Unit 1

Block Chain
What is Blockchain:
► A blockchain is a type of Digital Ledger
Technology (DLT) that consists of growing list
of records, called blocks, that are securely
linked together using cryptography.
► Each block contains a cryptographic hash of the
previous block, a timestamp, and transaction
data (generally represented as a Merkle tree,
where data nodes are represented by leafs).
► The timestamp proves that the transaction data
existed when the block was created.
Cont..
► Since each block contains information about the
block previous to it, they effectively form
a chain (compare linked list data structure), with
each additional block linking to the ones before
it.
► Consequently, blockchain transactions are
irreversible in that, once they are recorded, the
data in any given block cannot be altered
retroactively without altering all subsequent
blocks.
Cont..
► Blockchains are typically managed by
a peer-to-peer (P2P) computer network for use
as a public distributed ledger, where nodes
collectively adhere to a consensus
algorithm protocol to add and validate new
transaction blocks.
► Although blockchain records are not
unalterable, since blockchain forks are possible,
blockchains may be considered secure by
design and exemplify a distributed computing
system with high Byzantine fault tolerance.
Cont..
► The blockchain was created by a person (or group of
people) using the name (or pseudonym) Satoshi
Nakamoto in 2008 to serve as the public distributed
ledger for bitcoin crypto currency transactions, based on
previous work by Stuart Haber, W. Scott Stornetta,
and Dave Bayer.
► The identity of Satoshi Nakamoto remains unknown to
date.
► The implementation of the blockchain within bitcoin
made it the first digital currency to solve
the double-spending problem without the need of a
trusted authority or central server.
► The bitcoin design has inspired other applications[3][2] and
blockchains that are readable by the public and are widely
used by crypto currencies.
► The blockchain may be considered a type of payment
rail.
What Is a Blockchain?
► A blockchain is a distributed database or ledger that is
shared among the nodes of a computer network.
► As a database, a blockchain stores information
electronically in digital format.
► Blockchains are best known for their crucial role in
cryptocurrency systems, such as Bitcoin, for
maintaining a secure and decentralized record of
transactions.
► The innovation with a blockchain is that it guarantees
the fidelity and security of a record of data and
generates trust without the need for a trusted third party.
Cont..
► Blockchain is a shared, immutable ledger that
facilitates the process of recording transactions
and tracking assets in a business network.
► An asset can be tangible (a house, car, cash,
land) or intangible (intellectual property,
patents, copyrights, branding).
► Virtually anything of value can be tracked and
traded on a blockchain network, reducing risk
and cutting costs for all involved.
Cont..
► A blockchain is a distributed database or ledger that
is shared among the nodes of a computer network.
► As a database, a blockchain stores information
electronically in digital format.
► Blockchains are best known for their crucial role in
cryptocurrency systems, such as Bitcoin, for
maintaining a secure and decentralized record of
transactions.
► The innovation with a blockchain is that it
guarantees the fidelity and security of a record of
data and generates trust without the need for a
trusted third party.
Cont..
► One key difference between a typical database and a
blockchain is how the data is structured.
► A blockchain collects information together in
groups, known as blocks, that hold sets of
information.
► Blocks have certain storage capacities and, when
filled, are closed and linked to the previously filled
block, forming a chain of data known as the
blockchain.
► All new information that follows that freshly added
block is compiled into a newly formed block that
will then also be added to the chain once filled.
Cont..
► A database usually structures its data into tables,
whereas a blockchain, as its name implies, structures
its data into chunks (blocks) that are strung together.
► This data structure inherently makes an irreversible
timeline of data when implemented in a
decentralized nature. When a block is filled, it is set
in stone and becomes a part of this timeline.
► Each block in the chain is given an exact timestamp
when it is added to the chain.
Why blockchain is important
► Business runs on information.
► The faster it’s received and the more accurate it is,
the better.
► Blockchain is ideal for delivering that information
because it provides immediate, shared and
completely transparent information stored on an
immutable ledger that can be accessed only by
permissioned network members.
► A blockchain network can track orders, payments,
accounts, production and much more.
► And because members share a single view of the
truth, you can see all details of a transaction end to
end, giving you greater confidence, as well as new
efficiencies and opportunities.
History of Blockchain
► 1991:
► The blockchain technology was described
in 1991 by the research scientist Stuart
Haber and W. Scott Stornetta.
► They wanted to introduce a computationally
practical solution for time-stamping digital
documents so that they could not be backdated or
tampered.
► They develop a system using the concept
of cryptographically secured chain of blocks to
store the time-stamped documents.
Cont..
► In 1992, Merkle Trees were incorporated into the
design, which makes blockchain more efficient by
allowing several documents to be collected into one
block.
► Merkle Trees are used to create a 'secured chain of
blocks.'
► It stored a series of data records, and each data
records connected to the one before it.
► The newest record in this chain contains the history
of the entire chain.
► However, this technology went unused, and the
patent lapsed in 2004.
