Blockchain

Presented by
Venkatesh Jambulingam
Cloud Security Expert
20-Jun-2021
Blockchain

| 20-Jun-2021 | Venkatesh Jambulingam |
▶ Cryptography Principles
–Hashing
–Merkle Tree / Hash Tree
▶ Current Situation & Blockchain Context
▶ Blockchain
–Introduction
–Types
–Block Structure in Bitcoin blockchain
–How blocks are added in bitcoin blockchain
–Components of Hyperledger blockchain
▶ Accounting Methods
▶ Blockchain Use Cases
2
Contents

▶Hashing / Hash Function is a mathematical function used to convert any data of any arbitrary length to fixed length hexadecimal
number. There are no keys required for this method to work
▶Irrespective of the length, type or nature of data, a hashing algorithm will always output a fixed length hexadecimal number
▶This fixed length output is called Hash Value or Message Digest. Even a single change in character can result in a completely
different hash value. Hence it is considered as the digital thumbprint of the data
▶From the hash value, you cannot retrieve original message that generated this hash value. Hence it is also called one way
encryption
4
Hashing
குறுக்க தீர்வுநெறி
(SHA 256)
Hashing
Algorithm
Input Data of varying
length & type
Fixed Length
Hash Value
Algorithm Output
Length
(Bits)
Output
Length
(Bytes)
Message Hash Value Hexadecimal
Length
(Binary bytes)
SHA256 256 32 Hello World a591a6d40bf420404a011733cfb7b190d
62c65bf0bcda32b57b277d9ad9f146e
64
SHA256 256 32 Hello World! 7f83b1657ff1fc53b92dc18148a1d65dfc2
d4b1fa3d677284addd200126d9069
64
SHA256 256 32 Cryptography is
awesome
2d601088ecb12661935f2d2c89e7fac71e
314e83064ba1d6fdd9eb8ee5dffa98
64

▶Hash tree or Merkel tree is a data set with a tree structure. Each leaf node is denoted by the hash value of the data node, and
each non-leaf node is denoted by the hash value of its child node.
▶Hash tree allows you to efficiently and securely verify the contents of large data structures. Hash tree is a generalization of hash
lists and hash chains
▶Ralph Merkle created the concept of Hash Tree and patented it in 1979. Hence, the hash tree was named after him. He was one of
the inventors of public key cryptography. He invented hashing.
5
Hash Tree / Merkle Tree
Transaction
#1
Transaction
#2
Transaction
#3
Transaction
#4
Transaction
#5
Transaction
#6
Transaction
#7
Transaction
#8
Hash Value
#1
Hash Value
#2
Hash Value
#3
Hash Value
#4
Hash Value
#5
Hash Value
#6
Hash Value
#7
Hash Value
#8
Hash Value
#12
Hash Value
#34
Hash Value
#56
Hash Value
#78
Hash Value
#1234
Hash Value
#5678
Hash Value
#12345678
Merkle Tree Root
Hash Value

Current Situation & Blockchain Context

| 20-Jun-2021 | Venkatesh Jambulingam | 7
Current Situation & Blockchain Context
When users don’t trust each
other, transactions between
users need to be recorded /
tracked
Users without
Native Trust
Common
Goal
For Example
• Identity Card
• Buy/Sell Property
• Buy/Sell Vehicles
• Send/Receive Money
• Get a Loan
• Online Shopping
PAN
Card
Aadhaar
Card Database
Database
Bank Current / Savings
Account
Home/Vehicle
Loan
Database
Database
Registrar
Office
Regional
Transport
Office
Database
Database
Users choose to
trust a third party
Trust by Design
Decentralized Data
& Management
Copy of ledger available
with all participants
Centralized Data &
Management
Third Party
Dependency Created

