Introduction to Blockchain Basics

What is Blockchain
A blockchain is a decentralized, distributed ledger that is used to store data in a secure and tamper-
resistant manner. Data is stored in blocks that are linked together in a chain-like structure, with each
block containing a list of transactions, a unique ID called a hash for the data in the block, and the
hash of the previous block's data. This structure gives the blockchain the property of being tamper-
resistant, as any changes to the data in a block will cause the block's hash to change, which will be
detected by the next block in the chain.

Blockchains are stored in a large network of interconnected computers called a peer-to-peer

network. Each computer in the network, called a node, has a copy of the blockchain. Transactions in
a blockchain are verified by nodes called miners, who use their computing power to check and verify
the validity of the transactions in a new block. Once the transactions have been verified, the new
block is added to every node's copy of the blockchain through a process called consensus.

To make a transaction in a blockchain, users are provided with a public and a private key. The private
key is kept securely and is used to sign messages to create a digital signature, while the public key is
shared with others and is used to verify the authenticity of the digital signature. This use of
cryptography allows for secure and verifiable transactions in a blockchain.

History of Blockchains and its significance

The history of blockchain technology began in 2008 with the publication of a white paper titled
"Bitcoin: A Peer-to-Peer Electronic Cash System" by Satoshi Nakamoto. The paper described an
electronic payment system based on cryptographic proof instead of trust and used elements of
previous attempts at digital currency, such as b-money. In 2009, the first blockchain was created and
the first digital currency, Bitcoin, was launched. Since then, the use of blockchain technology has
expanded both horizontally, with the creation of over 4000 cryptocurrencies, and vertically, with the
development of applications in various industries beyond digital currencies.

The release of the first version of Bitcoin in 2009 marks the launch of the first blockchain and the first
digital currency. The first initial coin offering by Mastercoin in 2013 marks the first use of blockchain
technology for fundraising, a common use case for the technology today. The use of non-fungible
tokens by Larva Labs in 2017 marks the development of a unique digital identifier that can be
recorded on the blockchain and used to certify authenticity and ownership, another common use
case for the technology. The emergence of decentralized finance in 2018 marks the growth of
financial applications of blockchain technology, with the creation of decentralized exchanges and
other financial services.

Some key events and milestones in the history of blockchain include the registration of the domain
name bitcoin.org in 2008, the release of the first version of Bitcoin in 2009, the first initial coin
offering by Mastercoin in 2013, the use of non-fungible tokens by Larva Labs in 2017, and the
emergence of decentralized finance in 2018. The value of Bitcoin has also grown significantly since its
launch, reaching a peak of $65,000 in 2021.
Different kinds of Blockchain categories
The three categories of blockchain: public, private, and hybrid or consortium.

• Public blockchains are completely decentralized, allowing anyone to access, store, and make
changes to the database. Examples include Bitcoin.

• Private blockchains are tightly controlled, with access and management centralized by a
central authority. They are also known as permissioned blockchains.

• Hybrid or consortium blockchains are a mix of public and private, with control resting with a
group of organizations rather than one. They are also known as permissioned blockchains.

o It is up to the individual or organization to decide which type of blockchain is best

suited to their needs.

Centralized and De-centralized system

• A centralized system is managed by a central authority, which makes all major rules regarding
the operation of the system. The advantages of a centralized system are better governance,
quicker decision making, and predictability of performance. The limitations are that it is less
democratic and less transparent in decision making.

• A decentralized system is managed collectively by all users, who have the same rights and level
of access. The advantages of a decentralized system are democratic governance, more scrutiny
on decisions, and better decision making. The limitations are conflicts may arise if the members
are not cohesive, consensus may be hard to achieve, and there may be delays in decision making
due to the large number of people involved.

Different Layers of Block chain

The architecture of blockchain technology and the layers involved in its functioning.

• The application layer is the outermost layer and is where developers build blockchain
applications using smart contracts, decentralized apps, and other chain code.

• The execution layer then runs these smart contracts and chain code, communicating with the
blockchain and other applications to perform the desired functions.

