Unit 3- Blockchain Technology
3.1 Introduction to Blockchain:
Blockchain can be defined as the Chain of Blocks that contain some specific Information.
Thus, a Blockchain is a ledger i.e file that constantly grows and keeps the record of all
transactions permanently. This process takes place in a secure, chronological (Chronological
means every transaction happens after the previous one) and immutable way. Each time when
a block is completed in storing information, a new block is generated.
3.1.1 Backstory of Blockchain
Let’s discuss the timeline of blockchain evolution:
1991: In 1991, researcher scientists named Stuart Haber and W. Scott Stornetta introduce
Blockchain Technology. These scientists wanted some Computational practical Solution for
time-stamping the digital documents so that they couldn’t be tempered or misdated. So both
scientists together developed a system with the help of Cryptography. In this System, the
time-stamped documents are stored in a Chain of Blocks.
1992: After that in 1992, Merkle Trees formed a legal corporation by using a system
developed by Stuart Haber and W. Scott Stornetta with some more features. Hence,
Blockchain Technology became efficient to store several documents to be collected into one
block. Merkle used a Secured Chain of Blocks that stores multiple data records in a sequence.
However, this technology became unused when the Patent came into existence in 2004.
2000: In the year 2000, Stefan Konst published his theory of cryptographic secured chains,
plus ideas for implementation.
2004: In the year 2004, Cryptographic activist Hal Finney introduced a system for digital
cash known as “Reusable Proof of Work”. This step was the game-changer in the history of
Blockchain and Cryptography. This System helps others to solve the Double Spending
Problem by keeping the ownership of tokens registered on a trusted server.
2008: After that 2008, Satoshi Nakamoto conceptualized the concept of “Distributed
Blockchain” in his white paper: ”A Peer to Peer Electronic Cash System”. He modified the
model of Merkle Tree and created a system that is more secure and contains the secure history
of data exchange. His System follows a peer-to-peer network of time stamping. His system
became so useful that Cryptography became the backbone of Blockchain.
2009: After that, the evolution of Blockchain is steady and promising and became a need in
various fields. In 2009, Satoshi Nakamoto Releases Bitcoin White Paper.
2014: The year 2014 is marked as the turning point for blockchain technology. Blockchain
technology is separated from the currency and Blockchain 2.0 is born. Financial institutions
and other industries started shifting their focus from digital currency to the development of
blockchain technologies.
2015: In 2015, Ethereum Frontier Network was launched, thus enabling developers to write
smart contracts and dApps that could be deployed to a live network. In the same year, the
Linux Foundation launched the Hyperledger project.
2016: The word Blockchain is accepted as a single word instead of two different concepts as
they were in Nakamoto’s original paper.
2017: In the year 2017, Japan recognized Bitcoin as a legal currency. [Link] company
introduced the EOS blockchain operating system which was designed to support commercial
decentralized applications.
2018: Bitcoin turned 10 in the year 2018. The bitcoin value continued to drop, reaching the
value of $3,800 at the end of the year. Online platforms like Google, Twitter, and Facebook
banned the advertising of cryptocurrencies.
2019: In the year 2019, Ethereum network transactions exceeded 1 million per day. Amazon
announced the general availability of the Amazon Managed Blockchain service on AWS.
2020: Stablecoins were in demand as they promised more stability than traditional
cryptocurrencies. The same year Ethereum launched Beacon Chain in preparation for
Ethereum 2.0.
2022 : Ethereum has shifted from Proof of Work(PoW) to Proof of Stake(PoS) consensus
mechanism. The original Ethereum mainnet merged with Beacon Chain which has Proof-of-
Stake. Now it is existing as one chain.
3.1.2 What is Blockchain?
Blockchain technology is an advanced database mechanism that allows transparent
information sharing within a business network.
A blockchain database stores data in blocks that are linked together in a chain.
The data is chronologically consistent because you cannot delete or modify the chain without
consensus from the network. As a result, you can use blockchain technology to create an
unalterable or immutable ledger for tracking orders, payments, accounts, and other
transactions.
The system has built-in mechanisms that prevent unauthorized transaction entries and create
consistency in the shared view of these transactions.
Features of Blockchain:
• Decentralization
Decentralization in blockchain refers to transferring control and decision making from a
centralized entity (individual, organization, or group) to a distributed network. Decentralized
blockchain networks use transparency to reduce the need for trust among participants.
• Immutability
Immutability means something cannot be changed or altered. If a transaction record includes
an error, you must add a new transaction to reverse the mistake, and both transactions are
visible to the network.
