SRI MANAKULA VINAYAGAR ENGINEERING COLLEGE

(An Autonomous Institution)

(Approved by AICTE, New Delhi and Affiliated to Pondicherry University)
(Accredited by NBA-AICTE, New Delhi and Accredited by NAAC with “A”
Grade) Madagadipet, Puducherry
-
_______________________________________________________________________________
_______________

SCHOOL OF ARTS AND SCIENCE

COMPUTATIONAL STUDIES
BACHELOR OF COMPUTER SCIENCE
VI SEMESTER
BLOCKCHAIN TECHNOLOGY

A20CAT612
 A20CAT612 BLOCKCHAIN
TECHNOLOGY

Course Objective
• To define the fundamental ideas behind Block Chain..
• To know about Bitcoin Fundamentals.
• To understand about the Developing knowledge in Bitcoin.
• To understand the Ripple Block chain.
• To Understand Digi Byte Techniques.
Course Outcome
After completion of the course, the students should be able to
CO1 - To get the knowledge in principles of Block Chain.
CO2 - To get the knowledge in Bitcoin Fundamentals.
CO3 - To get the knowledge in in Bitcoin.
CO4 – To get the knowledge in Ripple
Block chain. CO5 - To get the
knowledge in Digi byte.

UNIT I INTRODUCTION (12 Hrs)

Introducing Block Chain – The structure of Block Chains – Block chain Applications – Block chain
Lifecycle
– Block chains in use.

UNIT II PICKING A BLOCK CHAIN (12 Hrs)

Where Block Chains Add Substance – Choosing a Solution – Dividing into Bitcoin Blockchain
– UsingSmart Contracts with Bitcoin.

UNIT III DEVELOPING YOUR KNOWLEDGE (12 Hrs)

Getting a Brief History of the Bitcoin Blockchain – Debunking Some Common Bitcoin
Misconceptions-Mining for Bitcoins – Bitcoin The New Wild West.

UNIT IV RIPPLE BLOCKCHAIN (12 Hrs)

Getting a Brief History of the Ripple Blockchain – How Ripples differs from all other
Blockchain –Unleasing the Full Power of Ripple.

UNIT V DIGI BYTE(12 Hrs)

The Fast Blockchain – Mining on Digibyte – Signing Documents on DigiByte’s Digu Sign –
Earning Digibytes While Gaming- Money Transfer Application – Smart Contracts
Application.

Text books
1. Tiana Laurence, “Blockchain Dummies”, A Wiley Brand.
2. Arvind Narayanan, Joseph Bonneau, Edward Felten, Andrew Miller and Steven Goldfeder, “Bitcoin
and Cryptocurrency Technologies: A Comprehensive Introduction”, Princeton University Press,
Kindle Edition, 2016.
3. Imran Bashir, “Mastering Blockchain: Deeper insights into decentralization, cryptography”, Packet
Publishing Ltd,Kindle Edition, 2017.
4. Douglas Robert Stinson and Maura Paterson,“Cryptography: Theory and Practice”, CRC press, 2018.
 UNIT I INTRODUCTION

Blockchain
The term "blockchain" refers to a digital transaction ledger maintained by a
network of computers in a way that makes it difficult to tamper with or modify the
data. By eliminating the middleman or other third party, the technology provides a
safe way for people to transact with one another.

Cryptography is employed to connect a collection of records known as blocks.

Every transaction is independently validated via peer-to-peer computer networks,
time-stamped, and added to the ledger; the information that has been recorded
can't be changed easily.

Blockchains are well recognized for playing a key role in cryptocurrency systems
like Bitcoin in keeping a secured and decentralized history of transactions. In
contrast to databases, which typically organize information/data into tables, a
blockchain, as the name suggests, organizes data into chunks/blocks that are
linked together.

How does Blockchain work?

Transaction Process
(i) Facilitating a Transaction

A new transaction has been requested for the blockchain network, where all data
that requires to be transferred is double encrypted by the use of public and private
keys.

(ii) Transaction Verification

After that, the transaction is sent through the global network of peer-to-peer
computers, where all of the network's nodes will verify the transaction's
legitimacy, including if there is enough balance available to complete the
transaction.
(iii) New Block Formation

The blockchain network has multiple nodes, and numerous transactions are
confirmed simultaneously. A block is made up of several mempools, each of
which contains all the validated transactions at a specific node, and the transaction
will be included in the mempool after it has been reviewed and confirmed as valid.

(iv) Consensus Algorithm

The nodes that create a block will attempt to add it to the network in order to make
it permanent; however, if every node is permitted to add blocks in this way, the
blockchain network's functionality will be disrupted. In order to address this issue,
the nodes employ a consensus method to make sure that each new block added to
the chain represents the single version of the information validated by all the
nodes and that only a legitimate block is safely linked to the chain; a hash code for
that block is generated by the consensus method and is necessary for adding the
block to the chain.

(v) New Block Addition

The newly formed block is now set to be added to the chain after receiving its
hash value and being validated; a blockchain is made up of blocks that are
cryptographically connected to one another by the hash value of the preceding
block, which is included in each block and the open end of the blockchain receives
a new block.

(vi) Completion of Transaction

The transaction is finished as soon as the block is added to the chain, and the data
is then recorded there permanently; the transaction's information can be accessed
and verified by anybody.

Attributes of Blockchain
Though blockchains are typically used to keep the history of cryptocurrency
transactions, they also have the potential to store other data, such as digital assets
or product inventories.

o It has intrinsic value since it offers a reliable, safe, and quick means of
transferring value with minimal to no cost.
o It has no physical form since it only exists on the immutable blockchain.
o The majority of the participants in a cryptocurrency's decentralized
network, rather than a single centralized authority, make the decision based
on a cryptocurrency's attributes, like its total supply.
Features of Blockchain
Below mentioned are some of the primary features of the Blockchain:

Immutable
The blockchain is considered immutable as it can't be altered or modified. It is
therefore said to be a permanent network.

o Blockchain technology works by utilizing a network of nodes; every

network node has a copy of the digital ledger, and it assesses a transaction
prior to adding it to the network.
o If the majority of the nodes accept that it is authentic, the transaction is
added. It implies that no transaction blocks can be added to the ledger
without obtaining the approval of the majority of nodes.
o Any records/data that have been verified can't be changed or reversed; this
indicates that they cannot be edited, changed, or deleted by any user on the
network.