▶ Blockchain is a software running on memory pool of multiple computers/nodes connected on P2P Network. It contains a
distributed ledger for tracking digital assets and all nodes in the network will contain same copy of the ledger.
▶ Logically, a blockchain consists of several layers like infrastructure, networking, software, consensus protocol, data & applications
▶ To explain this simply, consider a typical transaction ledger. It will contain multiple pages and each page will contain multiple
transactions. Usually, the pages are numbered.
▶ Hence it is easy to track sequence of transactions using page numbers. if a page is missing or transactions are altered, it is easy
to find them. Here, the ledger refers to the blockchain, pages are blocks and the entries in pages are transactions in blockchain.
▶ Since all participants on the network have a copy of distributed ledger, the need for having a trusted third party to store the data
is eliminated.
9
Blockchain
Introduction
Transaction Ledger Blockchain
Page 1 Page 2 Page 3 Page N
Block 1 Block 2 Block 3 Block N

Blockchain Types
Permission & Network topology
Permissioned Blockchain Permissionless Blockchain
Distributed
Distributed
Federated
A selected node will
communicate to the network
on behalf of the organization
Company 5
Enterprise 4
Company 3
Organization 2
Enterprise 1
Organization 6
Blockchain administrator /
operator will provide access
to blockchain network and
various roles to
organizations / nodes
All nodes are equal
Anyone can join
No Prior approval
is needed

Public blockchains
A public blockchain has absolutely
no access restrictions. Anyone with
an Internet connection can send
transactions to it as well as become
a validator (i.e., participate in the
execution of a consensus protocol).
Usually, such networks offer
economic incentives for those who
secure them and utilize some type
of a Proof of Stake or Proof of Work
algorithm.
11
Blockchain Types
Public, Private & Consortium
Private blockchains
A private blockchain is
permissioned. One cannot join it
unless invited by the network
administrators. Participant and
validator access is restricted.
Multiple roles can be assigned to
the participants.
This type of blockchain is suitable
for organizations as the authority in
the public blockchain is
decentralized. It would not suit the
business requirements.
Organizations want efficient
accounting and record-keeping
while maintaining the autonomy.
They also want to protect their
sensitive data. Due to these
reasons, organizations prefer to use
private blockchains.
Consortium / Federated
blockchains
Consortium blockchains are semi-
decentralized. To access the blocks in
the blockchain, you need to obtain
permission like a private blockchain.
But, this blockchain will be under the
control of multiple companies in the
consortium. Only few
nodes/organizations are given the
permission to read data or participate in
consensus protocol.

▶Block Header (80 Bytes Long serialized format)
–Version (4B)
–Previous block header hash (32B)
–Merkle Tree Root Hash of Data (32B)
–Timestamp in Unix Epoch Time format (4B)
–nBits/Difficulty Level (4B)
–Nonce (4B)
▶Block Data
–Transaction Counter
–Transactions #1, #2, #3, … #n
12
Block Structure in blockchain
Block
Header (in HEX format)
Version Previous Block
Header Hash
Merkle Root
Hash of data
Timestamp nBits Nonce
Data Transaction
Counter
Txn #2
Txn #3
Txn N
Transaction #1
Version Tx_In_Count Tx_In
Tx_Out_Count Tx_Out Lock Time

Block Structure in blockchain
Genesis Block (Block #0)
1.Version
2.Previous block header hash
3.Merkle Tree Root Hash of Data
4.Timestamp
5.nBits/Difficulty Level
6.Nonce
Header
Hash
Value
Block #1
1.02000000
2.AD66D797B5F9D69A3CC3C7BFF
07F8075F116802D7C243794F4D
B3FFB78D5BEF8
3.35CF7B22F0660FF831A22D34EA
B215ACE90D7FADF4545F22E411
8848F8AAE840
4.24d95a54 (Unix epoch time)
5.30c31b18
6.FE9F0864
Data
Transaction Counter: 2
Txn #1: Sundar->Venkatesh 10
BTC
Txn #2: Venkatesh->Mugilan 10
BTC
Block #2
1.02000000
2.3FBDB27F4EE6DA90B76333B30
08E488B20BF83D1E8D19FA4E38
4F84C2ABADACF
3.23E8E190313E3AE50605136017
0D9C57ECC2E273AA7576B5B9B
71366BDF1492324
4.24d95c58
5.30c31b18
6.E3AE5060
Data
Txn #1: Suresh->Arun Painting
ID#1234
Txn #2: Sundar->Sumathi Vehicle
ID# 5678
Data
Header
Hash
Value

