1

Basis Bitcoin Ethereum

Bitcoin Ethereum is a
(abbreviation: BTC; decentralized global
sign: ₿) is a software platform
decentralized powered by blockchain
Definition digital currency
technology. It is most
that can be
transferred on the commonly known for its
peer-to-peer native cryptocurrency,
bitcoin network. ether (ETH).

The word bitcoin was Ethereum was conceived

defined in a white paper in 2013 by programmer
History published on 31 October Vitalik Buterin, and then
2008. The currency went live on 30 July
began use in 2009. 2015.

The purpose of bitcoin The purpose of Ethereum

was to replace national was to utilize blockchain
Purpose
currencies during the technology for
financial crisis of 2008. maintaining a
decentralized payment
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network and storing

computer code.

Although bitcoin do have

smart contracts, they are Ethereum allows us to
not as flexible or create smart contracts.
complete as Ethereum Smart contracts are
Smart smart contracts. Smart computer codes that is
Contracts contracts in Bitcoin does stored on a blockchain
not have all the and executed when the
functionality that a predetermined terms and
programming language conditions are met.
would give them.

Smart contracts on Smart contracts on

Smart Contract
Bitcoin are written in Ethereum are written in
Programming
programming languages programming languages
Language
like Script, Clarity. like Solidity, Vyper, etc.
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Generally, bitcoin Ethereum transactions

Transactions transactions are only for may contain some
keeping notes. executable code.

Ethereum runs on the

Hash Bitcoin runs on the SHA-
Keccak-256 hash
Algorithm 256 hash algorithm.
algorithm.

The Proof-of-Work
The Proof-of-Stake is the
Consensus (PoW) is the consensus
consensus mechanism
Mechanism mechanism used by the
used by Ethereum.
Bitcoin network.

The block time of

The block time of bitcoin
Block Time Ethereum is 14 to 15
is 10 minutes.
seconds.

The Ethereum blockchain

The bitcoin blockchain
Block Limit does not have a block
has a block limit of 1 MB.
limit.
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Ether, native currency of

Bitcoin is the most
Ethereum is the second-
Popularity popular digital currency
largest cryptocurrency
in the market to date.
after bitcoin to date.

Energy consumption is
Energy Energy consumption is
very low as compared to
Consumption very high.
bitcoin

Energy Energy consumption rate Energy consumption rate

Consumption of bitcoin mining system of bitcoin mining system
rate 3.2 Million household. 1.2 Million household.

Structure of bitcoin is Structure of Ethereum is

Structure
simple and robust. complex and feature rich

Miner got nearly 5 BTC

Miner got nearly 6.25
along with same
BTC on successfully
Rewards additional rewards on
adding new block in
successfully adding new
network.
block in network.
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Assets of Ethereum is
Assets Assets of Bitcoin is BTC.
Ether.

What Is Bitcoin Mining?

Bitcoin mining refers to the process of validating and recording transactions on the
Bitcoin network. The primary purpose of Bitcoin mining is twofold: validating
transactions to prevent fraud and adding new blocks to the blockchain, thereby creating
new Bitcoins in a decentralized manner.

Key Takeaways:

● The process of bitcoin mining involves the verification of new transactions

against the Bitcoin network, which results in the production of new bitcoins.
● Bitcoin mining is the process by which Bitcoin transactions are validated
digitally on the Bitcoin network and added to the blockchain ledger.
● It is done by solving complex cryptographic hash puzzles to verify blocks of
transactions that are updated on the decentralized blockchain ledger.

How Does Bitcoin Mining Work?

The nodes of the blockchain network are based on the concept that no one in
the network can be trusted. Proof of work is accepted by nodes to validate
any transaction. Proof of work involves doing hefty calculations to find a 32-
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bit hash value called nonce to solve the mathematical puzzle. The miners
create new blocks by abiding by the fact that the transaction volume must be
less than 21 million. 21 million is the total number of bitcoins that can be
generated. The verified transaction gets a unique identification code and is
linked with the previous verified transaction.

Let's understand this with the help of an example-

● Suppose Alice wants to transfer 10 BTC to Bob.

● Now the transaction data of A is shared with the miners from the

memory pool. A memory pool is a place where an unconfirmed or

unverified transaction waits for its confirmation.

● Miners start competing with themselves to solve the mathematical

riddle in order to validate and verify the transaction using proof of

work.

● The miner who solves the problem first shares his result with other

nodes(miners).

● Once maximum nodes agree with the solution, the transaction block

is verified and is then added to the blockchain.

● At the same time, the miner who solved the puzzle gets a reward of

6.25 bitcoins.

● Now, after the addition of the transaction block, the 10 BTC

associated with the transaction data is transferred to Bob from

Alice.
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Requirements to Mine Bitcoin

In past, users of the system used to mine bitcoins using their home
computers but as the technology has improved, this is no longer the case.
The general time a bitcoin network takes to verify a new transaction is
10min. Within that time, there are more than one million miners competing
with each other to find the hash value. When there is more computing power
working together to mine for bitcoins, the difficulty level of mining increases.
Therefore, in order to mine bitcoins, the user must possess-

● Specialized mining hardware is called "application-specific

integrated circuits," or ASICs.

● A Bitcoin mining software to join the Blockchain network.

● Powerful GPU (graphics processing unit).

How to Start Mining Bitcoin?

The following steps display the ways to mine bitcoins:

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1. Profit calculation: One must, first of all, calculate the profit by

taking hardware costs, electricity costs, and bitcoin costs into

consideration.

2. Buying the Mining Hardware: After ensuring the feasibility of

mining bitcoins, the user must purchase mining hardware like ASICs.

3. Mining Software: For proper access to bitcoin, mining software

provides a pathway to join the Blockchain network. There are lots of

free mining software available online.

4. Installing Bitcoin Wallet: After the user receives bitcoins as a

reward for mining, the bitcoins are to be kept in the bitcoin wallet.

5. Joining a Mining Pool: This increases the possibility of mining

bitcoins efficiently.

of EVM memory.
Certainly! Here's a detailed explanation of the different parts of EVM memory used during
the execution of smart contracts on the Ethereum blockchain:

1. Stack

🔹 What it is:

● The stack is a small, fixed-size data structure used for executing operations in the EVM.

● It operates on the Last-In-First-Out (LIFO) principle, similar to a stack of plates.

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🔹 Key Characteristics:

● Size: Limited to 1024 256-bit words.

● Access: Only the top elements (usually top 16) can be directly accessed using opcodes
like PUSH, POP, DUP, SWAP.

● Volatile: Temporary — reset after transaction execution.

🔹 Usage:

● Used for intermediate computations.

● Every arithmetic or logical operation like ADD, MUL, LT uses the stack.

🔹 Example:
PUSH1 0x02 → Stack: [2]
PUSH1 0x03 → Stack: [3, 2]
ADD → Stack: [5] (adds 3 + 2)

2. Memory

🔹 What it is:

● Linear, byte-addressable temporary memory used during smart contract execution.

● Think of it like RAM for a program — used for storing temporary data like arrays, local
variables, or function arguments.

🔹 Key Characteristics:

● Starts empty for every execution.

● Grows dynamically as needed (expansion costs gas).

● Cleared after each external call or transaction.

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🔹 Usage:

● Suitable for temporary storage that doesn't need to persist beyond the function call.

● Example: Storing a dynamically sized array in a function.

🔹 Example:
function storeTempData() public pure returns (uint) {
uint ;
data[0] = 1;
data[1] = 2;
data[2] = 3;
return data[1]; // returns 2
}

3. Storage

🔹 What it is:

● Persistent key-value store — used to store state variables of smart contracts.

● Data in storage is written to the blockchain and remains across transactions.

🔹 Key Characteristics:

● Expensive in terms of gas.

● Data is stored in 256-bit slots, and can be accessed using the SLOAD and SSTORE
opcodes.

● Remains persistent until explicitly changed.

🔹 Usage:

● Used to store data that must be saved permanently, like account balances, ownership,
etc.
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🔹 Example:
contract StorageExample {
uint public x; // stored in storage slot 0

function store(uint _x) public {

x = _x; // uses SSTORE
}

function retrieve() public view returns (uint) {

return x; // uses SLOAD
}
}

4. Calldata

🔹 What it is:

● Read-only, non-modifiable area where function arguments are stored.

● Used when external functions are called — arguments are passed through calldata.

🔹 Key Characteristics:

● Immutable: Cannot be modified during execution.

● Cheaper than memory for input data.

● Exists only during the call.

● Accessed via CALLDATALOAD, CALLDATACOPY.

🔹 Usage:

● Ideal for passing input data to external functions.

● Not suitable for complex data manipulation — for that, memory is better.
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🔹 Example:
function getData(uint a, uint b) external pure returns (uint) {
return a + b; // both a and b are in calldata

Bitcoin's UTXO model

Unspent transaction output (UTXO) is the technique the Bitcoin protocol uses to track
balances as they move between crypto wallets.

When it comes to tracking and managing individual crypto balances, blockchain-based

protocols typically use one of two different accounting models.

One is called the Account/Balance model. Projects like Ethereum, Tezos and EOS
use this model to track balances as blockchain users execute transactions. The other is
called the Unspent Transaction Output (UTXO) model.

Bitcoin and many other cryptocurrencies such as Litecoin, Cardano and Dogecoin use
the UTXO model.

Understanding the UTXO Model

UTXO is a protocol for distributing the bits of data that cryptocurrency is made
from and can be difficult to understand initially. A cryptocurrency network or
developer sees UTXO much differently than a day-to-day cryptocurrency user
does.

For example, imagine that 1 BTC is a bucket full of coins. Each coin
represents a UTXO. If you purchase something from Bob for .5 BTC, the
network will give Bob the entire bucket of coins and send back the .5 BTC
you're owed in "change." You now have a UTXO worth .5 BTC that cannot be
divided into smaller amounts.
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What the Network Sees

Nearly all transactions create UTXOs because the network must "gather" a
user's unspent outputs and send them to the recipient. Thus, it's rare for a
user to have the exact amount of UTXO needed. This is similar to looking
under the car seat for loose change to pay for the burger at the drive-through
and finding a quarter when you only needed a dime—the restaurant must give
you back $.15.

When you initiate a transaction through your wallet, UTXOs with your
information are located and unlocked. The new owner's information is
associated with the UTXO you transferred to them. They are locked once
again, and the user can use them in transactions via the same process.

As transactions continue, the database becomes populated with records of

ownership changes. The outputs assigned to you are fractions of the
cryptocurrency you sent to someone that were sent back.

Advantages and Disadvantages of the UTXO

Model
There are several advantages to the UTXO model:

● More privacy if used with multiple addresses

● UTXO consolidation reduces future fees
● Traceable back to the time the bitcoin was given as a block reward

Some of the disadvantages of the model are:

● It's more difficult to code than accounts

● There is less fungibility than in accounts
● Requires a user to occasionally consolidate their UTXO (transaction
fees involved)
● Takes up more digital space
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✅ Q2.b. Discuss block validation in Bitcoin with PoW consensus

algorithm

Bitcoin uses the Proof of Work (PoW) consensus algorithm to validate blocks. The goal is to
ensure that all nodes in the decentralized network agree on the state of the blockchain and to
prevent fraud like double spending.

Block Validation Process in Bitcoin (with PoW)

1. New Transactions Collected

● Transactions are broadcasted to the network.

● Miners collect valid transactions and group them into a candidate block.

2. Merkle Tree Construction

● A Merkle Tree is created by hashing transaction data.

● The Merkle Root (a single hash) represents the entire set of transactions.

● This root is stored in the block header.

3. Creating the Block Header

The block header includes:

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● Version number

● Previous block hash

● Merkle root

● Timestamp

● Nonce

● Difficulty target

4. Proof of Work (PoW) Process

● Miners must find a nonce such that the hash of the block header is less than the
target difficulty.

● This process involves repeatedly hashing the block header with different nonce
values.

● It’s computationally expensive but easy to verify.

5. Finding the Correct Hash

● If the hash is below the difficulty target, the block is valid.

● The block is then broadcasted to the network.

● Other nodes verify:

○ Transactions are valid

○ Hash is correct and meets the difficulty

6. Block Addition
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● If valid, the block is added to the longest chain.

● All nodes update their blockchain.

