KAMLA NEHRU INSTITUTE OF TECHNOLOGY

Department of Computer Science and Engineering

SESSION 2019-2020

REPORT

On
Blockchain

Submitted by: Submitted to:

Saurabh Singh (16644) Prof. Sunil Dalal
Prof. Rohit Singh
 Acknowledgement

I have made this report file on the topic Blockchain. I have tried my best to
elucidate all the relevant detail to the topic to be included in the report. While
in the beginning I have tried to give a general view about this topic.

My efforts and wholehearted co-corporation of each and everyone has ended on

a successful note. I express my sincere gratitude to Prof. Sunil Dalal &
Prof. Rohit Singh who assisted me throughout the preparation of this topic. I
thank him for providing me the reinforcement, confidence and most importantly
the track for the topic whenever I needed it.
 Abstract

A Blockchain is a public ledger to which everyone has access but

without a central authority having control. It is an enabling technology for
individuals and companies to collaborate with trust and transparency. One of the
best knows applications of Blockchain are the cryptographic currencies such as
Bitcoin and others, but many other applications are possible. Blockchain
technology is considered to be the driving force of the next fundamental revolution
in information technology. Many implementations of Blockchain technology are
widely available today, each having its particular strength for a specific application
domain. The tutorial provides the participants with insights and practical
experience on Blockchain technology and applications in practice, as well as
theory based exploration of possible business cases.

Blockchain is the revolutionary technology impacting different industries

miraculously was introduced in the markets with its very first modern application
Bitcoin. Bitcoin is nothing but a form of digital currency (cryptocurrency) which
can be used in the place of fiat money for trading. And the underlying technology
behind the success of crypto currencies is termed as Blockchain.
 Table of content

1. Introduction to Blockchain

2. History of Blockchain

3. Blockchain Technology

4. Working of Blockchain

5. Layers of Blockchain

5.1 Application Layer

5.2 Services Layer

5.3 Semantic Layer

5.4 Network Layer

5.5 Infrastructure Layer

6. Smart Contracts

6.1 Working of Smart Contracts

6.2 Benefits of Smart Contracts

7. Consensus

7.1 Proof of Work

7.2 Proof of Stake

8. Web 3.0

9. Advantages and Disadvantages

10. Conclusion

11. References
 1. Introduction to Blockchain

Blockchain is a new technology which is widely used in crypto currency. It has

scope beyond cryptocurrency and can change the way information and transactions
are processed in the current system. It brings higher level of transparency in the
system. It takes control from single administrator system and distributes it to each
node of the network. The single administrator system has chances of getting
corrupted but in Blockchain there is less chance of corruption. This technology can
change the way transactions and information is processed. It will still take some
time to scale Blockchain to this level but it is a more transparent and safe way of
handling transactions.
In the simplest terms, Blockchain can be described as a data structure that holds
transactional records and while ensuring security, transparency, and
decentralization. We can also think of it as a chain or records stored in the forms of
blocks which are controlled by no single authority. A Blockchain is a distributed
ledger that is completely open to any and everyone on the network. Once
information is stored on a Blockchain, it is extremely difficult to change or alter it.
Each transaction on a blockchain is secured with a digital signature that proves its
authenticity. Due to the use of encryption and digital signatures, the data stored on
the blockchain is tamper-proof and cannot be changed.
 2. History of Blockchain

The first work on a cryptographically secured chain of blocks was described in

1991 by Stuart Haber and W. Scott Stornetta. They wanted to implement a system
where document timestamps could not be tampered with. In 1992, Bayer, Haber
and Stornetta incorporated Merkle trees to the design, which improved its
efficiency by allowing several document certificates to be collected into one block.
The first Blockchain was conceptualized by a person (or group of people) known
as Satoshi Nakamoto in 2008. Nakamoto improved the design in an important way
using a Hash cash-like method to timestamp blocks without requiring them to be
signed by a trusted party and to reduce speed with which blocks are added to the
chain. The design was implemented the following year by Nakamoto as a core
component of the cryptocurrency Bitcoin, where it serves as the public ledger for
all transactions on the network.
In August 2014, the bitcoin Blockchain file size, containing records of all
transactions that have occurred on the network, reached 20 GB (gigabytes). In
January 2015, the size had grown to almost 30 GB, and from January 2016 to
January 2017, the bitcoin Blockchain grew from 50 GB to 100 GB in size
 3. Blockchain Technology

In simple words “Blockchain is an open, distributed ledger system that can record
transactions between two parties in permanent and verifiable way”.

