PUBLIC BLOCKCHAIN

SYSTEM
Prepared By:
Palak Desai
Assistant Professor
SCET, Surat
 Introduction Public Blockchain
• The core component of blockchain technology is a decentralized database.
• This decentralized nature of the blockchain means that no one has to know or trust
anyone else.
• Each node in the network has a copy of the exact same data in the form of a distributed
ledger. If any member ledger is corrupted or altered then it will be rejected by the
majority of the members in the network.

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 Public blockchain is a permission less, distributed ledger system, which
means anyone who is connected to the internet can join a blockchain
network and become a part of it. The basic use of such blockchain is for
exchanging cryptocurrencies and mining.

• It maintains trust among the whole community of users as everyone in the network feels
motivated to work towards the improvement of the public network.

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 • A public blockchain is one where anyone is free to join and participate in the core
activities of the blockchain network.
• Anyone can read, write, and audit the ongoing activities on a public blockchain network.
• A public network operates on an incentivizing scheme that encourages new participants
to join and keep the network agile.

Features:
- Permissionless
- Decentralized System
- Anonymity
- No regulation
- Security

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 Advantages:
1. Trustable
2. Secure
3. Open and Transparent

Disadvantages:
1. Lower TPS(Transaction per Second)
2. Scalability Issue
3. High Energy Consumption

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 Popular Public Blockchain:
• Bitcoin
• Ethereum
• Litecoin
• Ripple
• NEO
• Waves
• Cardano

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 Bitcoin Blockchain
• Bitcoin was introduced to the public in 2009 by an anonymous developer or group of
developers using the name Satoshi Nakamoto.

• Bitcoin (BTC) is a cryptocurrency, a virtual currency designed to act as money and a form
of payment outside the control of any one person, group, or entity, thus removing the
need for third-party involvement in financial transactions.

• It is rewarded to blockchain miners for the work done to verify transactions and can be
purchased on several exchanges.

• Bitcoin uses the SHA-256 hashing algorithm to encrypt the data stored in the blocks on
the blockchain

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 • Bitcoin and its ledger are secured by proof-of-work (PoW) consensus, which is also the
"mining" process that introduces new bitcoins into the system.
• Unlike fiat currency, Bitcoin is created, distributed, traded, and stored using a
decentralized ledger system known as a blockchain.
• Bitcoin is the world's largest cryptocurrency by market capitalization.

• There are 3 ways you can get a bitcoin in your electronic storage:
- Mine Bitcoins
- Trade Money For Bitcoin
- Trade Goods For Bitcoin

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 • When a transaction takes place on the blockchain, information from the previous block is
copied to a new block with the new data, encrypted, and the transaction is verified by
validators—called miners—in the network.

• Transactions are placed into a queue to be validated by miners within the network.
Miners in the Bitcoin blockchain network all attempt to verify the same transaction
simultaneously.

• When a transaction is verified, a new block is opened, and a Bitcoin is created and given
as a reward to the miner(s) who verified the data within the block—they are then free to
use it, hold it, or sell it.

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 Features of Bitcoin:
- Immutable
- Decentralized
- Security
- Distributed Ledger
- Proof of Work (PoW) Consensus

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 Ethereum Blockchain:
• Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network that
securely executes and verifies application code, called smart contracts.
• Smart contracts allow participants to transact with each other without a trusted central authority.
• Transaction records are,
- immutable,
- verifiable,
- securely distributed across the network,
- giving participants full ownership and visibility into transaction data.
• Transactions are sent from and received by user-created Ethereum accounts.
• A sender must sign transactions and spend Ether, Ethereum's native cryptocurrency, as a cost of
processing transactions on the network.

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 Ethereum has two types of accounts:
1. External Accounts:
- User controlled accounts
- It has Ether as balance, perform transactions
- Controlled by Public-Private pair of keys without any associate codes.
2. Contract Accounts:
- Controlled by writing its code known as contract
- It is a functional programmatic unit in Ethereum that resides on a blockchain
- It has ether balance, associate code, code will be executed when the transaction is initiated

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 Features of Ethereum:
1. Ether(ETH)
2. Smart Contract
3. Ethereum Virtual Machine
4. Decentralized Applications (Dapps)
5. Decentralized Autonomous Organizations (DAOs)

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 1. Ether:
- Ether (ETH) is a cryptocurrency on the Ethereum platform.
- Ethereum requires resources to run. Because it is distributed, it is owned simultaneously by no
one and everyone participating—but the resources it uses must be paid for.
- It is used to pay the transaction fees and computation resources used in the transaction.
- Ether is used to pay the gas fees.
- Gas is the unit of measure that is used for computational efforts required to perform a specific
task on Ethereum network.

