Blockchain definition ,introduction ,types and mechanism used
- 2. Blockchain Concepts • • Blockchain • • An immutable distributed database, i.e. a log of blocks, • which are linked and replicated on full nodes • • A block • • Digital container for transactions, contracts, property titles, • etc. • • Transactions are secured using public key encryption • • The code of each new block is built on that of the • preceding block • • Guarantees that it cannot be changed or tampered • • The blockchain is viewed by all participants • • Enables validating the entries in the blocks • • Privacy: users are pseudonomyzed
- 3. Blockchain Concepts • Blockchain Protocol (Nakamoto 2008) • 0. Initialization (of a full node) • • Synchronization with the network to obtain the • blockchain (185 GB on Q3, 2018) • 1. Two users agree on a transaction • • Information exchange: wallet addresses, public keys, … • 2. Grouping with other transactions in a block and • validation of the block (and of the transactions) • • Consensus using "mining" • 3. Addition of the validated block in the blockchain • and replication in the P2P network • 4. Transaction confirmation
- 7. Blockchain:Definition • Layman's definition: Blockchain is an ever-growing, secure, shared record keeping system in which each user of the data holds a copy of the records, which can only be updated if all parties involved in a transaction agree to update. • Technical definition: Blockchain is a peer-to-peer, distributed ledger that is cryptographically-secure, append-only, immutable (extremely hard to change), and updateable only via consensus or agreement among peers. • Peer-to-peer • Distributed ledger • Cryptographically-secure • Append-only • Updateable via consensus
- 8. Transactions •As with enterprise transactions today, Blockchain is a historical archive of decisions and actions taken •Proof of history, provides provenance(proof)
- 9. Immutable •As with existing databases, Blockchain retains data via transactions •The difference is that once written to the chain, the blocks can be changed, but it is extremely difficult to do so. Requiring rework on all subsequent blocks and consensus of each. •The transaction is, immutable, or indelible •In DBA terms, Blockchains are Write and Read only •Like a ledger written in ink, an error would be be resolved with another entry
- 10. Decentralized Peers •Rather than the centralized “Hub and Spoke” type of network, Blockchain is a decentralized peer to peer network. Where each NODE has a copy of the ledger. Legacy Network Blockchain Network Centralized DB Distributed Ledgers
- 11. Consensus •Ensures that the next block in a blockchain is the one and only version of the truth •Keeps powerful adversaries from derailing the system and successfully forking the chain •Many Consensus mechanisms, each with pros and cons
- 12. Smart Contracts •Computer code •Provides business logic layer prior to block submission
- 13. The network view of a Blockchain
- 14. The generic structure of a block
- 15. The various ideas that supported the invention of Bitcoin and blockchain:
- 16. Generic elements of a blockchain
- 17. Elements of a generic blockchain are described here one by one. •Address •Transaction •Block •Peer-to-peer network •Scripting or programming language •Virtual machine •Chain Virtual machine •State machine •Node •Smart contract
- 19. What is meant by a distributed ledger '? •Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
- 20. What is Distributed Ledger Technology (DLT)? • Distributed Ledger Technology (DLT) is centered around an encoded and distributed database where records regarding transactions are stored. A distributed ledger is a database that is spread across various computers, nodes, institutions, or countries accessible by multiple people around the globe. • Types of Distributed Ledger Technology • The Distributed Ledgers can be categorized into three categories: • Permissioned DLT: Nodes have to take permission from a central authority to access or make any changes in the network. Mostly these types of permissions include identity verification. • Permissionless DLT: There is no central authority to validate transactions, rather existing nodes are collectively responsible for validating the transactions. Various consensus mechanisms are used to validate transactions based on predefined algorithms. In the case of bitcoin proof of work consensus mechanism is used. • Hybrid DLT: It is combined with both permissionless and permissioned DLTs and can benefit from both of them.
- 21. Types of blockchain • Public blockchains • They are open to the public, and anyone can participate as a node in the decision-making process. Users may or may not be rewarded for their participation. All users of these permissionless or unpermissioned ledgers maintain a copy of the ledger on their local nodes and use a distributed consensus mechanism to decide the eventual state of the ledger. Bitcoin and • Ethereum are both considered public blockchains. • Private blockchains That is, they are open only to a consortium or group of individuals or organizations who have decided to share the ledger among themselves. There are various blockchains now available in this category, such as HydraChain and Quorum. Optionally, both of these blockchains can also run in public mode if required, but their primary purpose is to provide • Semiprivate blockchains With semiprivate blockchains, part of the blockchain is private and part of it is public. With a semi-private blockchain, the private part is controlled by a group of individuals, while the public part is open for participation by anyone.