Cont..
► In 2004, computer scientist and cryptographic
activist Hal Finney introduced a system called Reusable
Proof Of Work(RPoW) as a prototype for digital cash.
► It was a significant early step in the history of
cryptocurrencies.
► The RPoW system worked by receiving a
non-exchangeable or a non-fungible Hashcash based
proof of work token in return, created
an RSA-signed token that further could be transferred
from person to person.
► RPoW solved the double-spending problem by keeping
the ownership of tokens registered on a trusted server.
► This server was designed to allow users throughout the
world to verify its correctness and integrity in real-time
Cont..
► Further, in 2008, Satoshi Nakamoto conceptualized the
theory of distributed blockchains.
► improves the design in a unique way to add blocks to the
initial chain without requiring them to be signed by
trusted parties.
► It utilizes a peer-to-peer network for timestamping and
verifying each exchange.
► It could be managed autonomously without requiring a
central authority.
► These improvements were so beneficial that makes
blockchains as the backbone of cryptocurrencies.
► Today, the design serves as the public ledger for all
transactions in the cryptocurrency space.
Cont..
► In 2009, Nakamoto implemented first Bitcoin as
public ledger, for public transitions made using
bitcoin.
► 2014: Blocjchain evo;ution is steady and promising
and it has became a need in various fields.
► Microsof starts accepting Bitcoin as payment.
► Many applications are incorporated by the
Blockchain Technolgy that can be implemented in
various economic sectors.
► Particularly in finance sector, significant
advancement in the performance of financial
transactions.
Structure & Design
► A blockchain is a decentralized, distributed, and
often public, digital ledger consisting of records
called blocks that are used to record transactions
across many computers so that any involved
block cannot be altered retroactively, without
the alteration of all subsequent blocks.
► This allows the participants to verify and audit
transactions independently and relatively
inexpensively.
► A blockchain database is managed
autonomously using a peer-to-peer network and
a distributed timestamping server.
Cont..
► Logically, a blockchain can be seen as consisting of
several layers:
► Infrastructure (hardware)
► Networking (node discovery, information
propagation and verification)
► Consensus (proof of work, proof of stake)
► Data (blocks, transactions)
► Application (smart contracts/decentralized
applications, if applicable)
Blocks
► Blocks hold batches of valid transactions that are
hashed and encoded into a Merkle tree.
► Each block includes the cryptographic hash of the
prior block in the blockchain, linking the two.
► The linked blocks form a chain.
► This iterative process confirms the integrity of the
previous block, all the way back to the initial block,
which is known as the genesis block (Block 0).
► To assure the integrity of a block and the data
contained in it, the block is usually digitally signed.
Cont..
► Sometimes separate blocks can be produced
concurrently, creating a temporary fork.
► In addition to a secure hash-based history, any
blockchain has a specified algorithm for scoring
different versions of the history so that one with a
higher score can be selected over others.
► Blocks not selected for inclusion in the chain are
called orphan blocks.
► Peers supporting the database have different
versions of the history from time to time.
Cont..
► They keep only the highest-scoring version of the
database known to them.
► Whenever a peer receives a higher-scoring version
(usually the old version with a single new block
added) they extend or overwrite their own database
and retransmit the improvement to their peers.
► There is never an absolute guarantee that any
particular entry will remain in the best version of
history forever.
► Blockchains are typically built to add the score of
new blocks onto old blocks and are given incentives
to extend with new blocks rather than overwrite old
blocks.
► Therefore, the probability of an entry becoming
superseded decreases exponentially as more blocks
are built on top of it, eventually becoming very low.
Cont..
► For example, bitcoin uses a proof-of-work system,
where the chain with the most cumulative
proof-of-work is considered the valid one by the
network.
► There are a number of methods that can be used to
demonstrate a sufficient level of computation.
► Within a blockchain the computation is carried out
redundantly rather than in the traditional segregated
and parallel manner.
Cont..
► Why is it called Blockchain? – Well, this is because
it stores the transaction data in blocks, that are
linked together to form a chain.
► As the number of transactions grows, so does the
size of the blockchain.
► To get a clearer understanding of this glorious
invention, let us discuss its architecture.
► The architectural components have been generalized
and then modified by various companies, leading to
different blockchain projects like
Bitcoin, Ethereum, Hyperledger etc.
Cont..
► Below is a list of the architectural components:
► Transaction
► Block
► P2P Network
► Consensus Algorithm
► The blockchain is not Bitcoin; Blockchain is the
technology behind Bitcoin.
► Bitcoin is the digital token or cryptocurrency whereas
blockchain is the ledger to keep track of transactions of
those digital tokens.
► Bitcoin without blockchain is not possible, but you can
have blockchain without Bitcoin.
Cont..
Cont..
► Transaction
► Transactions are the smallest building blocks of a
blockchain system.
► They normally consist of a recipient address, a sender
address, and a value.
► It is similar to a standard credit card statement.