Purpose of PoW
● Makes it computationally hard to alter past blocks (requires redoing PoW for all
subsequent blocks).

● Protects against Sybil attacks and ensures network consensus.

Difficulty Adjustment
● Every 2016 blocks (~2 weeks), the difficulty is adjusted based on how long the last
2016 blocks took to mine.

● Goal: Maintain average block time around 10 minutes.

Absolutely! Here's a detailed explanation of Wallet Technologies in Bitcoin (Q6.a) in

paragraph form, suitable for academic or exam-style answers:
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Wallet Technologies in Bitcoin – Detailed

Explanation
A Bitcoin wallet is a digital tool that allows users to store, receive, and send bitcoins. It does
not actually store physical coins, but rather the cryptographic keys—public and private—that
are necessary to access and manage your bitcoin balance on the blockchain. Think of it as a
digital keychain that gives access to your funds and allows you to sign transactions securely.

Bitcoin wallets are essential for interacting with the Bitcoin network, and they vary in terms of
security, accessibility, and user control. Wallet technologies are broadly classified into hot
wallets and cold wallets, depending on their connection to the internet.

🔹 Hot Wallets (Software-Based Wallets)

Hot wallets are connected to the internet and are commonly used for everyday transactions
due to their convenience and ease of access. However, this connectivity also makes them more
vulnerable to hacking and malware attacks.

1. Desktop Wallets:

Desktop wallets are installed on a user's personal computer or laptop. These wallets give full
control over your funds and private keys since they are stored locally. Examples include
Electrum and Bitcoin Core. While desktop wallets offer a high level of control, they are
susceptible to malware and viruses if the computer is compromised.

2. Mobile Wallets:

Mobile wallets are smartphone applications designed for quick and convenient transactions.
These wallets are user-friendly and ideal for paying on the go or scanning QR codes. Popular
mobile wallets include Mycelium and Trust Wallet. However, since they reside on mobile
devices, they are at risk if the phone is lost, stolen, or infected with malware.

3. Web Wallets:

Web wallets operate through a browser and store your private keys on a server, often managed
by a third party. Examples include [Link] and Coinbase. These wallets are
convenient because they are accessible from any device with internet access, but they are less
secure since users must trust the service provider to keep their private keys safe.
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🔹 Cold Wallets (Offline Wallets)

Cold wallets are not connected to the internet, making them much more secure and ideal for
long-term storage of large amounts of bitcoin. Since they are offline, the risk of online attacks
is nearly eliminated.

1. Hardware Wallets:

Hardware wallets are physical devices—like USB drives—that securely store your private keys
offline. They can be connected to a computer only when a transaction needs to be signed, then
disconnected. Popular examples include Ledger Nano S and Trezor. These devices are
considered highly secure, although they come at a cost and require basic technical
understanding.

2. Paper Wallets:

A paper wallet involves printing out your Bitcoin private and public keys on a piece of paper.
These keys can then be stored in a safe location, completely offline. While paper wallets are
immune to online attacks, they can be easily lost, stolen, or damaged by physical means (fire,
water, etc.). Generating them must also be done carefully, ideally using secure, offline
environments.

🔑 How Bitcoin Wallets Work:

Each Bitcoin wallet is based on asymmetric cryptography, which involves a public key and a
private key. The public key is used as a Bitcoin address to receive funds, while the private
key is used to sign and authorize transactions. When you send bitcoins, your wallet uses the
private key to generate a digital signature that proves ownership of the coins. This signature is
verified by the Bitcoin network, and once validated, the transaction is added to the blockchain.

Importantly, losing the private key means losing access to your bitcoins permanently, as
there is no central authority or "password reset" option in decentralized systems like Bitcoin.

🔁 Hot Wallets vs. Cold Wallets:

Feature Hot Wallets Cold Wallets

Internet Connected Not connected

Access
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Security Level Medium – More vulnerable High – Very secure

Accessibility High – Suitable for daily use Low – Suitable for long-term holding

Examples Mobile, Desktop, Web wallets Hardware wallets, Paper wallets

✅ Conclusion:

In conclusion, Bitcoin wallet technologies vary based on user needs. Hot wallets are ideal for
frequent, smaller transactions and offer more convenience, while cold wallets are suited for
securing large holdings with enhanced protection. Choosing the right type of wallet depends on
factors such as how often you transact, your security preferences, and whether you prioritize
convenience or safety.

Let me know if you’d like a diagram, flowchart, or handwritten-style version for study or
presentation use!

A transaction pool
commonly called a mempool, short for "memory pool") is a critical
component in blockchain systems such as Bitcoin and Ethereum. It acts as
a staging area where unconfirmed transactions wait before being added
to the blockchain by miners or validators.

What Is a Transaction Pool?

Definition:

A transaction pool is a data structure maintained by each node in a blockchain network. It

stores pending transactions that have been broadcasted to the network but not yet included
in a block.

These transactions are:

● Valid (pass cryptographic checks),

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● Awaiting confirmation,

● Competing for block space.

How It Works (Step-by-Step)

1. User Creates a Transaction
A user initiates a transaction (e.g., sending cryptocurrency to another address).

2. Transaction Is Broadcast
The transaction is digitally signed and broadcast to the blockchain network.

3. Nodes Validate and Store It

Each node verifies the transaction (signature, balances, nonce, gas/fees). If valid, it is
added to that node’s transaction pool.

4. Miners/Validators Select Transactions

Miners or validators scan the transaction pool, selecting the most profitable or highest-
fee transactions to include in the next block.

5. Block is Mined/Proposed
Once a new block is created and added to the blockchain, the included transactions are
removed from the pool.

6. Remaining Transactions Wait

Unconfirmed transactions remain in the pool until:

○ They are included in a future block,

○ They expire (based on network rules),

○ They are replaced (e.g., replaced-by-fee or canceled).

Key Characteristics
Feature Description
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Temporary Transactions stay in the pool only until they are mined.
Storage

Dynamic Transactions can be added, replaced, or removed.

Prioritized Transactions are typically ordered by fee rate (e.g., satoshis per byte in
Bitcoin, or gas price in Ethereum).

Node-specific Every node has its own transaction pool — pools are not globally
synchronized, though they often converge.

Example: Ethereum Transaction Pool

● Gas Price Market: Ethereum prioritizes transactions based on maxFeePerGas and
maxPriorityFeePerGas.

● Nonce Handling: Ethereum nodes ensure transactions are sequential (you can’t
process tx #5 before tx #4).

● Reorg Tolerance: If a block is re-organized, transactions from the dropped block may
return to the mempool.

Why It Matters
For Miners/Validators:

● They earn transaction fees from picking high-fee transactions.

● Efficient pool management increases profit.

For Users:

● Helps estimate fee rates needed for fast confirmations.

● Supports transaction replacement, e.g., speeding up a stuck transaction.

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For the Network:

● Provides resilience against spam and DoS attacks (via fee mechanisms).

● Buffers transaction load during congestion.

Common Issues
● Congestion: During network stress, pools can grow large, delaying low-fee
transactions.

● Spam Attacks: Attackers can flood the pool with cheap transactions to disrupt normal
traffic.

● Out-of-Gas or Invalid Transactions: Some transactions may be dropped if they are

found invalid or if they can’t be executed due to changing network conditions.

Visual Analogy
Imagine a train station:

● People (transactions) arrive and wait on the platform (the mempool).

● A train (block) comes and picks up as many passengers as it can (limited by

block size).

● The rest wait for the next train.

1. What is Base58?

📌 Definition:
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Base58 is a binary-to-text encoding scheme used to represent binary data (like public keys
or addresses) in a compact, human-readable format without confusing characters.

📚 Base58 Alphabet:
123456789ABCDEFGHJKLMNPQRSTUVWXYZabcdefghijkmnopqrstuvwxyz

❌ Characters Omitted:

● 0 (zero) — looks like O

● O (capital o) — looks like 0

● I (capital i) — looks like l

● l (lowercase L) — looks like I

2. How Base58 Encoding Works

🔹 Steps:

1. Input: Binary or hexadecimal data.

2. Convert the binary to an integer.

3. Divide the integer repeatedly by 58.

4. Map the remainders to Base58 characters.

5. Reverse the character list to get the final encoded string.

🔹 Preserves Leading Zeros:

Each leading zero byte (0x00) is encoded as the character '1' in Base58.
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Example: Base58 Encoding

Input:

Hex string: 00 45 d0 b7
(That’s 0x0045d0b7)

Step 1: Convert to Decimal

0x0045d0b7 = 4561847 (decimal)

Step 2: Divide by 58
Division Quotient Remainder Base58 Char

4561847 ÷ 58 78652 31 Y

78652 ÷ 58 1355 42 j

1355 ÷ 58 23 21 N

23 ÷ 58 0 23 Q

Step 3: Reverse characters:

Final = Q N j Y

Step 4: Add '1' for each leading 0 byte:

0x00 → '1'
Final Base58 string: 1QNjY

3. What is Base58Check Encoding?

📌 Definition:

Base58Check is Base58 + a checksum. It's used in Bitcoin addresses, private keys, and
more to detect errors in data entry.

✅ Purpose:
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● Detect and prevent typos

● Validate address integrity

4. How Base58Check Works (Step-by-Step)

Let’s say we’re encoding a Bitcoin address.

🔹 Step 1: Start with Payload

Payload = version byte + data

For Bitcoin P2PKH (Pay-to-PubKey-Hash) address:

● Version byte: 0x00

● Data: 20-byte public key hash (e.g.,

0x62e907b15cbf27d5425399ebf6f0fb50ebb88f18)

Payload =

00 62e907b15cbf27d5425399ebf6f0fb50ebb88f18

🔹 Step 2: Compute Checksum

1. Take SHA256 of the payload

2. Take SHA256 again

3. Use first 4 bytes as checksum

checksum = SHA256(SHA256(payload))[:4]
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🔹 Step 3: Append Checksum to Payload

final_data = payload + checksum

🔹 Step 4: Encode Final Data with Base58

Use the Base58 encoding algorithm on the result.

Example: Bitcoin Address (Base58Check)

Let’s encode a public key hash:

Public key hash (RIPEMD160): 62e907b15cbf27d5425399ebf6f0fb50ebb88f18

Version byte (P2PKH): 00

Payload:

0062e907b15cbf27d5425399ebf6f0fb50ebb88f18

Checksum:
First 4 bytes of SHA256(SHA256(payload)) = cfa6 45e4

Final binary:

0062e907b15cbf27d5425399ebf6f0fb50ebb88f18cfa645e4

Base58 encoding of the above:

1AGNa15ZQXAZUgFiqJ3i7Z2DPU2J6hW62i

6. Advantages of Base58 / Base58Check

Feature Base58 Base58Check

Human-readable Yes Yes

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Compact Shorter than hex Yes

Error-resistant Fewer typos Has checksum

No confusing chars No 0, O, I, l Same

Used in addresses Widely used Default for Bitcoin addresses

7. Disadvantages
Issue Base58 Base58Check

Slow encoding Base58 is slower than Slightly slower

Base64
Not standardized Not used outside crypto Crypto-specific
much
More complex More steps than hex Requires hashing

Bigger than raw data Less compact than binary Adds 4-byte
checksum

8. Summary
Feature Base58 Base58Check

Used for Public keys, addresses, Bitcoin addresses, WIF private keys
wallets
Characters 58 (no 0, O, I, l) Same

Adds No Yes (4 bytes)

checksum?
Error checking No Detects typos

Application Human-readable Safe transport of address/private key

representation data

If you'd like a working Python code for encoding Base58 or Base58Check, or a diagram
showing how the encoding pipeline works, let me know!
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Structure of a Bitcoin Transaction.

A transaction encodes the transfer of value between Bitcoin participants. The
source is the input and the destination of funds is the output.

A standard Bitcoin transaction has the following fields;

Version - these are rules a transaction is required to follow, the version is

usually 4 bytes.

Marker - this is a 1-byte field indicating that a transaction uses SegWit. If

present and a transaction uses SegWit it will have the value 0x00, otherwise,
it remains null.

Flag - this field performs the same function as the marker field. If it uses
SegWit, its value will be 0x01, otherwise null.

Input counter - the number of inputs included in a transaction, it is usually

between 2 - 9 bytes.

Inputs - transaction inputs.