- 22. •Sidechains More precisely known as pegged sidechains, this is a concept whereby coins can be moved from one blockchain to another and moved back again. •Permissioned ledger A permissioned ledger is a blockchain where participants of the network are already known and trusted. Permissioned ledgers do not need to use a distributed consensus mechanism; instead, an agreement protocol is used to maintain a shared version of the truth about the state of the records on the blockchain. •Shared ledger This is a generic term that is used to describe any application or database that is shared by the public or a consortium. Generally, all blockchains, fall into the category of a shared ledger.
- 23. •Fully private and proprietary blockchains •Tokenized blockchains • These blockchains are standard blockchains that generate cryptocurrency as a result of a consensus process via mining or initial distribution. Bitcoin and Ethereum are prime examples of this type of blockchain. •Tokenless blockchains These blockchains are designed in such a way that they do not have the basic unit for the transfer of value. However, they are still valuable in situations where there is no need to transfer value between nodes and only the sharing of data among various trusted parties is required. This is similar to full private blockchains, the only difference being that use of tokens is not required. This can also be thought of as a shared distributed ledger used for storing data. It does have its benefits when it comes to immutability, security, and consensus driven updates but are not used for common blockchain application of value transfer or cryptocurrency.
- 24. Consensus • Consensus is a procedure to reach in a common agreement in a distributed or decentralized multi-agent platform. • For example, there are 4 people who could make two decisions, A or B. Three people are in the favour of A and one person in the favour of B. Then, decision A will be considered as majority of people are in its favour. • Need for Consensus: • Reliability and Fault tolerance in a distributed system. Even if there are certain faulty nodes present in the network, correct operations can take place using consensus. • Uses of Consensus: • Commit transaction in a database: If you wish to transfer money from your bank branch to some other bank branch, then all the bank branches need to reach consensus to decide the validity of transaction and then allow the transaction. • State Machine Replication and Clock synchronization
- 25. • Types of Fault: ∙ Crash Fault: A node suddenly crashes or becomes unavailable in the middle of a communication due to software or hardware failure. ∙ Network or Partitioned Fault: A network fault occurs (say the link failure) and the network gets partitioned. ∙ Byzantine Fault:A node starts behaving maliciously. • Properties of Distributed Consensus: ∙ Termination: Every correct node(non-faulty) decides some value at the end of the protocol. ∙ Validity: If all the individuals proposes the same value, then all correct individuals decide on that value. ∙ Integrity: Every correct individual decides at most one value, and the decided value must be proposed by some individuals. ∙ Agreement: Every correct individual must agree on the same value.
- 26. Consensus mechanism • A consensus mechanism is a set of steps that are taken by most or all nodes in a blockchain to agree on a proposed state or value. • There are various requirements that must be met to provide the desired results in a consensus mechanism. • The following describes these requirements: ✔ Agreement: All honest nodes decide on the same value ✔ Termination: All honest nodes terminate execution of the consensus process and eventually reach a decision ✔ Validity: The value agreed upon by all honest nodes must be the same as the initial value proposed by at least one honest node ✔ Fault tolerant: The consensus algorithm should be able to run in the presence of faulty or malicious nodes (Byzantine nodes) ✔ Integrity: This is a requirement that no node can make the decision more than once in a single consensus cycle
- 27. Types of consensus mechanisms • There are two general categories of consensus mechanisms. These categories deal with all types of faults (fail stop type or arbitrary). • These common types of consensus mechanisms are as follows: • Traditional Byzantine Fault Tolerance (BFT)-based: With no compute-intensive operations, such as partial hash inversion (as in Bitcoin PoW), this method relies on a simple scheme of nodes that are publisher-signed messages. Eventually, when a certain number of messages are received, then an agreement is reached. • Leader election-based consensus mechanisms: This arrangement requires nodes to compete in a leader-election lottery, and the node that wins proposes a final value. For example, the PoW used in Bitcoin falls into this category.
