Unit 1 Overview of Blockchain Technology

Unit 1 Overview of Blockchain Technology

1. Course–BlockChainTechnology
Unit-1
OverviewofBlockchainTechnology
WalchandInstituteofTechnology,Solapur.
(www.witsolapur.org)
1

2. DefiningBlockchain
▪Ablockchainisadistributeddatabaseorledgersharedamongacomputer
network'snodes.
▪knownfortheircrucialroleincryptocurrencysystemsformaintaininga
secureanddecentralizedrecordoftransactions,buttheyarenotlimitedto
cryptocurrencyuses.
▪Blockchainscanbeusedtomakedatainanyindustryimmutable
▪Becausethereisnowaytochangeablock,theonlytrustneededisatthe
pointwhereauserorprogramentersdata.
▪Thisaspectreducestheneedfortrustedthirdparties,whichareusually
auditorsorotherhumansthataddcostsandmakemistakes.
▪Bitcoin'sintroductionin2009,blockchainuseshaveexplodedviathe
creationofvariouscryptocurrencies,decentralizedfinance(DeFi)
applications,non-fungibletokens(NFTs),andsmartcontracts.
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3. DefiningBlockchain
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4. Blockchain
▪KeyAdvantages
•Blockchainisatypeofshareddatabasethatdiffersfrom atypicaldatabase
inthewayitstoresinformation.
•Blockchainsstoredatainblockslinkedtogetherviacryptography.
•Differenttypesofinformationcanbestoredonablockchain,butthemost
commonusefortransactionshasbeenasaledger.
•InBitcoin’scase,blockchainisdecentralizedsothatnosinglepersonor
grouphascontrol—instead,alluserscollectivelyretaincontrol.
•Decentralizedblockchainsare immutable,whichmeansthatthedata
enteredisirreversible.
•ForBitcoin,transactionsarepermanentlyrecordedandviewableto
anyone.
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5. Blockchain
▪HowDoesaBlockchainWork?
•spreadsheetsordatabases.
•ABCissomewhatsimilarbecauseitisadatabasewhereinformationis
enteredandstored.
•keydifferencebetweenatraditionaldatabaseorspreadsheetanda
blockchainishowthedataisstructuredandaccessed.
•Ablockchainconsistsofprogramscalledscriptsthatconductthetasksyou
usuallywouldina database.
•Enteringandaccessinginformationandsavingandstoringitsomewhere.
•Ablockchainisdistributed,whichmeansmultiplecopiesaresavedon
manymachines,andtheymustallmatchforittobevalid.
•Theblockchaincollectstransactioninformationandentersitintoablock
likeacellinaspreadsheetcontaininginformation.
•Onceitisfull,theinformationisrunthroughanencryptionalgorithm,
whichcreatesahexadecimalnumbercalled thehash.
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6. Blockchain
▪HowDoesaBlockchainWork?
•Thehashisthenenteredintothefollowingblockheaderandencrypted
withtheotherinformationintheblock.
•Thiscreatesaseriesofblocksthatarechainedtogether.
▪TransactionProcess
▪Transactionsfollowaspecificprocess,dependingontheblockchaintheyare
takingplaceon.
▪Forexample,onBitcoin'sblockchain,ifyouinitiateatransactionusingyour
cryptocurrencywallet—theapplicationthatprovidesaninterfaceforthe
blockchain—itstartsasequenceofevents.
▪InBitcoin,yourtransactionissenttoamemorypool,whereitisstoredand
queueduntilaminerorvalidatorpicksitup.
▪Onceitisenteredintoablockandtheblockfillsupwithtransactions,itis
closedandencryptedusinganencryptionalgorithm.
▪Then,theminingbegins.
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7. Blockchain
▪TransactionProcess
▪Theentirenetworkworkssimultaneously,tryingto"solve"thehash.
▪Eachonegeneratesarandomhashexceptforthe"nonce,"shortfornumber
usedonce.
▪Everyminerstartswithanonceofzero,whichisappendedtotheirrandomly-
generatedhash.
▪Ifthatnumberisn'tequaltoorlessthanthetargethash,avalueofoneisadded
tothenonce,andanewblockhashisgenerated.
▪Thiscontinuesuntilaminergeneratesavalidhash,winningtheraceand
receivingthereward.
▪Onceablockisclosed,atransactioniscomplete.
▪However,theblockisnotconsideredtobeconfirmeduntilfiveotherblocks
havebeenvalidated.
▪Confirmationtakesthenetworkaboutonehourtocompletebecauseitaverages
justunder10minutesperblock.
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8. Blockchain
▪TransactionProcess
▪Notallblockchainsfollowthisprocess.
▪Forinstance,theEthereumnetworkrandomlychoosesonevalidatorfrom
alluserswithetherstakedtovalidateblocks,whicharethenconfirmedby
thenetwork.
▪ThisismuchfasterandlessenergyintensivethanBitcoin'sprocess.
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9. Blockchain
▪TransactionProcess
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10. BlockchainDecentralization
Ablockchainallowsthedatainadatabasetobespreadoutamongseveral
networknodes—computersordevicesrunningsoftwarefortheblockchain—
atvariouslocations.
Thisnotonlycreates redundancybutmaintainsthefidelityofthedata.
Forexample,ifsomeonetriestoalterarecordatoneinstanceofthedatabase,
theothernodeswouldpreventitfromhappening.
Thisway,nosinglenodewithinthe networkcanalterinformationheldwithin
it.
Becauseofthis distribution—andtheencryptedproofthatworkwas done—
theinformationandhistory(likethetransactionsincryptocurrency)are
irreversible.
Sucharecordcouldbealistoftransactions(suchaswithacryptocurrency),
butitalsoispossibleforablockchaintoholdavarietyofotherinformationlike
legalcontracts,stateidentifications,oracompany’sinventory.
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11. BlockchainTransparency
