FOUNDATIONS OF

BLOCKCHAIN TECHNOLOGY
BCSE324L
Foundations of Blockchain
 Blockchain Architecture
• Blockchain technology is a decentralized distributed ledger with a chain of blocks.
• Emerged as a revolutionary tool for storing and exchanging digital information.
• Strength lies in its decentralized nature, which eliminates the need for a central authority
• Ensures the integrity and immutability of data through cryptography and consensus mechanisms.
• It is a continuously growing list of records, called blocks, linked together using cryptography to
form a chain.
• Each block in a chain contains a batch of verified transactions added to the blockchain in
sequential order, creating a permanent and transparent record of all transactions on the network.
 Blockchain Architecture
Characteristics of Blockchain
• A blockchain is a decentralized structure with built-in security features that enhance the trust and
integrity of transactions. The key features associated with blockchain technology are:
• Decentralization: Unlike centralized systems, which can have a single point of failure and
scalability issues, blockchain uses a decentralized, distributed ledger. This ledger leverages the
processing power of all participating users in the network, reducing latency and eliminating single
points of failure.
• Immutability: Ensure transaction integrity by creating immutable records. In traditional
centralized models, databases can be altered, requiring trust in a third party to guarantee data
integrity. Blockchain links each block in the distributed ledger to the previous one, forming a
chain that is preserved and unchangeable as long as the network is maintained by its participants.
• Transparency: Blockchain offers a high level of transparency by sharing transaction details among
all users involved in those transactions. This transparency eliminates the need for third-party
involvement, improving business processes and ensuring a trusted workflow.
 Blockchain Architecture
• Security: Blockchain offers enhanced security
by using a public key system that protects
against malicious attempts to alter data.
Participants in the blockchain network trust the
integrity and security features of the consensus
mechanism, and the absence of a single point of
failure further strengthens the system's overall
security.
• Efficiency: Blockchain improves upon
traditional centralized models by distributing
database records among multiple users in the
network. This distribution makes it easier to
verify all records stored in the database.
Compared to centralized systems, blockchain is
more efficient in terms of cost, settlement
speed, and risk management.
 Blockchain Architecture
Features of blockchain
Header
• A block’s header in a blockchain contains necessary metadata about the block, including its version,
timestamp, and the Merkle Root of all the transactions in the block.
• Nodes use this header to verify the block’s authenticity and contents, ensuring that the data stored on
the blockchain is accurate and authentic.
Previous Block Address/Hash
• Each block includes a reference to the previous block in the chain through the hash function.
• Creates an unbreakable link between the blocks in the chain, making it impossible to tamper with any
block without changing the hash of every subsequent block.
• Providing a secure and transparent record of all transactions on the network.
Timestamp
• The timestamp in a block’s header provides an accurate and immutable record of when a transaction
occurred, making it easy to verify the order of transactions and prevent double spending fraud.
 Blockchain Architecture
Nonce
• The nonce is a randomly generated number used in the mining process, which is the process by which
new blocks get added to a proof-of-work blockchain.
• By finding a nonce that results in a valid hash for a new block, miners can add new blocks to the
blockchain and gain rewards in cryptocurrency.
• Using a nonce ensures that the mining process is fair and transparent and that no single entity can
control the process.
Merkel Root
• The Merkel Root is a hash of all the transactions within a block, which is included in the block’s header.
• This hash provides a compact and secure way to verify the contents of the block, making it easy to
ensure the authenticity and accuracy of all transactions on the network.
• Allows for efficient verification of many transactions, making the blockchain scalable and capable of
handling large volumes of data.
Blockchain Architecture
 Blockchain Architecture
Core Components of Blockchain Architecture
• Node - user or computer within the blockchain architecture (each has an independent copy of the
whole blockchain ledger)
• Transaction - smallest building block of a blockchain system (records, information, etc.) that serves
as the purpose of blockchain
• Block - a data structure used for keeping a set of transactions which is distributed to all nodes in the
network
• Chain - a sequence of blocks in a specific order
• Miners - specific nodes which perform the block verification process before adding anything to the
blockchain structure
• Consensus (consensus protocol) - a set of rules and arrangements to carry out blockchain operations
• Any new record or transaction within the blockchain implies the building of a new block. Each record is
then proven and digitally signed to ensure its genuineness. Before this block is added to the network, it
should be verified by the majority of nodes in the system.
 Blockchain Architecture
How Blockchain Works?

1. Transaction is Initiated.
2. The Transaction is placed in a Block.
3. The block of a transaction is sent to every node in the network.
4. Miners validate the transaction using consensus mechanism Proof of Work
5. Miners who successfully crack the puzzle in “Proof of Work” will receive the reward.
6. The Block is now successfully placed on the existing Blockchain.
7. The transaction is Successfully Completed.
 Blockchain Architecture
Layered Structure Of Blockchain Architecture
 Types of Blockchain Architecture
1. Public Blockchain
• Public blockchains are where cryptocurrencies like Bitcoin first emerged, popularizing distributed ledger
technology (DLT). Unlike traditional systems that store information in one central place, DLT distributes
data across a peer-to-peer network, enhancing security and transparency.