- 28. Consensus in blockchain • A blockchain is a decentralised, distributed, and public digital ledger that is used to record transactions. • Each of these transactions is recorded as a ‘block’ of data, which needs to be independently verified by peer-to-peer computer networks before they can be added to the chain. • This system helps to secure the blockchain against fraudulent activity and addresses the problem of ‘double-spending’. • Consensus is a distributed computing concept that has been used in blockchain in order to provide a means of agreeing to a single version of the truth by all peers on the blockchain network. • Proof of Work (PoW) • Proof of Stake (PoS) • Delegated Proof of Stake (DPoS) • Proof of Importance (PoI) • Proof of Capacity (PoC) • Proof of Elapsed Time (PoET) • Proof of Activity (PoA) • Proof of Authority (PoA)
- 29. PoW(proof of Work):It is a consensus mechanism in which computing power is used to verify cryptocurrency transactions and add them on the blockchain • Proof of work (PoW) is a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system. • Proof of work is used widely in cryptocurrency mining, for validating transactions and mining new tokens. • Due to proof of work, Bitcoin and other cryptocurrency transactions can be processed peer-to-peer in a secure manner without the need for a trusted third party. • Proof of work at scale requires huge amounts of energy, which only increases as more miners join the network. • Proof of Stake (POS) was one of several novel consensus mechanisms created as an alternative to proof of work. •
- 30. PoS(proof of stake): A cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. • With proof-of-stake (POS), cryptocurrency owners validate block transactions based on the number of staked coins. • Proof-of-stake (POS) was created as an alternative to Proof-of-work (POW), the original consensus mechanism used to validate a blockchain and add new blocks. • While PoW mechanisms require miners to solve cryptographic puzzles, PoS mechanisms require validators to hold and stake tokens for the privilege of earning transaction fees. • Proof-of-stake (POS) is seen as less risky regarding the potential for an attack on the network, as it structures compensation in a way that makes an attack less advantageous. • The next block writer on the blockchain is selected at random, with higher odds being assigned to nodes with larger stake positions.
- 31. PoC: proof of capacity • Proof of capacity (PoC) is a consensus mechanism algorithm used in blockchains that allows for mining devices in the network to use their available hard drive space to decide mining rights and validate transactions. This is in contrast to using the mining device’s computational power (as in the proof of work algorithm) or the miner’s stake in the cryptocurrencies (as in the proof of stake algorithm). • Proof of capacity (PoC) authentication systems employ spare space on a device's hard drive to store solutions to a cryptocurrency hashing problem. • The main benefit of a PoC system is its efficiency compared to proof-of-work (PoW) and proof-of-stake (PoS) systems.
- 32. PoA: proof of activity • Proof-of-activity (PoA) is a blockchain consensus algorithm used in cryptocurrencies and similar systems. • It is used to ensure that all transactions occurring on the blockchain are genuine, as well as to ensure that all miners arrive at a consensus. • PoA is a combination of two other blockchain consensus algorithms: proof-of-work (PoW) and proof-of-stake (PoS). • Proof-of-activity (PoA) is a blockchain consensus algorithm that is a combination of two other blockchain consensus algorithms: proof-of-work (PoW) and proof-of-stake (PoS). • The PoA system is an attempt to combine the best aspects of both the PoW and the PoS systems; the mining process begins like a PoW system, but after a new block has been successfully mined, the system switches to resemble a PoS system. • Decred (DCR) is the most well-known cryptocurrency that uses the PoA consensus mechanism.
- 33. PoB:proof of burn • Proof of burn is one of the several consensus mechanism algorithms implemented by a blockchain network to ensure that all participating nodes come to an agreement about the true and valid state of the blockchain network. This algorithm is implemented to avoid the possibility of any cryptocurrency coin double-spending. • Proof of burn follows the principle of “burning” the coins held by the miners that grant them mining rights. • Cryptocurrencies use several methods to validate the data stored on their blockchains, including a method called "proof of burn." • Proof of burn is the third attempt at creating a system to deter fraudulent activity on a blockchain, while also improving the functioning of the blockchain as a tool for transactions. • Proof of work and proof of stake are also methods for preventing fraudulent activity on a blockchain; proof of work is the system employed by the original and most popular cryptocurrency, Bitcoin.