Decentralized
The blockchain network is decentralized, indicating that not only one entity will
be in charge of making all of the choices. Instead, a group of nodes creates and
maintains the network, and each node has an identical copy of the ledger. The
blockchain network's decentralization feature offers several benefits:

o A blockchain network is completely structured and fault-tolerant because it

doesn't rely on human computations.
o It makes it less vulnerable to failure due to its decentralized nature.
o There is no involvement/interference of a third party or middlemen;
therefore, there is no additional risk associated.
o It makes it simpler to create a transparent profile for every network user; as
a result, each change is traceable and more concrete.
o Users can have control over their properties and do not need to depend on
third-party to maintain and administer them.

Secure
Each record on the blockchain is individually encrypted, further enhancing the
security of the network's process. As there is no centralized authority, it isn't
possible to simply add, modify, or remove data from the network.

All the information on the chain is hashed using cryptography, providing each
one a unique identity on the network. Any attempt to modify the information
would necessitate modifying every hash ID, which is simply not possible. Each
block contains its own special hash and the previous block's hash. The blocks are
"cryptographically" connected together due to this feature.

Consensus
Consensus is a method of making decisions that allow a group of network nodes
to reach an agreement swiftly and effectively, ensuring the system's smooth
functioning. Every blockchain has a consensus system that enables the network
to make decisions quickly and unbiasedly. Even though nodes may not have
much trust in one another, they might have trust in the network's central
algorithm. A consensus algorithm is required for any blockchain, or it will lose
value. There are numerous available consensus algorithms, each having
advantages and disadvantages.

Before records are approved into the network, all the participants must concur
that they are legitimate. A node should receive the consent of the majority in
order to add a block to the network, or else, the block can't be added. It is not
possible for a node to simply insert, alter, or erase data from the network. Every
record is updated at once, spreading quickly across the network. Thus, no
modifications can be performed until a majority of the network's nodes consent
to them.

Benefits of Blockchain
The below mentioned are some of the blockchain benefits:

o One of the primary benefits of blockchains is that it is open to all; this

implies that anybody can contribute to this technology, and joining the
distributed network doesn't need permission from anyone.
o Blockchain can be used to record data in a decentralized way so that
anyone may check the accuracy of the data by employing zero-knowledge
proof, wherein one party verifies the accuracy of information to another
party while not revealing anything regarding the information.
o Since blockchain is a decentralized system with a large number of trusted
nodes, data/information recorded using it is permanent. This implies that
one doesn't need to be concerned about losing their data since duplicate
copies are maintained at every local node.
o Because it is not controlled by a single party, blockchain is regarded as
censorship-free. Furthermore, it uses the concept of trusted nodes for
verification and consensus algorithms that validate transactions using smart
contracts.
o Since every transaction is stored on a block linked to the others using
hashing methods, blockchain provides a higher level of security.
 o Due to the decentralized nature of blockchain, it is difficult to alter data; if
any alterations are done, it is immediately reflected throughout all nodes,
making theft impossible. Therefore, it can be said that transactions are
impervious to tampering.
o It makes transaction records visible everywhere since every node in the
network has a copy of every transaction, and if there are any modifications
made to the transaction, the other nodes can see it.
o Blockchain eliminates any third-party interference in transactions and
eliminates errors, making the system more effective and quick. Also,
settlement is facilitated and made easy this way.
o Blockchain lowers costs for businesses and builds trust with other partners
because it doesn't require a third party.

Applications of Blockchain
Blockchain technology has a wide range of uses in various categories/ fields,
some of which are mentioned below:

Healthcare

With smart contracts, blockchain can have a significant effect on the healthcare
industry. A contract between two parties can be established through smart
contracts without the necessity of a middleman, and the contract's terms are
known to all parties, and when its criteria are satisfied, it is immediately put into
effect. This could be highly helpful in the healthcare industry since it allows for
the encryption of personal health records using Blockchain technology, making
them only accessible to primary healthcare practitioners with a key.

Internet of Things
IoT is a system of interconnected devices that can communicate with one another
and gather information that may be utilized to obtain valuable insights. The
Smart Home, in which all home appliances like lights, air conditioners, speakers,
etc., may be linked together on a single platform, could be one of the examples of
IoT. Blockchain technology can be utilized to secure this enormously dispersed
system; the security of an IoT system can only be as strong as finding the
weakest link. In this case, blockchain can be used to make sure that the
information collected by IoT devices is secure and accessible to only the
right/trusted people.

Food and Medical Industry

Companies may trace their food items/products using blockchain technology
from the time they are harvested or manufactured until the point at which they
are received by consumers. Blockchain technology could aid in the creation of a
digital certificate for every food product, indicating where it originated from and
where it has been. As a result, if any contamination is found and the
manufacturer decides to return a batch of product due to particular quality
concerns, they may track the problem back to its source. A mechanism like this
might be used in other sectors too. It could be used to track pharmaceuticals and
other common products, as well as to combat counterfeit products by allowing
anybody to check to see if the item is from a genuine and authentic manufacturer.

Logistics and Supply Chain Tracking

There are numerous advantages to employing blockchain technology to track
products as they move through a logistics or supply chain network.

Firstly, it enables easier communication among parties since information is

available on a secure public ledger. It also offers increased security and data
integrity due to the immutability of the information on the blockchain. As a
result, participants in the logistics and supply chain can collaborate more readily
and with more assurance that the information being sent to them is relevant and
updated.

Non-Fungible Tokens
NFTs are generally regarded as a means of acquiring ownership of digital art.
Due to the blockchain's precluding against information existing in two places,
posting an NFT on it assures that there is only a single copy of digital artwork.
While NFTs have many applications, at their base, they are a method of
transferring ownership over anything that may be represented by data.