• Open
• Distributed
• Ledger
• P2P (peer to peer)
• Permanent
• Non corruptible
• Non tamper able

Picture source: : https://101blockchain.org/guide-to-blockchain

We can only update Blockchain using consensus algorithm. So, when a new set of
information gets uploaded on the system, no one can alter it. The Blockchain will
contain accurate and reliable information on the ledger. The Blockchain verifies
each transaction and add to the linear data structure which contains all the previous
records. This linear Structure is called Blockchain.
 4. Working of Blockchain

Blockchain stored all the information in a ledger system. Moreover, any kind of
data exchanges is called “transactions.” Previously Blockchain was only meant for
transacting digital currencies, but now it can even use other forms of data as well.
Every single user on the network is called “nodes,” and they get a copy of the
updated ledger. Moreover, every node has a different way of communicating with
each other. The system varies from Blockchain to Blockchain. First of all, a user
will request for a transaction in the network. Here, he/she will get two keys –
public and private. But the user can only transact using the private key. And to find
the other person we are sending money to us will need their public key. Anyhow,
after the request a block with all the information of the transaction gets created. In
reality, everything in the block is encrypted to promote security. Once it’s created,
it will be broadcasted to all the nodes in the network. In Blockchain technology
explained we need verification from other nodes that what we claimed is valid.
And so the other nodes use a consensus algorithm (I’ll explain what it is a bit later)
to validate the information. Once our block gets validated, the block will get a spot
on the chain. At the same time, the transaction we did will be executed as well.

Picture source: https://101blockchains.com/blockchain-technology-explained/

 5. Layers of Blockchain

5.1 Application Layer

At first, let’s talk about the application layer. In reality, it comes with dApps
(decentralized Apps), dApp browser, User interface, and the application hosting.
Using the dApp browser, we can get access to the decentralized applications.
Unfortunately, typical browsers like Chrome or Firefox isn’t capable of browsing
through decentralized applications. So, in this one, we will get a completely
different user interface similar to typical browsers. However, with these, we can
also surf the regular internet. Next, the application hosting lets us run all the
decentralized application in this layer. Without this element, no dApps can be live
on the internet. Obviously, the hosting protocol will be fully decentralized as well.
Moreover, maintaining these hosting servers is absolutely secure as they have a
low risk. Next comes the decentralized applications. Typically these are similar to
today’s application but with one distinct change. All of them have a decentralized
network.

5.2 Services Layer

This is the second layer after the application layer. In this one, we’ll get access to
all the essential tools that will help us build and run the dApps layer. In reality, in
this Blockchain explained layer, it covers all the vital elements. More so, we’ll get
our hands on governance, off-chain computing, state channels, data feeds, and side
chains. Data feeds are a process that helps to get the most updated information
from all the credible sources. So, it will help the nodes to get the latest updates
information about the network. On the other hand, off-chain computing is here to
get the computing process done outside the Blockchain. Furthermore, it promotes
additional privacy and takes the burned off the core network system. Additionally,
we’ll get a governance structure here as well. In reality, these are basically a
human-less autonomous organization that can promote a fair environment.
Furthermore, the state channel actual is the pathway between two nodes. So, using
state channels, two nodes can communicate with each other. Other than these, there
are also other elements in Blockchain explained layers. Mainly these are Oracles,
Multi-signatures, Smart contracts, Digital Assets, Wallets, Distributed file storages,
Digital identities, etc. These are optional because a Blockchain technology may
have it or not.
Oracles: Oracles are necessary for smart contracts because they act as an agent for
collecting information from outside the network.