- 34. PoET:proof of elapsed time • Proof of elapsed time (PoET) is a blockchain network consensus mechanism that prevents high resource utilization and energy consumption; it keeps the process more efficient by following a fair lottery system. • Proof of elapsed time (PoET) is a consensus algorithm developed by Intel Corporation that enables permissioned blockchain networks to determine who creates the next block. • PoET follows a lottery system that spreads the chances of winning equally across network participants, giving every node the same chance. • The PoET algorithm generates a random wait time for each node in the blockchain network; each node must sleep for that duration. • The node with the shortest wait time will wake up first and win the block, thus being allowed to commit a new block to the blockchain. • The PoET workflow is similar to Bitcoin's proof of work (PoW) but consumes less power because it allows a node to sleep and switch to other tasks for the specified time, thereby increasing network energy efficiency. •
- 35. Pos and DPoS • Proof of Storage (PoS): This scheme allows for the outsourcing of storage • capacity. This scheme is based on the concept that a particular piece of data is • probably stored by a node which serves as a means to participate in the consensus • mechanism. Several variations of this scheme have been proposed, such as Proof • of Replication, Proof of Data Possession, Proof of Space, and Proof of Space-Time. Delegated Proof of Stake (DPoS): This is an innovation over standard PoS, whereby each node that has a stake in the system can delegate the validation of a transaction to other nodes by voting. It is used in the BitShares blockchain.
- 36. • Proof of Importance (PoI): This idea is significant and different from PoS. PoI not only relies on how large a stake a user has in the system, but it also monitors the usage and movement of tokens by the user in order to establish a level of trust and importance. Federated consensus or federated Byzantine consensus: This mechanism is used in the stellar consensus protocol. Nodes in this protocol retain a group of publicly-trusted peers and propagate only those transactions that have been validated by the majority of trusted nodes. • Reputation-based mechanisms: As the name suggests, a leader is elected by the reputation it has built over time on the network. It is based on the votes of other members. • PBFT: This mechanism achieves state machine replication, which provides tolerance against Byzantine nodes. Various other protocols including PBFT, PAXOS, RAFT, and Federated Byzantine Agreement (FBA) are also being used or have been proposed for use in many different implementations of distributed systems and blockchains.
- 37. CAP Theorem: CAP theorem, also known as Brewer's theorem, was introduced by Eric Brewer in 1998 as conjecture. In 2002, it was proven as a theorem by Seth Gilbert and Nancy Lynch. The theory states that any distributed system cannot have consistency, availability, and partition tolerance simultaneously:
- 38. Tiers of Blockchain Technology Blockchain 1.0: • This tier was introduced with the invention of Bitcoin, • primarily used for cryptocurrencies. • Bitcoin was the first implementation of cryptocurrencies, • It includes core applications such as payments and applications. • This generation started in 2009 when Bitcoin was released and ended in early 2010. Blockchain 2.0: • This second blockchain generation is used by financial services and smart contracts. • This tier includes various financial assets, such as • derivatives, options, swaps, and bonds. • Applications that go beyond currency, finance, and markets are incorporated at this tier. • Ethereum, Hyperledger, and other newer blockchain platforms are considered part of Blockchain 2.0. • This generation started when ideas related to using blockchain for other purposes started to emerge in 2010.
- 39. Tiers of Blockchain Technology Blockchain 3.0: • This third blockchain generation is used to implement applications beyond the financial services industry and is used in government,health, media, the arts, and justice. • Again, as in Blockchain 2.0, Ethereum, Hyperledger, and newer blockchains with the ability to code smart contracts are considered part of this blockchain technology tier. • This generation of blockchain emerged around 2012 when multiple applications of blockchain technology in different industries were researched. Blockchain X.0: • This generation represents a vision of blockchain singularity where one day there will be a public blockchain service available that anyone can use just like the Google search engine. • It will be a public and open distributed ledger with general-purpose rational agents (Machina economicus) running on a blockchain, making decisions, and interacting with other intelligent autonomous agents on behalf of people, and regulated by code instead of law or paper contracts. • This does not mean that law and contracts will disappear, instead law and contracts will be implementable in code.
- 40. Tiers of Blockchain Technology