Transaction inputs are further broken down into four other fields, namely;
Transaction ID(TxID) - This is the ID or the hash of the previous transaction.
Transaction Index(Tx-Index) - This field specifies the UTXO to be spent in the
input.
Unlocking Script Length - Specifies the size of the unlocking script.
Unlocking Script - An unlocking script to fulfill conditions specified by the
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locking script.
Sequence - Can be used to change a transaction before it is confirmed in a
block, for example replacing an unconfirmed transaction with another one that
pays a higher fee.

Output counter - the number of outputs included in a transaction, this is

usually between 2 - 9 bytes.

Outputs - transaction outputs.

Transaction outputs are also further broken down into three other fields,
namely;
Value - The value in Satoshis.
Locking script length - The size of the locking script.
Locking script - The locking script specifies conditions to be met for the value
to be spent by the recipient.

Witness - The serialization of all witness data for SegWit transactions is

stored here.

Lock time - this is the current UNIX timestamp until a transaction is locked.
Usually, it is set to zero, it's validated after a block is finalized.

The following image summarizes the structure of a bitcoin transaction;

30

Yes, you can definitely use this structure to describe the transaction lifecycle in Bitcoin —
it is accurate and well-organized. However, to tailor it specifically for Bitcoin, you should
make a few slight adjustments to terminology and add Bitcoin-specific details.

Here’s a revised version of your content, specifically written for Bitcoin transactions:
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Transaction Lifecycle in Bitcoi

1. 🟢 Initiation of a Transaction

● Creation:
A Bitcoin user (sender) creates a transaction using a Bitcoin wallet, specifying:

○ The amount of BTC to send

○ The recipient’s Bitcoin address

○ The transaction fee (either manually or automatically set by the wallet)

● Signing:
The transaction is digitally signed with the sender's private key. This proves
ownership of the BTC being spent and prevents unauthorized spending.

● Broadcasting:
The signed transaction is broadcast to the Bitcoin peer-to-peer network. It
propagates to nearby full nodes.

2. 🔁 Transaction Propagation

● Node Communication:
Full nodes receive the transaction and perform initial validation, such as:

○ Checking the digital signature

○ Ensuring the inputs (UTXOs) exist and are unspent

○ Verifying there are no double-spends

● Mempool Storage:
Valid transactions are temporarily stored in the node’s mempool (memory pool) — a
queue of unconfirmed transactions waiting to be mined.

● Validation by Peers:
Other nodes independently verify the transaction and share it further across the
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network.

3. ⛏️ Mining and Confirmation

● Mining Process:
Miners select transactions from their mempool (usually those with the highest fees), and
assemble them into a candidate block.

● Proof of Work (PoW):

Bitcoin uses the Proof of Work consensus mechanism. Miners compete to solve a
difficult cryptographic puzzle (hashing the block header).

● Block Creation and Broadcasting:

Once a miner solves the PoW, the new block is broadcast to the network and
proposed as the next block in the chain.

● Confirmation:
If the block is accepted, the included transactions are said to have one confirmation.
Each additional block added on top increases the confirmation count, improving security.

4. ✅ Transaction Settlement

● Blockchain Recording:
The transaction becomes a permanent part of the blockchain ledger. It is linked with
cryptographic hashes, making it tamper-proof.

● Immutability:
After 6 or more confirmations, a Bitcoin transaction is considered final and
irreversible. Altering it would require an enormous amount of computational power.

● Transaction Fees:
Miners receive transaction fees as a reward, in addition to the block subsidy (block
reward). This incentivizes them to include transactions in blocks.
33

Final Thoughts
This lifecycle ensures that Bitcoin transactions are:

● Secure (thanks to cryptography and decentralized validation)

● Tamper-resistant (due to immutability and consensus)

● Efficiently processed (via mempool prioritization and miner incentives)

Bonus Tip: Use Case Example

Alice wants to send 0.05 BTC to Bob. She creates and signs a transaction in her
wallet. The transaction is broadcast and picked up by the network. After being
included in a block by a miner, it receives 6 confirmations. Bob can now trust the
transaction is final.

Would you like this formatted for a report, presentation, or as a visual diagram as well?

Transaction Inputs and Outputs

Data structure composition of a transaction
A transaction is a standardised data structure encoding a transfer of some digital asset from the
first party to a second party. At a high level, each transaction comprises inputs and outputs.

The inputs of a transaction consist of the following information:

A pointer to the record - a previous output on the ledger - that the digital asset exists.
The requisite unlocking condition(s) that authorise the sender (i.e. the first party) to
transfer ownership of the asset (i.e. spend it). This will typically be a digital signature or a
secret known only to the first party.

The outputs of a transaction each specify the following information:

A recipient (i.e. the second party) to whom the ownership of the digital asset is
transferred.
34

The locking condition(s) that specifies how the recipient may subsequently unlock, and
thus ‘spend’, the digital asset.

Each transaction to be recorded on the blockchain ledger is assigned a unique identifier (a

Transaction Identifier or TxID).

Absolutely, here is a detailed explanation of Transaction Scripts and the Script Language in
Bitcoin, without using code.

What Are Transaction Scripts in Bitcoin?

In Bitcoin, transaction scripts are used to define and verify the conditions under which
bitcoins can be spent. These scripts serve as the rules for whether a given transaction is valid,
and they are executed by the network when a transaction is being validated.

A transaction script is made up of two parts:

1. Locking Script (also known as scriptPubKey):

This is attached to the output of a Bitcoin transaction. It sets the conditions that must
be met to spend those funds in the future. You can think of it as a lock.

2. Unlocking Script (also known as scriptSig):

This is attached to the input of a Bitcoin transaction. It provides the data needed to
meet the conditions set by the locking script. You can think of it as the key.

Together, the unlocking script and the locking script form a combined script that is executed to
determine whether the transaction is valid.

What Is Bitcoin Script?

Bitcoin Script is a simple, stack-based scripting language used to process and validate
Bitcoin transactions. It is intentionally designed to be non-Turing complete, meaning it does
not support features like loops or recursion. This makes it much more secure and predictable
than general-purpose programming languages.
35

How It Works (Conceptually)

When a transaction is being verified by the Bitcoin network, the node will:

1. Take the unlocking script (from the input) and run it.

2. Push its result onto a temporary stack.

3. Then take the locking script (from the output being spent) and run that.

4. Also push its result onto the stack.

5. If, after running both scripts, the stack ends in a "true" value, the transaction is
considered valid.

This stack-based system makes it easy to validate a sequence of logic without needing complex
control flow structures.

Types of Scripts in Bitcoin

There are several types of transaction scripts used in Bitcoin, each serving a specific purpose:

1. Pay-to-Public-Key-Hash (P2PKH)

This is the most common and traditional form of Bitcoin transaction. It requires a public key and
a digital signature to spend funds.

2. Pay-to-Script-Hash (P2SH)

This allows users to lock funds to a script hash instead of a direct public key. This makes it
possible to use more complex scripts (e.g., multi-signature) while keeping the address simple.

3. Pay-to-Witness-Public-Key-Hash (P2WPKH) and Pay-to-Witness-Script-

Hash (P2WSH)

These are used in SegWit transactions, which reduce fees and improve scalability. They
separate signature data from transaction data to minimize block size.

4. Pay-to-Taproot (P2TR)
36

Introduced with the Taproot upgrade, this allows for even more complex spending conditions
while maximizing privacy and efficiency. Only the condition used to spend the coins is revealed,
keeping unused branches private.

Common Features and Characteristics

▪ Stack-Based:

Bitcoin Script operates using a stack where data is pushed and popped as instructions are
executed. This makes it linear and predictable.

▪ Stateless:

Each script is executed independently and doesn’t store or maintain any state between
executions.

▪ Deterministic:

Given the same input, it always produces the same result, which is critical for a decentralized
system.

▪ Minimal:

The language is intentionally limited to avoid potential abuse, bugs, or infinite loops.

Purpose of Script Language

Bitcoin’s script language is designed to:

● Verify ownership of funds via digital signatures.

● Enforce conditions (e.g., “2-of-3 people must sign to unlock these funds”).

● Enable programmable money without complex smart contract systems.

● Provide flexibility while ensuring security and simplicity.

37

Why Is It Important?
The script system is what makes Bitcoin transactions programmable. Although it's not as
advanced as Ethereum's smart contracts, Bitcoin scripts enable:

● Multi-signature wallets

● Time-locked transactions (e.g., not spendable until a certain time)

● Escrow and conditional payments

● Segregated Witness (SegWit)

● Taproot’s privacy-preserving smart contract logic

Certainly! Let’s break down scriptPubKey — a core concept in Bitcoin transactions — in

simple but detailed terms.

What is scriptPubKey?
scriptPubKey, often called the locking script, is a part of a Bitcoin transaction output. It
defines how the bitcoins can be spent in the future — essentially setting the conditions that
must be met for someone to access or use those bitcoins.

Think of scriptPubKey as the lock on a vault that holds bitcoins. To open the lock (i.e., spend
the coins), a future transaction must provide a matching key, which comes in the form of a
scriptSig (unlocking script).

Where is scriptPubKey Found?

You will find a scriptPubKey in each output of a Bitcoin transaction. Every transaction can
have one or more outputs, and each output sends bitcoin to a recipient under specific conditions
described by its scriptPubKey.
38

Purpose of scriptPubKey
Its main purpose is to specify the rules that must be fulfilled to spend the output. This may
include:

● Verifying a signature

● Matching a public key hash

● Requiring multiple signatures (multisig)

● Waiting until a certain time or block (timelock)

● Checking script hashes

Common Types of scriptPubKey

1. P2PKH (Pay to Public Key Hash)

The most traditional and widely used form of locking script.

It locks the output to a public key hash — which corresponds to a Bitcoin address that starts
with 1.

Function: Only the owner of the private key that corresponds to this public key hash can unlock
and spend the bitcoins.

2. P2SH (Pay to Script Hash)

Used for more complex spending conditions, like multisignature.

It locks funds to a script hash, rather than a direct public key. The redeeming script and
conditions are only revealed when the coins are spent.

Addresses start with 3.

3. P2WPKH and P2WSH (SegWit Scripts)

39

Used in Segregated Witness (SegWit) transactions.

● P2WPKH: Locks funds to a public key hash in a more efficient, newer format (Bech32
address starting with bc1q)

● P2WSH: Like P2SH, but with SegWit advantages.

4. P2TR (Pay to Taproot)

Introduced with Bitcoin’s Taproot upgrade.

Allows for more complex scripts with better privacy and efficiency, as only the branch of the
script that is executed needs to be revealed.

Addresses start with bc1p.

How It Works in a Transaction

Let’s say someone sends you bitcoins:

1. Their transaction includes an output that contains:

○ Amount of BTC

○ A scriptPubKey that locks the funds to your Bitcoin address (e.g., your public
key hash)

2. Later, when you want to spend those coins:

○ Your transaction must include a scriptSig (unlocking script) that satisfies the
conditions in the original scriptPubKey.

The Bitcoin node executes both scripts together to check whether your transaction is valid.

Example Analogy
40

Imagine a mailbox:

● The scriptPubKey is like the lock on the mailbox.

● The scriptSig is the key used to open it.

● Unless the key fits the lock exactly (i.e., the unlocking script matches the locking script’s
conditions), you cannot access what’s inside (the bitcoins).

Summary
● scriptPubKey is the locking script in a Bitcoin transaction output.

● It sets the rules for how the funds can be spent.

● Common formats include P2PKH, P2SH, SegWit (P2WPKH, P2WSH), and Taproot
(P2TR).

● Bitcoin nodes execute the scriptPubKey together with the input’s scriptSig to verify
if the transaction is valid.

Would you like a breakdown of how scriptPubKey evolves in different Bitcoin address
formats (1, 3, bc1q, etc.)?

Great! Let's explore Simplified Payment Verification (SPV) Nodes in Bitcoin — explained
clearly and in detail without overwhelming complexity.

What is a Simplified Payment Verification (SPV)

Node?
A Simplified Payment Verification (SPV) node, also known as a lightweight or light client,
is a type of Bitcoin node that allows users to verify transactions without downloading the full
blockchain.
41

This idea was introduced in the original Bitcoin whitepaper by Satoshi Nakamoto. SPV is a
way to interact with the Bitcoin network using minimal resources, making it suitable for mobile
wallets, small devices, and applications that don’t require full node functionality.