BecauseofthedecentralizednatureoftheBitcoinblockchain,alltransactionscanbe
transparentlyviewedbyeitherhavinga personalnodeorusingblockchainexplorerthatallow
anyonetoseetransactionsoccurringlive.
Eachnodehasitsowncopyofthechainthatgetsupdatedasfreshblocksareconfirmedand
added.
Thismeansthatifyouwantedto, youcouldtrackabitcoinwhereveritgoes.
Forexample,exchangeshavebeenhackedinthepast,resultinginthelossof largeamountsof
cryptocurrency.
Whilethe hackersmayhavebeenanonymous—exceptfortheirwalletaddress—thecrypto
theyextractedareeasilytraceablebecausethewalletaddressesarepublishedonthe
blockchain.
TherecordsstoredintheBitcoinblockchain(as wellas mostothers) areencrypted.
Thismeansthatonlythepersonassignedanaddresscanrevealtheiridentity.
Asaresult,blockchainuserscanremainanonymouswhilepreserving transparency.
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12. IsBlockchainSecure?
Blockchaintechnologyachievesdecentralizedsecurityandtrustinseveralways.
Tobeginwith,new blocksarealwaysstoredlinearlyandchronologically.
Thatis,theyarealwaysaddedto the“end”oftheblockchain.
Afterablockhasbeenaddedtotheendoftheblockchain,previousblockscannotbechanged.
A changeinanydatachangesthehashoftheblockitwasin.
Becauseeachblockcontainsthepreviousblock'shash,achangeinonewouldchangethe
followingblocks.
Thenetworkwouldrejectanalteredblockbecausethehasheswouldnotmatch.
Notallblockchainsare100%impenetrable.
Theyaredistributedledgersthatusecodetocreatethesecurityleveltheyhavebecomeknown
for.
Iftherearevulnerabilitiesinthecoding,theycanbeexploited.
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13. IsBlockchainSecure?
Forinstance,imaginethatahackerrunsanodeonablockchainnetworkandwantstoalter
ablockchainandstealcryptocurrencyfromeveryoneelse.
Iftheyweretochangetheircopy,theywouldhavetoconvincetheothernodesthattheir
copywasthevalidone.
Theywouldneedtocontrolamajorityofthenetworktodothisandinsertitatjustthe
rightmoment.
Thisisknownasa51%attackbecauseyouneedtocontrolmorethan50%ofthenetwork
toattemptit.
Timingwouldbeeverythinginthistypeofattack—bythetimethehackertakesany
action,thenetworkislikelytohavemovedpasttheblockstheyweretryingtoalter.
Thisisbecausetherateatwhichthesenetworkshashisexceptionallyfast—theBitcoin
networkhashedat348.1exahashespersecond(18zeros)onApril21,2023.
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14. Bitcoinvs.Blockchain
Blockchaintechnologywasfirstoutlinedin1991byStuartHaberandW.ScottStornetta,
tworesearcherswhowantedtoimplementasystemwheredocumenttimestampscouldnot
betamperedwith.
Butitwasn’tuntilalmosttwodecadeslater,withthelaunchofBitcoininJanuary2009,
thatblockchainhaditsfirstreal-worldapplication.
TheBitcoinprotocolisbuiltonablockchain.Inaresearchpaperintroducingthedigital
currency,Bitcoin’spseudonymouscreator,SatoshiNakamoto,referredtoitas“anew
electroniccashsystemthat’sfullypeer-to-peer,withnotrustedthird party.”
ThekeythingtounderstandisthatBitcoinusesblockchainasameanstotransparently
recordaledgerofpaymentsorothertransactionsbetweenparties.
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15. Blockchain
Blockchaincanbeusedtoimmutablyrecordanynumberofdatapoints.
Thiscouldbeintheformoftransactions,votesinanelection,productinventories,state
identifications,deedstohomes,andmuchmore.
Currently,tenofthousandsofprojectsarelookingtoimplementblockchainsinvarious
waystohelp societyotherthanjustrecordingtransactions—forexample,asawayto vote
securelyindemocraticelections.
Thenatureofblockchain’simmutabilitymeansthatfraudulentvotingwouldbecomefar
moredifficult.
Forexample,avotingsystemcouldworksuchthateachcountry'scitizenswouldbe issued
asinglecryptocurrencyortoken.
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16. Blockchain
Eachcandidatewouldthenbegivena specificwallet address,andthevoterswouldsend
their tokenor crypto totheaddressofwhichever candidatefor whomtheywishtovote.
Thetransparentandtraceablenatureofblockchainwouldeliminatetheneedforhuman
votecountingandtheabilityofbadactorstotamperwithphysicalballots.
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17. Blockchainvs.Banks
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Feature Banks Bitcoins
TransactionSpeed •Cardpayments:24-48hours
•Checks:24-72hourstoclear
•ACH:24-48hours•Wire:
Within24hoursunless
international*Bank transfersare
typicallynotprocessedon
weekendsorbankholidays
Bitcoin transactionscantakeas
littleas15minutesandasmuch
asoveranhourdependingon
networkcongestion.
TransactionFees Cardpayments:Thisfeevaries
basedonthecardandisnot
paidbytheuserdirectly.Fees
arepaidtothepayment
processorsby storesandare
usuallychargedpertransaction.
Theeffectofthisfeecan
sometimesmake thecostof
goodsandservicesrise.
•Checks:cancostbetween$1
and$30dependingonyour
bank.•ACH:ACHtransferscan
costupto$3whensendingto
externalaccounts.•Wire:
Outgoingdomesticwire
transferscancostasmuchas
$25.Outgoinginternationalwire
Bitcoinhasvariabletransaction
feesdeterminedbyminersand
users.Thisfeecanrange
between$0and$50butusers
havetheabilitytodetermine
howmuchofafeetheyare
willingtopay.Thiscreatesan
openmarketplacewhereifthe
usersetstheirfeetoolowtheir
transactionmaynotbe
processed.

