Blockchain technology has been around since 2008 with the introduction of Bitcoin. It utilizes a decentralized digital ledger called a blockchain, which consists of records called blocks that are linked together in a growing list. Each block contains transaction data as well as a reference to the previous block. This allows transactions to be recorded in a verified and permanent way without the need for a central authority. There are various components that make up a blockchain network including nodes that host copies of the blockchain and wallets that store private and public keys for sending and receiving cryptocurrency. Various consensus mechanisms like proof-of-work and proof-of-stake are used to verify transactions and reach agreement across the decentralized network. Blockchain technology provides advantages like reduced costs and increased

1. BLOCKCHAIN TECHNOLOGY

2. INITIATION - THE HISTORY OF BITCOIN
2008
Idea was published
under the pseudonym
Satoshi Nakamoto
2009
Start of the Bitcoin
Network
2010
Fist cryptocurrency
stock exchange is
launched
2011
One Bitcoin equals
one USD

3. THE HISTORY OF BITCOIN
2013
1 Bitcoin equals
100 USD
2017
1 Bitcoin equals
10,000 USD
What makes bitcoin so valuable?
What is a blockchain?
Is it a scam to take away money?
Why should it replace traditional
financial systems?
Is it illegeal/is it black money?
Let's clear all misconceptions today!

4. TOPICS WE WILL BE COVERING TODAY
1. What is a blockchain?
2. Elements of a blockchain
3. Transactions in a blockchain
4. Idea of hashing
5. Overview of internal working in bitcoin and
ethereum
6. Consensus algorithms and byzantine fault
tolerance
7. PoW and PoS
8. Attacking a blockchain
9. Putting it all together: Live demo

5. BITCOIN ≠ BLOCKCHAIN
Is an application of
blockchain technology
Is the underlying data
structure, which can be used
for many things, including
cryptocurrencies

6. CUTTING THE MIDDLEMAN
E.g. direct transfer of
Bitcoins
Decentralized peer-to-
peer transactions are
possible in a blockchain
with maximum security.

7. WHAT IS A BLOCKCHAIN?
A blockchain is a growing list of data blocks that are linked together.
Data
Reference
Data
Reference
Data
Reference
What is meant by data and
reference?
They are basically
transaction related data,
we'll soon get into the
details of it.

8. WHAT IS A TRANSACTION?
Transaction is anything that
changes the "state" of the
blockchain.
It's not about who paid
money to whom

9. BLOCKCHAIN AS A STATE TRANSITION
SYSTEM
All the blockchains that exist today mainly work as a
state transition system where each transaction
changes the state of the ledger.
State of the blockchain is the unspent tokens (or
coins) present in the blockchain, along with its
ownership.
State transition in bitcoin:
APPLY(_S, _TX) = _S' or error

10. ELEMENTS OF A BLOCKCHAIN - WALLETS
A cryptocurrency wallet is a physical or digital service
which stores the wallet keys for cryptocurrency
transactions.
Wallet keys are like username and passwords to a
wallet and is required for sending/receiving money
There are two kinds of key:
1. Public key (for receiving money)
2. Private key (for sending money, must be kept
secret)
Reliability of a blockchain is ensured by
cryptographically hashing the transactions with public
key of reciever and signing with private key of owner.
The most important elements of a
decentralized blockchain is:
1. nodes
2. wallets
Most common wallets are:

11. TRANSACTION IN A BLOCKCHAIN

12. ELEMENTS OF A BLOCKCHAIN - NODES
The most important elements of a
decentralized blockchain is:
1. nodes
2. wallets
A node of a blockchain is any
computer which hosts a copy of
the blockchain in it and might
help in computing transactions in
the blockchain. It computes a
transaction or a block of txns and
broadcast it to the entire network
There are so many transactions in the chain, so it
is certainly not memory efficient to download the
entire chain on each node.
(size of bitcoin blockchain: 435GB, Ethereum:
1.112TB)
So bitcoin uses a special data structure called
merkle trees and ethereum uses a similar data
structure called patricia trees.
Using these ensures that the node only need some
specific parts of the data when verifying a
transaction, and can download only that amount of
data.

