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1. Chapter four
Blockchain

2.  Blockchain is a secure series or chain of time stamped
records stored in a database that a group of users
manages who are a part of a decentralized network.
 Is a distributed database that maintains a continuously
growing list of ordered records, called blocks.
 These ” blocks “are linked using cryptography.
 Each block contains a cryptographic hash of the
previous block, a timestamp, and transaction data.
 Record transactions across many computers so that
the record cannot be altered without the alteration
of all subsequent blocks and the agreement of the
network.
Introduction

3.  Cont…
 Consensus is a procedure in which the peers of a
Blockchain network reach agreement about the
present state of the data in the network.
 Virtually anything of value can be tracked and
traded (house, car, cash, land) or intangible
(intellectual property, patents, copyrights,
branding).
 Blockchain is a system of recording information in
a way that makes it difficult or impossible to
change, hack, or cheat the system.

4.  CoWnt…
 The decentralized database managed by multiple
participants is known as Distributed Ledger
Technology (DLT).
 A ledger is a record-keeping system.
 A list of records, called blocks, is linked together
using cryptography.
 Each transaction is independently verified by
peer-to-peer computer networks, time-stamped
and added to the ledger.
 Once recorded, the data cannot easily be altered.

5. Core Blockchain component
a. BLOCK:-Is a place in a block chain where data is
stored.
b. NONCE:- a number used only once. random
number that bitcoin miners try to find in order to
mine a new block in the Bitcoin Blockchain and
receive a block reward for their efforts.
c. HASH:-used for security purposes and consitutes
the backbones of crypto security.
d. PROOF OF WORK:- consensus mechanisms that
incentivizes network validation by rewarding
miners for adding computational power and
difficulty to network.

6. Cont…
e. NODE :-User or computer within the blockchain
architecture (each has an independent copy of the
whole blockchain ledger)
f. CHAIN -a sequence of blocks in a specific order
g. MINERS –Are an actors who participating in
crypto currency transaction.

7. Short Comings of Current Transaction System:
 Cash is useful only in local transactions and in
relatively small amounts.
 The need for third-party validation and/or the
presence of intermediaries add to the inefficiencies.
 Fraud, cyberattacks, and even simple mistakes add to
the cost and complexity of doing business, and they
expose all participants in the network to risk if a
central system, such as a bank, is compromised.

8. What Is Decentralization in Blockchain?
 One of the most important concepts in blockchain
technology is decentralization.
 No one computer or organization can own chain.
 Instead, it is a distributed ledger via
the nodes connected to the chain.
 nodes can be any kind of electronic device that
maintains copies of the chain and keeps the
network functioning.
 Every node has its own copy of the blockchain
and the network must algorithmically approve any
newly mined block for the chain to be updated,
trusted and verified.
 Since blockchains are transparent, every action in
the ledger can be easily checked and viewed,
creating inherent blockchain security.

9. Bitcoin
 A digital currency to address the complexities,
exposures, inefficiencies, and costs of hard
currencey.
 A Peer-To-Peer Electronic Cash System.
 Electronic cash that would allow online payments to
be sent directly from one party to another without
going through a financial institution.
 Now word cryptocurrencies is the marker that is
used to describe all networks and mediums of
exchange that uses cryptography to secure
transactions-as against those systems where the
transactions are channeled through a centralized
trusted entity.

10. Advantages
 Cost-effective: Bitcoin eliminates the need for
intermediaries.
 Efficient: Transaction information is recorded once
and is available to all parties through the distributed
network.
 Safe and secure:-A transaction can’t be changed; it
can only be reversed with another transaction, in which
case both transactions are visible

11. The Birth of Blockchain
 Bitcoin is actually built on the foundation of
blockchain, which serves as bitcoin’s shared
ledger.
 This shared ledger can be used to record any
transaction and track the movement of any asset
whether tangible, intangible, or digital.
 Bitcoin and blockchain are not the same.
 Blockchain provides the means to record and store
bitcoin transactions, but blockchain has many uses
beyond bitcoin.
 Bitcoin is only the first use case for blockchain

12. Crypto-currency
 Is a digital payment system that doesn’t depend on
banks or other central financial institutions to
verify transactions.
 Instead of being physical money carried around
and exchanged in the real world, crypto-currency
payments exist purely as digital entries to an
online database describing specific transactions.
 When you transfer crypto-currency funds, the
transactions are recorded in a public ledger.
 Crypto currency is stored in digital wallets.
 wallet is a piece of software (or hardware) that
grants access to virtual assets, such as crypto
currencies and smart contracts.
 A Cryptocurrency is the medium of exchange,
and used as a store of value.

13. Why Blockchain has become popular ?
1. Time reduction: It does not take a lengthy
process for verification, payment, and clearance.
It is because of a single version of agreed-upon
data available between all stakeholders.
2. Unchangeable transactions: register transactions
in a chronological order which certifies the
inalterability of all operations, means when a new
block is added to the chain of ledgers, it cannot
be removed or modified.
3. Reliability: This removes double records, reducing
rates and accelerates transactions.