Blockchain is a Distributed Ledger Technology. It is a distributed and

decentralized database and it is secured ever as compared to other
technologies.

Blockchain Architecture

Blockchain is a technology where multiple parties involved in communication

can perform different transactions without third-party intervention. Verification
and validation of these transactions are carried out by special kinds of nodes.
Benefits of Blockchain:
• It is safer than any other technology.
• To avoid possible legal issues, a trusted third party has to supervise the
transactions and validate the transactions.
• There’s no one central point of attack.
• Data cannot be changed or manipulated, it’s immutable.

1. Header: It is used to identify the particular block in the entire blockchain. It

handles all blocks in the blockchain. A block header is hashed periodically
by miners by changing the nonce value as part of normal mining activity,
also Three sets of block metadata are contained in the block header.

2. Previous Block Address/ Hash: It is used to connect the i+1 th block to the
ith block using the hash. In short, it is a reference to the hash of the previous
(parent) block in the chain.

3. Timestamp: It is a system verify the data into the block and assigns a time or
date of creation for digital documents. The timestamp is a string of characters
that uniquely identifies the document or event and indicates when it was
created.

4. Nonce: A nonce number which uses only once. It is a central part of the
proof of work in the block. It is compared to the live target if it is smaller or
equal to the current target. People who mine, test, and eliminate many Nonce
per second until they find that Valuable Nonce is valid.

5. Merkel Root: It is a type of data structure frame of different blocks of data.

A Merkle Tree stores all the transactions in a block by producing a digital
fingerprint of the entire transaction. It allows the users to verify whether a
transaction can be included in a block or not.
 Key Characteristics of Blockchain Architecture

• Decentralization: In centralized transaction systems, each transaction needs

to be validated in the central trusted agency (e.g., the central bank), naturally
resulting in cost and the performance jam at the central servers. In contrast to
the centralized mode, a third party is not needed in the blockchain.
Consensus algorithms in blockchain are used to maintain data stability in a
decentralized network.

• Persistency: Transactions can be validated quickly and invalid transactions

would not be admitted by persons or miners who mining the crypto. It is not
possible to delete or roll back transactions once they are included in the
blockchain network. Invalid transactions do not carry forward further.

• Anonymity: Each user can interact with the blockchain with a generated
address, which does not disclose the real identity
of the miner. Note that blockchain cannot guarantee perfect privacy
preservation due to the permanent thing.

• Auditability: Blockchain stores data of users based on the Unspent

Transaction Output (UTXO) model.
Every transaction has to refer to some previous unspent transactions. Once
the current transaction is recorded into the
blockchain, the position of those referred unspent transactions switches from
unspent to spent. Due to this process, the transactions can be easily tracked
and not harmed between transactions.

• Transparency: The transparency of blockchain is like cryptocurrency, in

bitcoin for tracking every transaction is done by the address. And for
security, it hides the person’s identity between and after the transaction. All
the transactions are made by the owner of the block associated with the
address, this process is transparent and there is no loss for anyone who is
involved in this transaction.

• Cryptography: The blockchain concept is fully based on security and for

that, all the blocks on the blockchain network want to be secure. And for
security, it implements cryptography and secures the data using the cipher
text and ciphers.
 Types of Blockchain Architecture

1. Public Blockchain:

A public blockchain is a concept where anyone is free to join and take part in
the core activities of the blockchain network. Anyone can read, write, and audit
the ongoing activities on a public blockchain network, which helps to achieve
the self-determining, decentralized nature often authorized when blockchain is
discussed. Data on a public blockchain is secure as it is not possible to modify
once they are validated.

The public blockchain is fully decentralized, it has access and control over the
ledger, and its data is not restricted to persons, is always available and the
central authority manages all the blocks in the chain. There is publicly running
all operations. Due to no one handling it singly then there is no need to get
permission to access the public blockchain.
Anyone can set his/her own node or block in the network/ chain.
After a node or a block settled in the chain of the blocks, all the blocks are
connected like peer-to-peer connections. If someone tries to attack the block
then it forms a copy of that data and it is accessible only by the original author
of the block.
Advantages:
1. A public network operates on an actuate scheme that encourages new persons
to join and keep the network better.
2. There is no agreement in the public blockchain.
3. This means that a public blockchain network is immutable.
4. It has Rapid transactions.

Disadvantages:
1. Public blockchain can be costly in some manner.
2. The person need not give identity, that’s why there is a possibility of
corruption of the block if it is in under attack.
3. Processing speed is sometimes slow.
4. It has Integration issues.

2. Private Blockchain

Miners need permission to access a private blockchain. It works based on

permissions and controls, which give limit participation in the network. Only
the entities participating in a transaction will have knowledge about it and the
other stakeholders not able to access it.
By it works on the basis of permissions due to this it is also called a permission-
based blockchain. Private blockchains are not like public blockchains it is
managed by the entity that owns the network. A trusted person is in charge of
the running of the blockchain it will control who can access the private
blockchain and also controls the access rights of the private chain
network. There may be a possibility of some restrictions while accessing the
network of the private blockchain.
Advantages:
1. In a private blockchain, users join the network using the invitations and all
are verified.
2. Only permitted users/ persons can join the network.
3. Private Blockchain is partially immutable.
Disadvantages:
1. A private blockchain has trust issues, due to exclusive information being
difficult to access it.
2. As the number of participants increases, there is a possibility of an attack on
the registered users.

3. Consortium Blockchain
A consortium blockchain is a concept where it is permissioned by the
government and a group of organizations, not by one person like a private
blockchain. Consortium blockchains are more decentralized than private
blockchains, due to being more decentralized it increases the privacy and
security of the blocks. Those like private blockchains connected with
government organizations’ blocks network.

Consortium blockchains is lies between public and private blockchains. They

are designed by organizations and no one person outside of the organizations
can gain access. In Consortium blockchains all companies in between
organizations collaborate equally. They do not give access from outside of the
organizations/ consortium network.
Advantages:
1. Consortium blockchain providers will always try to give the fastest output as
compared to public blockchains.
2. It is scalable.
3. A consortium blockchain is low transaction costs.
Disadvantages:
1. A consortium blockchain is unstable in relationships.
2. Consortium blockchain lacks an economic model.
3. It has flexibility issues.