• The semantic layer contains virtual machines that convert the bytecode into a machine-readable
form and also handles participation requirements and rules for the network.

• The propagation layer, also known as the network or P2P layer, contains protocols for
transmitting the ledger and blocks between nodes in the network.

• Finally, the consensus layer is the most critical layer, responsible for validating and ordering
blocks and enforcing the consensus mechanism of the blockchain.
The process of transaction
The lifecycle of a transaction on a blockchain involves several steps. First, a customer with a
cryptocurrency wallet wants to transfer a certain amount of cryptocurrency to a recipient with a
wallet address. The wallet service provider then verifies that the customer has enough balance for
the transaction and may perform anti-money laundering checks. The transaction is then sent to the
blockchain network where it is validated and verified by the nodes. If the transaction is valid, it is
included in the next block that is created by the miners. The new block is added to the blockchain
and is permanently stored with a unique signature that is based on the data in the block. The
signature of each new block is also based on the signature of the previous block, creating a secure
and unbroken chain. Any attempts to alter the data in a block will result in a different signature,
breaking the link between blocks and causing the nodes to reject the change.

Types of Blockchain
There are several different types of blockchain frameworks, each with its own unique features and
capabilities. The Bitcoin blockchain is the first and most famous framework, supporting the world's
first cryptocurrency. It is decentralized and has a high level of security, but has slow processing speed
and a large size. Ethereum is another popular framework, known for its support of smart contracts
and decentralized applications (Dapps), as well as its Ethereum Virtual Machine that allows
developers to use popular programming languages. It is widely supported by major corporations, but
also has scalability issues. Other notable frameworks include Bitcoin Cash, Corda, and Hyperledger.

Hyperledger is a blockchain framework developed by the Linux Foundation in 2015 as a hub for open-
source development of distributed ledgers for various industries. It supports both centralized and
decentralized blockchains and has participation from over 100 companies, including IBM and
Microsoft. It provides several frameworks for development, such as Hyperledger Fabric, Hyperledger
Burrow, and Hyperledger Indy, as well as tools like Hyperledger Explorer and Hyperledger Composer.
Ripple is another popular blockchain framework that takes a different approach, using test nodes
instead of a traditional blockchain and offering better transaction handling capabilities and
anonymity. Other notable frameworks include Cardano, EOS, IOTA, and Waves.

Use case and application of blockchain technology

In the automotive industry, blockchain has several potential uses. For instance, it can be used for
insurance to verify and secure mileage, premiums, and claims. It can also be used for car sharing,
allowing users to easily deal with operators, owners, and third party service providers. Blockchain
can also be used for payments, making transfers straightforward and secure without the need for
intermediaries like banks. It can also be used to store and protect personal information, track vehicle
locations and supply chain activity, and keep track of vehicle history and recalls. In the case of
autonomous vehicles, blockchain can be used to securely process and analyze the large amounts of
data involved.

In the digital identity sector, blockchain can be used for self-sovereign identity, allowing individuals
to control their own digital identities and share them for verification and transactions without relying
on a central repository. This can be registered on a blockchain and used in various industries. The
self-sovereign identity method also uses a handshake mechanism, which allows individuals to prove
their identity without revealing sensitive information. This can be used to improve security and
privacy in digital transactions.

Part b
Blockchain has practical applications and services in various industries, including the automotive,
digital identity, and financial services industries. In the automotive industry, blockchain can be used
to verify and secure mileage, premiums and claims in insurance, track and manage car sharing, and
make payments. In digital identity, blockchain technology can provide individuals with control over
their digital identities, allowing them to store and share identifying data for transactions without
relying on a central repository. In financial services, blockchain can be used for cross-border
payments, lending platforms, credit score analysis, invoice management and billing solutions, fund
investment, government expense management, and political fund transparency. It can also improve
financial record keeping and stock exchange operations, and make initial public offerings more cost
effective.