► The owner transfers the value by digitally signing the
hash produced by adding the previous transaction and the
public key of the receiver.
► The transaction is then publically announced to the
network and all the nodes independently hold their own
copy of the blockchain, and the current known “state” is
calculated by processing each transaction in order as it
appears in the blockchain.
Cont..
► Transactions are bundled and delivered to each node in
the form of a block.
► As new transactions are distributed throughout the
network, they are independently verified and
“processed” by each node.
► Each transaction is time-stamped and collected in a block.
Cont..
► Block
► Block contains the information as a block header and
transactions.
► Blocks are data structures whose purpose is to bundles
sets of transactions and are replicated to all nodes in the
network.
► Blocks in blockchain are created by miners. Mining is
the process to create a valid block that will be accepted
by the rest of the network.
► Nodes take pending transactions, verify that they are
cryptographically accurate, and package them into
blocks to be stored on the blockchain.
► Block header is the metadata that helps in verifying
the validity of a block.
► The contents of a block metadata is shown in the image
below
►
Cont..
► Blockchain is a database, or broadly distributed
database, used mainly for concurrent transactions
and one of the most popular implementations of
blockchain is Bitcoin. Blockchain has several
blocks, also called nodes, and all the blocks are
managed with the help of the block header.
► Constituents of Block Header are :
► Timestamp
► Version
► Merkle Root
► Difficulty Target
► Nonce
► Previous Hash
Cont..
► Timestamp :
► Timestamp in the blockchain is used as proof that
the particular block is used at what instance of a
time, also this timestamp is used as a parameter to
verify the authenticity of any block.
Cont..
► Version :
► It states the version that the particular block is using, there
are three types of Blockchain version.
► Blockchain Version 1.0(cryptocurrency)-It used a public
ledger to store the data, for example, Bitcoin.
► Blockchain Version 2.0(smart Contract)- It is called smart
contracts which is self-executing programs, for example,
Ethereum.
► Blockchain Version 3.0(DAPPS)- It is used to create a
decentralized structure, for example, tor Browser.
► Blockchain Version 4.0(Blockchain for Industry)- It is
used to create a scalable, affordable blockchain network
such that more people could use it.
Cont..
► Merkle Root :
► A Merkle root uses mathematical formulas to check
if the data is not corrupted, hacked, or manipulated.
► For example, Suppose one block has 10 transactions,
then to identify that block we need 10 transactions to
combine and form one Hash Value, so it uses the
concept of the binary tree to create the hash of the
block and that value is called the Merkle Root.
Cont..
► Difficulty Target :
► It specifies the complexity and the computation
power required to mine the network, if we are
having a high difficulty target then it implies that we
need more a computationally expensive machine to
mine it.
► For example, in order to increase the difficulty target
algorithms such as SHA-2, SHA-3. RIPEMD,
MD5,BLAKE2 is used.
Cont..
► Nonce :
► It is abbreviated as ‘number only used once’ and it is
a number which blockchain miners are finding and
on average, it takes almost 10 times to find out the
correct nonce.
► A nonce is a 32-bit number, having the maximum
value as 2^(32) total possible value, so the job of the
bitcoins miners is to find out the correct integer
value which is a random integer between 0 and
2^(32), so it becomes computationally expensive.
Cont..
► Previous Hash :
► As Blockchain is a collection of several
interconnected nodes also called a block, so previous
hash stores the hashed value of the previous node’s
address, First block in the blockchain is called the
Genesis Block and has no previous block hash
value.
Cont..
► A block is a container data structure that aggregates
transactions for inclusion in the public ledger, the
blockchain.
► The block is made of a header, containing metadata,
followed by a long list of transactions that make up the
bulk of its size.
► The block header is 80 bytes, whereas the average
transaction is at least 250 bytes and the average block
contains more than 500 transactions.
► A complete block, with all transactions, is therefore
1,000 times larger than the block
header. Table 7-1 describes the structure of a block.
Structure of Block
Cont..
► The block header consists of three sets of block metadata.
► First, there is a reference to a previous block hash, which
connects this block to the previous block in the
blockchain.
► The second set of metadata, namely
the difficulty, timestamp, and nonce.
► The third piece of metadata is the merkle tree root, a data
structure used to efficiently summarize all the transactions
in the block.
Structure of Block Header
Cont..
► The block header consists of three sets of block
metadata.
► First, there is a reference to a previous block hash,
which connects this block to the previous block in
the blockchain.
► The second set of metadata, namely
the difficulty, timestamp, and nonce.
Cont..
► P2P Network
► The blockchain is a peer to peer (P2P) network working
on the IP protocol. A P2P network is a flat topology with
no centralized node.
► All nodes equally provide and can consume services
while collaborating via a consensus algorithm. Peers
contribute to the computing power and storage that is
required for the upkeep of the network.
► P2P networks are generally more secure because they do
not have a single point of attack or failure as in case of a
centralized network.
► A blockchain network can be a permission-based network
as well as a permissionless network.
