Block Chain Technology

(KIT-062)
By
B K Aman
Assistant Professor, Dept. of IT
IIMT College of Engineering Greater Noida, UP
 Unit - I
Introduction to Blockchain: Digital Money to Distributed Ledgers , Design Primitives:
Protocols, Security, Consensus, Permissions, Privacy. Blockchain Architecture and
Design: Basic crypto primitives: Hash, Signature,) Hashchain to Blockchain, Basic
consensus mechanisms
Traditional Method
Problem with banks and databases
Cont.........
 Introduction
What is Blockchain?

The blockchain is a decentralized /

distributed database of records of all
transactions or digital events that have
been executed and shared among
participating parties. Each transaction is
verified by the majority of participants of
the system.
 Bitcoin
by
Satoshi
Nakamoto
 Introduction to Blockchain
• A blockchain is a type of data structure where data or information is stored in blocks of
chain.

• Each block contains some information with the hash value of the previous block.

• The hash is a unique mathematical code that shows the specific block in the blockchain.

• Blockchain ensures transparency, security as well as decentralization.

• A blockchain is one type of digital ledger of transactions where each transaction is

duplicated and distributed across the entire network of computer systems.
• As each block contains the number of transactions and any new transaction occurs on
the blockchain then it is known to every other participant's ledger.

• This block of the chain is managed by multiple participants with the help of a
decentralized database this technology is referred to as Distributed Ledger Technology
(DLT).

• The blockchain technology is used in Digital Crypto Currency Bitcoin.

Why blockchain is trustable:

• The blockchain is trustable for various reasons.

• It is an open source in nature that why it is used in business applications.

• It is compatible with business applications.

• It is used in online transactions because of high security.

• In business the developers always pay for security.

• The business does not matter in any situation, the blockchain is considered easily.
 Embedding Distributed Ledger Technology
A distributed ledger is a network that records ownership through a shared registry.
As previously mentioned, the blockchain is a distributed ledger that is
completely open to any one and it has some interesting properties.

Once any data has been recorded inside the blockchain, it becomes very
difficult or almost impossible to change it.
Benefits of Blockchain Technology:

• The process is faster and cheaper because of no central authority for verification.

• There are no expenses added to the blockchain technology.

• It gives tighter security over blockchain where no other person can modify the data.

• The blockchain enhanced the security.

• The blockchain provides the greatest transparency where blockchain provides the
distributed ledger, transactions, and data are recorded in multiple locations identically.

• Blockchain creates an audit trail that documents the provenance of an asset at every
stop on its journey.
• The blockchain increases the efficiency and speed.

• The reconcile multiple ledgers are not needed so clearing and settlement can be much faster in
blockchain.

• The transactions are automated using smart contracts which increase the speed of the process.

• Businesses spend a lot of money on managing their current system that why the blockchain is
used to reduce costs and divert money into improving the process.
Properties of Distributed Ledger Technology.

➢ The blockchain is the one type of distributed ledger where transactions are recorded in an
immutable cryptographic signature called a hash.

➢ The decentralized database manages all the multiple participants is known as distributed ledger
technology (DLT).
Following are the properties of DLT.

Programmable
➢ The blockchain is programmable.
➢ The transaction are recorded as smart contacts.

Secure
➢ All records are individually encrypted.

Distributed
➢ The records are stored in the distributed database.
➢ All network participants have a copy of ledger for complete transparency.

Anonymous
➢ All the participants of the network are authorized by the DLT.
➢ The identity of the participant is either anonymous or pseudonymous.
Unanimous
➢ All the records can be changed by all the participants of network.
➢ As the record are validated by participant before adding into the network.
➢ All network participant agree to the validity of each of the records.

Time stamped
➢ The records are added to the network by participants with time stamps as blockchain provides
transparency.
➢ A transaction should have a time stamp on the block.

Immutable
➢ All the records are irreversible and not changeable by any of the users after adding the record.
➢ Any validated records are irreversible and cannot changed.
 Design primitives of blockchain
Protocols

Following are five major protocols used to build blockchain.

1. Hyper ledger

• It is an open source project used to create suite of tools for blockchain technologies quickly and
effectively.
• This protocol is useful because it has its libraries which helps in developing of blockchain.

2. Multichain

• The multichain protocol is used in private blockchain to facilitate more efficient transactions.
• This protocol gives the profit in corporation.
• It also offers an API to accelerate deployment and development of blockchain.
3. Enterprise Ethereum
• This protocol is used to increase the use cases of blockchain software development.
• This protocol helps to grow business rapidly on large scale with exchange values.

4. Corda
• Corda offers protocol design for enterprises same as multichain.
• This protocol is used in the sector of finance and banking.

5. Quorum
• Quorum protocol is most significantly leading protocol in finance sector because it has strong
backing from financial community.
• These protocols are used to build a blockchain software development project. As above protocols
are highly complex and usually used to work with customized blockchain development services.
Security
• Blockchain uses cryptography technology to ensure trust in transactions.

• The blockchain is based on the principle of decentralization and consensus.

• As blockchain is the type of data structure where each block contains transactions or a bundle of
transactions.

• Each new block connects with other blocks of the chain it goes in the cryptographic chain in such
a way that it’s impossible to modify the data.

• All transactions are validated by a consensus mechanism to correct and ensure the transactions.

• Blockchain is based on decentralization where participants are across the distributed network.

• There is no single point of failure and a single user cannot change the records of transactions.

• However blockchain technology differs in some critical security aspects.

Consensus
• Blockchain technology ensures privacy, security, transparency, and immutability.

• There is no central authority is present to verify the transactions therefore the

blockchain considered as completely secure and verified.