• Since there is no central authority, public blockchains use a consensus algorithm to verify and agree on
data authenticity. Common methods include Proof of Work (PoW) and Proof of Stake (PoS).
Key Features
• Open Access: Anyone with internet access can join a public blockchain, becoming an authorized node to
view, verify, or mine transactions.
• Transparency: The network's code is usually open-source, allowing anyone to audit transactions, detect
bugs, or suggest improvements.
• Immutability: Once added to the ledger, transactions cannot be altered.
Advantages
• Independence: Public blockchains operate independently of any single organization, continuing to
function as long as there are participating computers.
• Security: When users follow proper security protocols, public blockchains are generally secure due to their
transparency and decentralized nature.
 Types of Blockchain Architecture
Disadvantages
• Speed: The network can be slow, especially as more nodes join.
• Vulnerability: If a hacker gains control of 51% or more of the network’s computing power, they could
alter the blockchain.
• Scalability: Public blockchains struggle to scale efficiently.
Use Cases
• Public blockchains are ideal for applications requiring transparency and security, such as
cryptocurrency transactions, electronic notarization, and public records of property ownership.
• Private businesses may avoid public blockchains due to the openness of the network.
2. Private Blockchain
• Private blockchains operate in a closed environment, typically controlled by a single entity. While they
use peer-to-peer connections and decentralization similar to public blockchains, their scale is much
smaller and more controlled. Only authorized participants can join and contribute computing power.
Key Features
• Controlled Access: The controlling organization determines who can view, add, or change data.
• Permissioned: Known as permissioned or enterprise blockchains because they restrict participation.
 Types of Blockchain Architecture
Advantages
• Customization: Organizations can tailor permission levels, security settings, and accessibility.
• Speed: Private blockchains can process transactions faster due to fewer nodes.
Disadvantages
• Centralization: Critics argue that private blockchains aren’t truly decentralized, as a central authority
controls the network.
• Security Risks: Fewer nodes mean the network could be compromised if some go rogue.
• Transparency: Often proprietary, limiting the ability to independently verify the network’s security.
Use Cases
• Private blockchains are suitable for organizations that require secure, private, and fast transactions,
such as in supply chain management, trade secret protection, and internal audits.
3. Hybrid Blockchain
• Hybrid blockchains combine elements of both private and public blockchains.
• Allows organizations to control who can access certain data while keeping other data open to the
public.
 Types of Blockchain Architecture
• Transactions are usually private but can be verified when necessary, using mechanisms like smart
contracts.
Key Features
• Controlled Transparency: Sensitive data remains private but can be verified if needed.
• User Privacy: Users’ identities are protected unless they engage in a transaction.
Advantages
• Security: The closed ecosystem makes it harder for external hackers to compromise the network.
• Flexibility: Offer a balance of privacy and transparency, with fast and cost-effective transactions.
Disadvantages
• Limited Transparency: Some information may be hidden, reducing overall transparency.
• Complex Upgrades: Upgrading the network can be challenging, and there is little incentive for users to
contribute.
Use Cases
• Hybrid blockchains are ideal for sectors like real estate, retail, financial services, and healthcare, where
privacy is crucial, but certain information still needs to be shared.
 Types of Blockchain Architecture
4. Consortium Blockchain
• Consortium blockchains, also known as federated blockchains, are similar to hybrid blockchains but
involve multiple organizations working together on a decentralized network.
• These networks are private but governed by a group rather than a single entity.
Key Features
• Collaborative Control: Multiple organizations share control, reducing the risk of a single point of failure.
• Validator Nodes: Transactions are validated by predetermined nodes within the consortium.
Advantages
• Security and Efficiency: Offer greater security, scalability, and efficiency compared to public blockchains.
• Access Controls: Similar to private blockchains, they offer strict access controls.
Disadvantages
• Transparency: Like private blockchains, they are less transparent.
• Compromise Risk: The network can be compromised if a member node is breached.
Use Cases
• Consortium blockchains are commonly used in banking, payments, supply chain management, and
research organizations.
 Types of Blockchain Architecture
Permissionless Blockchain
• Also known as trustless or public blockchains, permissionless blockchains are open to anyone who wants to
participate. These networks are typically used when high transparency is needed.
Key Features
• No Central Authority: The network is completely
decentralized and open-source.
• Transparency: Transactions are fully transparent
and visible to all participants.
• Token Usage: Tokens are heavily used within the network.
Advantages
• Open Participation: Anyone with internet access
and suitable hardware can join.
• Trust: The high level of transparency builds trust
among users.
Disadvantages:
• Energy Inefficiency: Large networks consume a lot of energy.
• Scalability Issues: As the network grows, performance can degrade.