How blocks are added in blockchain?
Using any node, the
transactions is
broadcasted to all nodes
on the blockchain
To add this candidate block to the
blockchain as next block, each node is
given a tough challenge to solve. Nodes
should solve that challenge
successfully. Nodes performing this
activity are called miners. It takes time
to solve this computationally very
intensive challenge. The solution to the
challenge is considered as a Proof of
Work (PoW).
The transactions that are inside the
block that was added are considered as
immutable entries in the ledger
After the block
is added, the
transaction is
considered to
be closed.
Sundar initiates a
transaction to
Venkatesh
Sundar Venkatesh
All such transactions are
temporarily stored in the
memory pool of the
blockchain
Some nodes on the network
will take about 1 MB worth
of transactions from the
memory pool and will try to
form a candidate block
Miners will also need to
calculate a Number used
once (Nonce) such that
when added to the
header will generate a
hash value with certain
number of leading zeros
While doing this, the
transaction sare verified.
Especially, it will be
verified to ensure double
spending does not
happen and the person
initiating the transaction
has sufficient balance.
A block whose hash
value of the header
starting with certain
number of leading zeros
will be considered as a
signed block and will be
added to the blockchain
in that miners’ node.
Information about the new block will be sent to other
nodes on the system. Due to the consensus protocol,
the other mining nodes will verify the transactions
and build the block independently using the Nonce
from the successful miner. They will then add this
block to their respective nodes and move on to form
the next candidate block

▶Block Header
–Block Number
–Current Block Data Hash
–Previous Block Header Hash
▶Block Data
–Header
–Signature
–Proposal
–Response
–Endorsements
▶Metadata
–certificate and signature of the block creator
–he block committer adds a valid/invalid indicator for every
transaction into a bitmap
–a hash of the cumulative state updates up until and
including that block
15
Block Structure in Blokchain
Block
Header
Block
Number
Previous block
header hash
Current block
data hash
Data
Transaction #2
Transaction #3
Transaction #N
Transaction #1
Header Signature Proposal
Response Endorsements
Metadata

Components of Hyperledger Blockchain
Smart Contract Icon created by James
Fok from the noun project
Client
Application /
API
Block
Blockchain
State DB/
World State
‘Get’,
‘Put,
‘Del’
Records
accesses
Submits
Outputs
Distributed
Ledger
Txn Txn Txn
Peer/Node
Events
Events
Chain Code /
Smart Contract
Consensus
Algorithm
Virtual
Machine

Peer/
Node
Each connected computer needs to install and run a computer application specific to the blockchain
ecosystem they wish to participate in
Technically, Blockchain constitutes a service overlay network (SON) and to be a node in the network,
computer must be able to process application-specific messages and affect the shared state of the SON
Consensus
Protocol
The consensus algorithm is implemented as part of the node application, providing the ‘rules of the game’ for
how the ecosystem will arrive at a single view of the ledger and the method for determining the “world state”
of the blockchain ecosystem E.g., Proof of Work, Proof of Stake, Byzantine Fault Tolerance, Proof of Vote,
Delegated Proof of Stake
Chain Code /
Smart Contract
computer code running inside the node application (virtual machine) outside the distributed ledger. It
contains set of rules which the parties to that contract agree to interact with each other
Virtual
Machine
A virtual machine is a computer program running in a node application that can understand specific
instructions making it possible to manage the state of a smart contracts. Instructions are provided in a
special programming language to enforce the terms of the contract
Distributed
Ledger
A ledger is a channel’s chain and current state data which is maintained by each peer on the channel
Events
Creates notifications of significant operations on the blockchain (e.g. a new block), as well as notifications
related to smart contracts
Membership
Membership Services authenticates, authorizes, and manages identities on a permissioned blockchain
network.
17
Components of Hyperledger Blockchain