Why SPV Nodes Exist

● The full Bitcoin blockchain is over hundreds of gigabytes in size.

● Not every device (like a smartphone or IoT device) can store or process that much data.

● SPV offers a balance: users can still verify that a transaction is included in the
blockchain without hosting the entire ledger.

How Do SPV Nodes Work?

SPV nodes operate using the following simplified process:

1. Only Download Block Headers

● SPV nodes do not download full blocks.

● They only download the block headers, which are about 80 bytes each and include:

○ Timestamp

○ Previous block hash

○ Merkle root

○ Nonce, etc.

● This dramatically reduces the storage requirement.

2. Use Merkle Proofs

42

● When an SPV node wants to verify that a transaction was included in a block, it requests
a Merkle proof from a full node.

● This proof shows how the transaction connects to the block’s Merkle root in the header.

● If the Merkle proof is valid, and the block is part of the longest chain, the SPV node
considers the transaction confirmed.

3. Rely on Full Nodes

● SPV nodes trust that the majority of the network (i.e., the full nodes they query) are
honest.

● They don’t validate all rules (like script execution or double-spends) — they rely on
miners and full nodes for that.

Security and Trust in SPV

● SPV is secure enough for casual users, especially for transactions with multiple
confirmations.

● But it’s less secure than full nodes, because:

○ SPV nodes trust full nodes for accurate information.

○ They don’t verify transaction scripts or consensus rules themselves.

Common Uses of SPV Nodes

Application Area Why SPV is Useful

Mobile Wallets Light clients can run on phones

Web Wallets Efficient and fast for user interfaces

IoT & Low-power Devices Can't handle full blockchain

43

Lightweight Desktop Apps Less bandwidth and storage

required

Advantages of SPV Nodes

Advantage Description

Lightweight No need to store the full blockchain

Low Bandwidth Use Downloads only headers, not full blocks

Fast Startup Syncs quickly compared to full nodes

Good for Mobile Ideal for smartphones and low-power

devices

Disadvantages / Limitations
Limitation Description

Less Secure Depends on full nodes for correct data; can be misled

No Full Validation Doesn’t verify transaction scripts or blocks independently

Privacy Risks May reveal addresses or transaction interest to full nodes

Cannot Mine SPV nodes cannot participate in mining or full network governance

Summary
● SPV nodes let you interact with the Bitcoin network without storing the full
blockchain.

● They only download block headers and verify transactions using Merkle proofs.

● SPV is ideal for mobile wallets and lightweight clients, but it's not as secure or
independent as full nodes.

Would you like a comparison chart between SPV nodes vs full nodes next?
44
1

An ERC20 token is a standardized type of token used on the Ethereum blockchain. The
ERC20 standard defines a common set of rules that all fungible Ethereum tokens must follow,
allowing them to interact seamlessly with wallets, exchanges, and other smart contracts.

Key Characteristics of ERC20 Tokens:

● Fungible: Each token is identical in type and value.

● Transferable: Tokens can be sent from one address to another.

● Interoperable: Can be used across different platforms and dApps that support ERC20.

● Smart Contract-Based: Logic and data are stored on the Ethereum blockchain.

Steps to Create an ERC20 Token

Step 1: Set Up Development Environment

You need:

● [Link] & npm (installed on your system)

● Hardhat or Truffle (Ethereum development frameworks)

● MetaMask (Ethereum wallet)

● Infura or Alchemy (for connecting to Ethereum network)

Install Hardhat (example):

npm install --save-dev hardhat

Step 2: Write the ERC20 Smart Contract

You can use OpenZeppelin's library to simplify the process.

Install OpenZeppelin:
2

npm install @openzeppelin/contracts

Create a file [Link]:

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.0;

import "@openzeppelin/contracts/token/ERC20/[Link]";

contract MyToken is ERC20 {

constructor(uint256 initialSupply) ERC20("MyToken", "MTK") {
_mint([Link], initialSupply);
}
}

Explanation:

● "MyToken" is the token name.

● "MTK" is the symbol.

● initialSupply is the amount minted at deployment (in smallest unit, usually wei).

Step 3: Compile the Smart Contract

npx hardhat compile

Step 4: Deploy the Contract

Write a deploy script, e.g., [Link]:

const { ethers } = require("hardhat");

async function main() {

const MyToken = await [Link]("MyToken");
const token = await [Link]([Link]("1000000", 18)); // 1 million
tokens
await [Link]();
[Link]("Token deployed to:", [Link]);
}
3

main().catch((error) => {
[Link](error);
[Link] = 1;
});

Then deploy to a network:

npx hardhat run scripts/[Link] --network goerli

(Replace goerli with the testnet or mainnet you're targeting.)

Step 5: Verify and Interact

● Use Etherscan to verify your contract (optional).

● Interact using Remix, [Link], [Link], or directly in a dApp.

Summary
Ste Action
p
1 Set up environment (Hardhat, MetaMask)

2 Write ERC20 contract using OpenZeppelin

3 Compile the contract

4 Deploy to Ethereum network

5 Verify & interact with your token

Let me know if you'd like a full working project example or to deploy your own test token!
4

Phases of Smart Contract Life Cycle

There are four phases of the smart contracts life cycle in the blockchain
ecosystem:

1. Create

2. Freeze

3. Execute

4. Finalize

Let's look at each of these phases in detail.

Lifecycle of a Smart Contract

5

1. Create

Contract reiteration and negotiation constitute a significant part of the first

phase. First, the parties must agree on the contract's overall content and
goals. This can be done online or offline. This is similar to traditional contract
negotiations. On the blockchain being used to draw up the smart contract, all
participants must have a wallet. Once the contents of the smart contract
have been finalized, they must be converted into code.

The following tasks are done in this phase:

1. Negotiation of multiple parties.

2. Smart contract's design, implementation, and validation.

2. Freeze

Validation of the transactions on a blockchain is done by a set of computers

across the network called nodes. These nodes are the blockchain miners. A
small fee must be paid to the miners in exchange for this service to keep the
ecosystem from being flooded with smart contracts. The smart contract and
its participants become open to the public on the public ledger during the
'freeze' phase. Digital assets of both involved parties in the smart contracts
are locked via freezing the corresponding digital wallets, and nodes operate
as a governance board that verifies whether the preconditions for smart
contract execution have been satisfied.

The following tasks are done in this phase:

1. Smart Contracts are stored on the blockchain.

2. Freezing of digital assets of involved parties.

3. Execute
6

Participating nodes read contracts that are stored on the distributed ledger.
The integrity of a smart contract is verified by the authenticating nodes, and
the code is executed by the smart contract's interference engine (or by the
compiler). When the inputs for the execution from one party are received in
the form of coins (commitment to goods through coins), the interference
engine creates a transaction triggered by the met criteria.

Now the new transaction data is added to the blockchain and to ensure
fulfillment according to the agreed-upon terms in the Smart contract the
governing nodes now verify it again. 'Consensus mechanism' governs this
verification process.

The following tasks are done in this phase:

1. Evaluation of smart contact condition

2. Auto execute smart contact statement triggered

4. Finalize

After a smart contract has been executed, the new states of all involved
parties are updated. Now the updated state information and resulting
transactions are put in the distributed ledger of the blockchain and the
consensus mechanism verifies that the assets transferred by the first party
have been received and unfreezes the assets for the receiving party.

The following tasks are done in this phase:

1. State updating and digital assets allocated.

2. Unfreezing of digital assets received from the first party.

7

The smart contract has completed the whole life cycle. During freezing,
execution, and finalization the sequence of transactions has been executed and
stored in the blockchain.

Types of smart contracts on blockchain

Smart contracts are incredibly versatile, and they come in various forms to cater to a
wide range of smart contracts use cases and industries. Here, we'll delve into the most
common types of smart contracts and their unique characteristics.

Smart legal contracts

Smart legal contracts are a blockchain-based evolution of traditional legal agreements.
They encode legal terms and conditions into self-executing code, allowing for automatic
enforcement and verification of legal agreements.

This type of smart contract is especially relevant in legal and real estate industries,
where trust and compliance are paramount. For example, a real estate transaction can
be facilitated using a smart legal contract, ensuring that the property title is
automatically transferred once payment is received.

Decentralized autonomous organizations (DAO)

Decentralized Autonomous Organizations, commonly referred to as DAOs, are a unique
type of smart contract that goes beyond traditional contracts. DAOs are essentially
automated organizations run by code and governed by token holders. They allow for
collective decision-making and fund management without a central authority.

An example of a DAO is a community-driven investment fund where participants vote on

investment decisions, and the smart contract autonomously executes those decisions.

Application logic contracts (ALC)

Application Logic Contracts are smart contracts designed to execute specific functions
or processes within decentralized applications (DApps). These contracts manage the
core logic and operations of DApps, ensuring they run smoothly and autonomously.
8

For example, in a decentralized gambling application, an ALC can manage bets,

payouts, and random number generation, all without human intervention.

Supply chain contracts

Supply Chain Contracts are utilized to track and verify the movement of goods across a
supply chain. They automate product tracking, quality control, and payment processes
as goods move from the manufacturer to the consumer.

Companies can use supply chain contracts to ensure the authenticity of products,
prevent counterfeiting, and streamline logistics.

Tokenization contracts
Tokenization contracts are integral to the creation and management of digital assets,
such as cryptocurrencies, security tokens, and non-fungible tokens (NFTs). These
contracts define the rules and properties of tokens, enabling their creation, transfer, and
management within the blockchain ecosystem.

For instance, NFT creators use tokenization contracts to define the unique properties
and ownership rules of digital collectibles.

These are just a few smart contract examples and the various types that have emerged
in the blockchain space. The flexibility and adaptability of smart contracts make them an
invaluable tool in multiple industries, revolutionizing the way agreements and processes
are handled.

What Is an Oracle Network?

Oracles provide a way for the decentralized Web3 ecosystem to access existing data
sources, legacy systems, and advanced computations. Decentralized oracle networks
(DONs) enable the creation of hybrid smart contracts, where onchain code and offchain
infrastructure are combined to support advanced decentralized applications (dApps) that
react to real-world events and interoperate with traditional systems.

MO

Types of Oracles

Input Oracles
9

The most widely recognized type of oracle today is known as an “input oracle,” which
fetches data from the real-world (offchain) and delivers it onto a blockchain network for
smart contract consumption. These types of oracles are used to power Chainlink Price
Feeds, providing DeFi smart contracts with onchain access to financial market data.

Output Oracles

The opposite of input oracles are “output oracles,” which allow smart contracts to send
commands to offchain systems that trigger them to execute certain actions. This can include
informing a banking network to make a payment, telling a storage provider to store the
supplied data, or pinging an IoT system to unlock a car door once the onchain rental
payment is made.

Cross-Chain Oracles

Another type of oracle are cross-chain oracles that can read and write information between
different blockchains. Cross-chain oracles enable interoperability for moving both data and
assets between blockchains, such as using data on one blockchain to trigger an action on
another or bridging assets cross-chain so they can be used outside the native blockchain
they were issued on.

Compute-Enabled Oracles

A new type of oracle becoming more widely used by smart contract applications are
“compute-enabled oracles,” which use secure offchain computation to provide decentralized
services that are impractical to do onchain due to technical, legal, or financial constraints.
This can include using Chainlink Automation to trigger the running of smart contracts when
predefined events take place, computing zero-knowledge proofs to generate data privacy,
or running a verifiable randomness function to provide a tamper-proof and provably fair
source of randomness to smart contracts.
10

Q Describe terms: Structure of Transaction,

Transaction Nonce, Transaction GAS, Recipient,
Values and data.

1. Transaction Structure Overview

An Ethereum transaction is a signed message sent from one account to another. It includes all
the information needed to execute something on the Ethereum blockchain—whether it's sending
ETH or calling a smart contract.

A raw transaction includes these main components:

1. Nonce

2. Gas Price

3. Gas Limit

4. To (Recipient)

5. Value

6. Data

7. Chain ID (for network identification)

8. Signature (v, r, s — cryptographic components)

Let’s now go into detail for the main terms you asked about:

1. Transaction Nonce

✅ What is it?
11

● A nonce is an integer (starting from 0) that increases with every transaction sent from an
Ethereum address.