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 2. Smart Contract:
- A smart contract is a piece of computer program written to exchange any type of asset
such as money, shares, information, documents between two peers (parties).
- Anyone can create contract that consist of terms and conditions mutually agrees on
between parties.
- Basic feature of this contract is that once it has been executed, it can never be altered.
- Any transaction done on this contract is immutable.
- The verification of smart contract is done by anonymous parties of the network without
requiring centralized authority that makes the Ethereum network decentralized.

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 3. Ethereum Virtual Machine (EVM):

- EVM is mainly intended to operate as a Runtime Environment for compilation and

deployment of the code written as smart contract.
- EVM engine understands and verifies the language of smart contract which written in
solidity language. In EVM, one can write, compile, test smart contracts on these platform
n number of times, verify them and once satisfied with the functionality and the platform
of smart contact.
- Code written in solidity language for the smart contract is complied and converted to the
byecode, which EVM can understand.
- Solidity is combination of C, C++, JAVA and JavaScript.

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 4. Decentralized Application (dApps):

• Decentralized applications or dApps are distributed, decentralized open-source software

applications that run on a decentralized peer-to-peer network.
• Example:
- Imagine the Twitter application that you have on your phone. You can post anything you want on
Twitter but ultimately it’s controlled by a single company that can delete your tweets if you violate
community guidelines or some other reason.
- But if there was a Twitter-type dApp, then it would be decentralized and not owned by any one person.
If you posted something there, nobody would be able to delete it including its creators.

• dApps can be decentralized because they are controlled by the logic written into the contract, not
an individual or company. This also means you need to design your contracts very carefully and
test them thoroughly.

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 • Decentralized Autonomous Organizations (DAOs):

• A DAO is a decentralized autonomous organization, a type of bottom-up entity structure with no

central authority.

• A DAO is intended to improve the traditional management structure of many companies. Instead
of relying on a single individual or small collection of individuals to guide the direction of the
entity, a DAO intends to give every member a voice, vote, and opportunity to propose initiatives.
A DAO also strives to have strict governance that is dictated by code on a blockchain.

• Members of a DAO own tokens of the DAO, and members can vote on initiatives for the entity.
Smart contracts are implemented for the DAO, and the code governing the DAO's operations is
publicly disclosed.

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 • The backbone of a DAO is its smart contract, which defines the rules of the organization and holds
the group's treasury.

• Once the contract is live on Ethereum, no one can change the rules except by a vote.

• If anyone tries to do something that's not covered by the rules and logic in the code, it will fail.
And because the treasury is defined by the smart contract too that means no one can spend the
money without the group's approval either.

• This means that DAOs don't need a central authority. Instead, the group makes decisions
collectively, and payments are automatically authorized when votes pass.

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 Table: Difference between Bitcoin and Ethereum
Bitcoin Ethereum
Founder Satoshi nakamoto Vitalik Buterin
Release Date 2009 2015
Consensus Mechanism PoW PoS
Usage P2P Platform designed to create Smart
P2P Digital currency
Contract and Decentralized Application.
Cryptocurrency Used Bitcoin Ether
Algorithm SHA-256 Ethash
Avg Block Time 10 mins 10-12 Sec

Ether, native currency of Ethereum is the

Bitcoin is the most popular digital currency
Popularity second-largest cryptocurrency after bitcoin
in the market to date.
to date.

Energy consumption is very low as compared

Energy Consumption Energy consumption is very high.
to bitcoin

Supply 21 million limit Unlimited

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 Smart Contract
• It is an agreement between buyer and seller written into self-executable lines of code.
• The whole blockchain network contains the code and agreement.
• This contracts are immutable and traceable.

• Just like a traditional contract is enforceable by law, smart contracts are enforceable by
code.

Smart contracts do not contain the legal language or terms of a contract between two parties.
They are scripts that contain if/then statements, functions, module imports, and other
programming that automate the actions specified in a contract.

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 Smart Contract Uses:

• Because smart contracts execute agreements, they can be used for many different purposes. One
of the simplest uses is ensuring transactions between two parties occur, such as the purchase and
delivery of goods.
• For example,
-A manufacturer needing raw materials can set up payments using smart contracts, and the supplier can
set up shipments. Then, depending on the agreement between the two businesses, the funds could be
transferred automatically to the supplier upon shipment or delivery.