• Limited Privacy: Many details are visible to all participants.
 Types of Blockchain Architecture
Permissioned Blockchain
• Permissioned blockchains are closed networks where only a select group of participants can validate
transactions. These blockchains are used when high privacy and security are necessary.
Key Features
• Controlled Transparency: Transparency levels are set by the organization based on its objectives.
• Limited Participation: Only authorized users can participate, and there is no central authority.
• Private Development: Typically developed by a private entity.
Advantages
• Speed: Fewer nodes mean faster transaction processing.
• Customizability: Organizations can tailor the network to their needs.
• Strong Privacy: Permission is required to access transaction information.
Disadvantages
• Centralization: The need for permission means the network is not fully decentralized.
• Corruption Risk: With fewer participants, there’s a higher risk of corruption.
• Rule Changes: The owner or operator can change the network rules at any time.
 Challenges of Blockchain Technology
1. Scalability: Managing a large number of users simultaneously remains a challenge for the blockchain industry.
Blockchain technology relies on complex algorithms to process each transaction, which can slow down
processing speeds when many users are active.
2. Hackers and Shadow Dealing: Lack of regulatory oversight, making it vulnerable to market manipulation.
Example is the OneCoin scam, which tricked investors into thinking they were buying the next big digital
currency, only to be revealed as a Ponzi scheme. Even if you understand cryptocurrency well, there's always a
risk that your online wallet could be hacked or blocked by the government due to suspicious activities.
3. Complexity in Understanding and Adoption: Blockchain technology is complicated, making it difficult for the
average person to understand and appreciate its benefits.
4. Privacy Concerns: Blockchain operates as an open ledger, meaning anyone can view the transactions. While
transparency is valuable in many situations, it becomes a liability in sensitive environments. For blockchain to
be widely adopted, the technology needs to evolve to allow restricted access, ensuring that only authorized
individuals can view certain information.
5. Costs: Blockchain is often touted as a way to eliminate the costs associated with third parties in value transfers.
However, because blockchain technology is still in its early stages, integrating it with existing systems is
challenging and expensive. These costs deter both governments and private firms from adopting blockchain on
a larger scale.
Applications of Blockchain Technology
 Blockchain Design Principles
Principle 1: Decentralization
• allows for transactions without relying on a third party to verify them
• beneficial for businesses that may lack the resources to handle transactions independently
• by separating the network from the miners, blockchain creates a more democratized system, making it
less susceptible to centralized control and enabling a fairer distribution of wealth
• decentralization also enhances the system’s resilience against attacks and improves privacy by giving
users greater control over their data.
Principle 2: Immutability
• all data and transactions recorded on the blockchain are permanent and cannot be altered
• ensures that information remains accurate and secure, preventing fraudulent activities
• once a transaction is added to the blockchain, it cannot be changed or tampered with, thereby
upholding the integrity and security of the entire system.
• helps to reduce transaction costs, as it eliminates the need for third-party verification or reconciliation
• immutability of blockchain fosters greater trust, transparency, and reduced costs in transactions.
Principle 3: Transparency
• allows all users to view transaction details, enhancing the trustworthiness and clarity of the process.
 Blockchain Design Principles
• For instance, if you’re a business owner selling products online, you can use blockchain to upload
detailed product information, such as ingredients or the manufacturing process, directly to the network.
• Customers can then access this information, building trust and increasing engagement with business.
• This level of transparency can strengthen the relationship between businesses and their customers and
promote higher levels of customer satisfaction.
Principle 4: Security
• Security is one of the foremost benefits of blockchain technology.
• By making all transactions visible on a public ledger, blockchain ensures that every action is traceable
and transparent, enhancing the security of the entire system.
• A blockchain database is stored across the network and accessed using distributed ledger technology,
meaning every node has access to the same information.
• When you make a transaction, a new block is created and added to the ledger.
• Miners then verify the block by ensuring it meets certain conditions.
• Once verified, the block is permanently recorded on the chain, accessible to all.
• This process ensures that only authorized parties can complete transactions, making it nearly
impossible for anyone to tamper with or falsify data on the blockchain.
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 Blockchain Design Principles
Principle 5: Scalability
• Scalability refers to the ability of a blockchain system to handle a growing number of transactions
without becoming overly complex or slow. Three main factors affect scalability: execution, storage, and
consensus.
• Execution: How quickly transactions are processed, influenced by factors like the number of
nodes, their processing power, and available bandwidth.
• Storage: The amount of data that can be stored, which depends on the size of blocks and how
frequently they are generated.
• Consensus: The process by which all nodes agree on which transactions are valid, often achieved
through voting or proof-of-work algorithms.
• Blockchain’s scalability allows it to handle many more transactions than traditional systems, making it a
significant advantage for widespread adoption.
Principle 6: Privacy
• Privacy in blockchain ensures that data and transactions on the network are transparent yet secure,
providing users with a high degree of trust. Since all information is accessible to everyone, it cannot be
easily misrepresented, and accountability is enhanced.