● It ensures each transaction is unique and executed only once, in correct order.

💡 Why it matters:

● Prevents double-spending (sending the same ETH twice).

● Prevents replay attacks on the same network.

🧠 Example:

If your wallet has already sent 5 transactions, the next transaction's nonce must be 5.

2. Gas & Gas Price

⛽ Gas

● A unit representing the computational effort needed to process a transaction.

● Every operation (e.g., add, store, transfer) on the Ethereum Virtual Machine (EVM)
costs a certain amount of gas.

● Think of it like fuel for running code on Ethereum.

💰 Gas Price

● The fee per unit of gas, measured in gwei (1 gwei = 10⁻⁹ ETH).

● A higher gas price means faster transaction processing (miners prefer higher fees).

📉 Max Gas (Gas Limit)

● The maximum amount of gas the sender is willing to consume.

12

● Protects users from bugs or unexpected behavior (like infinite loops in contracts).

Example:

If a transaction uses 21,000 gas and the gas price is 50 gwei:

Transaction Fee = 21,000 * 50 gwei = 1,050,000 gwei = 0.00105 ETH

3. Recipient (To Address)

✅ What is it?

● The Ethereum address the transaction is sent to.

● It can be:

○ An externally owned account (EOA) → a user wallet.

○ A smart contract → executing some logic.

🧠 Example:
0x742d35Cc6634C0532925a3b844Bc454e4438f44e

4. Value

✅ What is it?

● The amount of ETH (in wei) to send with the transaction.

● 1 ETH = 1,000,000,000,000,000,000 wei (10¹⁸ wei).

Use cases:
13

● Sending ETH between users.

● Sending ETH to a smart contract (e.g., paying for an NFT).

🧠 Example:
value = 1000000000000000000 wei = 1 ETH

5. Data

✅ What is it?

● An optional field used to include data with the transaction.

● Most often used to call functions on smart contracts or deploy new contracts.

Format:

● Encoded in hexadecimal.

● Follows the Ethereum ABI (Application Binary Interface) format.

Example use cases:

● Interacting with a token contract:

transfer(address recipient, uint256 amount)

This function call is converted into a data payload like:

0xa9059cbb000000000000000000000000RecipientAddress...000000000000000000000000000
000000Amount

In Summary
14

Field Description

Nonce Counter of transactions from a sender. Ensures order and uniqueness.

Gas Limit Max computation allowed for the transaction. Prevents excessive
usage.
Gas Price Fee per gas unit. Higher price = faster confirmation.

Recipient Target address for the transaction. Could be a user or smart contract.

Value Amount of ETH (in wei) to send. Can be 0 for contract calls.

Data Optional code/data to send to smart contracts. Required for

interactions.

If you want, I can show you an actual decoded Ethereum transaction from Etherscan, or help
you build one manually.

Differentiate between Fungible and Non-fungible

tokens.

Feature Fungible tokens Non-fungible tokens

Value Each token is of equal Each token has a unique

value and value based on its
interchangeable with characteristics, scarcity, and
another token of the same demand
type

Divisibility Divisible into smaller Can be divided into smaller

units, e.g., 0.0001 BTC units, and ownership can be
fractionalized
15

Creation Created primarily through Created through smart

mining contracts

Storage On-chain Usually, only the metadata is

stored on-chain, while the
digital file is off-chain on a
distributed storage network
or centralized database

Governance May have governance Governance is typically

mechanisms that allow decided by the token creator
token holders to vote on and cannot be changed
network upgrades or
changes

Rarity Not rare or unique Rare and unique asset

Utility Generic utility as a Specific utility as digital

medium of exchange or assets, representing unique
store of value or rare items

ERC-20 Token vs ERC-721 Token

Below are some of the differences between the ERC-20 token and the ERC-
721 token.
16

Aspects ERC-20 ERC-721

A standard for
A standard for non-fungible
Definition fungible tokens on
tokens (NFTs) on Ethereum.
Ethereum.

First and foremost,

These tokens are non-
these tokens are
fungible in nature. Each NFT
Fungibility fungible in nature.
has a uint256 variable
There's nothing like a
known as tokenId.
tokenId.

They're easier for There is no scope for

Substitution
substitution. substitution.
17

NFTs, in-game assets like

money or in-game avatars,
and even tickets. One of the
most popular examples of
these tokens is
Tether (USDT), Dai
CryptoKitties. The purpose
(DAI), Bitcoin,
Examples of the game is for users to
Dogecoin, Wrapped
breed, buy and sell virtual
Bitcoin (WBTC)
cats. In this game, the user
fully owns an asset; a virtual
cat that is unique and
cannot be shared with
anyone else.

They're divisible;
ERC20 tokens can be
divided in a number of
Divisibility They're not divisible at all.
ways. Even sharing
0.1 % of the token is
possible.
18

1. The value

doesn't
1. The value
fluctuate,
fluctuates
since they're
according to rarity
not unique.
and uniqueness.
Fluctuation 2. Requires
2. Requires unique
one
smart contracts for
common
each token.
smart

contract.

No special ownership Special ownership functions

Ownership functions can be can be enabled by these
allocated. tokens.

These tokens are These tokens have limited

Adoption
commonly adopted. levels of acceptance.
19

These tokens are not These tokens can be

collectible, they're collected like fiat currencies,
Collectability interchangeable and they're not interchangeable
represent a single and represent a collection of
entity assets

There is no KYC The KYC verification is in-

Token identity
verification required. built.

In ERC20 standards,
The values of each token are
Values there's no difference
different.
in values.

ERC20 token faces

the challenge of them
ERC721’s token standards'
being lost when are
main challenge is that
Challenges being transferred to
transferring numerous
faced other wallets or smart
assets can become very
contracts that don’t
expensive.
support ERC20
tokens.
20

What are the essential tools and frameworks for

setting up a development environment for Solidity
programming? Discuss the role of tools like
Remix and Truffle.

3.4 Key Tools Explained

🌐 What is IPFS in Ethereum?

IPFS stands for InterPlanetary File System. It is a peer-to-peer distributed file storage
system that allows files to be stored and shared across a decentralized network. In the context
of Ethereum, IPFS is used to store large files off-chain, while only the file’s hash (or link)
is stored on-chain.

Why Use IPFS with Ethereum?

Storing large files directly on the Ethereum blockchain is expensive and inefficient,
because:

● Ethereum has limited storage per block.

● Storing data on-chain costs gas, which scales with file size.

So instead of storing files like images, documents, or metadata on Ethereum, developers use
IPFS to store the file off-chain and store a reference (hash) to the file on Ethereum.
21

How IPFS Works with Ethereum (Step-by-Step)

1. File Upload

● You upload a file (e.g., an image, JSON metadata) to IPFS.

● IPFS generates a unique hash (CID) for the file based on its content.

2. Store the Hash on Ethereum

● This hash (a content identifier) is stored in a smart contract on Ethereum.

● Smart contracts or dApps can use this hash to fetch the file from IPFS later.

3. File Retrieval

● Anyone can access the file using the IPFS hash via an IPFS gateway (e.g.,
[Link]

Example Use Case: NFTs

What is Swarm in Ethereum?

Swarm is a distributed storage platform built specifically for Ethereum. It’s similar in purpose
to IPFS but is more tightly integrated with the Ethereum ecosystem.

🎯 Purpose:

To store and distribute data and dApp code in a decentralized way, eliminating reliance on
centralized servers.

🧱 How Swarm Works

1. Upload: A file is split into smaller chunks.

22

2. Distribution: These chunks are distributed across the network.

3. Content Addressing: Each chunk is given a unique hash, just like in IPFS.

4. Retrieval: The user can retrieve the file by its hash; Swarm finds and reassembles all
the pieces.

5. Incentives: Nodes are rewarded for storing and serving data using the BZZ token
(Swarm's native token).

1. Remix IDE

● Type: Web-based IDE

● Best For: Beginners and quick testing

● Features:

○ No setup needed (runs in browser)

○ Built-in compiler, deployer, debugger

○ Integrates with MetaMask

○ Plugin ecosystem (Solidity static analysis, unit testing)

Use Case: Try out contracts quickly, learn Solidity, debug small scripts.

2. Truffle Framework

● Type: Full-featured development framework

● Language: JavaScript/TypeScript

● Features:

○ Project scaffolding and structure

23

○ Contract compilation, migration (deployment), and testing

○ Built-in integration with Ganache for local blockchain

○ Network configuration for deploying to testnets/mainnet

○ Supports automated testing using Mocha/Chai

Use Case: Building production-level dApps; testing and deploying in controlled environments.

3. Hardhat

● Alternative to Truffle, more developer-focused

● Features include:

○ Script-based deployment (using [Link])

○ Built-in local network (Hardhat Network)

○ Stack traces for Solidity errors

○ Supports plugins for gas reporting, contract sizing, Etherscan verification

Use Case: Preferred by modern dApp developers for flexibility and plugin ecosystem.

4. Ganache

● A personal Ethereum blockchain for development (used with Truffle or standalone)

● Provides:

○ Fake accounts with ETH

○ Easy debugging

○ Transaction history and logs

24

● Comes as both a GUI and CLI tool

5. MetaMask

● Browser extension wallet to:

○ Interact with dApps

○ Sign transactions

○ Switch between networks (mainnet, testnet, localnet)

● Connects directly with Remix, Truffle dApps, or frontend interfaces.

🛠 Sample Workflow Using Tools

1. Write smart contracts in VS Code or Remix.

2. Compile using solc or built-in compilers (Truffle/Remix).

3. Test using Mocha/Chai or Truffle test.

4. Deploy to local network using Ganache or Hardhat Network.

5. Deploy to testnet using Infura and MetaMask for wallet signing.

6. Debug using Hardhat traces, Remix, or Truffle console.

Summary Table
Tool Purpose Best For

Remix Online IDE for Solidity Beginners, quick prototyping

25

Truffle Full-stack dev environment Large-scale dApp projects

Hardhat Advanced dev with plugin ecosystem Pro developers, modern

stacks
Ganache Local blockchain simulation Safe testing of contracts

MetaMask Wallet for sending and signing txs Connecting to dApps/testnets

Infura Node provider for Ethereum access Remote deployment

Let me know if you want help setting up a real Solidity project with any of these tools!

How ERC20 Tokens Help in Blockchain

Applications
1. Standardization and Interoperability

● ERC20 is a widely adopted token standard.

● Wallets, exchanges, and dApps automatically support any ERC20 token.

● Developers don’t need to write custom code to handle each new token.

Example: MetaMask and Uniswap support thousands of ERC20 tokens out of the box.

2. Tokenization of Real-World and Digital Assets

● ERC20 tokens allow you to represent anything of value, such as:

○ Fiat currencies (e.g., USDT, USDC)

○ In-game currency
26

○ Loyalty points

○ Stocks and commodities (synthetics)

Benefit: Makes assets programmable, divisible, and transferable on-chain.

3. Facilitates DeFi (Decentralized Finance)

● Most DeFi protocols (like Uniswap, Aave, Compound) rely on ERC20 tokens for:

○ Lending/borrowing

○ Trading/swapping

○ Yield farming

○ Staking

Benefit: Provides liquidity and composability across the Ethereum ecosystem.

4. Enables ICOs and Fundraising

● ERC20 tokens are widely used for Initial Coin Offerings (ICOs) and Token Generation
Events (TGEs).

● Startups can raise funds easily by distributing ERC20 tokens to investors.

Benefit: Simplifies fundraising, lowers barriers to entry.

5. Programmability and Smart Contract Integration

● You can write smart contracts that interact with ERC20 tokens to:

○ Trigger rewards
27

○ Automate payments

○ Create escrow systems

○ Build voting mechanisms

Benefit: Highly customizable logic based on token transfers and balances.

6. Cross-Platform Utility

● ERC20 tokens can be bridged to other blockchains, increasing their utility beyond
Ethereum.

● Common in multichain apps and Layer 2 solutions.

Summary Table
Use Case How ERC20 Helps

Interoperability Works seamlessly across wallets, exchanges, dApps

Asset Tokenization Converts real-world value into blockchain-based tokens

DeFi Core element for lending, trading, yield farming

Fundraising (ICOs) Enables easy and transparent token distribution to

investors
Programmability Easily integrated into smart contract logic

Cross-chain Compatibility Supports bridges and Layer 2 scaling

Syllabus
28

The concept of a permissionless blockchain is central to how public blockchain networks like
Bitcoin and Ethereum operate. Let’s break it down clearly:

What is a Permissionless Blockchain?