18. Blockchainvs.Banks
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Feature Banks Bitcoins
Security Assumingtheclientpractices
solidinternetsecurity
measureslikeusingsecure
passwordsandtwo-factor
authentication,a bank
account'sinformationisonly
as secureasthebank's
serverthatcontainsclient
accountinformation.
ThelargertheBitcoinnetwork
growsthemoresecureitgets.
ThelevelofsecurityaBitcoin
holderhaswiththeirown
Bitcoinisentirelyuptothem.
Forthisreasonitis
recommendedthatpeople
usecoldstorageforlarger
quantitiesofBitcoinorany
amountthatisintendedtobe
heldforalongperiodoftime.
Privacy Bankaccountinformationis
storedonthebank’sprivate
serversandheldbytheclient.
Bankaccountprivacyis
limitedtohowsecurethe
bank'sservers areandhow
welltheindividualuser
securestheirowninformation.
Ifthebank’sservers wereto
becompromisedthenthe
individual'saccountwouldbe
aswell.
Bitcoincanbeasprivateas
theuserwishes.AllBitcoinis
traceablebutitisimpossible
toestablishwhohas
ownershipofBitcoinif itwas
purchasedanonymously.If
Bitcoinispurchasedona
KYCexchangethenthe
Bitcoinisdirectlytiedtothe
holderoftheKYCexchange
account.