Cont..
► A permissionless network is also known as public
blockchain because anyone can join the network, while a
permission-based blockchain is called a consortium
blockchain.
► A permission-based blockchain or private blockchain
requires pre-verification of the participants within the
network and these parties are usually known to each
other.
► In a typical blockchain architecture, every individual
node in a network maintains a local copy of blockchain.
► The decentralisation of blockchain architecture is the sole
credit of the P2P network that it is built on.
Cont..
► Consensus Algorithm
► The way all these copies of a single ledger is
synchronized is due to a consensus algorithm.
► The consensus mechanism ensures that whatever local
copy every individual party has, they are consistent with
each other and is the most updated one.
► The copy that every individual node have are identical or
similar to each other.
► It could be arguably stated that the consensus algorithm
forms the core of every blockchain architecture.
► Some of the consensus algorithms are discussed below:
Cont..
► Proof-of-Work(POW)
► It involves solving a computational challenging puzzle in
order to create new blocks in the blockchain network.
► It basically involves guessing the string that produces a
256-bit hash, produced by the popular hashing algorithm
SHA256.
► The fact that hashing algorithms are irreversible stands as
the fundamental pillar of such an approach to consensus
achievement.
► Since someone has to go through a million guesses to
verify the hash, the process gets its name ‘proof-of-work’.
Block Time
► Block time
► The block time is the average time it takes for the
network to generate one extra block in the
blockchain. Some blockchains create a new block as
frequently as every five seconds.
► By the time of block completion, the included data
becomes verifiable.
► In cryptocurrency, this is practically when the
transaction takes place, so a shorter block time
means faster transactions.
► The block time for Ethereum is set to between 14
and 15 seconds, while for bitcoin it is on average 10
minutes.
Hard forks
► A hard fork is a rule change such that the software
validating according to the old rules will see the
blocks produced according to the new rules as
invalid.
► In case of a hard fork, all nodes meant to work in
accordance with the new rules need to upgrade their
software.
► If one group of nodes continues to use the old
software while the other nodes use the new software,
a permanent split can occur.
How Does a Blockchain Work?
► The goal of blockchain is to allow digital
information to be recorded and distributed, but not
edited.
► In this way, a blockchain is the foundation for
immutable ledgers, or records of transactions that
cannot be altered, deleted, or destroyed.
► This is why blockchains are also known as
a distributed ledger technology (DLT).
► First proposed as a research project in 1991, the
blockchain concept predated its first widespread
application in use: Bitcoin, in 2009.
► In the years since, the use of blockchains has
exploded via the creation of various crypto
currencies, decentralized finance (DeFi)
applications, non-fungible tokens (NFTs), and smart
contracts.
Blockchain Decentralization
► Imagine that a company owns a server farm with
10,000 computers used to maintain a database
holding all of its client’s account information.
► This company owns a warehouse building that
contains all of these computers under one roof and
has full control of each of these computers and all of
the information contained within them.
► This, however, provides a single point of failure.
► What happens if the electricity at that location goes
out?
► What if its Internet connection is severed?
► What if it burns to the ground?
► What if a bad actor erases everything with a single
keystroke? In any case, the data is lost or corrupted.
Cont..
► What a blockchain does is to allow the data held in that
database to be spread out among several network nodes at
various locations.
► This not only creates redundancy but also maintains the
fidelity of the data stored therein—if somebody tries to
alter a record at one instance of the database, the other
nodes would not be altered and thus would prevent a bad
actor from doing so.
► If one user tampers with Bitcoin’s record of transactions,
all other nodes would cross-reference each other and
easily pinpoint the node with the incorrect information.
► This system helps to establish an exact and transparent
order of events.
► This way, no single node within the network can alter
information held within it.
Cont..
► Because of this, the information and history (such as
of transactions of a cryptocurrency) are irreversible.
► Such a record could be a list of transactions (such as
with a cryptocurrency), but it also is possible for a
blockchain to hold a variety of other information
like legal contracts, state identifications, or a
company’s product inventory.
Transparency
► Because of the decentralized nature of Bitcoin’s
blockchain, all transactions can be transparently
viewed by either having a personal node or
using blockchain explorers that allow anyone to see
transactions occurring live.
► Each node has its own copy of the chain that gets
updated as fresh blocks are confirmed and added.
► This means that if you wanted to, you could track
Bitcoin wherever it goes.
Cont..
► For example, exchanges have been hacked in the
past, where those who kept Bitcoin on the exchange
lost everything.
► While the hacker may be entirely anonymous, the
Bitcoins that they extracted are easily traceable.
► If the Bitcoins stolen in some of these hacks were to
be moved or spent somewhere, it would be known.
► Of course, the records stored in the Bitcoin
blockchain (as well as most others) are encrypted.
► This means that only the owner of a record can
decrypt it to reveal their identity (using
a public-private key pair).
► As a result, users of blockchains can remain
anonymous while preserving transparency.