 Blockchain Design Principles
• However, privacy is not absolute, as all blockchain data may eventually become publicly accessible.
• To protect privacy, strong cryptography and reliable network nodes are crucial.
• Additionally, private blockchain networks can offer more controlled access than public ones, further
safeguarding sensitive information.
Principle 7: Flexibility
• The inherent flexibility of blockchain technology offers several benefits. It allows transactions to be
completed quickly and accurately, which is especially important for future system expansion.
• By maintaining a streamlined and manageable network, blockchain minimizes complexity, facilitating
growth without placing extra demands on users or developers.
Blockchain Ecosystem
 Blockchain Consensus Algorithms
• Blockchain technology offering a decentralized
and secure way to store and transfer information.
• Consensus algorithms are a set of rules or
protocols that enable nodes in a blockchain
network to agree on a shared state of the network.
• Used to ensure that all nodes in the network come
to a consensus on the validity of transactions and
the order in which they are added to the
blockchain.
• A consensus algorithm is responsible for
maintaining the integrity of the blockchain by
ensuring that no single node or group of nodes
can manipulate the network.
 Blockchain Consensus Algorithms
• Consensus algorithms are critical in blockchain technology for several reasons.
• Provide security
• by preventing malicious actors from taking control of the network
• ensuring valid transactions and smooth network operation.
• Help achieve decentralization
• by ensuring all nodes come to a consensus on transaction validity
• preventing centralization.
• Promote transparency
• by making all transactions visible on the blockchain
• making it easy to track and prevent fraudulent activities.
• Improve efficiency
• by allowing nodes to quickly agree on transaction validity and add new blocks to the
blockchain in a timely manner.
 Types of Consensus Algorithms
Proof of Work (PoW)
• Proof of Work is a consensus algorithm used in many blockchain networks to validate transactions and
add new blocks to the chain.
• PoW was first introduced by Bitcoin’s creator, Satoshi Nakamoto, as a way to secure the network and
prevent double-spending.
• The PoW algorithm requires miners to solve complex mathematical problems, known as hashes.
• Hash function used in PoW algorithms is designed to be computationally difficult to solve, it requires a
significant amount of computational power to solve the problem and add a block to the chain.
• Miners compete with each other to solve the problem, and the first one to solve it is rewarded with
newly minted cryptocurrency.
• This algorithm’s security comes from the fact that it is difficult to solve the hash problem, which means
that it is expensive for an attacker to try to take over the network.
• The attacker would need to have control over a significant portion of the network’s computational
power, known as the hash rate, in order to launch an attack.
• This is known as a 51% attack, and it is difficult to pull off because it would require a massive amount
of resources.
 Types of Consensus Algorithms
Proof of Stake (PoS)
• Unlike PoW, which requires miners to solve complex mathematical problems, PoS relies on validators
who hold a certain amount of cryptocurrency to validate transactions and add new blocks to the chain.
• In a PoS network, validators are chosen to add new blocks to the chain based on the amount of
cryptocurrency they hold, which is known as their stake.
• The larger the stake, the greater the chance of being selected to add a block to the chain.
• Validators are incentivized to act honestly because they risk losing their stake if they validate
fraudulent transactions or try to attack the network.
Advantages
• Less energy-intensive: PoW requires miners to use significant amounts of computational power to solve
complex mathematical problems, while PoS only requires validators to hold cryptocurrency. This
makes PoS more environmentally friendly and less costly to operate.
• Promotes decentralization: In a PoW network, miners with the largest hash rate have more control
over the network, which can lead to centralization. In a PoS network, validators with the largest stake
have more control, but it is difficult for a single/group of validators to gain control of the network
because they would need to control a significant amount of cryptocurrency.
 Types of Consensus Algorithms
Disadvantages
• Rich-get-richer: Validators with the largest stake continue to earn more cryptocurrency, making it
more difficult for smaller validators to participate in the network.
• Solution: Random selection of validators or limiting the amount of cryptocurrency that a single
validator can hold.
 Types of Consensus Algorithms
Delegated Proof of Stake (DPoS)
• DPoS is a variation of Proof of Stake (PoS) that relies on a smaller group of validators, known as delegates or
witnesses, to validate transactions and add new blocks to the chain.
• In a DPoS network, token holders vote for delegates to represent them in the validation process.
• The delegates are incentivized to act honestly because they risk losing their position and rewards if they
validate fraudulent transactions or try to attack the network.
Advantages
• Efficient: PoS requires all validators to participate in the validation process, which can lead to inefficiencies if
some validators are not online or not actively participating. In DPoS, only the elected delegates participate in
the validation process, which makes it faster and more efficient.
• Promotes decentralization: In a PoS network, validators with the largest stake have more control over the
network, which can lead to centralization. In a DPoS network, token holders have a say in who gets to be a
delegate, which can lead to a more decentralized network.
