Fundamentals of Blockchain

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

 Outline
 Course Related Information
 Overview of Blockchain
 Conclusions

Fundamentals of Blockchain Department of CSE, ISM Dhanbad January 15, 2023 2

 Lecture Plan
S.N Topics Lectures
1 Introduction- Concepts of cryptocurrency and Blockchain, Consensus 3L
Algorithms- Security of Blockchain, Blockchain Programs and Network,
Concept of Blockchain parameters- Header, Miners, Difficulty, Nonce, Stakes,
Forking, Double-Spending Problem;
2 Preliminaries: Security Services and Mechanisms, Public Key Cryptosystem, 7L
ECC, Cryptographic Hash Functions, Digital Signatures, PKI, Merkle Tree
3 Bitcoin Cryptocurrency: Transactions, Mining, Consensus Mechanisms and 7L
Validation: Poof of Work (PoW), Bitcoin Security issues, Introduction of
Bitcoin Program, Alternative Coins (Namecoin, Litecoin, Primecoin, Zcash)
4 Ethereum Cryptocurrency: Ethereum vs. Bitcoin, Transactions, Ethereum 7L
Blocks, Proof of Stake (PoS),Security issues in Blockchain: Anonymity, Sybil
Attacks, Selfish Mining, 51/49 ratio Attacks
5 Study and comparison of different consensus algorithms: PoS, PoS, Algorand, 5L
Ouroboros, Practical Byzantine Fault Tolerance (PBFT)
6 Smart Contract Fundamentals: Introduction to Smart Contracts, Framework of 5L
smart contract, Life cycle of smart contract, Challenges of Smart Contract.
7 Case Studies as Blockchain technology based Applications (like in e- 5L
Governance,e-Commerce, Database Applications where third party is
involved)
Total 39L

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

 Useful Resources
Text Books:
• A. Narayanan, J. Bonneau, E. Felten, A. Miller, and S Goldfeder,
“Bitcoin and Cryptocurrency Technologies”, Princeton University
Press, 2016
• Xiwei Xu, I. Weber, M. Staples, “Architecture for Blockchain
Applications”, Springer, 2018.
Reference Books
• M. Swan, “Blockchain: Blueprint for a New Economy”, OReilly, 2015
• Daniel Drescher, “Blockchain Basics”, Apress.
• Lecture Note of Prof. S. Vijayakumaran (IIT Bombay), “An Introduction
to Bitcoin”
• Lecture Note of Prof. S. Shukla (IIT Kanpur), “Introduction to
Blockchain Technology and Applications”
• Research papers

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

 Evaluation
Mid Term + End Term Examination: 70
Compulsory Two Quiz Test: 30 Marks (15 Marks Each)
Or
Selected 15 Projects from Different Branches based on their
interest (Not Compulsory)
(All selected projects will be awarded Full 30 Marks)
The Questions of Quiz Test may be MCQ type, True/False, fill
in the blanks, short answer questions or numerical problem.
The Tentative schedule for conducting quizzes are as below:
 Quiz I: Before Mid Semester
 Quiz II: After Mid Semester

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

 Project Proposal Submission Guide Line
Course Branch No Of Students Max No of Group
Bachelor of Technology Computer Science and Engineering 62
7
Integrated Master of Technology Mathematics and Computing 10 (7×2=Max 14 Student)

Bachelor of Technology Electronics and Communication 28 4

Engineering (4×2=Max 8 Student)
Bachelor of Technology Electrical Engineering 14

Bachelor of Technology Mechanical Engineering 14

Bachelor of Technology
Bachelor of Technology
Bachelor of Technology
Bachelor of Technology
Bachelor of Technology
Bachelor of Technology
Bachelor of Technology
Mining Engineering 4
Environmental Engineering 3
Petroleum Engineering 3
Mining Machinery Engineering 2
Civil Engineering 1 3
Mineral Engineering 1 (3×2=Max 6 Student)
Mineral and Metallurgical Engineering 1