Features of Blockchain
► Immutable
► Unanimous
► Distrubuted
► Census
► Decentralized
► Secure
► Faster Settlement
Cont..
► 1. Immutable
► Immutability means that the blockchain is a
permanent and unalterable network. Blockchain
technology functions through a collection of nodes.
► Every node in the network has a copy of the digital
ledger. To add a transaction every node checks the
validity of the transaction and if the majority of the
nodes think that it is a valid transaction then it is
added to the network. This means that without the
approval of a majority of nodes no one can add any
transaction blocks to the ledger.
► Any validated records are irreversible and cannot be
changed. This means that any user on the network
won’t be able to edit, change or delete it.
Cont..
► 2. Distributed
► All network participants have a copy of the ledger for
complete transparency
► . A public ledger will provide complete information
about all the participants on the network and
transactions.
► The distributed computational power across the
computers ensures a better outcome.
► Distributed ledger is one of the important features of
blockchains due to many reasons like:
► In distributed ledger tracking what’s happening in the
ledger is easy as changes propagate really fast in a
distributed ledger.
► Every node on the blockchain network must maintain the
ledger and participate in the validation.
► Any change in the ledger will be updated in seconds or
minutes and due to no involvement of intermediaries in
the blockchain, the validation for the change will be
done quickly.
Cont..
► If a user wants to add a new block then other
participating nodes have to verify the transaction.
► For a new block to be added to the blockchain
network it must be approved by a majority of the
nodes on the network.
► In a blockchain network, no node will get any sort of
special treatment or favors from the network.
► Everyone will have to follow the standard procedure
to add a new block to the network.
Cont..
► Decentralized
► The blockchain network is decentralized which means
that there is no central governing authority that will
responsible for all the decisions.
► Rather a group of nodes makes and maintain the network.
Each and every node in the blockchain network has the
same copy of the ledger.
► Decentralization property offers many advantages in the
blockchain network:
► As a blockchain network does not depend on human
calculations it is fully organized and fault-tolerant.
► The blockchain network is less prone to failure due to the
decentralized nature of the network. Attacking the system
is more expensive for the hackers hence it is less likely to
fail.
Cont..
► There is no third-party involved hence no added risk
in the system.
► The decentralized nature of blockchain facilitates
creating a transparent profile for every participant on
the network.
► Thus, every change is traceable, and more concreate.
► Users now have control over their properties and
they don’t have to rely on third-party to maintain
and manage their assets.
Cont..
Cont..
► 4. Secure
► All the records in the blockchain are individually
encrypted.
► Using encryption adds another layer of security to the
entire process on the blockchain network. Since there is
no central authority, it does not mean that one can
simply add, update or delete data on the network.
► Every information on the blockchain is hashed
cryptographically which means that every piece of data
has a unique identity on the network.
► All the blocks contain a unique hash of their own and the
hash of the previous block.
► Due to this property, the blocks are cryptographically
linked with each other. Any attempt to modify the data
means to change all the hash IDs which is quite
impossible.
Cont..
► 5. Consensus
► Every blockchain has a consensus to help the network to
make quick and unbiased decisions.
► Consensus is a decision-making algorithm for the group
of nodes active on the network to reach an agreement
quickly and faster and for the smooth functioning of the
system.
► Nodes might not trust each other but they can trust the
algorithm that runs at the core of the network to make
decisions.
► There are many consensus algorithms available each with
its pros and cons.
► Every blockchain must have a consensus algorithm
otherwise it will lose its value.
Cont..
► 6. Unanimous
► All the network participants agree to the validity of
the records before they can be added to the network.
► When a node wants to add a block to the network
then it must get majority voting otherwise the block
cannot be added to the network.
► A node cannot simply add, update, or delete
information from the network.
► Every record is updated simultaneously and the
updations propagate quickly in the network.
► So it is not possible to make any change without
consent from the majority of nodes in the network.
Cont..
► 7. Faster Settlement
► Traditional banking systems are prone to many reasons for
fallout like taking days to process a transaction after finalizing
all settlements, which can be corrupted easily.
► On the other hand, blockchain offers a faster settlement
compared to traditional banking systems.
► This blockchain feature helps make life easier.
► Blockchain technology is increasing and improving day by
day and has a really bright future in the upcoming years.
► The transparency, trust, and temper proof characteristics have
led to many applications of it like bitcoin, Ethereum, etc.
► It is a pillar in making the business and governmental
procedures more secure, efficient, and effective.
►
Centralized Vs Decentralized
Systems
► In a centralized network, all users are connected to a
central server that stores complete network data and
user information.
► On the contrary, a decentralized network has several
peer-to-peer user groups wherein each group has its
separate server that stores data and information
relevant to only that particular group.
► Centralized systems are systems that use
client/server architecture where one or more client
nodes are directly connected to a central server.
► This is the most commonly used type of system in
many organizations where a client sends a request to
a company server and receives the response.
►
Cont..