Disadvantages
• It can lead to a concentration of power in the hands of a small group of delegates. If a small group of delegates
controls a significant amount of voting power, they could potentially collude to manipulate the network.
• Solution: Limiting the number of delegates that any one entity can control.
 Types of Consensus Algorithms
Leased Proof of Stake (LPoS)
• LPoS is a variation of Proof of Stake (PoS) that allows smaller token holders to participate in the
validation process by leasing their tokens to larger validators.
• In a LPoS network, token holders lease their tokens to a validator, who uses those tokens to increase
their stake and improve their chances of being selected to validate transactions and add new blocks to
the chain.
• The token holder retains ownership of their tokens and receives a share of the rewards earned by the
validator in proportion to the amount of tokens they leased.
Advantages
• Allows smaller token holders to participate in the validation process and earn rewards without having
to hold a significant amount of tokens. This promotes decentralization and allows for a more diverse
group of participants in the network.
• Increase the security: By allowing more token holders to participate in the validation process, LPoS can
make it more difficult for a single validator or group of validators to gain control of the network and
manipulate transactions.
 Types of Consensus Algorithms
Disdvantages
• More complex than other consensus algorithms. Token holders must understand the risks and rewards
of leasing their tokens to a validator, and validators must manage the tokens they have leased in a
responsible manner.
 Types of Consensus Algorithms
Proof of Authority (PoA)
• Unlike other consensus algorithms such as PoW and PoS, PoA relies on a group of trusted validators
instead of a decentralized network of nodes.
• In a PoA network, a group of validators is designated as authoritative and responsible for validating
transactions and adding new blocks to the chain.
• Validators are typically selected based on their reputation and expertise, and they are incentivized to
act honestly because their reputation is on the line.
Advantages
• It is more efficient than other consensus algorithms.
• PoW requires a significant amount of computational power to validate transactions, which can be
costly and time-consuming. PoS requires a significant amount of stake to participate in the validation
process, which can lead to centralization. PoA relies on a smaller group of trusted validators, which
makes it faster and more efficient.
• More suitable for private or enterprise blockchain networks. In these networks, it may not be feasible
or desirable to have a decentralized network of nodes validating transactions. PoA allows for a more
controlled and centralized approach to validation, which may be more appropriate in these contexts.
 Types of Consensus Algorithms
Disadvantages
• It is less secure than other consensus algorithms.
• Because PoA relies on a smaller group of validators, the network is more vulnerable to attacks if one or
more validators are compromised or act maliciously.
• Some PoA networks have implemented mechanisms to address this issue, such as requiring multiple
validators to sign off on transactions.
 Types of Consensus Algorithms
Byzantine Fault Tolerance (BFT)
• In general, it is the System’s ability to function correctly and reach consensus even if some of its
components fail or behave maliciously.
• In the context of blockchain technology, BFT is a consensus algorithm that enables a distributed
network of nodes to reach an agreement on the validity of transactions and maintain the integrity of
the blockchain even in the face of malicious attacks or system failures.
• BFT is designed to prevent the “Byzantine Generals’ Problem,”: a scenario in which a group of
generals must coordinate an attack on a city, but some of the generals are traitors who may send false
information to others.
 Types of Consensus Algorithms
• In a blockchain network, the Byzantine Generals’ Problem can manifest as nodes on the network that
behave maliciously or fail to communicate correctly.
• BFT addresses this problem by requiring a certain percentage of nodes to agree on the validity of
transactions before they are added to the blockchain.
• In a traditional BFT algorithm, this percentage is set at two-thirds of the total number of nodes. If two-
thirds of the nodes agree on the validity of a transaction, then it is added to the blockchain. If less than
two-thirds of the nodes agree, then the transaction is rejected.
Advantages
• It does not require a significant amount of computational power or stake to participate in the
validation process, it relies on a smaller group of nodes to reach agreement on the validity of
transactions, which makes it more efficient and faster than other consensus algorithms.
Disadvantages
• It requires a higher level of trust in the network participants.
• If a significant percentage of nodes behave maliciously or fail to communicate correctly, then the
network may not be able to reach a consensus and maintain the integrity of the blockchain.
• BFT is often used in private or enterprise blockchain networks where participants are known and
trusted.
 Types of Consensus Algorithms
Practical Byzantine Fault Tolerance (PBFT)
• Extends the BFT algorithm to provide a high level of fault tolerance in distributed systems.
• PBFT is commonly used in enterprise blockchain networks and other distributed systems where a high
level of consensus is required.
• PBFT works by breaking down the consensus process into a series of steps that are repeated for each
transaction. Each step involves a different node in the network, and each node is responsible for
verifying the validity of the transaction before passing it on to the next node.
• The PBFT algorithm requires a certain number of nodes to reach a consensus on the validity of a
transaction before it can be added to the blockchain.
• This number is determined by the formula f = (n-1)/3, where f is the maximum number of faulty nodes
that the system can tolerate, and n is the total number of nodes in the network.