Core Components of Blockchain Architecture

1. Node: Nodes are network participants and their devices permit them to keep
track of the distributed ledger and serve as communication hubs in various
network tasks. A block broadcasts all the network nodes when a miner looks
to add a new block in transactions to the blockchain.

2. Transactions: A transaction refers to a contract or agreement and transfers

of assets between parties. The asset is typically cash or property. The
network of computers in blockchain stores the transactional data as copy with
the storage typically referred to as a digital ledger.

3. Block: A block in a blockchain network is similar to a link in a chain. In the

field of cryptocurrency, blocks are like records that store transactions like a
record book, and those are encrypted into a hash tree. There are a huge
number of transactions occurring every day in the world. It is important for
the users to keep track of those transactions, and they do it with the help of a
block structure. The block structure of the blockchain is mentioned in the
very first diagram in this article.

4. Chain: Chain is the concept where all the blocks are connected with the help
of a chain in the whole blockchain structure in the world. And those blocks
are connected with the help of the previous block hash and it indicates a
chaining structure.

5. Miners: Blockchain mining is a process that validates every step in the

transactions while operating all cryptocurrencies. People involved in this
mining they called miners. Blockchain mining is a process to validate each
step in the transactions while operating cryptocurrencies.
6. Consensus: A consensus is a fault-tolerant mechanism that is used in
computer and blockchain systems to achieve the necessary agreement on a
single state of the network among distributed processes or multi-agent
systems, such as with cryptocurrencies. It is useful in record keeping and
other things.

There are different kinds of consensus mechanism algorithms, each of which

works on different principles:
• Proof of Work (PoW): Proof of Work required a stakeholder node to prove
that the work is done and submitted by them certifying them to receive the
right to add new transactions in the blockchain.
• Proof of Stake (PoS): The proof of Stake is also a common consensus
algorithm that evolved as a low-cost low-energy-consuming, low-energy-
consuming alternative for the PoW algorithm. For
• providing the responsibilities the public ledger provides by the virtual
currency token like Bitcoin and Ethereum.
• Proof of Capacity (PoC): Proof of Capacity (PoC) allow sharing of
memory space of the nodes in the blockchain network.
• Proof of Elapsed Time (PoET): It encrypts the passage of time
cryptographically to reach an agreement without expending many resources.

Blockchain Architecture Vs Database

Below are some of the differences between blockchain architecture and

database:

Parameters Blockchain Architecture Database

Blockchain is decentralized because

there is no single point of failure and The database is
there is no central authority to control Centralized.
Control the blockchain.

The database has Create,

Blockchain has only an Insert
Read, Update, and Delete
operation.
Operations operations.

Strength It is robust technology. The database is not fully

 robust technology.

The database is a fully

Blockchain is immutable technology
mutable technology, The
and we cannot change it back or we
data can be edited in the
cannot go back.
Mutability database.

Anyone with the right proof of work In the database reading and
Rights can write on the blockchain. writing can do so.

It is faster as compared to
It is slow in speed.
Speed blockchain.

Blockchain Transaction Life-cycle

Blockchain technology is mostly about the transactions that we make digitally for
ourselves. Eventually, these transactions make their way to the various blocks
that become part of the Blockchain later on. So, it is important to understand
the transaction life cycle in Blockchain technology.
This lifecycle follows the journey of a single transaction as it makes its way
through each stage in the process of joining the blockchain. Transaction in simple
words is the process of sending money by the sender and the receiver receiving
it. The Blockchain transaction is also quite similar, but it is made digitally.
Let us understand the various stages in a blockchain transaction life cycle with
the help of an example.

Sourav and Suraj are two Bitcoin users. Sourav wants to send 1 bitcoin to Suraj.
CHAPTER 2 Picking a Blockchain 15
1. First, Sourav gets Suraj’s wallet address (a wallet in the blockchain is a digital
wallet that allows users to manage their transactions). Using this information,
he creates a new transaction for 1 bitcoins from his wallet and includes a
transaction fee of 0.003 bitcoin.

2. Next, he verifies the information and sends the transaction. Each transaction
that is initiated is signed by a digital signature of the sender that is basically
the private key of the sender. This is done in order to make the transaction
more secure and to prevent any fraud.
3. Sourav’s wallet then starts the transaction signing algorithm which signs his
transaction using his private key.

4. The transaction is now broadcasted to the memory pool within the network

5. This transaction is eventually accepted by the miners. These miners, group this
transaction into a block, find the Proof of Work, and assign this block a hash
value to be mapped into the blockchain.

6. This block is now placed on the Blockchain.

7. As this block gains confirmation, it is accepted as a valid transaction in the

network.

8. Once this transaction is accepted, Suraj finally gets his bitcoin.

The below diagram is a pictorial representation of the various stages in a

transaction life cycle as discussed above.

Transaction life-cycle in Blockchain

CHAPTER 2 Picking a Blockchain 16

 Chapter
UNIT 2
II PICKING A BLOCK CHAIN
PickingaBlockchain

T he blockchain industry is complex and growing in

size and capabilities every day. When you
understand the three core types of blockchains and
their limitations, you’ll know what’s possible with
this new technology.

This chapter is all about assessing blockchain

technology and developing a project plan. It puts the
following chapters about individual blockchain
platforms and applications into context.

Here, you see how to assess the three different types

of blockchain platforms, what’s being built on each
type, and why. I give you a few tools that help you
out- line your project, predict obstacles, and overcome
challenges.

Introduction of Block Chains Add Substance

• Blockchains add substance by providingCHAPTERa2 secure 17

and transparent
Picking a Blockchain way of
storing and sharing data and transactions. Unlike traditional databases,
blockchains are decentralized and distributed, meaning that all participants
have equal ownership rights and are able to access the same information in
real-time.
• Due to their decentralized nature, blockchains also eliminate the need for a
trusted third party intermediary, such as a bank or a notary, to verify and
authorize transactions. This makes the process more efficient and cost-
effective, while also reducing the risk of fraud and corruption.
• Furthermore, blockchains use cryptography to secure and authenticate
transactions, making them tamper-proof and resistant to hacking and cyber
attacks. This is particularly important in industries such as finance,
healthcare and supply chain management, where sensitive data and assets
must be protected.