Master of Science Physics 2

Integrated Master of Technology Applied Geology 1
Master of Science Mathematics and Computing 1
Master of Technology Data Analytics 1
Master of Technology Computer Science and Engineering 5 1
(1×2=Max 2 Student)
Doctor of Philosophy Computer Science and Engineering 3

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

 Rules and Regulations
Quizzes will be compulsory for everyone whether they are
attempting projects or not.
30 projects will be selected in the initial phase and out of
these, 15 projects will be selected in the final phase.
No marking will be given in the initial phase.
If the project will be selected in the final round, then only
30 marks will be awarded.
If no project will follow the standard, then none will be
selected.
Standard project must maintain :
 Originality
 Novelty in the Context of Implementation
 Level of Complexity
 Model Completeness
 Readability of Code

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

 Introduction
Blockchains are tamper evident and tamper
resistant digital ledgers implemented in a
distributed fashion (i.e., without a central
repository) and usually without a central
authority (i.e., a bank, company or
government).
This technology became widely known in 2009
with the launch of the Bitcoin network, the first
of many modern cryptocurrencies.

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

 Contd…
Blockchains are an emerging digital technology
that combine cryptography, data management,
networking, and incentive mechanisms to
support the checking, execution, and recording
of transactions between parties.
A blockchain ledger is a list (‘chain’) of groups
(‘blocks’) of transactions. Parties proposing a
transaction may add it to a pool of transactions
intended to be recorded on the ledger.

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

 Contd…
Processing nodes within the blockchain system take
some of those transactions, check their integrity, and
record them in new blocks on the ledger.
The contents of the blockchain ledger are replicated
across many geographically-distributed processing
nodes.
These processing nodes jointly operate the blockchain
system, without the central control of any single trusted
third-party.
Nonetheless, the blockchain system ensures that all
nodes eventually achieve consensus about the integrity
and shared contents of the blockchain ledger.

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

 Contd…
Blockchain stores transaction data in blocks that are linked
together to form a chain.
Blocks record and confirm the time and sequence of
transactions, within a discrete network governed by rules
agreed on by the network participants.
The need for an efficient, cost-effective, reliable, and secure
system for conducting and recording financial transactions.

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 Blockchain
Blockchain maintains a ledger and implement a
specific kind of distributed ledger technology.

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

 Contd…

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

 Terminology for Blockchain
Blockchain – the actual ledger
Blockchain technology – a term to describe the technology in the
most generic form
Blockchain network – the network in which a Blockchain is being
used
Blockchain implementation – a specific Blockchain
Blockchain network user – a person, organization, entity, business,
government, etc. which is utilizing the Blockchain network
Node – an individual system within a blockchain network
o Full node – a node that stores the entire blockchain, ensures transactions
are valid
o Miners node – a full node that also publishes new blocks
o Lightweight node – a node that does not store or maintain a copy of the
blockchain and must pass their transactions to full nodes

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 Contd…

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 Contd…

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 16

 Characteristics of Blockchain Network
Consensus: For a transaction to be valid, all participants
must agree on its validity.
Provenance: Participants know where the asset came from
and how its ownership has changed over time.
Immutability: No participant can tamper with a
transaction after it’s been recorded to the ledger. If a
transaction is in error, a new transaction must be used to
reverse the error, and both transactions are then visible.
Finality: A single, shared ledger provides one place to go
to determine the ownership of an asset or the completion
of a transaction.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 17

 A blockchain application

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 Each party within the network maintains its
own ledger, which can take days or weeks to
synchronize.
By using a shared ledger on a blockchain
network, every participant can access, monitor,
and analyze the state of the vehicle irrespective
of where it is within its life cycle

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 Contd…

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

 Contd…
The most well-known blockchains are Bitcoin and Ethereum,
which are public blockchain.

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 Limitations of Business Transactions
• Cash is useful only in local transactions and in relatively
small amounts.
• The time between transaction and settlement can be long
• Duplication of effort and 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.

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 Need of Blockchain
The world needs payment networks that are fast and that
provide a mechanism that establishes trust.
Requires no specialized equipment, has no chargeback's
or monthly fees.
Provides a collective bookkeeping solution for ensuring
transparency and trust.