14. Cont…
4. Security: uses very advanced cryptography to make
sure that the information is locked inside the
blockchain. It uses Distributed Ledger Technology
where each party holds a copy of the original chain, so
the system remains operative, even the large number
of other nodes fall.
5. Collaboration: It allows each party to handle directly
with each other without requiring a third-party
intermediary.
6. Decentralized: no central authority supervising
anything. There are standards rules on how every node
exchanges the blockchain information. This method
ensures that all transactions are validated, and all
valid transactions are added one by one.

15. Blockchain Hash Function
 A hash function takes an input string (numbers,
alphabets, media files) of any length and
transforms it into a fixed length.
 The fixed bit length can vary (like 32-bit or 64-
bit or 128-bit or 256-bit) depending on the hash
function which is being used.
 The fixed-length output is called a hash.

16. The hash algorithm has certain unique properties:
1. It produces a unique output (or hash).
2. It is a one-way function.
3. They can be hidden: It is difficult to guess the
input value for a hash function from its output.
4. They should be puzzle-friendly: It should be
difficult to select an input that provides a
predefined output.
Example:- Hello:
185F8DB32271FE25F561A6FC938B2E264306EC304EDA518007D
1764826381969
Hello world:
64EC88CA00B268E5BA1A35678A1B5316D212F4F366B24772325
34A8AECA37F3C

17. Blockchain Architecture
 In blockchain data comes in blocks.
 When a block of data is chained with the other
blocks, its data can never be changed again.
 It will be publicly available to anyone who wants
to see it ever again and will be available in the
same sequence in which it was added to the
blockchain.
 Nobody can change the information once it is
added in the blockchain.

18. Cont…
Example:-Imagine a bunch of blocks of transaction
data as of the following image.

19. Cont…
 In the above images, you can see that block
assembles in chronological order.
 Block 1 is followed by Block 2 , then Block 3, then
Block 4, and you can continue.
 Here, you will find that there is a block number
field, data field, nonce field, hash value field,
and previous field.
 The previous field is corresponding to the hash
value field of the previous block.
 We know that every block in a block chain is
cryptographically tied to the next block.
 In the above example, the previous field in block
one is zero because the block one doesn't have a
previous hash value, so its value is zero.

20. Cont…
 Nonces are used as the number that is used in a
hash to verify the transactions and other data
contained in a block
 In Block 2, you will find that there is a hash value
in the previous field, which references to the
previous block hash value.
 This process is continuing until the last block.

21.  Blockchain Distributed ledger.
 Distributed system allows transactions to
public witnesses, which makes cyberattack more
difficult.
 It records the transactions such as the exchange of
assets or data, among the participants in the network.
 All the participants in the network govern and agreed-
upon consensus on the updates to the records in the
ledger.
 There is no central authority, or third-party
intermediaries such as a financial institution or
government agencies are involved.
 Every record in the distributed ledger has
a timestamp and unique cryptographic signature.
 Further, if any alterations made to the ledger, they
are reflected and copied to all participants in seconds
or minutes.

22.  Proof of work
 is a piece of data which is difficult to produce but
easy for others to verify and which satisfies
certain requirements.
 In order for a block to be accepted by network
participants, miner must complete a proof of work
which covers all of the data in the block.
 The difficulty of this work is adjusted so as to
limit the rate at which new blocks can be
generated by the network to one every 10 minutes.
 Due to the very low probability of successful
generation, this makes it unpredictable which
worker computer in the network will be able to
generate the next block.

23. Benefits of blockchain
1. Time savings. Transaction is faster because it
doesn’t require verification by a central authority.
2. Time Stamping: events are agreed upon across
multiple, possibly hostile or non-trusting entities
3. Authenticity: Digital signatures provide validity
and non repudiation
4. Data Loss Protection: Universal data loss
becomes a lesser issue
5. Cost savings. eliminates duplication of effort
because participants have access to a shared
ledger.
6. Security: Secure encryption and verification
technologies enable untrusted participants to
securely share trustable information with a third
party.

24. How blockchain works
1. Each transaction,is recorded as “block” of data
 Those transactions show the movement of an asset
that can be tangible/intangible (intellectual).
 The data block can record the information of your
choice: who, what, when, where, how much and even
the condition.
2. Each block is connected to ones before and
after it
 blocks form a chain of data as an asset moves
from place to place or ownership changes hands.
 The blocks confirm the exact time and sequence
of transactions, and the blocks link securely
together to prevent any block from being altered
or a block being inserted between two existing

25. 3. Transactions are blocked together in an
irreversible chain:
 Each additional block strengthens the verification
of previous block and hence the entire blockchain.
 This removes the possibility of interfering by a
malicious actor — and builds a ledger of
transactions you and other network members can
trust.
Continued…