Multi-signatures: This element ensures a different kind of security protocol. In

reality, we would need to sign any transaction without a unique signature for
making a transaction. And here, we can choose how many of these signatures we
want for transacting.

Smart contracts: These are mainly self-executing legal contracts within two
participants on the blockchain technology network. In reality, the whole system
gets rid of the trust issue and lets we quickly exchange any kind of asset.

Digital Assets: Now on the blockchain technology stack, the digital asset can refer
to anything. In reality, it can mean cryptocurrencies, shares, gold, or even other
kinds of document. Furthermore, any digital element with real values in the real
world would be known as digital assets.

Wallets: Here, in the blockchain technology wallets are to store all the digital
assets we will have on the network.

Distributed file storage: In the explanation of blockchain technology, I can safely

say that distributed file storages are actually a server location where all the data
will be stored. Obviously, we’ll need authentication for accessing them.

Digital Identity: In reality, these are the identities of the users on the network.
Furthermore, we will need it to have proper authentication on the network.

5.3 Semantic Layer

There’s no blockchain network without consensus algorithms. In reality,

consensus algorithms are absolutely necessary for maintaining an agreement
between all the nodes. Practically, it’s a process where all the nodes come to the
same agreement over the information on the ledger. Furthermore, in the ledger, no
one can just start a transaction and get it added. He/she may not be honest as well.
So, to make sure that the information on the block is valid, all the nodes come to
the same agreement. But we’ll talk more about it later in the blockchain explained
guide. Next is the participation requirements. In reality, these are mainly rules that
helps the network decide who can join the system and who can’t. Moreover, this
element is basically for the private blockchain technologies out there. On the other
hand, virtual machines offer security and execution environment for all the tasks
on the network. Mostly, it’s used in the smart contract execution. Next comes the
side chains where developers can go to another separated blockchain environment
to develop decentralized applications without affecting the core network. Anyhow,
let’s move on to the next layer in the explanation of blockchain technology guide.

5.4 Network Layer

Another layer after the semantic is the network layer. It contains Trusted Execution
Environment (TEE), Roll our own mechanism, RLPx, Block delivery network, and
many more. Basically trusted execution environment helps the architecture to
maintain scalability issues. Not only it helps the network overcome this issue, but it
also makes it more secure. Furthermore, it helps to store data away from the main
network to take some of the loads off it. Usually, these protocols are for when a
standard protocol doesn’t fully adjust to the infrastructure. So, it lets us customize
other protocols to better adapt to it. It’s best to work with standard ones. But in
some cases, the standard might not be enough. On the other hand, RLPx is a
network suite that helps in the transportation of data between two peers. Anyhow,
it creates an interface to help the users communicate in the blockchain network.
Lastly block delivery networks is a network system that will deliver a web content
or page to us if we request for it. In reality, we can see it in the typical internet
architecture.

5.5. Infrastructure Layer

This is the last layer in the Blockchain technology architecture. In this one, we
might come across mining as a service protocol. However, now, mining is slowly
going away because of the excess power it needs. On the other hand, virtualization
is the means of creating any kind of virtual resources such as servers, network,
storage, OS, etc. Furthermore, it operates in three levels – hardware, system, and
server. Nodes are also a part of this layer. Any device connected to the network is
considered a node. In reality, without any nodes practically, there won’t be any
Blockchain technology at all. Another cool element of this layer is the
decentralized storage of the network. As it’s decentralized, it’s more secure than
ever. In reality, we might see token on this layer as well. Tokens help maintain the
ecosystem and are a native asset on the network.
 6. Smart Contracts

Smart contracts are self-executing legal contracts within two participants on the
blockchain network. Typically with the smart contract, we can practically
exchange any kind of asset such as money, property, shares, anything that is
deemed valuable. Moreover, it lets us do it securely and transparently.
Furthermore, in smart contracts, there’s no need for any intermediary. Now there
are many blockchain applications that come with smart contracts integration. Thus,
this is the main difference between the typical contracts. In case of any legal
contracts, we would need to pay for the service and then get that in return.
However, here we won’t have to wait for the service to get done after paying for it.
So, there’s no issue with trust at all. So, it’s kind of like a vending machine, where
we can get candy or snacks right after the paying.