Part 2
Blockchain technology can provide several benefits to global trade by improving the efficiency and
security of transactions. In commodity trading, where margins are typically low, blockchain can help
to reduce transaction costs and risks, making it easier for new and growing companies to enter the
market. By promoting easy access to markets and consumers, blockchain can also help to increase
the competitiveness of commodity traders.

In trade finance, blockchain can help small and medium-sized enterprises in emerging markets to
secure funding. Traditional trade finance often relies on complex, manual processes that can be
difficult for smaller companies to navigate. By streamlining these processes and simplifying access to
alternative investors, blockchain can make it easier for these companies to obtain the financing they
need to grow.

In post-trade settlement, blockchain can be used to improve the efficiency and reduce the costs of
clearing and settlement processes. By automating these processes and coordinating the activities of
all participants, blockchain can help to reduce the risk of errors and delays, making it easier for
businesses to manage their trade finance operations.

In track and trace, blockchain technology can be used to provide real-time, transparent, and secure
tracking of orders and goods. This can help to improve the efficiency of supply chain networks and
reduce the risk of fraud and counterfeiting. By providing supply chain participants with access to
accurate and up-to-date information, blockchain can help to ensure that goods are delivered on time
and in good condition.

Overall, the use of blockchain in global trade can help to reduce transaction costs and risks, improve
the efficiency of trade finance and supply chain operations, and provide greater transparency and
security for all participants.
Blockchain security
In a decentralized system, the power is distributed among multiple nodes or participants, rather than
being centrally controlled by a single entity. This allows for greater resilience and security, as the
system is not dependent on a single point of failure.

In a Blockchain-based system, transactions are recorded and verified on a distributed ledger that is
maintained by a network of participating nodes. Each transaction is grouped into a "block" along with
other transactions, and added to the existing chain of blocks, or "blockchain." The decentralized
nature of the ledger ensures that the data contained within it cannot be altered or tampered with, as
any changes would need to be simultaneously made across all participating nodes.

Cryptography is used to secure the data contained within the blocks, making it virtually impossible
for anyone to access or modify the data without the necessary cryptographic keys. Additionally, the
use of consensus mechanisms, such as proof of work or proof of stake, ensures that the network
reaches a consensus on the state of the ledger, providing further security and trust in the system.

There are various frameworks and layers to the Blockchain technology, including the application
layer, where user-facing applications are built on top of the Blockchain, and the protocol layer, which
defines the rules and mechanisms for how the Blockchain operates. There are also different types of
Blockchain frameworks, including public blockchains, which are open to anyone to join and
participate in, and private or permissioned blockchains, which have restricted access and require
permission to participate.

In summary, the decentralized and secure nature of Blockchain technology enhances security in
transactions by providing a tamper-proof, transparent, and trustless system for storing and verifying
data. This makes it particularly useful for applications where security and trust are of utmost
importance, such as in the financial industry or in the management of IoT devices.

Blockchain technology offers a number of advantages when it comes to security. The decentralized
nature of blockchain means that it is not controlled by a single administrator, making it more difficult
for attackers to target a single point of failure. Additionally, the use of cryptography and consensus
mechanisms in blockchain ensures that transactions are secure and can be trusted.

One way that blockchain can enhance security is by protecting against DDoS attacks. In a DDoS
attack, attackers flood a website with requests in order to overwhelm its servers and prevent it from
functioning properly. Because blockchain networks are decentralized, they are not as vulnerable to
such attacks. Additionally, blockchain-based tools can facilitate the creation of secure, trustless IoT
networks, which can help prevent attacks on connected devices.

Another way that blockchain can enhance security is by enabling the use of multi-signature
authentication in transactions. This means that multiple signatures are required before a transaction
can be carried out, providing an additional layer of security. This can help prevent unauthorized
access to sensitive information and protect against username and password tampering.

Finally, blockchain can also provide security to DNS (domain name system) by decentralizing domain
name system entries. This can prevent attackers from disrupting the connection between an Internet
protocol address and a site, making it more difficult for them to crash a site. Overall, the use of
blockchain technology in security can help protect businesses and individuals against a wide range of
cyber threats.