• Real estate transactions, stock and commodity trading, lending, corporate governance, supply
chain, dispute resolution, and healthcare are only a few examples where smart contracts can be
used

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 • Smart contracts were first proposed in 1994 by Nick Szabo, an American computer scientist who
invented a virtual currency called "Bit Gold" in 1998, 10 years before Bitcoin was introduced.

• He defined smart contracts as computerized transaction protocols that execute the terms of a
contract.

• A smart contract can also be defined as a piece of computer code that runs on the top of the
blockchain network. It says that how the involved parties can communicate with each other by a
set of rules. If it is meeting the predefined rules, automatically agreement is done.

• It is automatically done on a virtual platform when this contract has been executed.

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 Pros:
• The primary benefit of smart contracts is similar to the benefit of blockchain technology—they
remove the need for third parties.

Other benefits of this technology are:

• Efficiency: They speed up contract execution
• Accuracy: There can be no human error introduced
• Immutability: The programming cannot be altered

Cons:
• Permanent: They cannot be changed if there are mistakes
• Human factor: They rely on the programmer to ensure the code addresses the terms of the
contract

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 Characteristics of a Smart Contract
Immutable Once deployed smart contract cannot be changed, it can only be removed as long as the functionality is implemented
previously.
Secure As contracts are immutable after their transaction in a blockchain network, they are secured by a cryptographic has as
well which makes the environment most secure.

Transparent It is visible to everyone on the public network, anyone can see what a smart contract is.

Near real-time On the distributed network, throughput is highly dependent on congestion, simultaneous execution of contracts for all
execution parties.
Once the required criteria are satisfied the execution is almost real-time.

Accurate Smart contract is a set of protocols agreed by involved parties. It is simple and accurate as it doesn’t have any relevance
with legal agreements.

Trustless Involvement of a third party is not required for the verification process as it is verified by anonymous nodes and no one
can alter the copy because there is no involvement of a third party.

Deterministic Smart contracts can only perform functions for which they are designed only when the required conditions are met.
The final outcome will not vary, no matter who executes the smart contract.

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 Types of Smart Contracts

Types of Smart
Contract

Decentralized
Application Logic
Smart Legal Contract Autonomous
Contracts (ALCs)
Organizations (DAO)

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 1. Smart Legal Contract:
• These smart contracts are legally enforceable.
• A code is written by either of parties involved which can fulfill all the actual resource used, every
minute details require to make the transaction successful.

• They follow the pattern of legal contracts:

- "if this happens, then this will happen."
- As smart contracts are hosted on blockchain and thus immutable, legal smart contracts provide more
transparency among contracting parties.
- Contracting parties sign contracts using digital signatures. Smart legal contracts can execute
automatically when conditions have been met.

Examples:
• Digital will
• A legal agreement between two organization

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 2. Decentralized Autonomous Organizations (DAO):
• DAO is defined as communities that exist on the blockchain network.
• They are defined with a set of rules and policies that must be followed by every member of the
community. This set of rules are put into the code via smart contracts.
• Every action of the member then abide to follow these rule and break of these rules can lead to
legal policies defined in the rules.

• It is a digital DAO and a form of shareholder heading for venture capital funds.
• It was activated on Ethereum blockchain and had no traditional board of directors.
• It was built upon the idea that no one is authorized to access the asset without the approval of
the whole group.

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 3. Application Logic Contracts (ALCs):

• Combination of blockchain and the applications like IoT

• In such IoT applications, various devices are communicating with each other for data
transfer is there that is known as Application Logic Contracts (ALCs).

• These contracts contain an application-based code, which typically remains in sync with
other blockchain contracts. It enables communication across different devices, such as
the Internet of Things (IoT) merger with blockchain technology.

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 Blockchain Oracle
• Blockchain oracles are entities that connect blockchains to external systems, thereby
enabling smart contracts to execute based upon inputs and outputs from the real world.

• Once any data is reported to a blockchain, that data becomes an integral and immutable part of
the blockchains’ history that cannot be removed.
• Any incorrect execution of the smart contract based on that data will cause irreparable damage to
your contract.

• As the blockchain problem reaches consensus, one cannot provide external information related to
transaction data since other nodes would know that the information is being derived from an
“untrusted” source.
• Therefore, information should ideally come from a third-party source that is reliable for all nodes,
which is the oracle.