A permissionless blockchain (also called a public blockchain) is a decentralized network
where anyone can join, read, write, or participate in the consensus process without needing
approval from any central authority.

✅ Key Characteristics of Permissionless Blockchains

Feature Description

Open Participation Anyone can join the network as a user, miner, validator, or developer.

Decentralized No single entity controls the network.

Transparent All transactions are visible to everyone on the network (public ledger).

Immutable Once recorded, data cannot be easily changed or deleted.

Trustless Operates without needing to trust a central authority—relies on code

and consensus mechanisms.

Censorship- No one can prevent or block valid transactions from being processed.
Resistant

🧠 Examples of Permissionless Blockchains

● Bitcoin: Anyone can run a node, mine BTC, or send/receive bitcoin.

● Ethereum: Anyone can deploy smart contracts, create tokens, or validate blocks (on
Proof of Stake).

● Solana, Avalanche, Polkadot: Other popular permissionless chains.

29

How It Works
1. Consensus Mechanisms

● Nodes in the network reach agreement (consensus) without central coordination using
algorithms like:

○ Proof of Work (PoW) – Bitcoin

○ Proof of Stake (PoS) – Ethereum 2.0

2. Incentives

● Participants are rewarded (e.g., in ETH or BTC) for validating transactions or

contributing resources, ensuring security and participation.

Permissionless vs Permissioned Blockchain

Feature Permissionless Blockchain Permissioned Blockchain

Access Open to everyone Restricted to approved participants

Transparenc Fully transparent May have restricted visibility

y
Consensus Decentralized (PoW, PoS) Often centralized or semi-centralized

Examples Bitcoin, Ethereum Hyperledger Fabric, Quorum

Use Case Cryptocurrencies, public Enterprise systems, supply chain, private

dApps records

Why Permissionless Blockchains Matter

● Empower users globally to access finance, data, and digital tools without relying on
banks or governments.

● Enable open innovation—anyone can build apps or tokens without permission.

30

● Promote transparency and accountability through a public, verifiable ledger.

Let me know if you’d like to see real-world applications that rely on permissionless blockchain
networks!

Digital Signature with ECC

[Link]

Mining in Ehtereum

⛏️ How Mining Worked in Ethereum (Before the Merge)

Before Ethereum transitioned to Proof of Stake (PoS) in September 2022 through "The
Merge", Ethereum used a Proof of Work (PoW) consensus mechanism, similar to Bitcoin.
Here's a detailed explanation of how mining worked on Ethereum when PoW was in use:

1. What is Ethereum Mining?

Mining in Ethereum (under PoW) was the process of:

● Validating transactions

● Packaging them into blocks

● Solving complex cryptographic puzzles to add blocks to the Ethereum blockchain

Miners competed to solve a computational problem. The first one to solve it would:

● Add the next block to the blockchain

● Receive a block reward in ETH plus transaction fees

31

2. Key Components of Ethereum Mining

Component Description

Algorithm Ethereum used Ethash, a memory-hard PoW algorithm designed to be

ASIC-resistant (favoring GPU mining).

Mining Mostly GPUs (Graphics Processing Units).

Hardware

Block Time Around 13–15 seconds per block.

Block Reward Miners earned 2 ETH per block (as of before The Merge), plus
transaction fees.

Difficulty Adjusted dynamically to ensure steady block times.

3. Mining Process Step-by-Step

1. Transaction Pool (Mempool)

Miners picked pending transactions from the network and organized them into a potential block.

2. Hash Puzzle

● The miner tried to find a nonce that, when combined with block data and hashed
through Ethash, produced a hash below a target difficulty value.

● This required trial and error, consuming GPU power.

3. Block Submission

● Once a valid nonce was found, the miner broadcasted the block to the network.

● Other nodes verified the block’s correctness and added it to their chain.

4. Reward

● The successful miner received:

32

○ 2 ETH (block reward)

○ All transaction fees (gas fees) from the included transactions

○ Uncle rewards (partial rewards for stale blocks)

End of Ethereum Mining: The Merge

As of September 15, 2022, Ethereum switched to Proof of Stake (PoS), eliminating mining
altogether.

Why?

● Energy efficiency: PoS uses ~99.95% less energy.

● Scalability: Prepares Ethereum for sharding and future upgrades.

● Security and decentralization: Encourages broader participation without specialized

hardware.
Module 1
Q1. Blockchain Technology Definition
Blockchain is a decentralized digital ledger that records transactions securely
across multiple computers in a chain of blocks. Each block contains data, a unique
hash, and the hash of the previous block, making it tamper-resistant. It ensures
transparency, security, and decentralization without a central authority. (Ref:
NISTIR 8202)

Q2. Diff between

Basis of
[Link]. Comparison Blockchain Bitcoin

A Distributed
1. What is it? A cryptocurrency
Database

To provide a low cost, To simplify and increase

safe and secure the speed of transactions
2. Main Aim
environment for peer without much of
to peer transactions government restrictions.

Blockchain can easily

transfer anything from Bitcoin is limited to
3. Trade
currencies to property trading as a currency.
rights of the stock

It is more open to The scope of bitcoin is

4. Scope
changes and hence limited.
 Basis of
[Link]. Comparison Blockchain Bitcoin

has the backing of

many top companies.

Blockchain can be Bitcoin focuses on

adapted to any lowering the cost of
5. Strategy changes and hence it influencers and reducing
can cater to different the time of transactions
industries. but is less flexible.

As blockchain works Bitcoin likes to be

with various anonymous and hence
businesses, it should even though we can see
6. Status have compliance with the transactions in the
KYC and other norms. ledger, they are numbers
Hence blockchain is that are not in a particular
transparent. sequence.

Q3. Blockchain vs. Traditional Databases

Feature Blockchain Traditional

Databases

Control and Decentralized, no single controlling entity Centralized,

Authority controlled by
an authority
Feature Blockchain Traditional
Databases

Data Distribution Distributed across multiple nodes Centralized

on a single
server

Immutability Achieved through cryptographic hashes Vulnerable

to tampering
and
manipulation

Consensus Integral for reaching agreement on Relies on a

Mechanism transactions central
authority for
validation

Scalability Scales horizontally through distributed nodes Often faces

limitations in
scaling
horizontally
due to
hierarchical
structure

Workload Distributes workload efficiently across nodes Centralized

Distribution structure
may lead to
obstacles
and
performance
issues
 Feature Blockchain Traditional
Databases

Performance Generally more scalable for large-scale Limited

applications scalability for
growing
datasets and
increased
user
demands

Q4. Origin of blockchain

Blockchain technology was first introduced in 2008 by Satoshi Nakamoto, who created
Q5. BT vs DLT Bitcoin, the first cryptocurrency. The goal was to create a decentralized, transparent, and
secure system for digital transactions without needing banks.

2008 – Satoshi Nakamoto publishes the Bitcoin whitepaper.

2009 – Bitcoin network goes live, using blockchain to record transactions.
2015 – Ethereum launches, introducing smart contracts, which allow automated transactions
without intermediaries.
2017 – ICO (Initial Coin Offering) boom, where companies raise funds using blockchain.
2020s – Blockchain expands beyond cryptocurrency, used in supply chains, finance,
healthcare, and NFTs (digital collectibles).

Today, blockchain is revolutionizing industries with its security, transparency, and

decentralization.
Q6. DLT
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 spread across various computers, nodes,
institutions, or countries and accessible by multiple people around the globe.
Key Features:
1. Decentralized: It is a decentralized technology and every node will maintain
the ledger, and if any data changes happen, the ledger will get updated. The
process of updating takes place independently at each node. Even small
updates or changes made to the ledger are reflected and the history of that
change is sent to all participants in a matter of seconds.
2. Immutable: Distributed ledger uses cryptography to create a secure
database in which data once stored cannot be altered or changed.
3. Append only: Distributed ledgers are append-only in comparison to the
traditional database where data can be altered.
4. Distributed: In this technology, there is no central server or authority
managing the database, which makes the technology transparent. To
 counter the weaknesses of having one ledger to rule all, So that there is no
one authoritative copy and have specific rules around changing them. This
would make the system much more transparent and will make it a more
decentralized authority. In this process, every node or contributor of the
ledger will try to verify the transactions with the various consensus
algorithms or voting. the voting or participation of all the nodes depends on
the rules of that ledger. In the case of bitcoin, the Proof of Work consensus
mechanism is used for the participation of each node.
5. Shared: The distributed ledger is not associated with any single entity. It is
shared among the nodes on the network where some nodes have a full
copy of the ledger while some nodes have only the necessary information
that is required to make them functional and efficient.
6. Smart Contracts: Distributed ledgers can be programmed to execute smart
contracts, which are self-executing contracts with the terms of the
agreement between buyer and seller being directly written into lines of
code. This allows for transactions to be automated, secure, and transparent.
7. Fault Tolerance: Distributed ledgers are highly fault-tolerant because of
their decentralized nature. If one node or participant fails, the data remains
available on other nodes.
8. Transparency: Distributed ledgers are transparent because every
participant can see the transactions that occur on the ledger. This
transparency helps in creating trust among the participants.
9. Efficiency: The distributed nature of ledgers makes them highly efficient.
Transactions can be processed and settled in a matter of seconds, making
them much faster than traditional methods.
[Link]: Distributed ledgers are highly secure because of their
cryptographic nature. Every transaction is recorded with a cryptographic
signature that ensures that it cannot be altered. This makes the technology
highly secure and resistant to fraud.
Q7. Working of BT
How Does a Blockchain Work?
The transaction process in a blockchain can be summarized as follows:
How Does Blockchain Work? (Short & Easy)
1️. Transaction Initiation – A new transaction is encrypted using public & private
keys.
2️. Verification – The transaction is sent to a peer-to-peer network, where nodes
check its validity (e.g., balance availability).

3️. Block Formation – Verified transactions are grouped into a block.

4️. Consensus Algorithm – Nodes compete to validate and add the block using
consensus mechanisms (e.g., PoW, PoS). The winning node (miner) gets a
reward.

5️. Block Addition – The block is linked to the previous block using a hash,
forming a secure chain.

6️. Transaction Complete – The transaction is permanently recorded and visible

to everyone in the blockchain.

Q8. Key characteristics of BT

Key Features of Blockchain (Easy Explanation)
1. Decentralization – No central authority; data is stored across a peer-to-peer
network.

2. Persistency – Once data is added, it cannot be altered or deleted, ensuring

security.

3. Transparency – Every transaction is visible to all network participants, making it

trustworthy.

4. Auditability – Transactions are permanently recorded, allowing easy

verification and tracking.
5. Immutability – Data cannot be changed or deleted once added to the
blockchain, making it tamper-proof and corruption-resistant.
6. Enhanced Security – Uses cryptographic hashing and decentralization to
prevent hacking or unauthorized changes.
7. Distributed Ledger – The ledger is shared across all nodes, ensuring
transparency and quick detection of suspicious activity.
8. Consensus Mechanism – A decision-making process where nodes agree on
valid transactions, ensuring trust without a central authority.
Q9. Types of blockchain
Q10. Challenges/ limitations of BT

Q11. Applications of BT
1. Real estate: Real estate transactions require a ton of paperwork to verify
financial information and ownership and then transfer deeds and titles to
new owners. Using blockchain technology to record real estate transactions
can provide a more secure and accessible means of verifying and
 transferring ownership. That can speed up transactions, reduce paperwork,
and save money.

2. Money transfers : The original concept behind the invention of blockchain

technology is still a great application. Money transfers using blockchain can
be less expensive and faster than using existing money transfer services.
This is especially true of cross-border transactions, which are often slow and
expensive. Even in the modern U.S. financial system, money transfers
between accounts can take days, while a blockchain transaction takes
minutes.

3. Voting: If personal identity information is held on a blockchain, that puts us

just one step away from also being able to vote using blockchain
technology. Using blockchain technology can make sure that nobody votes
twice, only eligible voters are able to vote, and votes cannot be tampered
with. What's more, it can increase access to voting by making it as simple as
pressing a few buttons on your smartphone. At the same time, the cost of
running an election would substantially decrease.