19. Blockchainvs.Banks
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Feature Banks Bitcoins
KnowYourCustomerRules Bankaccountsandother
bankingproductsrequire"Know
YourCustomer"(KYC)
procedures.Thismeansitis
legallyrequiredforbanksto
recorda customer's
identificationpriortoopeningan
account.
Anyoneoranythingcan
participateinBitcoin’snetwork
withnoidentification.
Intheory, evenanentity
equippedwithartificial
intelligencecouldparticipate.
Hoursopen Typicalbrick-and-mortarbanks
areopenfrom9:00amto5:00
pmonweekdays.Somebanks
areopenonweekendsbutwith
limitedhours.Allbanksare
closedonbankingholidays.
Nosethours;open24/7,365
daysayear.
Easeof Transfers Banksreservetherighttodeny
transactionsforavarietyof
reasons.Banksalsoreservethe
righttofreezeaccounts.Ifyour
banknoticespurchasesin
unusuallocationsorforunusual
itemstheycanbedenied.
TheBitcoinnetworkitselfdoes
notdictatehowBitcoinisused
inanyshapeorform.
UserscantransactBitcoinhow
theyseefitbutshouldalso
adheretotheguidelinesoftheir
countryorregion.
AccountSeizures DuetoKYClaws,governments
caneasilytrackpeople'sbanks
accountsandseizetheassets
withinthemforavarietyof
IfBitcoinisusedanonymously
governmentswouldhaveahard
timetrackingitdowntoseizeit.