• Consensus
A blockchain system establishes rules about participant consent for recording transactions.
You can record new transactions only when the majority of participants in the network give
their consent.
key components of blockchain:
Blockchain architecture has the following main components:
• Distributed ledger
A distributed ledger is the shared database in the blockchain network that stores the
transactions, such as a shared file that everyone in the team can edit. You cannot delete
entries once they have been recorded.
• Smart contracts
Companies use smart contracts to self-manage business contracts without the need for an
assisting third party. They are programs stored on the blockchain system that run
automatically when predetermined conditions are met. They run if-then checks so that
transactions can be completed confidently.
• Public key cryptography
Public key cryptography is a security feature to uniquely identify participants in the
blockchain network. This mechanism generates two sets of keys for network members. One
key is a public key that is common to everyone in the network. The other is a private key that
is unique to every member. The private and public keys work together to unlock the data in
the ledger.
3.2 Centralize Versus Decentralize System:
3.3 Layers of Blockchain
[Link] Layer
As we know a blockchain technology is a tamperproof, decentralized, and shared ledger
technology, so there can be multiple applications that can build on the basis of these features
of the blockchain. Several applications are developed due to the characteristics of the
blockchain, such as the immutability of the data, the transparency between the participants, the
resistance against enemy attacks. Some applications built in application layer can interface
with the other layers; therefore, the application layer is on the top of this layer suit.
The application layer is the one where a user can code the desired functionality and build the
application for user of the application. Since the blockchain is a decentralized technology and
there is no server involved, the application needs to be installed on each node. Although there
are some instances where blockchain is in the backend and the applications need to be hosted
on a web server and needs a server-side programming, but it would be good if there were no
server involved in the blockchain network as it would defeat the purpose and benefit of
blockchain technology.
[Link] Layer
This layer handles the executions of all the instruction that were performed at the application
layer for all the nodes present on the blockchain network. The set of instruction could range
from simple ones to multiple instructions. For example, smart contract is also small code that
needs to be executed when some funds need to be transferred form one person to another
person. Now if one application is present on all the nodes of the blockchain network the code
has to be executed independently on all the nodes. In order to avoid the inconsistencies in the
output, the execution of code on a set of input should always produce the same output for all
the nodes present on the blockchain.
[Link] Layer
This layer also called as logical layer of blockchain layer suit. This layer deals in validation of
the transactions performed in the blockchain network and also validating the blocks being
generated in the network. When a transaction comes up from a node, the set of instruction are
executed on the execution layer and gets validated on the semantic layer. Semantic layer is also
responsible for the linking of the blocks created in the network. As we already know each block
in the blockchain contains the hash of the previous block except the Genesis block. This linking
of block needs to be defined on this layer.
The semantic layer is a logical layer because there is order in transactions and blocks. Whether
valid or invalid, the transaction has a series of instructions that are passed through the execution
layer but are checked in the semantic layer.
[Link] Layer
A propagation layer deals with the peer-to-peer communications between the nodes that allow
them to discover each other and get synced with another node in a network. When a transaction
is carried out, it gets broadcasted to all other nodes in the network. Also, when a node proposes
a block, it will immediately get broadcast in the entire network so that other nodes can use this
newly created block and work upon it. Hence, the propagation of the block or a transaction in
the network is defined in this layer and ensures the stability of the complete network. However,
depending upon the network capacity or network bandwidth sometimes the propagation could
occur instantly sometimes it may take a longer.
[Link] Layer
This layer is the base layer for most of the blockchain systems. This main purpose of this layer
is to make sure that all the nodes must get agree on a common state of the shared ledger. The
layer also deals with the safety and security of the blockchain. There are many consensus
algorithms which can be applied for generation of cryptocurrencies like Bitcoin and Ethereum,
they uses proof-of-work mechanism to select a node randomly out of various nodes present on
the network that can propose a new block. Once a new block is created, the block is propagated
to all the other nodes to check if the new block is valid or not with the transactions in it and
based on the consensus from all other nodes the new block gets added on to the blockchain.
The consent layer is often the base layer for a blockchain. There can be various ‘ways’ to get
community consent, depending on the application of the case—blockchain security and safety
in this area.
3.4 Importance of Blockchain
• It is an immutable public digital ledger, which means when a transaction is
recorded, it cannot be modified
• Due to the encryption feature, Blockchain is always secure
• The transactions are done instantly and transparently, as the ledger is updated
automatically
• As it is a decentralized system, no intermediary fee is required
• The authenticity of a transaction is verified and confirmed by participants