4. Secure personal information: Keeping data such as your Social Security

number, date of birth, and other identifying information on a public ledger
(e.g., a blockchain) may actually be more secure than current systems more
susceptible to hacks. Blockchain technology can be used to secure access to
identifying information while improving access for those who need it in
industries such as travel, healthcare, finance, and education.

5. Insurance: Using smart contracts on a blockchain can provide greater

transparency for customers and insurance providers. Recording all claims on
a blockchain would keep customers from making duplicate claims for the
same event. Furthermore, using smart contracts can speed up the process
for claimants to receive payments.
 6. Financial exchanges: Many companies have popped up over the past few
years offering decentralized cryptocurrency exchanges. Using blockchain for
exchanges allows for faster and less expensive transactions. Moreover, a
decentralized exchange doesn't require investors to deposit their assets
with the centralized authority, which means they maintain greater control
and security. While blockchain-based exchanges primarily deal in
cryptocurrency, the concept could be applied to more traditional
investments as well.
Q12. Key Components of Blockchain
1️. Node
A node is any computer that participates in the blockchain network. Nodes help
store, validate, and share blockchain data.
• Full Node: Stores the entire blockchain and verifies transactions.
• Light Node: Stores only important data (hashes) instead of the full
blockchain.
• Mining Node: Special nodes that solve complex problems to add new
transactions to the blockchain.
2️. Ledger
The ledger is the digital record of all blockchain transactions. It is transparent,
secure, and immutable (unchangeable).
• Public Ledger: Anyone can access and verify transactions.
• Distributed Ledger: Each node has a copy of the ledger, ensuring security
and decentralization.
• Decentralized Ledger: No single authority controls it. The network
maintains it collectively.
3️. Wallet
A wallet is a digital tool that stores cryptocurrency and allows users to send or
receive funds.
• Hot Wallet: Connected to the internet (e.g., mobile apps, online wallets).
 • Cold Wallet: Stored offline for extra security (e.g., hardware wallets, paper
wallets).
4️. Nonce
A nonce (Number Only Used Once) is a random number used in the mining
process to generate a valid hash. Miners change the nonce repeatedly to find the
correct hash and add a block to the blockchain.
5️. Hash
A hash is a unique digital fingerprint of data. It converts any input (transaction
data) into a fixed-length string.
• Example: "Hello" →
2cf24dba5fb0a30e26e83b2ac5b9e29e1b161e5c1fa7425e73043362938b98
24
• Hashes ensure data security, integrity, and prevent tampering.
6️. Mining
Mining is the process of verifying and adding transactions to the blockchain.
• Miners compete to solve a complex mathematical puzzle.
• The first miner to find the correct solution (by guessing the nonce) gets to
add a new block and earns a reward.
• Mining ensures blockchain security and prevents fraud.
7. Consensus Protocol
A consensus protocol is a set of rules that help nodes agree on the validity of
transactions.
• Proof of Work (PoW): Miners solve puzzles to validate transactions (e.g.,
Bitcoin).
• Proof of Stake (PoS): Validators are chosen based on the number of coins
they own and stake (e.g., Ethereum 2.0).
• Delegated Proof of Stake (DPoS): Users vote for trusted delegates to
validate transactions.
Q13. BT layers
Blockchain Layers (Simplified & Summarized)
Blockchain is structured into multiple layers, each serving a specific role to
enhance functionality, scalability, and security. Here’s a quick breakdown:
1️. Layer 0 (Foundation Layer)
• Acts as the base infrastructure of blockchain, including hardware, internet,
and protocols.
• Enables communication between different blockchains (cross-chain
interoperability).
• Examples: Polkadot, Cosmos.
2️. Layer 1️ (Base Blockchain Layer)
• The main blockchain network where transactions are recorded and
consensus mechanisms (PoW, PoS) operate.
• Handles security and dispute resolution but faces scalability issues.
• Examples: Bitcoin, Ethereum, Cardano.
3️. Layer 2️ (Scaling Layer)
• Built on top of Layer 1 to improve scalability and transaction speed.
• Uses sidechains, rollups, and off-chain solutions to reduce congestion.
• Examples: Lightning Network (Bitcoin), Optimistic Rollups (Ethereum).
4️. Layer 3️ (Application Layer)
• The user-facing layer where decentralized applications (dApps) run.
• Includes smart contracts, wallets, and decentralized exchanges.
• Examples: Uniswap, OpenSea, MetaMask.
Key Differences Between Layers
Layer Function Example
Layer Infrastructure & cross-chain Polkadot, Cosmos
0 communication
Layer Core blockchain, consensus, security Bitcoin, Ethereum
1️
Layer Scaling solutions, faster transactions Lightning Network,
2️ Rollups
Layer User applications & dApps Uniswap, OpenSea
3️

Why Are Blockchain Layers Important?

• Scalability: Layer 2 enhances transaction speed.
• Security: Layer 1 ensures data integrity and protection.
• Interoperability: Layer 0 enables communication between blockchains.
• Usability: Layer 3 allows real-world applications like DeFi and NFTs.
Q14. P2P
Peer-to-Peer (P2️P) Networks – Simplified
What is a P2️P Network?
A Peer-to-Peer (P2️P) network is a decentralized system where computers (nodes)
communicate directly without a central server. Each node acts as both a client and
a server, sharing and storing data.
How Does P2️P Work?
• Every node can upload, download, and share files with others.
• No central authority—each node manages the network.
• Works best with many active nodes to maintain stability.
Types of P2️P Networks
1. Structured P2️P – Organized, easy to search, but costly to maintain.
 2. Unstructured P2️P – Random connections, easy to set up but uses high CPU
power.
3. Hybrid P2️P – Mix of P2P and client-server, offering better performance.
P2️P in Blockchain
• Used in cryptocurrencies like Bitcoin for decentralization.
• Each node maintains a ledger copy for secure transactions.
• Eliminates middlemen, ensuring transparency.
Advantages of P2️P

Low Cost – No expensive central servers.

Scalable – More users = more servers.
Resilient – No single point of failure.
Disadvantages of P2️P

Slow Performance – Nodes share resources, affecting speed.

Data Security Risks – Hard to monitor illegal activity.
High Computational Power – Each node performs multiple tasks.
Block Structure in Blockchain
A block in blockchain is a unit that stores transaction data securely. Each block
contains key components that ensure security, transparency, and immutability.

Q15. Genesis block

Simplified Answer: Genesis Block

What is the Genesis Block?
The Genesis Block is the first block in a blockchain. It is unique because:
• It doesn’t reference any previous block (since it's the first one).
• It is hardcoded into the blockchain’s software.
• It sets the foundation for the entire blockchain network.
Why is the Genesis Block Important?
• Initializes the Blockchain: It provides the starting point for all future
transactions.
• Ensures Network Consensus: All network participants agree on its state.
• Secures the Blockchain: It helps prevent fraud by linking all future blocks to
a single origin.
• Historical Significance: Marks the birth of a blockchain, such as Bitcoin in
2009.
Key Features of Genesis Block
1. No Previous Block: It has no predecessor.
2. Fixed Block Reward: Unlike later blocks, it often has a set reward.
3. Unique Hash: A special cryptographic identifier.
4. Special Message: May contain historical references (e.g., Bitcoin’s Genesis
Block contains a message about a 2009 financial crisis).
5. Embedded Transactions: It may pre-allocate coins or assets.
Examples of Genesis Blocks
• Bitcoin (BTC): Created by Satoshi Nakamoto on Jan 3️, 2️009.
Message: "The Times 03/Jan/2009 Chancellor on brink of second bailout
for banks."
• Ethereum (ETH): Launched July 3️0, 2️01️5️, setting initial network rules.
• Litecoin (LTC): Set an initial mining reward of 50 coins.
 • Ripple (XRP): Created by validators, not mined like Bitcoin.
How to Verify a Genesis Block?
1. Check the Block Hash: Compare with the official blockchain record.
2. Verify the Timestamp: Ensure it matches historical records.
3. Inspect Transactions: Confirm addresses and amounts are valid.
Conclusion
The Genesis Block is the foundation of every blockchain. It ensures security,
consensus, and immutability, marking the start of a decentralized network.
Q16. Merkle Trees in Blockchain (Simplified & Summarized)
A Merkle Tree is a data structure used in blockchain to store transactions securely
and efficiently. It organizes transactions in a tree-like format where:
• Leaf Nodes contain hashes of individual transactions.
• Non-Leaf Nodes store hashes of their child nodes.
• Root Node (Merkle Root) is the final hash representing all transactions in
the block.
Why Merkle Trees Matter in Blockchain?
• Efficient Verification: Instead of checking all transactions, you only need a
few hashes to verify data integrity.
• Proof of Membership: A transaction’s presence in a block can be verified
without revealing all transactions.
• Less Storage & Bandwidth: Only essential data is stored and shared,
improving efficiency.
• Tamper Detection: Any change in a transaction alters its hash, affecting all
hashes up to the root, ensuring data security.
How Does It Work?
1. Hash each transaction (T1, T2, T3, T4 → H1, H2, H3, H4).
 2. Pair and hash them (H12 = Hash(H1 + H2), H34 = Hash(H3 + H4)).
3. Repeat until a single hash remains → Merkle Root.
4. The Merkle Root is stored in the block header for verification.
Key Features:

Simple Payment Verification (SPV): Allows verifying transactions without

downloading the full blockchain.
Security & Integrity: Ensures transactions are tamper-proof.
Faster Validation: Logarithmic time complexity makes verification quick.
Conclusion
Merkle Trees help blockchain function efficiently by ensuring secure, lightweight,
and fast transaction verification.
Q17. Evaluation of Blockchain (Simplified & Easy)
Blockchain technology has evolved significantly over the years, transforming
various industries. The evaluation of blockchain involves understanding its
development, impact, advantages, limitations, and future potential.

1️. Evolution of Blockchain

Blockchain has gone through multiple phases:

Phase 1️: Cryptocurrency (2️009 - Present)

• Bitcoin (BTC) introduced blockchain as a decentralized digital currency.
• Focused on secure, peer-to-peer transactions without intermediaries.

Phase 2️: Smart Contracts & Decentralized Applications (2️01️5️ - Present)

• Ethereum (ETH) introduced smart contracts, enabling automated
transactions.
• Led to the growth of DeFi (Decentralized Finance), NFTs, and dApps.

Phase 3️: Enterprise & Industrial Adoption (Now & Future)

• Businesses use blockchain for supply chain management, healthcare,
banking, and more.
• Governments explore digital identity, voting, and legal records.

2️. Key Benefits of Blockchain

Decentralization: No single authority controls the data.

Security & Immutability: Transactions cannot be altered or deleted.
Transparency: Public blockchains allow real-time data verification.
Efficiency: Reduces transaction time and operational costs.

3️. Challenges & Limitations

 Scalability Issues: Limited transactions per second compared to traditional
databases.
Energy Consumption: Proof-of-Work (PoW) mining requires high
computational power.
Regulatory Concerns: Many countries lack clear regulations for blockchain and
crypto.
Interoperability: Different blockchain networks struggle to communicate with
each other.

4️. Future of Blockchain

Layer 2️ Solutions (e.g., Lightning Network, Rollups) to improve speed and

scalability.
Enterprise Adoption in banking, logistics, healthcare, and government sectors.
Web3️ & Metaverse integration, making blockchain the backbone of
decentralized internet.

Conclusion
Blockchain has evolved from just powering cryptocurrencies to revolutionizing
industries, governance, and digital interactions. While it has challenges,
continuous advancements are driving blockchain toward a more scalable, secure,
and widely adopted technology.
Q18. CAP theorem
CAP Theorem in Blockchain (Simplified & Summarized)
What is the CAP Theorem?
The CAP Theorem states that a distributed system cannot achieve Consistency
(C), Availability (A), and Partition Tolerance (P) simultaneously. It must prioritize
two and sacrifice one in case of a failure.
• Consistency (C): All nodes always show the same data.
• Availability (A): Every request gets a response, even if some nodes fail.
• Partition Tolerance (P): The system works even if some nodes lose
connection.

How Does CAP Theorem Apply to Blockchain?

