SFDCWallah

Blockchain:

1. The algorithm behind distributed ledger technology
2. By Satoshi Nakamoto
3. Used In
   • Crypto-Currency
   • Business Network Applications
   • Banking & Finacial
   • Real Estate
   • Election

History:

1. Inspired by timestamp-based ordering algorithms to prevent tampering of documents.
2. First introduced in a research paper in 2008.
   1. The major purpose was to :
      • To solve the double-spending problem
      • And eliminate the need of central trusted third party

Double Spending Problem:

1. Before the first transaction gets confirmed, the amount is double spent on the recipient.
2. Here we are considering this transaction is happening in a distributed system in which multiple servers or nodes having a copy of Alice balance.
3. Before all the nodes get the updated balance of Alice or confirmed from all the nodes someone just made a fault entry that Alice sent $5 to Tom, so this creates the problem in a distributed transaction.

The Need Of Third Party For Trust:

P2P(Process to Process) cryptographic payment system solves these both problems.

• Blockchain is larger number of distributed blocks of data.
• Holds the ledger of transactions from the beginning of time(of the system)
• When the first block is added to the blockchain at time T0(T zero), it is called the Genesis block.
• Each block in the chain has reference to the previous block.
• The blocks are distributed over a P2P network.
• P2P network in which every node is connected to each other node either directly or indirectly.
• Each node/peer contain entire copy of the blockchain.
• Whenever a new transaction is added:
  • Added in a block on the node.
  • Block is broadcasted to all the nodes.
• Once all the nodes verified the transaction that is added to the node.
• P2P network is to establish a trusted framework.
• If 51% of the nodes remain honest nodes which means the nodes which are having the correct info of transactions are higher in the system.
• It will be difficult for the fraudulent nodes to catchup.

The Block Structure:

• The block contains the ledger/transaction data
• The block data is hashed by cryptographic hash functions.
• Cryptographic Hash Functions
  • One way hash functions
  • It is difficult to find another hash value for the same string.
• Block Structure
  • Block No.
    • Data:
      • Transaction/Ledger
    • Nonce
      • Block Hash
      • Prev Block Hash

Hashing of Block:

Forming A Chain:

• The first is the Genesis block(the previous pointer is 0).
• The valid block is added to the chain.
• Each block contains a pointer to the previous hash.
• The chain of blocks contains the ledger of all the systems.

Anyone trying to change the data in any of the blocks in the blockchain will:

• Change the hash of the current block
• The prev pointer of the next block will be changed.
• And hence all subsequent blocks will be changed.
• Hence this breaks the chain.
• However, the attacker will be required to hash all the blocks again to change the complete chain.
• Proof of work will make this further difficult.

Proof of Work:

• Produce a challenge to the user/computer.
• Basically, we create a challenge for the user/computer to generate data according to the nonce value we provide in the block.
• If the user/computer is capable to generate the proof of work, user/computer is validated and added to the blockchain.
• And eliminate entities which are slow or not capable enough to generate the proof of work.
• Find or generate a value which is :
  • Difficult to generate
  • And yet easily verifiable
  • For example:
    • Proof of work: Block hash should have n leading zeros. For example n=4, hash should have value 4 leading zeros.
    • 0000Ab23………………………………………………………0Ab23.
    • Leading 4 zeros initially in this hash.

How to get such proof of work:

• Generate Nonce, maybe by BruteForce such that:
  • Combination of Nonce and Block data generates the leading zeros.
  • As per the difficulty of the challenge (value of n).
  • More the value of n more the difficulty.
  • We can have our own custom algorithm to make this more difficult.

Significance of Proof of Work:

• Signifies that the computation required is exponential to the no. of leading zeros required.
• Once the CPU effort has been expended to make satisfy proof of work the block can’t be changed.
• Until redoing the proof of work(if the data of the block has been changed).
• Redoing will require the entire chain to be redone.

A Validity of Proof of Work:

• Even if the attacker tries to catch up and produce the proof-of-work faster, the added block will be assessed again when a new block is added.
• Chain with longest proof-of-work will be accepted.
• A parallel chain is formed.
• Other blocks will be rejected ( called the dangling block/branch).
• Consensus will verify the block.
• As no. of blocks increases, the probability of a slower attacker catching up diminishes.

Transactions:

• Transactions are generally stored in Merkel tree.
• Transactions are hashed & paired again.
• Each transaction record is hashed.
• The process repeats until there is only one root hash.

How The User Authentication Happens In Blockchain?

• Each transaction record is signed by the private key of the sender.
• The signature is appended with the transaction.
• At any point of time, it can be validated that transaction if initiated by a particular sender.
• The public key of the sender can be used to generate the signature which can be validated.
• A lot of other cryptographic arrangements can be used for further securing the transaction records.