Definitions Some terms we’ve heard in the
A blockchain is a distributed database
that maintains a continuously growing
list of records called blocks secured from
tampering and revision. Each block
contains a timestamp and a link to a
A distributed, decentralized,
digital cryptocurrency that relies
on Blockchain technology.
A blockchain-based distributed
computing platform, featuring smart
contract functionality. It provides a
decentralized virtual machine that
can execute peer-to-peer contracts
using a cryptocurrency called ether.
Blockchain : Bitcoin : Ethereum
Gen 1: Special
Platform for Apps
Payment What is a typical bitcoin flow?
Creates BTC Wallet (software)
Unique wallet address: 1F1t...xaN
Buy BTC for USD/INR
Alice’s wallet ‘signs’ the transaction.
Txn sent out on Bitcoin Network
‘Miners’ collect transactions.
Cryptographically validates them.
Transactions grouped into block.
Adds ‘fees’ for txn.
New BTC reward for mining block.
New block sent out on network.
Other nodes validate.
Connects new block to previous
Thus forming a chain of blocks.
BTC shows up in Bob’s wallet.
No central, controlling, approving authority was involved.
● Why use Blockchain?
● Can Alice send a copy of the same coins to Chanakya?
○ The double-spend problem.
● What if two miners create a block at the same time.
○ Who wins?
● What if the miners cheat?
○ Byzantine Generals problem
Blockchain? What issues does the blockchain
● Trust is centralized
○ Centralized ledger
● Power and abuse at the center
● Deniability with alteration
● Long Time for Transactions
● Hefty charges
● Cost of maintaining software
● Security breaches on ‘one truth’
● Trust without a central figure
○ Decentralized ledger
○ Transact with anybody on the network
○ Confirms: spender has the money
○ Confirms: Not a fraudulent transaction
○ Works with intermittent connectivity
Bitcoin: A Peer-to-Peer Electronic Cash System
“We propose a solution to the double-spending problem using
a peer-to-peer network. The network timestamps transactions
by hashing them into an ongoing chain of hash-based
proof-of-work, forming a record that cannot be changed
without redoing the proof-of-work. The longest chain not only
serves as proof of the sequence of events witnessed, but
proof that it came from the largest pool of CPU power... The
network itself requires minimal structure.”
bitcoin.org/bitcoin.pdf - Satoshi Nakomoto 18
‘On the Shoulders of Giants’
● Distributed Systems
● Peer-Peer Networks
● Hashing Functions
The astonishing innovation
was in bringing it all
together in a way that it
Data Decentralized networks and storage.
Hashes A hash as a unique identifier.
● Used to map data of arbitrary size to
data of fixed size
● Used in data structures like
● Fixed length output
● Must be fast
● Pre-image resistance: it should be
computationally hard to reverse a
● Second Pre-Image Resistance: given
an input and its hash, it should be hard
to find a different input with the same
● Collision Resistance: it should be hard
to find two different inputs of any
length that result in the same hash.
blocks is known
a blockchain consists of
blocks that hold
batches of valid
block includes the hash
of the prior block in the
blockchain, linking the
two. the linked blocks
form a chain. variants of
this format were used
previously, for example
in git, and it is not by
itself sufficient to qualify
as a blockchain.
CMPDLT JT LOPXO
DPOTJTUT PG CMPDLT
UIBU IPME CBUDIFT PG
CMPDL JODMVEFT UIF
IBTI PG UIF QSJPS
CMPDL JO UIF
UIF UXP. UIF MJOLFE
CMPDLT GPSN B DIBJO.
WBSJBOUT PG UIJT
GPSNBU XFSF VTFE
FYBNQMF JO HJU, BOE
JU JT OPU CZ JUTFMG
RVBMJGZ BT B
source Simple Cipher Crypto Hash
blockchaim CMPDLDIBJN a598fc4b9
Block with Transactions
Field Purpose Updated When ... Bytes Example
version Block Version No. s/w upgrade 4 02000000
Prev Block # 256bit # of prev block header A new block arrives 32 c12959edab
Merkle Root # 256bit # of all Txns in Block A Txn is accepted 32 d3f4bac86b2
Timestamp Current Timestamp Block Creation 4 358a2903
Bits Current Difficulty Target Difficulty is adjusted 4 f3591e20
Nonce 32bit number Proof of Work Nonce 4 537629132
Txn Count Count of Txns Each Block 63
Coinbase Txn, User Txn 1, User Txn 2, User Txn ...
# Entire Block 29
● Each transaction is hashed
● Hash values are combined
● Final hash added to block
● If any transaction is tampered
with, final header hash will
Txn α Txn β Txn γ Txn δ
#α #β #γ #δ
Current Block 26
Cryptography How do we ensure authenticity of
● No central authority to verify
● Then who verifies?
○ Maybe, but how many nodes are there?
● A few specific nodes?
○ Maybe, but will they abuse power?
● Sybil attack?
○ Reputation system subverted by forged identities.
Byzantine Generals Problem
● Generals of army surround enemy city
● Action in unison required to win
● Some generals may be traitors
○ Prevents loyal generals from reaching
○ Sabotages the collective action with
○ Fail to act
● Distributed systems must cope with
failure/sabotage of its constituents
Proof of Work
● Effort is Investment
● In exams, directly giving final
answer could be fraudulent
○ must give long proof
● Uses computer cycle time to
● Costly - hardware, energy
Proof of Stake
● Personal Stake is
● Parents → Children; Shares
● Free software. Run it. Get Bitcoins!!
○ Not really.
● #(Rand No. + Prev Block#) < 0x00012
● Because # is unpredictable, only way
to generate fitting value is to keep
trying in a loop for Rand No. (nonce)
● Consumes huge amount of processing
power - hardware + electricity
Mining ‘Difficulty’ Value
● Measure of difficulty in finding hash
value below target value (256 bit
● Mining Difficulty α1/Target Value
● Average mining time is about 10min
Resolving Multiple Chains
● Mine on ‘longest’ chain
○ I.e. add block to the longest valid chain
● Other chains have to kept for a while
● Significant resources/time goes into each block
● Tampering with transactions will require
rebuilding many blocks again before others add
○ Hence immutable
● Each added block is a ‘confirmation’ that Txn is
● Wait multiple confirmations if Txn is large
● Every 210k blocks BTC
● Started with 50 BTC/block
● Today: 12.5 BTC/block
● Fees for txns adds up with
● December 2013: RBI warns investors about volatility
● Not specifically regulated as of now
○ But they are keeping an eye on it
○ Could/Will be regulated eventually
● Have to follow contract laws, pay income or capital gains
taxes, only do legal activities as per other laws
Trading Can I trade cryptocurrency like
stock and currency?
Takeaway All this is overwhelming.
Blockchain is a storage technology.
(with multiple benefits: tamper-proof, forward growing, resilient, etc.)
Bitcoin is one application of it in the area of currencies. It can also be used in
insurance, banking, retail, logistics, owner identification, authenticity validation,
medical records, etc.
There will be platforms (like Ethereum) that you can use to build your own apps.
Unmasking the Blockchain
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