13. WHAT IS A HASH FUNCTION?
A hash function is any function that can be
used to map data of arbitrary size to fixed-size
values
Cryptographic hash functions exhibit
these three properties:
• They are “collision-free.” This means
that no two input hashes should map
to the same output hash.
• They can be hidden. It should be
difficult to guess the input value for a
hash function from its output.
• They should be puzzle-friendly. It
should be difficult to select an input
that provides a pre-defined output.
Bitcoin and other blockchains mostly use a SHA-
256 algorithm of hashing data. It is comparatively
fast, secure and impossible to crack by modern
computational methods.

14. MERKLE TREES

15. PATRICIA TREES

16. QUIZ TIME!
1. What is a blockchain?
A. A blockchain is a centralized digital ledger consisting of records called blocks.
B. A blockchain is a decentralized, distributed, digital ledger consisting of records called blocks.
C. A blockchain is a digital database consisting of records called class.
D. None of the above

17. QUIZ TIME!
1. What is a blockchain? (Answer B)
A. A blockchain is a centralized digital ledger consisting of records called blocks.
B. A blockchain is a decentralized, distributed, digital ledger consisting of records called blocks.
C. A blockchain is a digital database consisting of records called class.
D. None of the above

18. ANOTHER PIECE TO THE PUZZLE:
Suppose an attacker wants to add malicious transactions in a blockchain, but he cannot do it in the main
blockchain as when honest nodes will process the computation: APPLY(_S, _TX) = _S' or error, it will
get an error as the attacker's transaction will produce token out of thin air, or use some token which does
not belong to him.
So, he creates a hardfork of the blockchain, and then adds his transactions to it. Now, for a client there must
be a way to determine which of the blockchains is genuine.
Here comes a very important algorithm in blockchain: consensus mechanism.
A consensus mechanism refers to any number of methodologies used to achieve agreement, trust, and
security across a decentralized computer network.
Two of the most common consensus algorithm is
1. Proof-of-work (PoW) as in Bitcoin
2. Proof-of-Stake (PoS) as in Ethereum
3. pBFT as in Hyperledger fabric
What is a
Byzantine
Generals'
Problem?

19. PROOF-OF-WORK:
To make creation of a new transaction difficult, blockchain presents a computing challenge to its nodes.
Proof of work (PoW) is a form of cryptographic proof in which one party (the prover) proves to others
(the verifiers) that a certain amount of a specific computational effort has been expended. Verifiers can
subsequently confirm this expenditure with minimal effort on their part.
Basically all the participating nodes try to compute a SHA-256 hash of the data, along with a special value
(nonce) which must start with a pre-decided length of zeros. For this the computer must guess the nonce.
It can be shown that the average complexity of such computation where there must be 'n' number of zeros is
O(2n).
This process is called mining. Any miner who successfully calculates a nonce can mine the block and get
some coins as a reward.
(in Bitcoin)To compensate for increasing hardware speed and varying interest in running nodes over time,
the proof-of-work difficulty is determined by a moving average targeting an average number of
blocks per hour. If they're generated too fast, the difficulty increases.

20. PROOF-OF-STAKE:
Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in
proportion to their quantity of staking in the associated chain.
Basically all the participating nodes stake some amount of the native blockchain tokens to participate in PoS. When a transaction
needs to be computed, the blockchain assigns a node with probability proportional to the staking amount, for mining the txn. If the
node honestly mines the block, it gets some rewards. Otherwise if a dishonest node is detected(by algorithm discussed in next
slide), the stake is slashed.
This method is better than proof of work as it costs much less energy and is environment friendly. Ethereum changed its
consensus mechanism from PoW to PoS in Sep. 15 2022, 12:12 PM IST, in a historic event called "the merge".

21. HOW BLOCKCHAIN NODES AGREE ON ITS STATE
“ Whenever there are two or more hardforks of the same chain having different states, the longest chain is
considered as the main chain”
The longest chain will have the largest amount of PoW/PoS associated with it.

22. TRYING TO ATTACK A BLOCKCHAIN
In a PoW blockchain, lets say the attacker forks the blockchain and creates a dishonest node. Then it is run
in public parallel to the original chain. Lets perform a calculation to see if it succeeds:
p = probability an honest node finds the next block
q = probability the attacker finds the next block
qz = probability the attacker will ever catch up from z blocks behind
So, even if the attacker starts with few blocks lead, it's almost
certain that he will fall behind the main chain after some
transactions. Statistically, if the transaction does not change after
5-6 blocks of it's mining, then it is next to impossible to alter it after
that (while assuming q<p).

