Blockchain Functionality

Fundamentals of Blockchain Department of CSE, ISM Dhanbad January 15, 2023 1

 Outline
In this lecture, we will learn working procedure
of Blockchain.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 2

 Conventional Transaction

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 3

 Contd…
Now, consider a situation where the money is paid in Digital
form.

Double-
spending

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 4

 Double-spending
To solve this problem of double-spending, one would
employ a centralized authority to monitor all the
transactions.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 5

 Contd…
The introduction of centralized authority introduces
another major issue - the cost of creating and
maintaining the centralized authority itself.
As the banks need money for their operations, they start
cutting commissions on each currency transaction they
do for their clients.
This sometimes can become very expensive, especially
in overseas transfer of money where multiple agents
(banks) may be involved in the entire deal.
All the above issues are solved by the introduction of
blockchain based digital currency.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 6

 Working Procedure

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 7

 Blockchain Architecture
Blockchain is complex, network-based software
components, which can provide data storage,
computation services, and communication
services.
Blockchain features can include
cryptographically secure payment, mining,
transaction validation, incentive mechanisms,
and permission management.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 8

 Contd…
However, there is question of maintaining the
order of these transactions that are broadcast to
every other node in the Bitcoin peer-to-peer
network.
The transactions do not come in order in which
they are generated and hence there is need for a
system to make sure that double-spending of the
cryptocurrency does not occur.
Considering that the transactions are passed node
by node through the Bitcoin network, there is no
guarantee that orders in which they are received
at a node are the same order in which these
transactions were generated.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 9

 Overview

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 10

 Blockchain as Data Storage
As a data structure, a blockchain is an ordered list of
blocks, where each block contains a small (possibly
empty) list of transactions.
Each block in a blockchain is ‘chained’ back to the
previous block, by containing a hash of the
representation of the previous block.
All the previous transactions in the blockchain may not
be deleted or altered without invalidating the chain of
hashes.
Combined with computational constraints and incentive
schemes on the creation of blocks, this can in practice
prevent tampering and revision of information stored in
the blockchain.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 11

 Contd…
Transactions update the state recorded on a
blockchain.
Public key cryptography and digital signatures
are normally used to identify accounts and to
ensure integrity and authorization of
transactions initiated on a blockchain.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 12

 Cryptography Mechanisms
Authentication: When the two parties exchange messages, it is
important to establish a trust between the sender and the
receiver.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 13

 Message Privacy

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 14

 Blockchain - Hashing
A hash function maps the data of any arbitrary size to
data of fixed size.
Like, Bitcoin uses SHA-256 hash function that produces a
hash (output) of size 256 bits (32 bytes).

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 15

 Digital Signature

Fundamentals of Blockchain Department of CSE, ISM Dhanbad January 15, 2023 16

 Transaction
The transaction is signed
with the signature of the
transaction’s initiator,
which provides the
authorization to spend the
money, create a contract,
or pass the data
parameters associated with
the transactions.
A signed transaction should
contain all the information
needed to be executed.

January 15,
Vu Pham Dept. of CSE, IIT(ISM) Dhanbad 17
2023
 Blockchain Mining
When Bob creates a purchase request for Lisa,
he does not send it to Lisa alone. Rather the
request message is broadcasted on the entire
network to which he is connected.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 18

 Contd…

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 19

 Mining Process
Every miner in the
network is expected
to receive multiple
messages from
multiple vendors at
any given period of
time.
Each message is time-
stamped so that
nobody can modify its
chronological order
without affecting the
block’s hash value.
Thus, the messages in
the block are perfectly
secured from
tampering.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 20

 Chaining Blocks

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 21

 Forking in Blockchain
It is possible, that the two different miners solve
the Proof-of-Work at the same time and thus
add their blocks to the last known block in the
chain.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 22

 Contd…

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 23

 Remarks
The network aims to reach a consensus about the latest
block to be included into the blockchain.
There are different consensus mechanisms, e.g. ‘proof of
work’ or ‘proof of stake’.
There is no certainty about whether a particular transaction
will eventually be committed or whether it will be outdated.
An outdated transaction will be considered an invalid
transaction forever, e.g. due to an alternative transaction
getting committed.
Also, it is often impossible to know whether a transaction
that is invalid in some state of the system could ever become
valid in a later state.
In the blockchain forks (i.e. conflicting versions of new blocks
are proposed simultaneously), then the block comprising the
transaction may simply be discarded

Fundamentals of Blockchain Department of CSE, ISM Dhanbad January 15, 2023 24

 Contd…
If the blockchain forks (i.e. conflicting versions of new blocks
are proposed simultaneously), then the block comprising the
transaction may simply be discarded, in which case it could
be re-included later.
Each of these inclusions takes time as they require the
system to solve computationally hard cryptographic puzzles.
Depending on the consensus mechanism and the required
guarantees, different blockchain platforms and applications
can have different notions of when a transaction is
committed or confirmed and thus be immutable.
For example, in Bitcoin users often wait five subsequent
blocks to be appended to the block containing a transaction
before viewing the transaction as committed.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 25

 Conclusions
Blockchain transactions and the globally visible
blockchain ledger allow everyone to recognize and
check the transfer of control or ownership of
digital assets registered on the blockchain.
Trust in the blockchain is achieved from the
interactions between nodes within the network.
The participants of a blockchain network rely on
the blockchain network itself rather than relying
on trusted third-party organizations to facilitate
transactions.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 26

 !!!Thank You!!!

Fundamentals of Blockchain Department of CSE, ISM Dhanbad January 15, 2023 27