• Overall, blockchains add substance by providing a reliable and transparent

platform for trust and communication, which can improve efficiency,
reduce costs and enhance security in a wide range of applications.

Where Blockchains Add Substance

There’s a lot of buzz surrounding blockchains and the

cryptocurrencies that run them. Some of this buzz just
stems from the fluctuation in the value of cryptocur-
rencies and the fear that blockchain technology will
disrupt many industry and government functions. A
lot of money has poured into research and
development because stakeholders don’t want to be
made obsolete and entrepreneurs want to explore new
business models.
When it comes to finding an opportunity for blockchain
technology to add value to an organization, often the
question arises, “WhereCHAPTER
do blockchains add18value and
2 Picking a Blockchain

how are they different from existing technologies?”

Blockchains are a special type of database. They can

be utilized anywhere we would use a normal database
— but it may not make sense to go through the trouble
and expense of using a blockchain when a normal
database can do the job.
 We really see value in using some form of a
blockchain when we want to share information with
parties we don’t fully truest, your data needs to be
audited, or our data is at risk of being compromised
internally or externally. None of these questions are
simple, and the correct solutions can be difficult to
ascertain.

This section helps narrow down your options.

Determining your needs

Blockchains come in a lot of flavors. You’ll find one
that matches your needs — the trick is finding it!
Mapping your needs to the best blockchain can be
over- whelming. Whenever I have lots of options and
often conflicting needs, I like to utilize a weighted
decision matrix.

A weighted decision matrix is an excellent tool for

evaluating the needs of a proj- ect and then mapping
those needs to possible solutions. The key advantage
of the matrix is to help you quantify and prioritize
individual needs for your project and simplify
decision making. Weighted decision matrixes also
prevent you from CHAPTER becoming overwhelmed
2 Picking a Blockchain 19 by
individual criteria. If done properly, this tool allows
you to converge on single idea that is compatible with
all your goals.
To create a weighted decision matrix, follow these
steps:

1. Brainstorm the key criteria or goals that your team needs

to meet.
If you aren’t sure of the criteria you need to consider
when evaluating your blockchain project, here are a few
things to keep in mind:
• Scale and volume
• Speed and latency
• Security and immutability
• Storage capacity and structural needs
Your team will have its own list of objects and priorities.
These are just a few to consider while evaluating the correct
platform to use to meet your needs.

2. Reduce the list of criteria to no more than ten items.

If you’re having a hard time refining your list of needs, consider
using a
comparison matrix tool.
3. Create a table in Microsoft Excel or a similar program.
4. Enter the design criteria in the first column.
5. Assign a relative weight to each criterion based on
how important that objective is to the success of the
project.
Limit the number of points to 10 and distribute them
between all your
criteria — for example, 1CHAPTER
= low,2 Picking a Blockchain
2 = medium, and203 = high
priority.
If you’re working in a team, have each member weight the
criteria separately.
6. Add up the numbers for each objective and divide by
the number of team members for a composite team
weight.
7. Make any needed adjustment to weights to make
 sure each criteria are weighted correctly.

Congratulations! You now have a ranked list of criteria

you need to meet to be suc- cessful with your blockchain
project.

Defining your goal

You can easily get lost building a blockchain project
that doesn’t have a clear goal or purpose. Take the time
to understand where you and your team would like to
go and what the final objective is. For example, a goal
might be to trade an asset with a partner company with
no intermediary. This is a big goal with many
stakeholders.

Build back to a small project that is a minimal viable

use case for the technology that clearly articulates
added value or savings for your company. Along the
same lines as the earlier example, a smaller goal
would be to build a private network that can exchange
value between trusted parties.

Then build on that value. The next win might be

building an instrument that is tradable on your new
platform. Each step should demonstrate a small win
and value created.
CHAPTER 2 Picking a Blockchain 21

Choosing a Solution

There are three core types of blockchains: public

networks like Bitcoin, permis- sioned networks such as
Ripple, and private ones like Hijro.
 Blockchains do a few straightforward things:

» They move value and trade value quickly and at a very low
cost.
» They create nearly permanent data histories.

Blockchain technology also allows for a few less-

straightforward solutions such as the ability to prove
that you have a “thing” without revealing it to the
other party. It is also possible to “prove the negative,”
or prove what is missing within a dataset or system.
This feature is particularly useful for auditing and
proving compliance.

Table 2-1 lists common uses cases that are suited for each
type of blockchain.

TABLE 2-1 Table Head

Primary Purpose Type of
Blockchain
Move value between untrusted Public
parties
Move value between trusted Private
parties
Trade value between unlike Permissioned
things
Trade value of the same thing Public
Create decentralized Public or
organization permissioned
CHAPTER 2 Picking a Blockchain 22
Create decentralized contract Public or
permissioned
Trade securitized assets Public or
permissioned
Build identity for people or Public
things
Publish for public Public
recordkeeping
Publish for private Public or
recordkeeping permissioned
Preform auditing of records or Public or
systems permissioned
Publish land title data Public
Trade digital money or assets Public or
permissioned
Create systems for Internet of Public
Things (IoT) security
Build systems security Public

There may be exceptions depending on your project,

and it is possible to use a different type of blockchain
to reach your goal. But in general, here is how to
break down different types of networks and
understand their strengths and weaknesses:

» Public networks are large and decentralized, anyone can

participate within
them at any level — this includes things like running a full
node, mining cryptocurrency, trading tokens, or
publishing entries. They tend to be more secure and
immutable then private or permissioned networks.
They’re often slower and more expensive to use. They’re
are secured with a cryptocurrency and have limited storage
capacity.
CHAPTER 2 Picking a Blockchain 23
» Permissioned networks are viewable to the public, but
participation is
controlled. Many of them utilize a cryptocurrency, but
they can have a lower cost for applications that are built
on top of them. This feature makes it easier to scale
project and increase transaction volume. Permissioned
networks can be very fast with low latency and have
higher storage capacity over public networks.
 » Private networks are shared between trusted parties and
may not be
viewable to the public. They’re very fast and may have no
latency. They also have a low cost to run and can be built
in an industrious weekend. Most private networks do not
utilize a cryptocurrency and do not have the same
immutability and security of decentralized networks.
Storage capacity may be unlimited.