• This is all because of consensus protocols present in blockchain technology.

• The consensus mechanism is a core part of blockchain.

• The consensus protocol ensures that every block which is going to be added in the
blockchain should be only the truth that is agreed upon by all the nodes in the
blockchain.
• Consensus mechanism provides reliability in blockchain where trust is in between the
unknown peers established in the distributed network.

• Consensus is a common agreement that works in the entire network.

Following are various consensus algorithms used in blockchain.
• Proof Of Work (Pow)
• Practical Byzantine Fault Tolerance(PBFT)
• Proof Of Stake (Pos)• Proof Of Burn (Pob)
• Proof Of Capacity
• Proof Of Elapsed Time

Permission
• The blockchain needs permission to participate in network and interact with it.
• In public blockchain anyone can participate as open source clients and attach to the network.
• Once the necessary synchronization done with rest of the network then it gives the copy of
ledgers.
• The permissioned blockchain works differently where participant needs permission to join the
network.
• This permission is granted by the rest of the participants of the network where they
compare the signer's identity against permissioning policy.

• This permissioning policy applies to both peer-to-peer networking.

• It is used to propagate transactions as well as blocks with other functional messages.

• The permissioning policy can be locally maintained by each operator or administrator.
• The administrator will decide who will interact with the network.
• The permission can be maintained as the network-wide consistent policy which is a
smart contract.

Privacy
• The blockchain gives privacy to the participants of the network.
• This privacy includes two concepts confidentiality and anonymity.
• Confidentiality is needed to conceal the transaction details.
• Anonymity refers to concealing the parties of the transaction.
DLT with Classification
• The distributed ledger is a technological infrastructure and protocol that grants access
to multiple users, verification, and modification of records.

• This work can be done on multiple locations or entities over the computer network.

• The distributed ledger is also called a shared ledger or distributed ledger technology.

• Blockchain is the best example of distributed ledger technology.

• DLT uses cryptographic technology to make it secure for storing data with
cryptographic signatures and keys to access only authorized participants.

• DLT creates its database where once the data is stored it cannot be deleted and updates
will be permanently recorded for posterity.

• DLT gives transparency and high security.

• The distributed ledger is a consensus of replicated, shared, and synchronized digital data.
Classification of DLT
There are three types of distributed ledger technology as follows:

1. Permission less DLT

2. Permissioned DLT

3. Hybrid DLT
Permissionless DLT

➢ The permissionless DLT is an open-source of DLT.

➢ Any participant can validate the records without permission from any authority.

➢ The user can operate and maintain the distributed ledger technology.

➢ It is free to download.
Permissioned DLT

➢ The permissioned DLT is opposite to the permissionless DLT.

➢ The participant requires permission.

➢ Users validating the block must be authorized in permissioned DLT.

➢ The transactions can be restricted for read and write access for the user in permissioned DLT.
Hybrid DLT

➢ It is the combination of permissioned and permissionless DLT.

➢ The benefits of permissioned DLT such as security and transparency are combined with the
benefits of permission-less DLT.

➢ The hybrid DLT gives flexibility to the developers as to which data they want to make public and
transparent and which data they want to keep private.
 Blockchain Architecture and Design
The blockchain is the one type of transactional data structure that is authorized and authenticated.

➢ The structure of the blockchain is represented as a list of blocks with transactions in a particular
order.
➢ The pointer and linked list data structures are used by blockchain architecture.
➢ The blockchain is open for every financial ledger.
➢ There are many nodes (blocks) in the blockchain.
➢ The blockchain is a decentralized network where several computers are connected.

➢ The ledgers are connected through the distributed database in the blockchain where each node
plays playing important role as administrator in the blockchain.

➢ The ledgers can join the network voluntarily.

➢ The blocks in the blockchain are known as the growing list of ordered records in the blockchain
architecture.

➢ Each block includes a timestamp and link to the previous block.

➢ In blockchain architecture each participant can main, approve, and update new transactions.

➢ The system of blockchain is maintained by every participant of the network where each
participant ensures that all records or procedures are in order which gives data security and
validity.

➢ The Blockchain architecture is used mostly in financial industries to create cryptocurrencies,

keeping records, digital notary, and smart contracts.
The following figure represents some types of structures that represent the blockchain
architecture.
 Types of blockchain architecture
There are three types of blockchain architecture as follows:
1. Public blockchain architecture
✓ The proof of work (POW) consensus and appropriate protocols are used to build public blockchain
architecture.
✓ It is an open blockchain source as it does not require any permission.
✓ Here participant can create new blocks with their existing state as it is an open source.
✓ The participant can check the transactions also can download them through the network.
The following are public blockchains:
➢ Bitcoin
➢ Ethereum
2. Private Blockchain architecture

✓ This blockchain allows only certain group of participants or organizations to access the information.
✓ This blockchain is built to increase benefits or efficiency of organization.
✓ In this blockchain the proof of Stake (Pos) and Byzantine fault tolerance (BFT) consensus
algorithms are used.
✓ This blockchain opens up with some programmable transaction area which is called as smart
contract layer or online market.
3. Consortium blockchain architecture

✓ A consortium blockchain, also known as a federated blockchain, is a type of blockchain technology

that is governed by multiple organizations, as opposed to a single entity as seen in private
blockchains. It is permissioned, which means only organization members with access can be on the
network. Despite this, it is a partially decentralized network as decision-making power lies with
more than one organization.
Consensus Mechanisms in blockchain
➢ Proof Of Work
➢ Practical byzantine fault tolerance (PBFT)
➢ Proof of stake
➢ Proof of burn
➢ Proof of capacity
➢ Proof of elapsed time
➢ Proof Of Work