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 • The blockchain oracle is a mediator service that offers smart contracts with information
from external sources.
• It is a software layer of blockchain that verifies, authenticates, controls external data
from the outside world with the use of trusted APIs and then passes on the information.
• The data of smart contracts may consist of feeds on finance, weather prediction
information, random number generation for games, news data, data from IoT etc.
• Oracle offers a web layer that queries the data source for specific information and
provides the interface between blockchain and the information feed.
• So, the smart contracts can be verified and executed based on the data coming from the
feeds.

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 Types of Oracles
1. Software Oracles:
They are able to assemble data from any online source, including servers and web pages. Any
kind of up-to-the-moment data, such as currency exchange rates or the cost of a digital asset,
can be provided

2. Hardware Oracles:
These oracles convert physical occurrences into machine-readable values that smart contracts
can use. Electronic sensors, barcode scanners, and other reading devices could be used to
obtain such data.

3. Consensus Oracles:
This is an attempt towards decentralized and distributed oracles that reply on collecting data
from various oracles with predefined methods to verify authenticity and accuracy.

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 1. Inbound Oracles:
These types of oracles take decisions based on the data values. For example, if the amount of
asset is met then activate a sell.
2. Outbound Oracles:
They allow the smart contract to share data with outside resources of the blockchain network.

• All in one, oracles offer an interface between ordinary networks and blockchain networks.
• On the other hand, oracles are from a centralized point and they require third party intervention
for permission.
• The authenticity of the outside data is also important and as oracles are third-party services,
security is the bottleneck for the blockchain network.

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 Smart Contract in Industries
• Smart contracts are software codes and functions to be implemented as a set of
promises on a blockchain.
• Required aspects of the two communicating parties are coded on a blockchain and when
the code meets, the smart contract is ready for execution and an immutable entry has
been done on the ledger.
• This concept has changed the industry drastically.

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 1. Real estate:
• Property Ownership:
- Smart contracts can speed up the process of property ownership changes.
- Property ownership change contracts can be programmed and executed automatically.
- For example,
Once the buyer makes the payment to the seller, the smart contract can automatically change
ownership of the asset based on the payment information on the blockchain.
• Renting:
- Properties can also be rented by using smart contracts: For instance, Rent Peacefully allows
renting and listing properties on the Ethereum blockchain using smart contracts.
- One advantage that tenants have on Rent Peacefully is that when a maintenance order is
submitted to the blockchain, the smart contract realizes this and locks the rent until the problem is
solved.

• Real Estate Investing:

- Real estate ownership can be tokenized and sold like a real estate investment trust (REIT).
- Smart contracts can be written for real estate transactions so they provide rental income or
dividends to the holders.

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 2. Logistics:
• Supply Chain Management
- Supply chain management is the management of the flow of goods and involves the
active streamlining of a business’s supply-side activities.
- In a supply chain network, once an item reaches the final destination, the ownership
status of the item changes.
- With smart contracts, everyone in the supply chain can track the location of the item
with the help of IoT sensors and smart contracts.
- If an item is lost during the process, smart contracts can detect its location. Smart
contracts can also automate routine tasks and payments so organizations don’t need to
communicate via documents.
- For example:
Walmart has been able to track the sources of the products using smart contracts in the
blockchain system.

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 3. Insurance sector
The insurance world is full of disputes. With this in mind, smart contracts have an important role to play
in automating policies and services in the insurance industry. This can help to reduce insurer costs and
result in lower premiums. With automated claims payment processes powered by smart contract
technology, policy-holders can get paid faster than through current manual processes.

4. Shipping
- 90% of international trade is carried with ships. The typical shipping process involves many parties
and many documents.
- The massive amount of documents and parties involved can easily cause inefficiencies and
problems along the supply chain due to communication and disagreement between parties.
- Smart contracts can solve this problem by providing a single source where all information is stored
in a unified format that can be easily communicated to the relevant parties.
-TradeLens,a joint venture between IBM & Mersek, uses smart contracts to facilitate collaboration
between parties in international trade.

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 References
1. https://www.geeksforgeeks.org/blockchain/

2. https://ethereum.org/

3. https://www.investopedia.com/terms/b/bitcoin.asp

4. Blockchain Technology By Chandramouli Subramanian, Asha George, Abhilash K A and Meena

Karthikeyan , Universities Press Publication.

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