20. HowAreBlockchainsUsed?
Aswenowknow,blocksonBitcoin’sblockchainstoretransactionaldata.
Today,morethan23,000othercryptocurrencysystemsarerunningona
blockchain.
Butitturnsoutthatblockchainis areliablewayofstoringdataaboutother
typesoftransactions.
SomecompaniesexperimentingwithblockchainincludeWalmart,Pfizer,AIG,
Siemens,andUnilever,amongothers.
Forexample,IBMhascreateditsFoodTrustblockchaintotracethejourneythat
foodproductstaketogettotheirlocations.
Usingblockchainallowsbrandstotrackafoodproduct’sroutefromitsorigin,
througheachstopitmakes,todelivery.
Notonlythat,butthesecompaniescanalsonowseeeverythingelseitmayhave
comeincontactwith,allowingthe identificationoftheproblemtooccurfar
sooner—potentiallysavinglives.
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21. BankingandFinance
Perhapsnoindustrystandstobenefitfromintegratingblockchainintoits
businessoperationsmorethanbanking.
Financialinstitutionsonlyoperateduringbusinesshours,usuallyfivedaysa
week.
ThatmeansifyoutrytodepositacheckonFridayat6p.m.,youwilllikelyhave
towaituntilMondaymorningtoseethatmoneyhityouraccount.
Evenifyoumakeyourdepositduringbusinesshours,thetransactioncanstill
takeonetothreedaystoverifyduetothesheervolumeoftransactionsthat
banksneedtosettle.
Blockchain,ontheotherhand,neversleeps.
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22. BankingandFinance
Byintegratingblockchainintobanks,consumersmightseetheirtransactions
processedinminutesorseconds—thetimeittakestoaddablocktothe
blockchain,regardlessofholidaysorthetimeofdayorweek.
Withblockchain,banksalsohavetheopportunitytoexchangefundsbetween
institutionsmorequicklyandsecurely.
Giventhesizeofthesumsinvolved, eventhefewdaysthemoneyisintransit
cancarrysignificantcostsandrisksforbanks.
Thesettlementandclearingprocessforstocktraderscantakeuptothreedays
(orlongeriftradinginternationally),meaningthatthemoneyandsharesare
frozenforthatperiod.
Blockchaincoulddrasticallyreducethattime.
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23. Currency
BlockchainformsthebedrockforcryptocurrencieslikeBitcoin.TheU.S.dollaris
controlledbytheFederalReserve.
Underthiscentralauthority system,auser’sdataandcurrencyaretechnicallyat
thewhimoftheirbankorgovernment.
Ifauser’sbankishacked,theclient’sprivateinformationisatrisk.
Iftheclient’sbankcollapsesortheclientlivesinacountrywithanunstable
government,thevalueoftheircurrencymaybeatrisk.
In2008,severalfailingbankswerebailedout—partiallyusingtaxpayermoney.
Theseare theworriesoutofwhichBitcoinwasfirstconceivedanddeveloped.
Blockchaincanalsogivethoseincountrieswithunstablecurrenciesorfinancial
infrastructuresamorestablecurrencyandfinancialsystem.
Theywouldhave accesstomoreapplicationsandawider networkofindividuals
andinstitutionswithwhomtheycandodomesticandinternationalbusiness.
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24. Healthcare
Healthcareproviderscan leverageblockchain tostoretheirpatients’medical
recordssecurely.
Whenamedicalrecordisgeneratedandsigned,itcanbewrittenintothe
blockchain,whichprovidespatientswiththeproofandconfidencethatthe
recordcannotbechanged.
Thesepersonalhealthrecordscouldbeencodedandstoredontheblockchain
withaprivate keysothattheyareonlyaccessible tospecific individuals,thereby
ensuringprivacy.
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25. PropertyRecords
IfyouhaveeverspenttimeinyourlocalRecorder’sOffice,youwillknowthat
recordingpropertyrightsisbothburdensomeandinefficient.
Today,aphysicaldeedmustbedeliveredtoagovernmentemployeeatthelocal
recordingoffice,whereitismanuallyenteredintothecounty’scentraldatabase
andpublicindex.
Inthecaseofapropertydispute,claimstothepropertymustbereconciledwith
thepublicindex.
Thisprocessisnotjustcostlyandtime-consuming,itisalsopronetohuman
error,whereeachinaccuracymakestrackingpropertyownershiplessefficient.
Blockchainhasthepotentialtoeliminatetheneedforscanningdocumentsand
trackingdownphysicalfilesinalocalrecordingoffice.
Ifproperty ownershipisstoredandverified ontheblockchain,ownerscantrust
thattheirdeedisaccurateandpermanentlyrecorded.
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26. SmartContracts
Asmartcontractisacomputercode thatcanbebuiltintotheblockchainto
facilitateacontractagreement.
Smartcontractsoperateunderasetofconditionstowhichusersagree.
Whenthoseconditionsaremet,theterms oftheagreementareautomatically
carriedout.
forexample,thatapotentialtenantwouldliketoleaseanapartmentusinga
smartcontract.
Thelandlordagreestogivethetenantthedoorcodetotheapartmentassoon
asthetenantpaysthesecuritydeposit.
Thesmartcontractwouldautomaticallysendthedoorcodetothetenantwhen
itwaspaid.
Itcouldalsobeprogrammedtochangethecodeifrentwasn'tpaidorother
conditionsweremet.
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27. SupplyChains
AsintheIBMFoodTrustexample,supplierscanuseblockchaintorecordthe
originsofmaterialsthattheyhavepurchased.
Thiswouldallowcompaniestoverifythe authenticityofnotonlytheir products
butalsocommonlabelssuchas“Organic,”“Local,”and“FairTrade.”
AsreportedbyForbes,thefoodindustryis increasinglyadoptingtheuseof
blockchaintotrackthepathandsafetyoffoodthroughoutthefarm-to-user
journey.
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28. Voting
blockchaincouldfacilitateamodernvotingsystem.
Votingwithblockchaincarriesthepotentialtoeliminateelectionfraudand
boostvoterturnout,aswas testedintheNovember2018midtermelectionsin
WestVirginia.
Usingblockchaininthiswaywouldmakevotesnearlyimpossibletotamper
with.
Theblockchainprotocolwouldalsomaintaintransparencyintheelectoral
process,reducingthepersonnelneeded toconductanelectionandproviding
officialswithnearlyinstantresults.
Thiswouldeliminatetheneedforrecountsoranyrealconcernthatfraudmight
threatentheelection.
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29. ProsandConsofBlockchain
Pros Cons
Improvedaccuracyby removing
humaninvolvementinverification
Significanttechnologycost
associatedwithsomeblockchains
Costreductionsbyeliminatingthird-
partyverification
Lowtransactionspersecond