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

 Key points of Blockchain
The successful operation of a blockchain system
relies on several key elements including:
Appropriate integrity criteria to be checked for each
transaction and block
The correctness of the system’s software and technical
protocols
Strong cryptographic mechanisms to identify parties
and check their authority to add new transactions
A suite of incentive mechanisms to motivate processing
nodes to participate in the community and to behave
honestly, in their interests

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 24

 Bitcoin
One solution that has been developed to address the complexities,
vulnerabilities, inefficiencies, and costs of current transaction
systems is bitcoin.
A digital currency that was launched in 2009 by a mysterious
person (or persons) known only by the pseudonym Satoshi
Nakamoto.
Bitcoin has no central monetary authority such as bank. No one
controls it and bitcoins are not printed like dollars or euros.
Rather than rely on a central monetary authority to monitor, verify,
and approve transactions and manage the money supply, bitcoin is
enabled by a peer-to-peer computer network made up of its users’
machines.
Bitcoin are “mined” by people and increasingly by businesses,
running computers all around the world, using software that
solves mathematical puzzles.

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

 Advantage of Bitcoin
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: The underlying ledger is
tamper-evident. A transaction can’t be changed;
it can only be reversed with another transaction,
in which case both transactions are visible.

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

 Blockchain
Bitcoin is actually built on the foundation of blockchain. Blockchain
owes its name to the way it stores transaction data in blocks that
are linked together to form a chain.
Blockchain provides the means for recording bitcoin transactions —
the shared ledger — but this shared ledger can be used to record
any transaction and track the movement of any asset whether
tangible, intangible, or digital.
The blockchain architecture gives participants the ability to share a
ledger that is updated, through peer-to-peer replication, every time
a transaction occurs.
Peer- to-peer replication means that each participant (node) in the
network acts as both a publisher and a subscriber.
Each node can receive or send transactions to other nodes, and the
data is synchronized across the network as it is transferred.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 27

 Benefits of Blockchain
Time savings: Transaction times for complex, multi-party interactions
are slashed from days to minutes. Transaction settlement is faster,
because it doesn’t require verification by a central authority.
Cost savings: A blockchain network reduces expenses in several ways:
 Less oversight is needed because the network is self-policed by network
participants, all of whom are known on the network.
 Intermediaries are reduced because participants can exchange items of
value directly.
 Duplication of effort is eliminated because all participants have access to
the shared ledger.
Tighter security: Blockchain’s security features protect against
tampering, fraud, and cybercrime. If a network is permissioned, it
enables the creation of a members-only network with proof that
members are who they say they are and that goods or assets traded are
exactly as represented.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 28

 Benefits of Permissioned Blockchain
Enhanced privacy: Through the use of IDs and
permissions, users can specify which transaction
details they want other participants to be permitted
to view. Permissions can be expanded for special
users, such as auditors, who may need access to
more transaction detail.
Improved auditability: Having a shared ledger
that serves as a single source of truth improves the
ability to monitor and audit transactions.
Increased operational efficiency: Pure
digitization of assets streamlines transfer of
ownership, so transactions can be conducted at a
speed more in line with the pace of doing business.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 29

 Attributes of Blockchain
Distributed and sustainable: The ledger is shared, updated
with every transaction, and selectively replicated among
participants in near real time. Because it’s not owned or
controlled by any single organization, the blockchain platform’s
continued existence isn’t dependent on any individual entity.
Secure, private, and indelible: Permissions and cryptography
prevent unauthorized access to the network and ensure that
participants are who they claim to be. Privacy is maintained
through cryptographic techniques and/or data partitioning
techniques to give participants selective visibility into the
ledger; both transactions and the identity of transacting parties
can be masked. After conditions are agreed to, participants can’t
tamper with a record of the transaction; errors can be reversed
only with new transactions.
Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 30
 Attributes of Blockchain
Transparent and auditable: Because participants in a transaction
have access to the same records, they can validate transactions and
verify identities or ownership without the need for third-party
intermediaries. Transactions are time-stamped and can be verified in
near real time.
Consensus-based and transactional: All relevant network
participants must agree that a transaction is valid. This is achieved
through the use of consensus algorithms. Each blockchain network
can establish the conditions under which a transaction or asset
exchange can occur.
Orchestrated and flexible: Because business rules and smart
contracts (that execute based on one or more conditions) can be built
into the platform, blockchain business networks can evolve as they
mature to support end-to-end business processes and a wide range of
activities.
Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 31
 Key Concepts of Blockchain
Shared ledger:
Records all transactions across the business network; the
shared ledger is the system of record, the single source
of truth.
Is shared among all participants in the network; through
replication, each participant has a duplicate copy of the
ledger.
Is permissioned, so participants see only those
transactions they’re authorized to view. Participants have
identities that link them to transactions, but they can
choose the transaction information that other participants
are authorized to view.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 32

