Basics of Blockchain

CSE DEPT PDA College of

Engineering Kalaburagi
 History
• 1991: Concept of timestamped digital
documents proposed.
• 2008: Bitcoin introduced by Satoshi
Nakamoto.
• 2015 onwards: Ethereum introduced
smart contracts.
 Definition of Blockchain
• A distributed, immutable ledger used to
record transactions across many
computers.
• Ensures records cannot be altered
retroactively.
 Introduction
• Blockchain is a distributed and
decentralized digital ledger.
• Records transactions securely,
transparently, and immutably.
• Removes the need for intermediaries in
many applications.
• Blockchain = trusted network for data &
knowledge transactions in untrusted
channels
• Integrates multiple innovations into one
framework
• Innovations Integrated in Blockchain
• Peer-to-Peer Networks
• Cryptography
• Smart Contracts
• Consensus Mechanisms
• (Refer to Figure 1.1 – Blockchain
Constituents)Blockchain

Peer to peer Consensus

network Cryptography Smart Contract mechanism
 Concept of Blockchain
• A chain of blocks containing transaction
data.
• Each block is linked using cryptographic
hashes.
• Ensures integrity and transparency.
Key Features of Blockchain
• Secure data sharing & archiving
• Privacy protection & security administration
• Cross-chain & identity management
• Decentralized & trusted environment
 Definition

• Blockchain = distributed, decentralized,
and public digital ledger
• Maintained by various parties without a
central authority
• Uses cryptography to ensure:
– Security of transactions
– Identity access
– Reliable data storage
– Tamper-proof records
– Protection from denial
 How Blockchain Works

• Data stored in blocks
• Each block contains multiple unit items
(transactions)
• Every block has a hash (cryptographic
identity)
• Block’s hash is linked to the previous
block’s hash
• Creates a secure chain of blocks
(Refer to Figure 1.2 – A characteristic
blockchain)
 Fundamentals of Blockchain
• Blocks: Units of storage.
• Nodes: Participants in the network.
• Hashing: Ensures data integrity.
• Consensus: Agreement on validity of
transactions.
 Characteristics of Blockchain
• Decentralization
• Transparency
• Immutability
• Security
• Anonymity
 Consensus in Trust-Building
• Proof of Work (PoW)
• Proof of Stake (PoS)
• Delegated PoS
• Byzantine Fault Tolerance
 Types of Blockchain
• Public: Open to all (e.g., Bitcoin,
Ethereum).
• Private: Restricted access, controlled by
organizations.
• Hybrid: Combination of both models.
 Distributed Ledger Technologies
(DLT)
• Shared database maintained across
multiple nodes.
• No central authority.
• Provides resilience and transparency.
 DLT Decentralized Applications
(DApps)
• Apps that run on blockchain networks.
• Open-source and autonomous.
• Examples: Uniswap, CryptoKitties.
 Architecture of Blockchain
• Application Layer
• Consensus Layer
• Network Layer
• Data Layer
 Transactions
• Initiated by users via digital wallets.
• Verified by nodes using consensus.
• Added to blocks and broadcasted.
 Chaining Blocks
• Each block contains:
• - Data
• - Hash of current block
• - Hash of previous block.
• Links blocks securely to form a chain.
 Value Proposition of Blockchain
Technology
• Enhanced security and trust.
• Reduced costs and intermediaries.
• Faster transactions.
• Transparency and immutability.
• Blockchain Characteristics
• Digital ledger ensuring immutability &
transparency
• Each entry = transaction (value exchange)
• Supports distribution, tracing, and auditing
• Shared database → each node has same
copy
• Enables trust without central authority
 Fundamentals of Blockchain

• Digital Signature – validates and signs

each transaction
• Hash Function & Merkle Tree –
compresses data, ensures tamper-
resistance
• Linked Blocks – each new block
references the previous one using hash
• Hash = irreversible, requires computation
→ ensures security
 BITCOIN
• Bitcoin is a digital currency (cryptocurrency) that works
without banks or governments controlling it.
Key points:
• Created in 2009 by an unknown person (or group) using the
name Satoshi Nakamoto.
• Runs on a blockchain, which is a public, decentralized ledger
(like a record book) that keeps track of all transactions.
• Limited supply: Only 21 million bitcoins can ever exist.
• People can send and receive bitcoins worldwide, almost
instantly, without needing a bank.
• Transactions are verified by a process called mining, where
powerful computers solve complex problems.
• It is often seen as digital gold because people buy and hold it
as an investment.
Example:

If you want to send money from India to the US using banks, it
may take days and extra fees. But with Bitcoin, you can send it
directly in minutes with low cost.
 How Bitcoin Works Step by Step

• Digital Wallet
– To use Bitcoin, you need a wallet app (like Paytm but for Bitcoin).
– The wallet has two keys:
• Public Key → like your account number (you can share).
• Private Key → like your ATM PIN (never share).
• Transaction
– Suppose Amit sends 1 Bitcoin to Riya.
– Amit enters Riya’s public key (wallet address) and signs the transaction with his
private key.
– The transaction is sent to the Bitcoin network.
• Verification (Mining)
– Thousands of computers (miners) around the world check if Amit really has 1 Bitcoin.
– They solve complex math problems to confirm the transaction.
– Once verified, it is added to a block.
• Blockchain
– Each block stores many transactions.
– Blocks are linked together like a chain → blockchain.
– This makes records permanent and impossible to change.
• Confirmation
– Once Riya’s transaction is in the blockchain, she receives 1 Bitcoin in her wallet.
– No bank, no middleman—only the network verified it.
Uses of Bitcoin
• Online payments (where accepted).
• Sending money across countries.
• Investment (buy and hold, like gold).
• Some use it for trading (buy low, sell high