Decentralizationmakesitharderto
tamperwithTransactionsare
secure,private,andefficient
transparenttechnology
Historyofuseinillicitactivities,
suchasonthedarkweb
Providesa bankingalternativeand
awaytosecurepersonal
informationforcitizensofcountries
withunstableorunderdeveloped
governments
Datastoragelimitations
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30. BenefitsofBlockchains
AccuracyoftheChain
Transactionsontheblockchainnetworkareapprovedbythousandsof
computersanddevices.
Thisremovesalmostallpeoplefromtheverificationprocess,resultingin
lesshumanerrorandanaccuraterecordofinformation.
Evenifacomputeronthenetworkweretomakeacomputationalmistake,
theerrorwouldonlybemadetoonecopyoftheblockchainandnotbe
acceptedbytherestofthenetwork.
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31. BenefitsofBlockchains
CostReductions
consumerspayabanktoverifyatransactionoranotarytosigna
document.
Blockchaineliminatestheneedforthird-partyverification—and,withit,
theirassociatedcosts.
Forexample,businessownersincurasmallfeewhentheyacceptcredit
cardpaymentsbecausebanksandpayment-processingcompanieshaveto
processthosetransactions.
Bitcoin,ontheotherhand,doesnot haveacentralauthorityandhaslimited
transactionfees.
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32. BenefitsofBlockchains
Decentralization
Blockchaindoesnotstoreanyofitsinformationinacentrallocation.
Instead,theblockchainiscopiedandspreadacrossanetworkofcomputers.
Wheneveranewblockisaddedtotheblockchain,everycomputeronthe
networkupdatesitsblockchaintoreflectthechange.
Byspreadingthatinformationacrossanetwork,ratherthanstoringitinone
centraldatabase,blockchainbecomesmoredifficulttotamperwith.
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33. BenefitsofBlockchains
EfficientTransactions
Transactionsplacedthroughacentralauthoritycantakeuptoafewdaysto
settle.
IfyouattempttodepositacheckonFridayevening,forexample,youmay
notactuallyseefundsinyouraccountuntilMondaymorning.
Financialinstitutionsoperateduringbusinesshours,usuallyfivedaysa
week—butablockchainworks24hoursaday,sevendaysaweek,and365
daysayear.
Onsomeblockchains,transactionscanbecompletedinminutesand
consideredsecureafterjustafew.
Thisisparticularlyusefulforcross-bordertrades,whichusuallytakemuch
longerbecauseoftimezoneissuesandthefactthatallpartiesmustconfirm
paymentprocessing.
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34. BenefitsofBlockchains
PrivateTransactions
Manyblockchainnetworksoperateaspublicdatabases,meaninganyonewith
aninternetconnectioncanviewalistof thenetwork’stransactionhistory.
Althoughuserscanaccesstransactiondetails,theycannotaccessidentifying
informationabouttheusersmakingthosetransactions.
ItisacommonmisperceptionthatblockchainnetworkslikeBitcoinarefully
anonymous;theyareactuallypseudonymousbecausethereisaviewable
addressthatcanbeassociatedwithauseriftheinformationgetsout.
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35. BenefitsofBlockchains
SecureTransactions
Onceatransactionisrecorded,itsauthenticitymustbeverifiedbythe
blockchainnetwork.
Afterthetransactionisvalidated,itisaddedtotheblockchainblock.Each
blockontheblockchaincontainsitsuniquehashandtheuniquehash ofthe
blockbeforeit.
Therefore,theblocks cannotbealteredoncethenetworkconfirmsthem.
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36. BenefitsofBlockchains
Transparency
Mostblockchainsareentirelyopen-sourcesoftware.Thismeansthateveryone
canviewitscode.
ThisgivesauditorstheabilitytoreviewcryptocurrencieslikeBitcoinfor
security.
However,italsomeansthereisnorealauthorityonwhocontrolsBitcoin’s
codeorhowitisedited.
Becauseofthis,anyonecansuggestchangesorupgradestothesystem.
Ifamajorityofthenetworkusersagreethatthenewversionofthecodewith
theupgradeissoundandworthwhile,thenBitcoincanbeupdated.
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37. BenefitsofBlockchains
BankingtheUnbanked
Perhapsthemostprofoundfacetofblockchainandcryptocurrencyistheability
foranyone,regardlessofethnicity,gender,location,orculturalbackgroundto
useit.
AccordingtoTheWorldBank,anestimated1.3billionadultsdonothavebank
accountsoranymeansofstoringtheirmoneyorwealth.
Thesepeopleareoftenpaidinphysicalcash.
Theythenneedtostorethisphysicalcashinhiddenlocationsintheirhomesor
otherplaces,incentivizingrobbersorviolence.
Whilenotimpossibletosteal,cryptomakesitmoredifficultforwould-be
thieves.
Blockchainsofthefuturearealsolookingforsolutionstonotonlybeaunitof
accountforwealthstoragebutalsotostoremedicalrecords,propertyrights,
andavarietyofotherlegalcontracts.
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38. DrawbacksofBlockchains
TechnologyCost
blockchaincansaveusersmoney ontransactionfees,thetechnologyisfarfrom
free.
Forexample,theBitcoinnetwork'sproof-of-worksystemtovalidate transactions
consumesvastamountsof computationalpower.
Intherealworld,theenergyconsumedbythemillionsofdevicesontheBitcoin
networkismorethanPakistanconsumesannually.
Somesolutionstotheseissuesarebeginningtoarise.
Forexample,bitcoin-miningfarmshavebeensetuptousesolarpower,excess
naturalgasfromfrackingsites,orenergyfromwindfarms.
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39. DrawbacksofBlockchains
SpeedandDataInefficiency
Bitcoinis aperfectcasestudyforthepossibleinefficienciesofblockchain.
Bitcoin’sPoWsystemtakesabout10minutestoaddanewblocktothe
blockchain.
Atthatrate,it’sestimatedthattheblockchainnetworkcanonlymanageabout
threetransactionspersecond (TPS).
Cryptocurrencies,suchasEthereum,performbetterthanBitcoin,blockchainstill
limitsthem.LegacybrandVisa,forcontext,canprocess65,000TPS.
Therearecurrentlyblockchainsthatboastmorethan30,000TPS.
Ethereum'smergebetweenitsmainnetandbeaconchain(Sep.15,2022)is
predictedtoallowupto100,000TPSafteritrollsoutaseriesofupgradesthat
includesharding—asplittingofthedatabasesothatmoredevices(phones,
tablets,andlaptops)canrunEthereum.
Thisisexpectedtoincreasenetworkparticipation,reducecongestion,and
increasetransactionspeeds.
39WalchandInstitute ofTechnology,Solapur