26. For example
1. A want to send money to B
2. The transaction is represented online as a block.
3. The block is broadcast to every part in the network.
4. Those on the network approves the transaction is
valid
5. The block then can be added to the chain witch
provides an fast and transparent record of
transaction.
6. The money moves from A to B

27. Blockchain Key Areas
 The blockchain technology fixes three things that
the Internet was not designed to do. These three
things are:
1. Value
2. Trust
3. Reliability

28. 1. Value
 blockchain, actually create value on a digital asset.
 value can be controlled by that person who owns it.
 It enables a unique asset to be transferred over
the internet without a middle centralized agent.
2. Trust
 Blockchain enables to securely assign ownership of
a specific digital asset and be able to track who
actually controls that asset at a time.
 In other words, blockchain creates a permanent,
secure, unalterable record of who owns what.
 It uses advanced hash cryptography to preserve
the integrity of the information.

29. Cont…
3. Reliability
 if everything localized in one location, it becomes a
single point of failure.
 But, its decentralized network structure ensures
that there is no single point of failure which could
bring the entire system down.

30. Blockchain Double Spending
 Double spending means spending the same money
twice this is not happen in blockchain.
 The information on the blockchain network can be
modified during transactions, provided certain
conditions are met.
 As we know, any transaction can be processed only
in two ways.
1. Offline: A transaction which involves physical
currency or cash is known as an offline
transaction.
2. Online: A transaction which involves digital
cash is known as an online transaction.

31. Blockchain Merkle Tree
 It is a data structure composed of hashes of
different blocks of data, and which serves as
summary of all transactions in a block.
 It also allows for efficient and secure verification
of content in a large body of data.
 Merkle Tree is also known as Hash Tree.
 Fundamentally, it is a data structure tree in which
every leaf node labeled with the hash of a data
block, and the non-leaf node labeled with the
cryptographic hash of the labels of its child nodes.
 The leaf nodes are the lowest node in the tree.

32. How do Merkle trees work?
 Stores all transactions in block by producing a
digital pattern of the entire set of transactions.
 Are created by repeatedly calculating hashing
pairs of nodes until there is only one hash left.
 This hash is called the Merkle Root, or Root Hash.
 Constructed in a bottom-up approach.
 Every leaf node is hash of transactional data, and
non-leaf node is a hash of its previous hashes.
 Merkle trees are in a binary tree, so it requires an
even number of leaf nodes.
 If there is an odd number of transactions, the last
hash will be duplicated once to create an even
number of leaf nodes.

33. How do Merkle trees work?(continued…)

34. Cont…
 The above example is the most common and simple
form of a Merkle tree, i.e., Binary Merkle Tree.
 There are 4 transactions TX1, TX2, TX3, & TX4.
 There is a top hash which is the hash of the entire
tree, known as the Root Hash, or the Merkle Root.
 Each of these is repeatedly hashed, and stored in
each leaf node, resulting in Hash 0, 1, 2, and 3.
 Consecutive pairs of leaf nodes are then
summarized in a parent node by
hashing Hash0 and Hash1, resulting in Hash01, and
separately hashing Hash2 and Hash3, resulting
in Hash23.

35. Cont…
 The two hashes (Hash01 and Hash23) are then
hashed again to produce the Root Hash or the
Merkle Root.
 Merkle Root is stored in the block header.
 It contains the hash of the last block, a Nonce,
and the Root Hash of all the transactions in the
current block in a Merkle Tree.
 As this Root Hash includes the hashes of all the
transactions within the block, these transactions
may result in saving the disk space.

36.  Merkle Tree maintains the integrity of the data.
 If any single detail of transactions or order of the
transaction's changes, then these changes
reflected in the hash of that transaction.
 This change would force up the Merkle Tree to the
Merkle Root, changing the value of the Merkle
root and thus invalidating the block.
 So everyone can see that Merkle tree allows for a
quick and simple test of whether a specific
transaction is included in the set or not.
Cont…

37. Merkle trees have three benefits:
 It provides a means to maintain the honesty and
validity of data.
 It helps in saving the memory or disk space as
the proofs, computationally easy and fast.
 Small amounts of information to be transmitted
across networks.

38. Blockchain vs Database
SN Blockchain Database
1. Decentralized Centralized
2. permission less because
anyone can access it.
accessed only by entities who
have rights to access.
3. fully confidential. The database is not fully
confidential.
4. It is a fully robust
technology.
It is not entirely robust
technology.
5. Anyone with the right
proof of work can write
on the blockchain.
Only entities entitled to read or
write can do so.
6. cannot go back to repeat
a task on any record.
Go back to repeat a task on a
particular record.

39. Blockchain Data Management
 Its distributed structures that follow peer-to-
peer networks and inherit the advantages of a
peer-to-peer network such as speed, avoidance of
single-point failures, etc.
 Each node is linked to each other and shares
resources, meaning there is no dependence on
central machines similar to the traditional client-
server design.

40. End of chapter four