• PBFT is designed to be fault-tolerant, meaning that it can continue to function correctly even if some
nodes in the network fail or behave maliciously.
• If a node fails or behaves maliciously, the other nodes can detect the problem and exclude the node
from the consensus process.
 Types of Consensus Algorithms
Advantages
• It can achieve high throughput and low latency, even in networks with a large number of nodes.
• PBFT is also known for its high level of security, as it can tolerate up to f faulty nodes without
compromising the integrity of the blockchain.
Disadvantages
• It requires a certain number of nodes to reach consensus, which means that it may not be suitable for
small networks.
• PBFT also requires a higher level of computational power than some other consensus algorithms,
which can make it less energy-efficient.
 Types of Consensus Algorithms
Delegated Byzantine Fault Tolerance (dBFT)
• Combines the advantages of both BFT and DPoS algorithms.
• dBFT is commonly used in blockchain networks that require a high level of consensus and throughput.
• Like BFT and PBFT, dBFT is designed to be fault-tolerant.
• In dBFT, consensus is reached through a process of voting, where each node in the network can vote on
the validity of a transaction.
• dBFT uses a delegated model where network participants delegate their voting power to a smaller
number of trusted nodes, known as validators.
• Validators are responsible for verifying transactions and reaching a consensus on the validity of
transactions.
• dBFT is based on a round-robin system where validators take turns validating transactions.
• Validators are selected based on their reputation and stake in the network.
Advantages
• It can achieve high throughput and low latency, as only a small number of validators are required to
reach a consensus, also reduces the risk of centralization, as validators are selected based on their
reputation and stake, rather than their computational power.
 Types of Consensus Algorithms
Disadvantages
• It requires a high level of trust in the selected validators, which can lead to potential vulnerabilities if a
large number of validators are controlled by a single entity.
• dBFT is also not suitable for all types of blockchain networks, as it may not be necessary to have such a
high level of consensus for some use cases.
 Types of Consensus Algorithms
Directed Acyclic Graph (DAG)
• This type of data structure is often used in distributed ledger technology and blockchain systems.
• Unlike traditional blockchain architectures, which organize data in a linear, chronological sequence of
blocks, DAGs allow for a more flexible and efficient way to store and validate data.
• Each vertex represents a transaction and each edge represents a relationship between transactions.
• In a DAG, transactions are organized in a more complex structure where each transaction is linked to
multiple other transactions.
 Types of Consensus Algorithms
Advantages
• They can achieve high scalability and transaction throughput.
• Transactions can be processed concurrently, as long as there are no conflicts between them.
• Multiple transactions can be validated at the same time, improving the overall efficiency of the
system.
• Ability to handle forks in the network.
• In a traditional blockchain, when two blocks are created at the same time, only one of them can
be accepted into the chain, lead to a situation where a block that was previously considered valid
is suddenly rejected, leading to a fork in the chain.
•In a DAG-based system, forks are resolved automatically, as transactions are validated based on
their relationship to other transactions in the graph.
Disadvantages
• Need for a complex consensus mechanism that can determine the order of transactions in the graph.
• DAGs may not be suitable for all types of blockchain applications, as they may require a more
complex architecture than traditional blockchain systems.
 Types of Consensus Algorithms
Proof of Capacity (PoC)
• PoC is similar to Proof of Work (PoW) in that it requires participants to solve a computational puzzle
to add new blocks to the blockchain, but it differs in how it utilizes computer storage rather than
computational power.
• In a PoC system, participants allocate a portion of their computer’s hard drive space to serve as a plot,
which is essentially a pre-computed segment of data that can be used to generate a solution to the
computational puzzle.
• When a new block needs to be added to the blockchain, the participant’s plot is searched to find a
solution to the puzzle. The first participant to find a valid solution can add the new block to the
blockchain and receive a reward in the form of cryptocurrency.
Disadvantages: Vulnerable to pre-computation and Sybil attacks.
• Pre-computation attack: an attacker could pre-compute a large number of plots and then use them to
quickly solve the computational puzzle and add new blocks to the blockchain, giving them an unfair
advantage over other participants.
• Sybil attack: an attacker could create multiple identities to increase their chances of finding a solution
to the puzzle.
 Types of Consensus Algorithms
Proof of Burn (PoB)
• PoB requires participants to burn, or destroy, cryptocurrency tokens to prove their commitment to the
network, and making a financial sacrifice.
• User must send a certain amount of cryptocurrency to an address where it will be permanently
destroyed - known as burning.
• Once it is burned, the user is given the right to add new blocks to the blockchain and receive rewards.
• Reduces the likelihood of malicious actors attempting to attack the network, as they would have to
burn a significant amount of cryptocurrency to do so.
Advantages:
• Help to reduce inflation, Since tokens are being destroyed rather than created, the overall supply of
tokens decreases, which can help stabilize the value of the cryptocurrency.