40. DrawbacksofBlockchains
IllegalActivity
Whileconfidentialityontheblockchainnetworkprotectsusersfromhacksand
preservesprivacy,italsoallowsforillegaltradingandactivityon theblockchain
network.
The mostcitedexampleofblockchainbeingusedforillicittransactionsis
probablytheSilkRoad,anonlinedarkwebillegal-drugandmoneylaundering
marketplaceoperatingfromFebruary2011untilOctober2013,whentheFBIshut
itdown.
Thedarkweballowsuserstobuyandsellillegalgoodswithoutbeingtrackedby
usingtheTorBrowserandmakeillicitpurchasesinBitcoinorother
cryptocurrencies.
ThisisinstarkcontrasttoU.S.regulations,whichrequirefinancialservice
providerstoobtaininformationabouttheircustomerswhentheyopenanaccount.
Theyaresupposedtoverifytheidentityofeachcustomerandconfirmthattheydo
notappearonanylistofknownorsuspectedterroristorganizations.
40WalchandInstitute ofTechnology,Solapur

41. DrawbacksofBlockchains
Regulation
Manyinthecryptospace haveexpressedconcernsaboutgovernmentregulation
overcryptocurrencies.
Whileitisgettingincreasinglydifficultandnearimpossibletoendsomethinglike
Bitcoinasitsdecentralizednetworkgrows,governmentscouldtheoreticallymake
itillegaltoowncryptocurrenciesorparticipateintheirnetworks.
ThisconcernhasgrownsmallerovertimeaslargecompanieslikePayPalbeginto
allowcustomerstousecryptocurrenciesontheire-commerceplatforms.
41WalchandInstitute ofTechnology,Solapur

42. Types of Blockchain
42WalchandInstitute ofTechnology,Solapur
Here are the 3 types of Blockchains:
1. Public Blockchain
These blockchainsare completely open to following the idea of
decentralization. They don't have any restrictions, anyone having a
computer and internet can participate in the network.
As the name is public this blockchainis open to the public, which
means it is not owned by anyone.
Anyone having internet and a computer with good hardware can
participate in this public blockchain.
All the computers in the network hold the copy of other nodes or blocks
present in the network
In this public blockchain, we can also perform verification of
transactions or records

43. Advantages:
Trustable:There are algorithms to detect fraud. Participants need not worry
about the other nodes in the network.
Secure:This blockchainis large as it is open to the public. In a large size,
there is a greater distribution of records.
Anonymous Nature:It is a secure platform to make your transaction properly
at the same time, you are not required to reveal your name and identity to
participate.
Decentralized:There is no single platform that maintains the network, instead
every user has a copy of the ledger.
Disadvantages:
Processing:The rate of the transaction process is very slow, due to its large
size. Verification of each node is a very time-consuming process.
Energy Consumption:Proof of work is highly energy-consuming. It requires
good computer hardware to participate in the network.
Acceptance:No central authority is there so governments are facing the issue
of implementing the technology faster.
Examples of public blockchainsare Bitcoinand Ethereum.

44. 2. Private Blockchain
These blockchainsare not as decentralized as the public blockchainonly
selected nodes can participate in the process, making it more secure than the
others.
These are not as open as a public blockchain.
They are open to some authorized users only.
These blockchainsare operated in a closed network.
In this few people are allowed to participate in a network within a
company/organization.

