Chapter 8 Blockchain PDF

JTO Phase-II IT Blockchain 8 BLOCKCHAIN 8.1 LEARNING OBJECTIVE After completion of this chapter participants will able to understand:  Definition of Blockchain  His...

JTO Phase-II IT Blockchain 8 BLOCKCHAIN 8.1 LEARNING OBJECTIVE After completion of this chapter participants will able to understand:  Definition of Blockchain  History of Blockchain  Why Blockchain  What are the applications  Blockchain Structure  Key Concepts 8.2 DEFINITION OF BLOCKCHAIN Blockchain ,originally block chain is a growing list of records, called blocks, that are linked using cryptography. A Blockchain is defined as a peer to peer distributed ledger forged by consensus, combined with a system for smart contracts. 8.3 HISTORY OF BLOCKCHAIN  In 1991 Stuart haber and W.scott Stornetta released white paper on What is Blockchain and How it works.  In 2009 Satoshi nakamato released white paper and developed distribution ledger, crypto currency / Electronic Cash System, Bitcoin.  In 2015 Vitalik butarin created a platform for creating smart contracts in Ethereum.  In 2017 IBM & Linux foundations collaborately found platforms for creating smart contracts in Hyperledger.  In 2020, Nearly 77 percent of financial institutions have adopted blockchain technology as part of an in-production system or process. Blockchain is the vision of developers who believed that the current banking system had flaws. In particular, they viewed banks acting as third-parties and pilfering transactions fees as unnecessary, and they scoffed at the idea that payment validation and settlement could take up to five business days in cross-border transactions. 8.4 BLOCKCHAIN V/S BITCOIN BITCOIN BLOCKCHAIN What is it A cryptocurrency A ledger To simplify and increase the speed To provide low cost ,secure , safe Main Aim of transactions without need environment for peer to peer government restrictions transactions JTO Phase –II DNIT Version 1.0 Sep 2021 Page 90 of 167 For Restricted Circulation JTO Phase-II IT Blockchain Blockchain can easily transfer Trade Bitcoin is limited to currency anything from currencies to property rights of stocks The Blockchain is more open to Scope Scope of Bitcoin is limited changes and hence has backing of many top companies Bitcoin focuesses on lowering the Blockchain can be adapted to any cost of influencers and reduces the Strategy change and hence it can cater to time of transactions but is less different industries flexible Bitcoin likes to be anonymous and As blockchain works with various hence even though wecan see the business, it should have compliance Status transactions in the ledger,they are in with KYC and other norms. Hence numbers which are not in any Blockchain is transparent particular sequence Technology Application of Blockchain Technology 8.5 WHAT IS BLOCKCHAIN Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent. Of course, blockchain is more complicated than a Google Doc, but the analogy is apt because it illustrates three critical ideas of the technology Blockchain consists of three important concepts: blocks, nodes and miners. BLOCKS Every chain consists of multiple blocks and each block has three basic elements:  The data in the block.  A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash.  The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small). When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined. JTO Phase –II DNIT Version 1.0 Sep 2021 Page 91 of 167 For Restricted Circulation JTO Phase-II IT Blockchain MINERS Miners create new blocks on the chain through a process called mining. In a blockchain every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn't easy, especially on large chains. Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the "golden nonce" and their block is added to the chain. Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it's extremely difficult to manipulate blockchain technology. Think of it as "safety in math" since finding golden nonces requires an enormous amount of time and computing power. When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially. NODES One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning. Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions. Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology. 8.6 BLOCKCHAIN STRUCTURE Figure 52: Blockchain Structure JTO Phase –II DNIT Version 1.0 Sep 2021 Page 92 of 167 For Restricted Circulation JTO Phase-II IT Blockchain Figure 53: Blockchain Structure When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined. Figure 54: Hash in Block  A block header is the metadata to verify the validity of a block. Typical block metadata contains:  Version - the current version of the block structure  Previous block header hash - the reference this block's parent block  Merkle root hash - a cryptographic hash of all of the transactions included in this block JTO Phase –II DNIT Version 1.0 Sep 2021 Page 93 of 167 For Restricted Circulation JTO Phase-II IT Blockchain  Time - the time that this block was created  nBits - the current difficulty that was used to create this block Figure 55: Block header 8.7 CONSENSUS PROTOCOLS  POW :Proof of work  POS :Proof of stake  DPOS :Delegated proof of stake  POA :Proof of Authority  POC : proof of capacity  PoET : Proof of Elapsed time  POD : proof of deposit  POB : proof of burn 8.8 CONCLUSION  We have seen Blockchain Technology which is the future of all applications in next 20 years.  Secure,Safe,Trustworthy,Transperant System  This is a chain of blocks cryptographically linked together so immutable.  The programs can be written in any language like C++,Python, solidity etc. JTO Phase –II DNIT Version 1.0 Sep 2021 Page 94 of 167 For Restricted Circulation