23. WHAT HAPPENS IF Q>P?
Reviewing our
formula,
When q >= p, the attacker can generate blocks with a higher probability than the main chain, and it is not
possible for the chain to catch up to the attacker. But creating such a situation requires the attacker to have
more than 50% of world's computing power, which is, again, a statistically improbable situation.
Similar attack over a PoS chain requires the attacker to posses more than 50% of the world's total wealth,
and by doing an attack he risks a chance to lose all of it! This shows how much insanely difficult it is to
launch an attack on blockchains.
These kind of hypothetical attacks are known as 51% attacks.

24. COMBINING EVERYTHING TOGETHER-DEMO
It's time we get some practical "feel" of what using a simple blockchain looks like:
click here

25. CONCLUSION
I hope I have convinced you that blockchain is a technology that operates on a verifiably decentralized
consensus mechanism by explaining some of its core fundamentals, and is not a make-money trick,
black money, scam or fraud of some kind (most general misconceptions about blockchain)
Topics not covered in this session: (have a look at these in the internet)
1. Merkle and patricia trees
2. Ethereum runtime environment and EVM (ethereum virtual machine)
3. Ethereum gas fees
4. Ethereum Improvement Proposals (EIPs)
5. Ethereum request for comment (ERCs)
6. Moving towards Web3.0: Decentralized file storage(IPFS), DAO, DeFi
7. Running scripts in bitcoin blockchain
8. Coding in solidity for ethereum

26. QUIZ TIME!
Don’t worry, it will be simple!

27. QUIZ TIME!
1. True or false: A user can alter data on a blockchain.

28. QUIZ TIME!
1. True or false: A user can alter data on a blockchain. (Answer False)

29. QUIZ TIME!
2. In block chain, ______ tree stores all the transactions in a block by producing a digital fingerprint of
the entire set of transactions.

30. QUIZ TIME!
2. In block chain, ______ tree stores all the transactions in a block by producing a digital fingerprint of
the entire set of transactions.
(Answer: Merkle tree)

31. QUIZ TIME!
3. Which of the following is not a blockchain component?
A. Ledger
B. Wallet
C. Certificate authority
D. Hash

32. QUIZ TIME!
3. Which of the following is not a blockchain component?
A. Ledger
B. Wallet
C. Certificate authority
D. Hash
(Answer: C)

33. QUIZ TIME!
4. The term used for a blockchain splits is ________.
A. A merger
B. A fork
C. A division
D. None of the above

34. QUIZ TIME!
4. The term used for a blockchain splits is ________.
A. A merger
B. A fork
C. A division
D. None of the above
(Answer B)

35. QUIZ TIME!
5. Bitcoin is created by __________.
A. Andreas M. Antonopoulos
B. Satoshi Nakamoto
C. Vitalik Buterin
D. Saifedean Ammous

36. QUIZ TIME!
5. Bitcoin is created by __________.
A. Andreas M. Antonopoulos
B. Satoshi Nakamoto
C. Vitalik Buterin
D. Saifedean Ammous
(Answer: B)

37. QUIZ TIME!
6. Full form of IPFS __________.
A. Internet Protocol File Storage
B. Inter Planetary File System
C. Inter Protocol File Server
D. Inter Political Folder Server

38. QUIZ TIME!
6. Full form of IPFS __________.
A. Internet Protocol File Storage
B. Inter Planetary File System
C. Inter Protocol File Server
D. Inter Political Folder Server
(Answer: B)

39. QUIZ TIME!
7. I have 10 BTC with me. I make two payments of 10 BTC each to two different person simultaneously.
What will happen?
A. Both person will get 10 BTC and I will have 0 BTC left
B. None of them will get any coin and I will have 10 BTC left
C. Both person will get 10 BTC and I will have 10 BTC left
D. Any one person will get 10 BTC and I will have 0 BTC left

40. QUIZ TIME!
7. I have 10 BTC with me. I make two payments of 10 BTC each to two different person simultaneously.
What will happen?
A. Both person will get 10 BTC and I will have 0 BTC left
B. None of them will get any coin and I will have 10 BTC left
C. Both person will get 10 BTC and I will have 10 BTC left
D. Any one person will get 10 BTC and I will have 0 BTC left
(answer: D)

41. QUIZ TIME!
8. What is the first block of a blockchain called?

42. QUIZ TIME!
8. What is the first block of a blockchain called?
(Answer: Genesis Block)

43. QUESTIONS? IT'S YOUR TURN NOW!

44. THANK YOU FOR ATTENDING
(Ethereum development session very soon...)