 Contd…
Permissions:
Blockchains can be permissioned or permissionless.
In permissioned blockchain, each participant has a unique identity, which
enables the use of policies to constrain network participation and access to
transaction details.
Permissioned blockchains are more effective at controlling the consistency
of the data that gets appended to the blockchain.
With the ability to restrict access to transaction details, more transaction
detail can be stored in the blockchain and participants can specify the
transaction information they’re willing to allow others to view.
Example : if Party A transfers an asset to Party B, both Party A and Party B
can see the details of the transaction. Party C can see that A and B have
transacted but can’t see the details of the asset transfer. If an auditor or
regulator joins the network, privacy services can ensure that they see full
details of all transactions on the network.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 33

 Contd…
Consensus
Proof of stake: To validate transactions, validators must hold a certain
percentage of the network’s total value. Proof-of-stake might provide increased
protection from a malicious attack on the network by reducing incentives for
attack and making it very expensive to execute attacks.
Proof of Work: The network challenges every machine that stores a copy of the
ledger to solve a complex puzzle based on its version of the ledger. Machines
with identical copies of the ledger “team up” to solve the puzzle they’ve been
given. The first team to solve the puzzle wins, and all other machines update
their ledgers to match that of the winning team. The idea is that the majority
wins because it has the most computing power to solve its puzzle first.
Multi-signature: A majority of validators (for example, three out of five) must
agree that a transaction is valid.
Practical Byzantine Fault Tolerance (PBFT): An algorithm designed to settle
disputes among computing nodes (network participants) when one node in a set
of nodes generates different output from the others in the set.

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 Contd…
Smart contracts:
A smart contract is an agreement or set of rules that
govern a business transaction; it’s stored on the
blockchain and is executed automatically as part of a
transaction.
Smart contracts may have many contractual clauses
that could be made partially or fully self-executing,
self-enforcing, or both.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 35

 Participants in Blockchain
Blockchain user: A participant (typically a business user) with
permissions to join the blockchain network and conduct transactions
with other network participants. Blockchain technology operates in the
background, so the blockchain user has no awareness of it. There are
typically multiple users on any one business network.
Regulator: A blockchain user with special permissions to oversee the
transactions happening within the network. Regulators may be
prohibited from conducting transactions.
Blockchain developer: Programmers who create the applications and
smart contracts that enable blockchain users to conduct transactions on
the blockchain network. Applications serve as a conduit between users
and the blockchain.
Blockchain network operator: Individuals who have special
permissions and authority to define, create, manage, and monitor the
blockchain network. Each business on a blockchain network has a
blockchain network operator.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 36

 Contd…
Traditional processing platforms: Existing computer systems
that may be used by the blockchain to augment processing.
This system may also need to initiate requests into the
blockchain.
Traditional data sources: Existing data systems that may
provide data to influence the behavior of smart contracts and
help to define how communications and data transfer will
occur between traditional applications/data and the blockchain
via API calls, thru MQ style cloud messaging, or both.
Certificate authority: An individual who issues and manages
the different types of certificates required to run a
permissioned blockchain. For example, certificates may need
to be issued to blockchain users or to individual transactions.

Fundamentals of Blockchain Dept. of CSE, IIT(ISM) Dhanbad January 15, 2023 37

 !!!Thank You!!!

Fundamentals of Blockchain Department of CSE, ISM Dhanbad January 15, 2023 38