Disadvantages:
• Difficult to determine the value of the burned tokens, as they are permanently destroyed and cannot
be recovered.
• This can make it difficult to accurately measure the level of commitment and investment in the
network.
47
 Types of Consensus Algorithms
Proof of Identity (PoI)
• It is a consensus mechanism used to verify the identity of participants in the network.
• Promote trust, security, and authenticity in blockchain transactions.
• PoI works by requiring participants to provide a digital identity that is linked to a real-world identity
verification process, such as government-issued IDs, biometric data, or other forms of verifiable
identity credentials.
• It ensures that each participant is a real, identifiable individual, which can help prevent fraudulent or
malicious activity in the network.
Advantages:
• Help prevent Sybil attacks, where a single participant creates multiple identities in the network to
gain control or manipulate the system, ensures each participant is a unique and identifiable entity.
Disadvantages:
• Difficult to balance anonymity and privacy with identity verification.
• Some participants may not want to reveal their identities to maintain their privacy, while others may
not have access to the necessary identity verification tools.
• It is time-consuming and costly, which may discourage some participants from joining the network.
 Asynchronous Byzantine Agreement
• Asynchronous Byzantine Agreement is designed to achieve consensus among a group of nodes even
when the network communication is prone to unpredictable delays and message losses or other
asynchronous behaviors.
• It aims to allow loyal nodes to agree on a common decision and further ensuring the consensus reached
in a fault-tolerant manner.
• Asynchronous Byzantine Agreement protocol works in multiple rounds, allowing nodes to exchange
messages and progressively converge towards a shared decision.
• Asynchronous Byzantine Agreement protocol has the following steps
• Initialization
• Proposal & Broadcasting
• Message Exchange
• Update & Broadcasting
• Iteration
• Decision
 AAP protocol and its analysis
• Ensures reliable and consistent message delivery in asynchronous distributed systems, like blockchain
networks. Guarantees that all processes receive messages in the same order, even in the presence of
failures.
• Working Mechanism:
• Message Sending
• A node sends a message to a designated sequencer.
• Sequencing
• The sequencer assigns a unique sequence number to each message. It broadcasts the
message along with its sequence number to all nodes.
• Message Delivery
• Nodes deliver messages in sequence number order. If a node misses a message, it requests
retransmission from other nodes.
 ABSTRACT MODEL FOR BLOCKCHAIN
Abstract Interpretation
• Abstract Interpretation is a technique introduced by Cousot and Cousot in 1977 to create a reliable
estimate of how a program will behave during its execution.
• Used in various fields, such as security and database management, and in different programming
environments.
• The main concept involves taking the detailed behavior of a program and generalizing it by focusing
on key properties instead of specific values.
• Allows the program's operations to be simulated in a way that maintains accuracy.
• Both the detailed and generalized behaviors are often structured in a way that ranks them based on
how precise they are, with the highest level indicating a lack of information.
 ABSTRACT MODEL FOR BLOCKCHAIN
IBM Abstract Network model of Blockchain
• Blockchain network is a distributed, decentralized system that relies on the Internet as its backbone.
• The network is designed to balance communication among its nodes and uses specific protocols for
communication. This abstract model outlines the activities within the system layer.
 ABSTRACT MODEL FOR BLOCKCHAIN
Blockchain Application Model
• As blockchain technology continues to evolve and be explored for new and effective solutions, resource
efficiency, and system security, a generic abstract layer model can be defined.
• The Figure below provides a clear picture of the functional focus of each layer and the responsibilities
corresponding to that function. It is important to note that this classification is virtual and not physical.
 ABSTRACT MODEL FOR BLOCKCHAIN
GARAY model
 ABSTRACT MODEL FOR BLOCKCHAIN
GARAY model
 ABSTRACT MODEL FOR BLOCKCHAIN
GARAY model
 ABSTRACT MODEL FOR BLOCKCHAIN
GARAY model
ABSTRACT MODEL FOR BLOCKCHAIN
 ABSTRACT MODEL FOR BLOCKCHAIN
Hybrid Models (PoW + PoS)
• A hybrid PoW/PoS model combines Proof of Work (PoW) and Proof of Stake (PoS) as consensus
mechanisms within a blockchain network.
• Merge the security features of PoW with the governance and energy efficiency benefits of PoS.
• The goal of hybrid PoW/PoS systems is to harness the strengths of both approaches while
compensating for their weaknesses.
• Decreed is one of the few cryptocurrencies that effectively integrates both PoW and PoS, creating a
multifaceted consensus mechanism.
• "Masternode coins" are also considered hybrids, as they
• feature a PoW component similar to Bitcoin, along with an additional role for special nodes
(masternodes).
• these nodes are typically required to hold a certain amount of the cryptocurrency as collateral,
demonstrating their commitment to the network’s well-being—similar to Proof of Stake.
• Dash was the first masternode coin, referring to this model as Proof of Service.