There are also hybrids between these three core types

of blockchains that seek to find the right balance of
security, auditability, scalability, and data storage for
applications built on top of them.

Choosing a Solution

When choosing a blockchain solution for a specific use case, it is important to

consider the following factors:

1. Scalability: A blockchain solution must be able to scale to accommodate a

high volume of transactions, especially when it’s being used for mainstream
applications.

2. Security: The blockchain solution must be secure and provide robust

protection against attacks and malicious activities.

3. Interoperability: The solution must be able to integrate with various systems

CHAPTER 2 Picking a Blockchain
and easily communicate with other blockchain networks. 24

4. Consensus Mechanism: The consensus mechanism implemented by the

blockchain should be efficient and provide a high degree of trust in the network’s
transaction verification process.

5. Smart Contract support: The blockchain solution should have smart contract
support to enable the creation and execution of automated agreements between
parties.
6. Development Community: The blockchain technology should have an active
and growing development community to ensure its longevity and continued
development.

7. Costs: The blockchain solution should be cost-effective in terms of

implementation, maintenance, and transaction fees.

By considering these factors, one can select the right blockchain solution that fits
their specific requirements. It is also important to do thorough research, test the
technology, and seek expert advice before making a final decision.

Dividing into bitcoin blockchain

• The Bitcoin blockchain is a decentralized, distributed ledger that records

all transactions in the Bitcoin network. It is maintained by a network of
nodes that validate and verify transactions, ensuring that they are legitimate
and not duplicated.

• The Bitcoins blockchain uses a consensus mechanism called proof-of-

work, which requires miners to solve complex mathematical problems to
add new transactions to the blockchain. The first miner to solve the
problem is rewarded with new bitcoins, which is the incentive for miners to
participate in the network.

• Each block in the Bitcoin blockchain contains a list of transactions, a

timestamp, and a unique code called a hash. Once a block is added to the
blockchain, it cannot be altered or deleted without modifying25all subsequent
CHAPTER 2 Picking a Blockchain
blocks, making it secure and resistant to tampering.

• The Bitcoin blockchain is open-source, meaning anyone can access,

contribute to, and modify the code. This has resulted in the creation of
various forks of the Bitcoin blockchain, such as Bitcoin Cash and Bitcoin
SV, which have different features and consensus mechanisms.

• Overall, the Bitcoin blockchain is a groundbreaking technology that has

enabled the creation of a decentralized, trustless, and transparent digital
 currency. It continues to evolve and is currently being used in various ways
beyond just cryptocurrency transactions.

The difference between bitcoin and blockchain

As a concluding note, let’s have a look at the major differences between bitcoin
and blockchain technology.

• To begin with, bitcoin is a digital currency. On the other hand, blockchain is a

distributed database that is powering bitcoin transactions and mining.
• Although bitcoin’s core substance is blockchain, it has way more useful
applications for the world of business.
• While bitcoin can only be traded as a cryptocurrency, blockchain can house
way beyond and secure properties and assets.
• Bitcoin has a fixed model of functioning. However, blockchain is open to
changes and is being backed by many business organizations already.
• Even when bitcoin is transparent, it is not easy to visualize all the numbers in
it. But comparatively, blockchain is very see-through and shows the content
without any complex breaking methods.
• Bitcoin came into existence as a single cryptocurrency that has now given
birth to over 4,000 altcoins.

Using Smart Contracts with Bitcoin.

CHAPTER 2 Picking a Blockchain 26

 Work of smart contract

• Smart contracts are contracts that are coded and stored on the blockchain.
They automate agreements between the creator and recipient, making them
immutable and irreversible.

• Their primary purpose is to automate the execution of an agreement

without intermediaries, ensuring that all parties can confirm the conclusion
instantly.

• Additionally, they can be programmed to initiate a workflow based on

specific circumstances.
• An executed contract in terms of a smart contract refers to the successful
completion of the agreement programmed into the smart contract.

• Once all the conditions specified in the code of the smart contract are met
and the required actions are performed, the contract is considered executed.
CHAPTER 2 Picking a Blockchain 27
• Popularized by the Ethereum blockchain, smart contracts have led to the
network’s array of decentralized applications (DApps) and other use cases.

• One key benefit of blockchain networks is the automation of tasks that

traditionally require a third-party intermediary.

• For example, instead of needing a bank to approve a fund transfer from a

client to a freelancer, the process can happen automatically thanks to a
 smart contract. This reduces the time and cost involved in traditional
contract execution.

Another example could be decentralized arbitration via smart contracts, which is

a process by which disputes between parties are resolved without the need for a
traditional legal system or centralized arbitration authority.

The smart contract would then be deployed on a blockchain network. In the event
of a disagreement, the smart contract would receive evidence and arguments
from both parties. The arbitration would then be carried out automatically via the
smart contract, either using a predetermined list of arbitrators specified by both
parties or a decentralized network of arbitrators.

Once a decision is reached, the smart contract would automatically execute the
decision, such as transferring funds to the winning party or releasing the product
or service to the appropriate party.

This article will explain the history of smart contracts, how smart contracts work,
and why smart contracts are important.

How do smart contracts work?

Think smart contracts as digital “if-then” statements between two (or more)
parties. If one group’s needs are met, then the agreement can be honored, and the
contract is considered complete.

Smart contracts can be programmed to work for the masses, replacing

governmental mandates in retail dealings, among other benefits. Moreover, smart
contracts would potentially remove the need for bringing certain disagreements
into court, saving parties both time and money.
This security is largely due to the underlying smart contract code. On Ethereum,
for instance, contracts are written in its Solidity
CHAPTERprogramming 28
language,
2 Picking a Blockchain which is
Turing-complete. This means that the rules and limitations of smart contracts are
built into the network’s code, and no bad actor can manipulate such rules.
Ideally, these limitations would mitigate scams or hidden contract alterations.