Accounting Types
▶ Most commonly used accounting
method.
▶ This method is being used for
almost 600 years
▶ Transactions were separated and
written as debit & credit in separate
ledgers
▶ Each debit transaction will have an
equivalent credit transaction.
▶ Can be referenced across different
companies
▶ Each company will secure their
ledgers with high confidentiality
 Ancient Method of accounting
 Simple & Easy to maintain
 Events were recorded
 Cash Transactions
 Commodity Exchange
 Dependency on single person
entering
 Difficult to Audit
 Transactions recorded does not
provide accountability
 Very similar to writing down events
in your diary
Examples:
 Gave ₹1000 to Sundar
 Gave 50g of Gold to Sumathi
Single Entry Accounting Double Entry Accounting
▶ All transactions are recorded in
double entry accounting method
▶ In addition to this, transactions are
cryptographically signed and added
to a distributed public ledger as a
third entry
▶ Signed transactions on the ledger
cannot be modified.
Triple Entry Accounting
Debit Credit
₹1000
₹200
Debit Credit
₹1000
₹200
Ledger of
Company 1
Ledger of
Company 2
Debit Credit
₹1000
₹200
Debit Credit
₹1000
₹200
Company 1 Company 2
-₹1000 ₹1000
100 Cups -100 Cups
Distributed Public Ledger
Ledger of
Company 1
Ledger of
Company 2

Blockchain Use Cases
e-Governance
Integrity of citizen registry
data, Identity validation,
Voting, Taxation
Medical/Healthcare
Drug/Medial Supply chain
integrity, e-Health Records
(transparency in P2D & P2H
transactions), Clinical Trial
Provenance
Insurance
Improve multi-party
contracts, Streamline risk
contract efficiency & claims
adjudication
Entertainment & Media
Control of ownership rights, Anti-
Piracy / Copyright Infringement
of digital assets, Artist/Author
Compensation of Digital assets,
Immutable seat sales/reservation
for events & movie theatre
ticketing
Background checks, identity verification, employment history, employee payments & benefits, donations
& charity, crowdfunding traceability, shareholders’ voting
Multi Domain Uses
Banking & Financial Services
Credit Reports, P2P
Lending/Transfer, International
transactions, Anti-Money
Laundering, Reducing auditing
risk of financial results, KYC,
Capital Markets & Trade finance.
Physical Assets / Lands
Validity of Will & Allocation
of inheritances,
Transparent real estate
agreements, Recording,
tracking & transfer of land
titles
Utilities
Peer to Peer Energy
transfer, Smart Utility
Metering, Microgrids &
Virtual Powerplants
Telecommunications
Fraud Management,
Identity management,
Revenue insurance,
Number Portability, Micro
payment systems, Roaming
management
Learning & Education
Digitized Academic
Credentials, Federated
repository of academic
information, Professional
certificates
Law & Order
Enforcement
Integrity of evidence,
Resistance to falsification of
case data, Transparent
Chain of Custody
Transportation & Logistics
Passenger Identification,
boarding, passport/visa,
payments & other transactions
digitized and verified, Loyalty
programs digitization and
tracking, supply chain tracking
Automobile
Full history of vehicle from pre-
production to sale, Parts Supply
chain management, Car
Maintenance Book, Commercial
Vehicle Tracking, Immutable
ledger of trip data

Thank you
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About me
Venkatesh Jambulingam
Cloud Security Expert
Email:
cybervattam@gmail.com
cybervattam@outlook.com
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