 ABSTRACT MODEL FOR BLOCKCHAIN
Decred's Hybrid Model
• Decred’s PoW component functions like other PoW-based systems and uses the Blake-256 hash function.
• Decred’s PoS component and its integration into the blockchain are unique.
• To participate in Decred’s PoS system, holders must lock their DCR (Decred tokens) to buy "tickets.“
• The price of each ticket is determined by a market-like mechanism, with the system targeting a
specific number of live tickets (40,960).
• If there are more than the target number, the price goes up; if there are fewer, the price goes down.
• Once a ticket is purchased, the DCR used is locked and cannot be spent until the ticket is either
called to vote or expires after roughly 142 days.
• This creates an opportunity cost for PoS participants, ensuring that they have a vested interest in the
network's success.
• PoS participants, also known as voters or stakeholders, have three primary roles:
• Block Voting: Ensuring the validity of blocks created by PoW miners.
• Voting on Consensus Rule Changes: Deciding on changes to the network’s rules.
• Project-Level Governance: Using the Politeia Proposal System to vote on proposals related to the
project’s development and direction.
 ABSTRACT MODEL FOR BLOCKCHAIN
Deciding on Blocks
• When a PoW miner finds a valid block, they broadcast it to the network.
• For the block to be considered valid, it must include votes from at least 3/5 randomly selected tickets.
• PoS voters must keep their wallets open and ready to respond with votes when their tickets are called
(or they can use Voting Service Providers to do this on their behalf).
• When a PoS ticket is called and votes, its owner receives a reward.
• When tickets vote, they can either accept or reject the transactions in the previous block.
• The network will not recognize a new block as valid unless it includes at least 3 votes.
• If a majority of the tickets called reject the previous block’s transactions, those transactions are
returned to the mempool (a waiting area for transactions).
• This mechanism gives PoS voters the power to deny rewards to miners without affecting their own
rewards. It limits the power of PoW miners to block changes to the network’s consensus rules, which
are decided by the stakeholders.
• PoS voters can reject any miner behavior they dislike by adopting a strategy of voting "no" when they
detect malicious or inefficient actions.
• This prevents bad PoW miners from writing transactions and receiving rewards.
 ABSTRACT MODEL FOR BLOCKCHAIN
• The PoS voting layer significantly enhances the network’s security and resistance to majority attacks.
• A common method of conducting a majority double-spend attack involves secretly mining an
alternative chain and then releasing it after some time, benefiting from the invalidation of transactions
on the "old" chain.
• Since Decred blocks require input from randomly selected tickets to be considered valid and cannot
be built upon by PoW miners without this input, PoW miners cannot mine secretly unless they also
control a large portion of the live tickets.

Enhanced Security and Governance

• The hybrid PoW/PoS design significantly increases the cost of attacking the network because an
attacker must bypass both systems.
• The PoS component is designed so that tickets can only be acquired gradually. A limited number of
tickets can be bought in each block/interval, and purchasing the maximum number causes the price to
increase sharply.
• Once these tickets are purchased, the funds used are time-locked, exposing an attacker to any loss in
value of their locked coins due to an attack.
 ABSTRACT MODEL FOR BLOCKCHAIN
• The requirement that each block is voted on by randomly selected stakeholders means that the
blockchain must be shared with all participants as it is mined, enhancing the network’s security.
• Decred’s hybrid system is also designed to give stakeholders control over the PoW miners.

Consensus Rule Change Voting

• From the beginning, Decred decided to give PoS stakeholders the primary decision-making power in
the blockchain’s governance.
• Built into the consensus rules is an upgrade process through which any change to the network’s rules
must go through a voting process.
• Changes can only be made if approved by at least 75% of the voting tickets.
• This process begins once a certain proportion of miners (95%) and voters (75%) are running updated
software with dormant rule changes.
• If the proposal has 75% support after a one-month voting period, it is accepted; otherwise, it is
rejected.
• If it does not achieve a supermajority, a re-vote begins.
• If a proposal is accepted, the rule change activates one month later.
 Acknowledgment

I sincerely thank Malathi madam for her insightful materials on

blockchain, which greatly contributed to enhancing this presentation.
References
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contracts, DApps, cryptocurrencies, Ethereum, and more, 3rd Edition Paperback, 2020 by
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2. Blockchain Technology Explained: The Ultimate Beginners Guide About Blockchain Wallet,
Mining, Bitcoin, Ethereum, Litecoin, Zcash, Monero, Ripple, Dash, IOTA and Smart Contracts,
2017 by Alan T. Norman.

3. Hands-On Blockchain for Python Developers: Gain blockchain programming skills to build
decentralized applications using Python, 2019 by Arjuna Sky Kok

4. Building Blockchain Projects: Building decentralized Blockchain applications with Ethereum

and Solidity by Narayan Prusty.

5. Ethereum Projects for Beginners: Build blockchain-based cryptocurrencies, smart contracts,

and DApps by Kenny Vaneetvelde.