Ethereum is what’s considered a distributed state machine, containing what’s

known as the Ethereum Virtual Machine (EVM). This machine state, of which all
Ethereum nodes agree to keep a copy, stores smart contract code and the rules by
which these contracts must abide. Since every node has the rules baked in via
code, all Ethereum smart contracts have the same limitations.
In more technical terms, the idea of a smart contract can be broken down into a
few steps, as discussed below:

Identify parties and establish the terms of the agreement

Identifying the parties involved and coming to an agreement on the contract’s

terms and conditions is the first stage in creating a smart contract. The terms of
the contract, the obligations of each party and the standards for contract
execution are all described in this agreement.

Define the conditions for contract execution

The second step is to specify the conditionsCHAPTER

that must bea Blockchain
2 Picking met for the29 contract to
be executed. These conditions are typically expressed as a set of rules or criteria
that must be satisfied for the contract to be considered valid.

Write the smart contract code

The third step is to write the code for the smart contract. The code will specify
the exact steps that need to be taken to execute the contract when the specified
conditions are met.
 Deploy the contract to a blockchain platform

Deploying the smart contract on a blockchain platform is the fourth stage. This
entails validating the contract’s validity by uploading the code to the blockchain
network.

Trigger the contract execution automatically

The smart contract’s execution is the fifth phase. When the predetermined
circumstances are satisfied, the contract is automatically executed, and the
blockchain network activates it.

Record the contract’s details on the blockchain ledger

The contract’s information is entered onto the blockchain network when it gets
executed. This covers the terms of the contract, the prerequisites for execution,
and the execution date and time. The contract’s specifics are immutable once
they are entered into the blockchain ledger, meaning they cannot be changed or
removed.

It is also important to note that smart contracts are different from written
contracts in many ways, as discussed in the table below:

CHAPTER 2 Picking a Blockchain 30

Historical background of smart contracts

Believe it or not, smart contracts long predate blockchain technology. While

Ethereum, introduced in 2014, is the most popular implementation of the
protocol, cryptographer Nick Szabo established the idea in the 1990s.

Back then, Szabo conceptualized a digital CHAPTER 2 Picking

currency called Bit Gold.31While the
a Blockchain

asset was never actually launched, this Bitcoin (BTC) predecessor highlighted
the smart contract use case — trustless transactions on the internet.

However, smart contracts didn’t start to get much attention until the advent of
blockchain technology in the late 2000s. Blockchain technology made it possible
to build decentralized, trustworthy networks that don’t require a centralized
authority to carry out smart contracts. Ethereum was the first blockchain platform
to allow smart contracts.
Many, including the Ethereum website, compare smart contracts to a vending
machine. Vending machines serve the purpose of a vendor providing the user
with a product, without the need for an actual person to take the money and hand
over the item. Smart contracts serve that same purpose — but are much more
versatile.

Smart contracts have advanced quite a bit over time. They started as simple if-
then statements that a programmer can create and implement. Now, they have
been used for a variety of applications, including supply chain management, real
estate transactions and even voting systems. The potential for smart contracts to
revolutionize the way business is conducted and people interact with each other
is vast, and their development is an exciting area of innovation in the blockchain
space.

Benefits of smart contracts

Smart contract blockchains provide various benefits, including speed, efficiency,

accuracy, trust, transparency, security and savings, as discussed in the sections
below.

Smart contracts leverage computer protocols to automate actions, streamlining

various commercial processes and saving valuable time. By eliminating the need
for intermediaries such as brokers to validate signed legal contracts, the risk of
third-party manipulation is significantly reduced.

The absence of intermediaries in smart contracts not only mitigates risk but also
translates into cost savings. With complete visibility and access to the terms and
conditions of the contract, all relevant parties are held accountable once the
agreement is signed. This ensures that the transaction is transparent and non-
negotiable, promoting trust and accountability among all involved parties.

Moreover, all documents kept on the blockchain are duplicated many times,
allowing for the restoration of originals in the event of data loss. Smart contracts
are encrypted, and cryptography protects all documents from being32tampered
CHAPTER 2 Picking a Blockchain

with. Finally, smart contracts also eliminate errors that occur due to the manual
filling out of several forms.

What are the main challenges faced by smart contracts?

Although smart contracts are a promising innovation, they are not without their
flaws. It’s essential to remember that these contracts and the underlying
blockchain technology are developed by humans, making them susceptible to
human error. In some cases, errors in the code can result in security breaches, as
was seen in the infamous attack on Ethereum’s decentralized autonomous
organization (DAO) in 2016. The attackers exploited a vulnerability in the
fundraising smart contract and diverted funds from the project.

Moreover, the lack of regulatory clarity surrounding smart contracts presents

another challenge. While the idea of a secure, efficient transfer of funds is
appealing, issues such as taxation and government oversight must be addressed.
While users may desire complete control over their data, it’s crucial to consider
how government agencies can access the information they require.

The inability of smart contracts to retrieve data from sources outside of the
blockchain network is one of their drawbacks. This presents a problem because
numerous real-world applications need external data to initiate or carry out
contract clauses. For instance, external weather data might be required by a smart
contract that bases insurance payouts on weather conditions.

This is where oracles come in. Oracles are third-party services that let smart
contracts communicate with off-chain data sources, such as APIs and web pages.
They provide a bridge between the smart contract and the external data source,
supplying the details required to carry out the requirements of the contract.

As blockchain technology and smart contract usage grow, concerns about

scalability and network congestion persist. This can affect the performance and
reliability of the system, especially during periods of high usage. Moreover,
smart contracts are self-executing and non-negotiable, which may be a drawback
if the terms of the contract need to be changed because of unanticipated events.