• Blockchain prioritizes Partition Tolerance (P) and Availability (A).
 • Consistency (C) is sacrificed because transactions take time to confirm
across all nodes.
• This is why blockchain follows eventual consistency instead of instant
consistency.

Examples of CAP Theorem in Blockchain

1⃣ Availability Over Consistency (A + P):

• In blockchain, transactions are recorded even if some nodes are down.
• Example: Bitcoin continues to function even if some miners go offline.

2⃣ Consistency Over Availability (C + P):

• If accuracy is more important than speed, the system may reject some
transactions.
• Example: Banking systems require up-to-date account balances.

Why Does Blockchain Violate CAP Theorem?

• Blockchain must always be available (A) and tolerate partitions (P) to keep
running.
• If it sacrificed availability (A), transactions could be lost—this is
unacceptable in financial systems.
• As a result, it does not follow strict consistency (C) but uses consensus
mechanisms for eventual consistency.

What is the PACELC Theorem?

The PACELC Theorem extends CAP by saying:
• If there is a network failure → Choose between Consistency (C) and
Availability (A) (CAP applies).
 • If the system is working normally → Choose between Latency (L) and
Consistency (C) (PACELC applies).

Example: Bitcoin prioritizes availability during failures but also sacrifices

speed (latency) for security.
Q19. BYZANTINE GENERALS PROBLEM
Byzantine Generals Problem in Blockchain (Easy & Summarized)
What is the Byzantine Generals Problem?
The Byzantine Generals Problem is a trust issue in decentralized systems, first
introduced in 1982. It explains the difficulty of achieving consensus when some
participants may act dishonestly or fail to communicate properly.
How It Works (Example)
• Multiple generals (nodes) must coordinate an attack.
• Some generals may be traitors, sending false messages.
• The goal is to ensure that all loyal generals reach the same decision despite
the presence of dishonest ones.

Why Is This a Problem for Blockchain?

• In a blockchain, nodes must agree on the same transaction history.
• If some nodes (bad actors) provide false data, there needs to be a way to
filter out dishonest information.
• Centralized systems do not solve this problem because they lack
transparency.

How Blockchain Solves the Byzantine Generals Problem

Blockchain uses consensus mechanisms to ensure all nodes agree on a single
version of the truth:

✔ Proof of Work (PoW): Miners solve complex puzzles to validate transactions,

making dishonesty costly.
✔ Proof of Stake (PoS): Validators are chosen based on their cryptocurrency
holdings, discouraging dishonest behavior.
✔ Decentralization: Transactions are recorded on a public, distributed ledger,
reducing manipulation risks.

Byzantine Fault Tolerance (BFT)

A system is Byzantine Fault Tolerant (BFT) if it can function correctly even when
some nodes fail or act maliciously.

✔ A blockchain network is BFT if at least two-thirds of the nodes agree on valid

transactions.
✔ Examples of BFT mechanisms: PoW, PoS, and Delegated PoS.

Conclusion
The Byzantine Generals Problem explains the challenge of trust in decentralized
networks. Blockchain solves this by using consensus mechanisms like PoW and
PoS, ensuring all participants agree on valid transactions without needing a
central authority.
Q20. Distributed Consensus in Blockchain (Easy & Summarized)
What is Distributed Consensus?
Distributed consensus is the process that ensures all nodes in a blockchain
network agree on the same version of data without a central authority. It allows
decentralized systems to function securely and efficiently.
Why Is Consensus Important in Blockchain?

✔ Ensures all nodes have the same data

✔ Prevents double-spending and fraud
✔ Enables trustless transactions without intermediaries
✔ Maintains security and decentralization

Types of Consensus Protocols

1️. Proof-Based Consensus (Used in Public Blockchains)
These protocols require participants to provide "proof" to validate transactions.

Proof of Work (PoW) 🏗

• Used in Bitcoin, Ethereum (before ETH 2️.0)
 • Miners solve complex puzzles to add blocks.
• Pros: Highly secure, proven system.
• Cons: High energy consumption, slow transactions.

Proof of Stake (PoS)

• Used in Ethereum 2️.0, Cardano, Polkadot
• Validators are chosen based on the number of coins they "stake."
• Pros: Energy-efficient, faster transactions.
• Cons: Wealthy participants have more control.

2️. Voting-Based Consensus (Used in Private Blockchains)

These protocols rely on voting among trusted nodes.

Practical Byzantine Fault Tolerance (PBFT) 🏛

• Used in Hyperledger Fabric, Zilliqa
• Ensures consensus even if some nodes act maliciously.
• Pros: Fast, energy-efficient.
• Cons: Works best with a small number of trusted nodes.

Delegated Byzantine Fault Tolerance (dBFT) 🗳

• Used in NEO Blockchain
• Nodes elect representatives to validate transactions.
• Pros: More scalable than PBFT.

Comparison of Consensus Mechanisms

Consensus Type Pros Cons Example
Blockchains
 PoW Proof- High security, High energy use, Bitcoin, Litecoin
Based decentralized slow
PoS Proof- Energy-efficient, Wealthy Ethereum 2.0,
Based scalable participants Cardano
dominate
PBFT Voting- Fast, low energy Best for small Hyperledger,
Based networks Zilliqa

Conclusion
Consensus mechanisms allow decentralized networks to function securely by
ensuring all nodes agree on valid transactions. Choosing the right consensus
protocol depends on security, speed, and scalability needs.
Q21. What is a Consensus Algorithm?
A Consensus Algorithm is a method used in blockchain and distributed systems
to ensure that all participants (nodes) agree on a single version of the truth
without needing a central authority. It helps maintain security, consistency, and
fault tolerance in decentralized networks.

Types of Consensus Algorithms

Consensus algorithms are mainly divided into two categories:
1️. Proof-Based Consensus (Used in Public Blockchains)
Nodes must provide proof of work or stake to participate in consensus.

Proof of Work (PoW) 🏗

• Miners solve complex puzzles to validate transactions.
• Pros: Highly secure, decentralized.
• Cons: Energy-intensive, slow transactions.
• Used in: Bitcoin, Litecoin, Ethereum (before ETH 2️.0).
 Proof of Stake (PoS)
• Validators are chosen based on the number of coins they "stake."
• Pros: Energy-efficient, faster than PoW.
• Cons: Wealthy participants have more control.
• Used in: Ethereum 2️.0, Cardano, Polkadot.

Delegated Proof of Stake (DPoS) 🗳

• Coin holders vote for a few delegates to validate transactions.
• Pros: Faster and more scalable than PoS.
• Used in: EOS, TRON.

2️. Voting-Based Consensus (Used in Private Blockchains)

Nodes vote to reach consensus, making these methods faster and more energy-
efficient.

Practical Byzantine Fault Tolerance (PBFT) 🏛

• Nodes reach consensus even if some act maliciously.
• Pros: High speed, low energy use.
• Cons: Works best in small, trusted networks.
• Used in: Hyperledger Fabric, Zilliqa.

Federated Byzantine Agreement (FBA)

• Nodes form small trusted groups to validate transactions.
• Used in: Stellar, Ripple.

Comparison of Consensus Mechanisms

Consensus Type Pros Cons Used In
 PoW Proof- Secure, High energy use, Bitcoin,
Based decentralized slow Ethereum (old)
PoS Proof- Energy-efficient, Wealthy users have Ethereum 2.0,
Based scalable control Cardano
DPoS Proof- Fast, scalable Centralized among EOS, TRON
Based few delegates
PBFT Voting- Fast, low energy Best for small Hyperledger
Based use networks Fabric
FBA Voting- Secure, Requires trust Ripple, Stellar
Based decentralized relationships

Conclusion
Consensus algorithms ensure security and decentralization in blockchain.
Choosing the right algorithm depends on speed, security, and energy efficiency
needs.
Q22. Cryptosystem
Cryptosystem
• Cryptography : Science of protecting information by transforming it into a secure
format
• Cryptosystem
• A suite of cryptographic algorithms needed to implement a particular
security service, most commonly for achieving confidentiality
• Cryptosystem consists of three functions:
• Key generation • Encryption • Decryption
• Types of Cryptosystem
• Symmetric key cryptosystem

• Asymmetric key cryptosystem (Public key cryptosystem)

Q23. Digital Signature

• A digital signature is a mathematical scheme for presenting the authenticity of
digital messages or documents.
• It ensures
• message was created by a claimed sender (authentication),
• the sender cannot deny having sent the message (non-repudiation), and
• the message was not altered in transit (integrity). Digital signature
generation
Module 4

Q1. Define a permissioned blockchain. What are its key considerations in an

enterprise?
Definition of a Permissioned Blockchain:
A permissioned blockchain is a type of blockchain network where access and
participation are restricted to authorized users. Unlike public blockchains (such as
Bitcoin or Ethereum) that allow anyone to join and validate transactions,
permissioned blockchains require participants to be verified and granted
permission before they can access the network.
This type of blockchain is commonly used in enterprises where privacy, security,
and regulatory compliance are important. Hyperledger Fabric is a well-known
example of a permissioned blockchain.

Key Considerations in an Enterprise:

When implementing a permissioned blockchain in an enterprise, the following
factors should be considered:
1. Access Control & Identity Management
o Enterprises need to define who can participate, validate transactions,
and view records.
o Uses Membership Service Providers (MSP) for authentication.
2. Security & Privacy
o Data should be encrypted and accessible only to authorized users.
 o Channels can be used to restrict access to specific data among
participants.
3. Consensus Mechanism
o Unlike public blockchains that use Proof of Work (PoW),
permissioned blockchains use efficient consensus mechanisms like
RAFT or PAXOS for faster transactions.
4. Scalability & Performance
o Enterprises require high transaction throughput and low latency.
o Permissioned blockchains optimize performance compared to public
ones.
5. Regulatory Compliance
o Organizations must comply with legal and regulatory requirements
(e.g., GDPR, financial regulations).
o Permissioned blockchains allow auditability and control over data
sharing.
6. Smart Contracts & Business Logic
o Uses chaincode (smart contracts) to define automated business
processes.
o Ensures transparency and consistency in enterprise transactions.
7. Integration with Existing Systems
o The blockchain should be compatible with enterprise ERP, CRM, and
other IT systems.
o APIs and SDKs help in seamless integration.
8. Governance & Network Management
o A governing authority must be defined to manage the blockchain
rules and upgrades.
 o Establishes protocols for dispute resolution and consensus on
changes.
Q2️. What is Hyperledger Fabric? List its key features.
What is Hyperledger Fabric?
Hyperledger Fabric is an open-source, permissioned blockchain platform
designed for enterprise use. It is developed under the Linux Foundation’s
Hyperledger project and allows organizations to create private and secure
blockchain networks with fine-grained access control.
Unlike public blockchains, Hyperledger Fabric provides a modular architecture
where businesses can customize components like consensus mechanisms,
membership services, and smart contracts (chaincode).

Key Features of Hyperledger Fabric:

1. Permissioned Network
o Only authorized participants can join the network, ensuring security
and privacy in enterprise applications.
2. Modular Architecture
o Components such as consensus, membership services, and smart
contracts (chaincode) are customizable, allowing flexibility based on
business needs.
3. Channel-Based Privacy
o Hyperledger Fabric supports private channels, allowing confidential
transactions between specific participants without exposing data to
the entire network.
4. Pluggable Consensus Mechanisms
o Unlike public blockchains that use Proof of Work (PoW), Hyperledger
Fabric supports efficient consensus algorithms like RAFT and PAXOS,
which improve transaction speed.
 5. Smart Contracts (Chaincode)
o Uses chaincode (written in Go, Java, or [Link]) to automate business
processes and validate transactions.
6. No Native Cryptocurrency Requirement
o Unlike Bitcoin or Ethereum, Hyperledger Fabric does not require a
native cryptocurrency or mining, making it more suitable for
enterprise applications.
7. High Performance & Scalability
o Supports parallel transaction execution and pluggable consensus,
leading to high throughput and low latency.
8. Identity and Access Management
o Uses Membership Service Providers (MSP) for identity verification
and role-based access control.
9. Efficient Transaction Flow (Execute-Order-Validate Model)
o Separates transaction execution, ordering, and validation to improve
performance and security.
[Link] & Integration
• Can be integrated with existing enterprise IT systems, such as ERP and
CRM, using APIs and SDKs.
Q3.