► Example –
► Wikipedia. Consider a massive server to which we send
our requests and the server responds with the article that
we requested.
► Suppose we enter the search term ‘junk food’ in the
Wikipedia search bar.
► This search term is sent as a request to the Wikipedia
servers (mostly located in Virginia, U.S.A) which then
responds back with the articles based on relevance.
► In this situation, we are the client node, Wikipedia
servers are the central server.
Cont..
► It means that a central authority is in control of the data
and functions of the said platform.
► So, if you are using the Facebook platform, then the
company Facebook has complete control over the
different aspects of their features including the ability to
decide who and who cannot join the platform.
► If you want a technical perspective, then the centralized
system requires third-party intermediaries to verify data.
► This means if you are sending a message to your friend
using the Facebook platform, then the data will be
verified and then transferred by the said platform.
Cont..
► Another great example would be sending an email.
► The moment you send an email to another person,
the email service provider has the knowledge of
what you sent and when you sent it.
► This information is stored privately without any
identifier, but the email service, in any case, has a
copy of that information.
► In short, the centralized services have your
information stored with your consent.
► If you remember the first time you create an
account on any centralized platform such as
Facebook, Yahoo, Gmail, etc., then you you had to
give them your full name, nationality, date of birth,
and any other information to register on the
platform.
Advantages of Centralization
► 1. Command chain
► With centralized, the command chain is clearly defined. If
an organization utilizes centralization, they know the
chain of command.
► This means that every person in the organization knows
their role and whom they need to report too.
► They also know which person is under their control and
are responsible for their subordinates’ actions as well.
► All of these also mean that delegation is easy in the chain.
Senior executives can easily delegate work to their
subordinates and finalize and finish the work in the best
possible way. If work is successfully completed, it creates
a level of trust among the workers and chain, improving
the confidence required to make it work.
► When it comes to a network that utilizes centralization,
one central node or a collection of nodes are responsible
for transactional verification.
Cont..
► 2. Reduced Costs
► One of the biggest advantages of centralization is the cost
associated with it.
► Any centralized network or infrastructure requires less
support and cost.
► As centralized organizations or networks are pre-planned,
the costs associated with it do not cross budgets until and
unless it is absolutely required to expand the network.
Cont..
► 3. Quick Decision Implementation
► There is no doubt that centralization organizations or
networks enable quick decision implementation.
► As centralized networks have fewer nodes or people, it
requires less communication among the different levels of
authorization.
► Also, if a centralized network decides to implement a
change, it can be done in a matter of minutes.
► For instance, a centralized network can put more stress
on the KYC procedure and decided to add more
requirements for it.
► As the network is centralized, they can push the new
guidelines or change the KYC procedure which can go
live almost instantly after proper testing.
Cont..
► Easy to physically secure. It is easy to secure and service the
server and client nodes by virtue of their location
► Smooth and elegant personal experience – A client has a
dedicated system which he uses(for example, a personal
computer) and the company has a similar system which can be
modified to suit custom needs
► Dedicated resources (memory, CPU cores, etc)
► More cost-efficient for small systems up to a certain limit – As
the central systems take fewer funds to set up, they have an edge
when small systems have to be built
► Quick updates are possible – Only one machine to update.
► Easy detachment of a node from the system. Just remove the
connection of the client node from the server and voila! Node
detached.
Disadvantages of Centralization
► 1. Trust
► Even though centralized organizations are secure and
trustable, they are not 100% secure or trustable.
► The trust is an agreement that is set by the service
provider and the user.
► However, that’s an agreement and it can break easily.
► Big corporations suffer from trust issues from their users,
from time to time.
► It happens when there is a lapse of security in the system,
people tend to ignore the service for some time before the
service provider mends the trust by offering solutions and
remuneration to those affected.
► All of this happens because of centralization and the
reason that all the data are stored in a
centralized database.
Cont..
► 2. Single point of failure
► Centralization also means that the whole network is
dependent on a single point of failure.
► Organizations know about the disadvantage and
hence have deployed measures to contain it.
► However, the fact that there is a chance for failure is
a big disadvantage for mission-critical services.
► 3. Scalability Limitation
► As a single server is used in most cases, it leads to
scalability limitations
Cont..
► Highly dependent on the network connectivity – The
system can fail if the nodes lose connectivity as there is
only one central node.
► No graceful degradation of the system – abrupt failure of
the entire system
► Less possibility of data backup. If the server node fails
and there is no backup, you lose the data straight away
► Difficult server maintenance – There is only one server
node and due to availability reasons, it is inefficient and
unprofessional to take the server down for maintenance.
So, updates have to be done on-the-fly(hot updates) which
is difficult and the system could break.
Decentralized Systems
► A decentralized system is an interconnected information
system where no single entity is the sole authority.
► In the context of computing and information technology,
decentralized systems usually take the form
of networked computers.
► Decentralization is known as the distribution of functions
among several units.
► It is an interconnected system where no single entity has
complete authority.