Smart contract use cases and applications

Aside from the payments example mentioned above, there are various, potential
implementations of smart contracts that can automate the world and make it an
easier place to live. Here are some prominent examples of smart contract use
cases.
CHAPTER 2 Picking a Blockchain 33

Digital identity

On the internet, information is currency. Companies profit off of knowing

everyone’s interests, and people are not always in control of how that data is
acquired, nor do they profit from it. With smart contracts, people are in control.

In a blockchain-based future, identities will be tokenized. Ideally, this would

mean each person’s identity exists on a blockchain, safe and secure from any bad
actors. Now, if a user wants to participate on social media or submit documents
to a bank for loan purposes, they can profit from the former and control the
transaction process in the latter.

For social media, no intermediary controls a network. Instead, users choose what
information to make public and what to keep private. Should they want to
participate in information exchange, like an endorsement, they can create a smart
contract and choose what data is transacted, rather than simply gleaning
everything about a user. A third party isn’t there to take some of the funds or
secretly store and sell that data — only the user profits.

The same applies when it comes to dealing with banks and other financial
institutions. Communication only involves sending required documents and vital
information over. There’s no risk of a loan group storing your email address and
selling it to other credit companies. That info is entirely under the user’s control.

Real estate

In the traditional world, real estate brokers are a necessary evil. Considering the
act of selling a house is nothing short of long and convoluted, owners will hire a
broker to manage the confusing parts for them, such as the paperwork and
finding a buyer. While that sounds ideal for the seller, remember that brokers
take a significant fee from the house’s sale price.

A smart contract can take the place of a broker, streamlining the house transfer
process while ensuring it’s just as secure as with an intermediary. This is where
the “trustless” moniker comes into play.

Imagine the deed to your house is tokenized on the Ethereum blockchain. If

you’re ready to sell it, you’d create a smart contract with the buyer. That contract
would hold the deed in escrow until the buyer’s funds are properly submitted.
That said, everyone wins. The seller saves money, as they don’t have to pay an
intermediary, and the buyer gets the house much sooner than they would have
otherwise.
CHAPTER 2 Picking a Blockchain 34

Insurance

Insurance policies could easily benefit from smart contracts. Essentially, signing
up for a policy would enter the user into a smart contract with a provider. All
policy requirements would be written into the smart contract, which the user
would read and sign if they agree.

That contract would sit open until the liable party needs it. Then, they’d simply
upload the required forms that prove their need for insurance payment and the
funds would be released. This type of contract removes the need for
communicating with insurance groups and individuals. While the user would still
need paperwork to prove their requirements, the subsequent submission and
funding process will be close to instant.

In the identity aspect of things, it’s worth keeping in mind that all drivers will
have a record of their accident reports and other important insurance information
as well. This accessibility could factor into lower rates for good drivers with no
dings on their driving history.

Supply chain

Arguably, one of the most popular implementations of blockchain technology

and smart contracts, in particular, is within a supply chain.

Grocery stores, office warehouses, farmers and more all have their specific place
in a supply chain. But with how complex these networks are becoming,
companies are finding it increasingly harder to track product custody and follow
payments, among other things. Smart contracts can automate and incentivize all
parts of the supply chain to increase their accountability.

Suppose a company in Europe wants to purchase a shipment of goods from

a supplier in Asia.

It could automate every step of the transaction, from ordering to delivery, using a
smart contract. All pertinent information, such as the product specifications,
shipping information, terms of payment and deadlines for the fulfillment, would
be included in the smart contract.

In order to guarantee that the items are in accordance with the buyer’s
expectations, the smart contract would also include conditions for the product’s
quality and quantity. The use of intermediaries, like banks or brokers, and the
fees associated with them would be unnecessary because the contract is self-
executing and non-negotiable. CHAPTER 2 Picking a Blockchain 35

The money would be kept in escrow once the contract is signed until the supplier
certifies that the products have been delivered. The blockchain would track and
save the delivery schedules and shipment information, giving both parties
complete visibility and transparency.

When the goods are delivered and the buyer certifies that they meet the agreed-
upon parameters, the smart contract will instantly release the payments to the
provider. Due to the lack of intermediaries and decreased risk of fraud, this
method would be effective, efficient and secure.

Does Bitcoin have smart contracts?

The Taproot upgrade is a significant achievement for Bitcoin’s smart contract

capabilities. It solves the scalability issue by enabling the network to handle
multiple signatories and their complex transactions without the risk of clogging.
With Taproot, Bitcoin’s base chain can host smart contracts, empowering the
network to execute more sophisticated transactions.

In addition, Bitcoin can support smart contracts on protocols, such as

the Lightning Network, which relies on multisignature transactions called hashed
time-locked contracts (HTLCs). HTLCs facilitate low-cost and instant Bitcoin
micropayments and ensure that parties involved in routing payments receive a
small fee without compromising the security of the funds.

Smart contracts Can be created without coding

. These platforms provide drag-and-drop user interfaces and visual editors that
enable users to quickly and simply develop smart contracts without the need for
programming expertise.

For instance, Ethereum Studio, a web-based integrated development environment

(IDE), provides templates for creating smart contracts using Solidity, Ethereum’s
programming language. It offers a drag-and-drop interface, making it easy for
users to create smart contracts without coding. An IDE is a software application
that provides a comprehensive set of tools and features for developers to write,
test and debug code efficiently.

BlockApps Strato, a blockchain platform that offers a visual editor for creating
smart contracts, is another example of a no-code smart contract platform. It
supports a number of computer languages, such as Solidity and JavaScript, and
offers users a variety of template options. CHAPTER 2 Picking a Blockchain 36

The future of smart contracts

Smart requirements-powered contracts are undoubtedly the way forward for

relatively basic contracts that can be written and executed automatically
whenever pre-conditions are met, such as residential conveyancing, where
completion monies can be given as soon as contracts are signed.
Various smart contract platforms will save businesses worldwide time and
money while also revolutionizing how they interact in the supply chain and with
their customers. As a result, minimal human involvement will free individuals
and important decision-makers from dealing with mundane administration and
red tape, allowing them to focus on their day jobs. It is because the smart contract
picks up the slack.

CHAPTER 2 Picking a Blockchain 37