6.1 Working of Smart Contracts

First of all, a party creates a

contract after the full agreement
from two or more parties. When the
contract is created, all the parties
can choose to remain anonymous.
In the typical private network
space, mainly we would have to
have a proper authentication
process to enter the system. So,
when someone starts a smart
contract with us, they will most
probably know our identification as
well. Well, at least we’d have to let
them know about the public
address. After that, the parties
would set any kind of rules that Picture credit: https//blockchain.org/smart-contracts
needs to be fulfilled in order for the contract to be valid. It could be anything or
any triggering event. So, when that condition would be made, it’ll automatically
trigger the next event. Once everything gets set up, it’ll get verified and stored on
the ledger. After that, everyone connected to that contract would be able to see the
progress right from the network. Moreover, in case of tracking everything will be
in real-time. After fulfilling all the conditions to fulfill the contract, it’ll self-
execute and distribute the money.

6.2 Benefits of Smart Contracts

▪ No Interruption: Due to getting rid of the middleman, there’s no annoying

interruption time in the process.
▪ High Security: We can see everything right from the blockchain applications
UI, so there’s no way anyone can scam us as we can just what the process is.
Also, no one can hack the data on the smart contract to alter the outcome.
▪ Quite Fast: Typically processing everything manually takes up a lot of time.
But when it’s on the blockchain applications network, it’ll flow quite fast.
▪ No human Error: Practically in many contracts, the human-made error cost
a lot of money and time. But with this blockchain applications digital
contract, the chance for that is entirely low.
▪ More Profit: In reality, getting rid of the intermediary gets rid of the extra
payment option as well. So, that means more profit for us.
 7. Consensus

A consensus mechanism is a fault-tolerant mechanism that is used in computer

and blockchain systems to achieve the necessary agreement on a single data value
or a single state of the network among distributed processes or multi-agent
systems, such as with cryptocurrencies. Public Blockchain that operate as
decentralized; self-regulating systems work on a global scale without any single
authority. They involve contributions from hundreds of thousands of participants
who work on verification and authentication of transactions occurring on the
blockchain, and on the block mining activities.

In such a dynamically changing status of the blockchain, these publicly shared

ledgers need an efficient, fair, real-time, functional, reliable, and secure mechanism
to ensure that all the transactions occurring on the network are genuine and all
participants agree on a consensus on the status of the ledger. This all-important
task is performed by the consensus mechanism, which is a set of rules that decides
on the contributions by the various participants of the blockchain.

There are different kinds of consensus mechanism algorithms which work on

different principles.

7.1 Proof of Work

Proof of Work is the first-ever consensus algorithm in the blockchain network. As

we know, bitcoin had the first working blockchain network, and it used proof of
work. After that, many other blockchain networks use this method until now.
However, proof of work consumes a lot of power and is relatively slow. In this
one, miner tends to solve complex mathematical problems using their devices
computational power. Basically, it’s for verifying every single block on the chain.

7.2 Proof of Stake

Proof of stake actually came because of the limitations of the proof of work. Here,
every single block will be validated before any other block comes along.
Moreover, the miners here can stake their coins and take part in the process . But
here the taking participation would depend mostly on the possession of coins. So,
if we have a minimum amount of coin, we can take part or else we can’t. In reality,
proof of stake is much faster and less power consuming than PoW.
There are many other consensus Techniques that can be used in Blockchain
Technology for example:

▪ Delegated Proof of Stake

▪ Leased Proof of Stake

▪ Proof of Stake Velocity

▪ Proof of Elapsed Time

▪ Practical Byzantine Fault Tolerance

▪ Simplified Byzantine Fault Tolerance

▪ Delegated Byzantine Fault Tolerance

▪ Federated Byzantine Agreement

▪ Directed Acyclic Graphs

▪ Proof of Activity

▪ Proof of Authority

▪ Proof of Reputation

▪ Proof of History

▪ Proof of Importance

▪ Proof of Capacity

▪ Proof of Burn

▪ Proof of Weight
 8. Web3.0

Picture credit: https://101blockchains.org/web-3-0

The birth of blockchain spawned a movement which is set to disrupt the entire tech
industry. Blockchain and crypto enthusiasts are calling it the Web 3.0 and it’s
looking to make all traditional business models defunct. This is because, in short,
the technology will facilitate the decentralization of the World Wide Web, thereby
equalizing control and ownership back from the grasp of profit hungry corporations.

Blockchain decentralizes the control:

In legacy systems, the ‘business logic’ or ‘processing programs’ and ‘data’ is
tightly controlled by a central entity like Google, Facebook, Apple. These service
providers keep the secret sauce with themselves.

The user of Google, Facebook, Apple, etc generates the data /content but do know
anything on how his/her data is being used. He/she has no control to monetize
his/her own data. If he/she decides to leave the service, he / she can not get the data
back. His/her data is lost forever.

Picture credit: https://blockchainhub.net/web3-decentralized-web/

In this context, blockchain seems to be a driving force of the next-generation

Internet, what some refer to as the Web3. Blockchain reinvents the way data is
stored and managed. It provides a unique set of data (a universal state layer) that is
collectively managed. This unique state layer for the first time enables a value
settlement layer for the Internet. It allows us to send files in a copy-protected way,
enabling true P2P transactions without intermediaries, and it all started with the
emergence of Bitcoin.
The Bitcoin blockchain and similar protocols are designed in a way that you would
need to break into multiple houses around the globe simultaneously, which each
have their own fence and alarm system, in order to breach them. This is possible
but prohibitively expensive. In the Web3, data is stored in multiple copies of a P2P
network. The management rules are formalized in the protocol and secured by
majority consensus of all network participants, who are incentivized with a native
network token for their activities. Blockchain, as the backbone of the Web3,
redefines the data structures in the backend of the Web, now that we live in a
connected world. It introduces a governance layer that runs on top of the current
Internet that allows for two people who do not know or trust each other to reach
and settle agreements over the Web.
 9. Advantages and Disadvantages of Blockchain

Advantages

1. Blockchain is transparent way of handling transactions

2. It is peer to peer based system so there is no single administration but a

decentralized system.

3. Consensus is provided by various protocols including Proof of Work and Proof

of Stake.

4. It uses protected cryptography to secure the data ledgers. Also, the current
ledger is dependent on its adjacent completed block to complete the cryptography
process.

5. The transactions are recorded in chronological order. Thus, all the blocks in the
blockchain are time stamped.

Disadvantages

1. Blockchains use excessive energy

2. Blockchain is not a huge distributed computing system

3. Mining does not provide network security

4. Blockchain entries do not last forever or are not immutable

5. Scalability remains block chain’s weakness

 10. Conclusion

Blockchain is a young technology and has its fair share of flaws but It can prove to
be a boom to the technology and ways the Transaction and information is handled
around the web. This can bring about the change in the web i.e. Web 3.0
The decentralized way of handling smart contracts is more transparent than the
current system. Blockchain technology is widely being used in the
cryptocurrencies and proves to be a very safe and efficient way of handling the
system. It is scalable, safe and fool proof.
Blockchain has found its way to many applications and can be easily considered as
the future with the introduction of Web 3.0.
 11. References

• https://www.udemy.com/courses/introduction -to-blockchain/it-certification/

• https://media.consensys.net/episode-4-what-is-web-3-0-and-how-can-it-create-new-business-
models-d07bc2e91041

• https://101blockchains.com/blockchain-technology-explained/

• https://en.wikipedia.org/wiki/Blockchain

• https://intellipaat.com/blog/tutorial/blockchain-tutorial/how-does-blockchain-work/

• https://www.ibm.com/in-en/blockchain/what-is-blockchain