► It is the architecture in which the workloads, both hardware,
and software, are distributed among several workstations.
► The functions are distributed among several machines in a
decentralized system instead of relying on a single server.
They have multiple central owners.
► The owners can store the resources so that each user can
have access.
► The system can be imagined in a graphical manner.
Cont..
► Each user’s machine can be visualized as nodes that are
connected to one another.
► Each node has a copy of another node’s data and the
multiple owners have copies of all the nodes as well so as
to reduce the access time.
► So whenever an update or change is made in a node’s
data, the changes are reflected in the copies as well.
► Let us illustrate with the help of examples: Bitcoin is the
latest technology and a prime example of a decentralized
system.
► It is a blockchain where no central authority exists.
► Anyone and everyone can become a part of the network
get involved in transactions and take part in voting.
► The decision is taken on the majority of votes. Dogecoin
is a cryptocurrency that is decentralized and peer-to-peer
that allows us to do transactions.
Cont..
► Importance of Decentralization
► Decentralization is very important because of the
following reasons:
► Optimization of Resources: Each user does not have to
have all resources. The decentralized setup allows the
user to share his burden with others at a lower level.
► Greater output: Since all users have the same authority,
therefore each and every user work with greater
efficiency so as to enhance the maximum productivity.
► Flexibility: Users can share their own views as there are
no restrictions imposed by any central authority. They
also have the flexibility to change their decisions.
Advantages of Decentralization
► Benefits of Decentralization
► The main benefit is if some nodes fail or the main node
fails, the whole system doesn’t crash.
► The decision-making process is done on the basis of
voting.
► They are usually open development platforms and there is
less censorship.
► More machines can be added to the network.
Cont..
► 1. Full Control
► One of the most significant advantages of decentralization
is that the users are in full control of their transactions.
► This means that they can start a transaction when they
want without the need to authorize it from a centralized
authority.
► In simple terms that the verification process is not
dependent on third-parties and a decentralized network
utilizes consensus methods to verify the information.
Cont..
► 2. Data cannot be altered or deleted
► Blockchain technology’s data structure is append-only.
This means that there is no chance for anyone to modify
or alter the data once it is stored.
► There is another blockchain technology that utilizes
different data models such as Corda, but they also follow
the immutability property.
► 3. Secure
► Decentralized networks are secure because of how they
handle data and transactions.
► They use cryptography to ensure that the data ledgers are
secure.
► Also, the data in the current block require data from the
adjacent block so that it can use cryptography to validate
the data.
Cont..
► 4. Censorship
► Decentralization also means less censorship.
► In a centralized system, there are more chances that
information can be censored.
► However, the decentralized network is less prone to
censorship, as there is no central authority that controls
the data.
► Let’s take an example to understand the scenario.
► Twitter, for example, is known to censor accounts as it
finds some offensive posts or does it when the
government tries to censor accounts if it goes against their
agenda.
► In the case of decentralization, peers can interact directly,
and hence there is no or less censorship.
Cont..
► 5. Open development
► Decentralized networks mostly support open
development.
► This is because of its nature and how it operates.
► By having an open development environment, the
network gets amazing services, tools, and products built
on top of it.
► Linux, for example, is open-source and has an ecosystem
that enables anyone to improve on it.
► The same is true for decentralized networks. In
comparison, a centralized network or closed solutions do
not get the chance to have open development.
► This limits development to a great extent.
Distributed Systems
► Distributed System is a collection of autonomous
computer systems that are physically separated but are
connected by a centralized computer network that is
equipped with distributed system software.
► The autonomous computers will communicate among
each system by sharing resources and files and
performing the tasks assigned to them.
► A distributed system is a computing environment in
which various components are spread across multiple
computers (or other computing devices) on a network.
► These devices split up the work, coordinating their efforts
to complete the job more efficiently than if a single
device had been responsible for the task.
Cont..
► In distributed system computation and data are spread
across multiple nodes in the network.
Layers of Blockchain
Application Layer
► The application layer is the one where a user can code the
desired functionality and build the application for user of
the application.
► Since the blockchain is a decentralized technology and
there is no server involved, the application needs to be
installed on each node.
► Although there are some instances where blockchain is in
the backend and the applications need to be hosted on a
web server and needs a server-side programming, but it
would be good if there were no server involved in the
blockchain network as it would defeat the purpose and
benefit of blockchain technology.
Execution Layer
► This layer handles the executions of all the instruction
that were performed at the application layer for all the
nodes present on the blockchain network.
► The set of instruction could range from simple ones to
multiple instructions.
► For example, smart contract is also small code that needs
to be executed when some funds need to be transferred
form one person to another person.
► Now if one application is present on all the nodes of the
blockchain network the code has to be executed
independently on all the nodes.
► In order to avoid the inconsistencies in the output, the
execution of code on a set of input should always produce
the same output for all the nodes present on the
blockchain.
Semantic Layer
► This layer also called as logical layer of blockchain layer
suit.