45. Advantages:
Speed:The rate of the transaction is high, due to its small size.
Verification of each node is less time-consuming.
Scalability:We can modify the scalability. The size of the network can
be decided manually.
Privacy:It has increased the level of privacy for confidentiality reasons
as the businesses required.
Balanced:It is more balanced as only some users have access to the
transaction which improves the performance of the network.
Disadvantages:
Security:The number of nodes in this type is limited so chances of
manipulation are there. These blockchainsare more vulnerable.
Centralized:Trust building is one of the main disadvantages due to its
central nature. Organizations can use this for malpractices.
An example of private blockchainsis Hyperledger, Corda.

46. 3. Consortium Blockchain
It is a creative approach that solves the needs of the organization. This
blockchainvalidates the transaction and also initiates or receives transactions.
Also known as Federated Blockchain.
This is an innovative method to solve the organization's needs.
Some part is public and some part is private.
In this type, more than one organization manages the blockchain.
Advantages:
Speed:A limited number of users make verification fast. The high speed
makes this more usable for organizations.
Authority:Multiple organizations can take part and make it decentralized at
every level. Decentralized authority, makes it more secure.
Privacy:The information of the checked blocks is unknown to the public
view. But any member belonging to the blockchaincan access it.
Flexible:There is much divergence in the flexibility of the blockchain. Since
it is not a very large decision can be taken faster.

47. Disadvantages:
Approval:All the members approve the protocol making it less
flexible. Since one or more organizations are involved there can be
differences in the vision of interest.
Transparency:It can be hacked if the organization becomes corrupt.
Organizations may hide information from the users.
Vulnerability:If a few nodes are getting compromised there is a
greater chance of vulnerability in this blockchain
Examples of consortium Blockchainare Tendermintand Multichain

48. Comparisionof Types of Blockchain
Feature Public Blockchain Private Blockchain
Consortium
Blockchain
Access Control
Open to everyone
Restricted to
specific participants
Combination of
public and private
Governance
Decentralized Centralized
Mixed governance
structure
Transparency
High transparency Low transparency
Variable
transparency
Scalability
Limited scalability High scalability
High scalability
potential
Security
High due to decentralization
Lower due to
centralization
Variable security
Transaction Speed
Slower due to consensus
mechanisms
Faster transactionsVariable speed
Use Cases
Cryptocurrencies,
decentralized apps
Enterprise
solutions, data
privacy
Various
applications need
flexibility

49. When to Use Blockchain:
Decentralized Systems:
When a system needs to operate without a central authority and with multiple
participants, blockchainoffers a secure and transparent alternative.
Supply Chain Management:
Track products from origin to consumer, ensuring transparency and
authenticity.
Secure Transactions:
For recording financial transactions, digital identities, or any data where
immutability and auditabilityare critical.
Smart Contracts:
Automate agreements and enforce contract terms between parties without
intermediaries.
Voting Systems:
Enhance the integrity and transparency of elections by providing a tamper
proof record of votes.

50. When NOT to Use Blockchain:
Simple Transactions within a Single Entity:
If a system involves only one organization with established trust,
traditional database or centralized system is more efficient.
High Transaction Volumes:
Blockchain'sinherent structure can lead to scalability limitations and slower
transaction processing speeds, making it unsuitable for high-frequency
applications.
Need for Data Reversibility:
Blockchain'simmutability prevents the alteration or deletion of records,
making it unsuitable for scenarios where data needs to be changed or
reversed.
Lack of Need for Decentralization:
If there's no requirement for a decentralized system and a trusted third party
can handle the process, blockchainis not necessary.

51. History of Blockchain
1991–Stuart Haber & W. Scott Stornettaintroduced blockchainto
time-stamp digital documents securely using cryptography, forming a
chain of blocks.
2000–Stefan Konstpublished his theory of cryptographically secured
chains with implementation ideas.
2008–Satoshi Nakamotoconceptualized distributed blockchainin his
Bitcoinwhite paper, creating a secure peer-to-peer system.
2009–Bitcoinwas launched, introducing blockchain’sreal-world
application in cryptocurrency.
2014–Blockchain2.0 emerged; focus shifted from cryptocurrencyto
broader blockchainapplications.
2015–EthereumFrontier Network launched enabling smart contracts;
Hyperledgerproject launched by Linux Foundation.

52. 2017–Japan recognized Bitcoinas legal currency;Blockchainplatform
introduced.
2018–Bitcointurned 10; value dropped to $3,800; crypto ads banned by
Google, Twitter, and Facebook.
2019–Ethereumtransactions exceeded 1 million/day; Amazon launched
Amazon Managed Blockchainon AWS.
2022–Ethereumshifted from Proof of Work to Proof of Stake, reducing
energy consumption by 99.95%.