does
something when conditions are met.

➡ In crowdfunding:

• If ₹1 lakh is the goal, smart contract releases money only when ₹1 lakh is collected.
 • If not, it automatically returns the money to donors.

Advantages

• Fast and secure

• Global participation

• Trustless system (no need to trust platform owners)

• Easy to verify progress and fund use

• Smart contracts prevent misuse of funds

Challenges

• Requires technical knowledge

• Not all countries allow token sales (legal issues)

• Investors may lose money if project fails

Conclusion:

Crowdfunding is a powerful tool that allows creators, entrepreneurs, and social causes to
raise money directly from the public. With the use of blockchain and smart contracts,
crowdfunding becomes more transparent, secure, and global. It reduces costs, avoids fraud,
and opens opportunities for both fundraisers and investors, especially in the crypto and
Web3 world.