► This layer deals in validation of the transactions
performed in the blockchain network and also validating
the blocks being generated in the network.
► When a transaction comes up from a node, the set of
instruction are executed on the execution layer and gets
validated on the semantic layer.
► Semantic layer is also responsible for the linking of the
blocks created in the network.
► As we already know each block in the blockchain
contains the hash of the previous block except the Genesis
block.
► This linking of block needs to be defined on this layer.
Propagation Layer
► A propagation layer deals with the peer-to-peer
communications between the nodes that allow them to
discover each other and get synced with another node in a
network.
► When a transaction is carried out, it gets broadcasted to
all other nodes in the network.
► Also, when a node proposes a block, it will immediately
get broadcast in the entire network so that other nodes can
use this newly created block and work upon it.
► Hence, the propagation of the block or a transaction in the
network is defined in this layer and ensures the stability
of the complete network.
► However, depending upon the network capacity or
network bandwidth sometimes the propagation could
occur instantly sometimes it may take a longer.
Consensus Layer
► This layer is the base layer for most of the blockchain
systems.
► This main purpose of this layer is to make sure that all the
nodes must get agree on a common state of the shared
ledger.
► The layer also deals with the safety and security of the
blockchain.
► There are many consensus algorithms which can be
applied for generation of cryptocurrencies like Bitcoin
and Ethereum, they uses proof-of-work mechanism to
select a node randomly out of various nodes present on
the network that can propose a new block.
► Once a new block is created, the block is propagated to all
the other nodes to check if the new block is valid or not
with the transactions in it and based on the consensus
from all other nodes the new block gets added on to the
blockchain.
Actors in the Blockchain
► Blockchain is a booming technology that is used as
distributed ledgers for cryptocurrency.
► Blockchain is a ledger that continuously grows by
keeping a record of all the transactions in order, secure,
and in an immutable way.
► Each transaction is treated as a block that is connected to
a previous transaction block and so on.
► There are some actors which are involved to develop a
blockchain solution, they are classified into 8 types –
Cont..
► Blockchain Architect
► Regulator
► Blockchain User
► Membership services
► Traditional Data Sources
► Traditional Processing Platforms
► Blockchain Network Operator
► Blockchain Developer
Cont..
► Blockchain Architect
► Responsible for architecture and design of the blockchain.
► Blockchain Architect is the one who is going to design,
how the blockchain solution is going to be built.
► He will figure out what is some information that needs to
get stored, what are the transactions and the business
logic that needs to be embedded onto the network, and so
on.
► Blockchain Developer –
► The developer of applications and smart contracts that
interact with the blockchain and are used by the
blockchain users.
► The blockchain developer is the one who is going to take
what has been an architect and then develop the actual
code that will run on the blockchain network itself.
Cont..
► Blockchain Network Operator –
► Manages and monitors the blockchain network.
► Each sub-work or the business in the network has a
blockchain network operator.
► He also runs the blockchain network.
► Traditional Processing Platforms –
► An existing computer system may be used by the
blockchain to augment processing.
► The system may also need to initiate the request to the
blockchain.
► Other systems send or get information that is required to
build a blockchain solution.
Cont..
► Traditional Data Sources –
► An existing computer system may provide data to
influence the behavior of the smart contract. They are also
part of the overall solution to store external data.
► Membership Services –
► It manages different types of certificates, which are
required to run a permission blockchain.
► Membership services provide the identity for users to
come and transact on the blockchain.
► For example, if you open an account with the bank, they
give you a username and password, a kind of login to
access web services, Membership services is going to do
more than that not only username and password but also
give a digital certificate that will allow you to transact on
the network.
Cont..
► Blockchain User –
► The business user, operating in a business network.
► User experiences the application of that blockchain
solution.
► They are not aware of blockchain.
► Blockchain user is the one who is going to perform the
business transactions on the blockchain,
► So, these users could belong to multiple organizations
that are participating in that blockchain.
Cont..
► Blockchain Regulator –
► The overall authority is a business network.
► Specifically, regulators are required to read the ledger’s
content broadly.
► The Blockchain regulator is an optional one, they might
have only, read-only access onto the network where they
see the transactions being performed are legitimate or not,
following policies or not, etc.
Blockchain Adoptation so far
► In addition to its financial benefits, blockchain technology
also offers organizations a secure, accurate way of
maintaining records.
► Once an item has been added to the ledger, it cannot be
changed. This makes it more reliable than internal
databases and spreadsheets.
► A blockchain is an open ledger that allows transactions
between two parties without the need for a third party.
► Due to this fundamental characteristic, blockchain
technology has potential use cases across multiple
industries.
Blockchain Adoptation so far
► Automotive (222 KB)
► Banking and financial services.
► Government.
► Healthcare and life sciences.
► Insurance.
► Media and entertainment.
► Retail and consumer goods.
► Telecommunications.
► Travel and Transportation
► Supply Chain
► Oil and Gas
► Manufacturing