Features of Blockchain Technologies

#blockchain #typesofBlocks #immutability #immutable

We are going to discuss about Blockchain and Cryptocurrencies& Having understood the concepts of cryptography, hash, Merkle root, digital signatures and consensus mechanisms, you now know how a blockchain is an amalgamation of all these features that provides a robust solution.

In this module

In this module, you will explore the different types of blockchain?and understand why a specific type applies to a scenario.?You will also understand how blockchain leverages cryptographic hashes and consensus mechanisms to ensure immutability of data.

Further, while blockchain provides the quantitative benefits of disintermediation and immutability, you will learn about the qualitative benefits of global reach, trustlessness that leads to flexibility.

Next, you will learn about a crucial element that enhances trustlessness and eliminates the need for an intermediary - smart contract.

Finally, we will end the module by providing you with a high-level architectural overview of the complete blockchain ecosystem.

In this session

In this session, you will learn about the various types of blockchains in addition to the features of immutability and the qualitative features of global reach and trustlessness. The topics covered in this session are:

• Types of blockchains
• Immutability
• Blockchain as a future promise

Session objectives

By the end of this session, you will be able to:

• Evaluate the applicability of different types of blockchains in a business scenario
• Determine how a blockchain ensures immutability of data
• Discuss the blockchain features of global reach and trustlessness in doing business

Prerequisites

You should have gone through module I and II of the blockchain course to have a basic understanding of the key terms used in the blockchain system.

Guidelines for in-module questions

The in-video and in-content questions for this module are not graded. Note that graded questions are given on a separate page labelled 'Graded Questions' at the end of this session. The graded questions in this session will adhere to the following guidelines:

?First Attempt MarksSecond Attempt MarksQuestion with 2 Attempts105Question with 1 Attempt100

?People you will hear from in this session

Subject Matter Expert

Types of Blockchains

Welcome to the topic on types of blockchains! Though you have understood these types earlier, you will explore each type at a detailed level in this segment. Before you dive into the types of the blockchain, take a look at a scenario where an individual is leveraging blockchain technology to expand his business.

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A major transformation is taking place in the Indian banking system where all banks are coming together to form a common lending platform - India Lending Blockchain, under the leadership of RBI. In addition to the banks, this platform will also consist of credit bureaus, risk departments, legal and technical panels and other stakeholders of the banking industry. Can this blockchain platform be purely democratic like the bitcoin network or heavily regulated like the SWIFT network? Let’s find out by exploring each of the blockchain types in detail.

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A?public permissionless blockchain?is free for anyone to join or leave. Bitcoin blockchain is the best example of a public permission less network. This type of network provides?anonymity,?immutability?and?transparency?but compromises on efficiency.

?A?public permissioned blockchain?is an intermediate between private and public networks. It values?efficiency?and?immutability?over transparency and anonymity, where every participating member is aware of the identities of the other members in the network. For example, Goods and Services Tax (GST) network in India will be most suitable for a permissioned blockchain since it is operated by known entities, and all participants are verified before they join the network.

?However, the above-mentioned blockchains cannot be suitable for the India Lending Blockchain network. Permissionless blockchains do not provide the identity of the participants and lack in efficiency; whereas public permissioned blockchains, though they restrict access, are still exposed to the public at large raising concerns over the security of the network since they do not provide anonymity of the participants. So, in the case of a GST network, you wouldn’t want other taxpayers in the country to know the details of your tax filings.

Question 1 --Public blockchain networks

Within public blockchains, permissioned and permissionless differ on which of the following parameters? (Choose all that apply)

• Anonymity ? Correct You missed this!
• Accessibility ? Correct
• Scalability
• Reliability

Feedback:

Anyone can access the permissionless blockchain whereas only verified participants are allowed to access a permissioned blockchain

Feedback:

Permissioned blockchains do not provide anonymity, whereas it is one of the key characteristics of a permissionless blockchain

Question 2 Public blockchain networks

Transactions in public blockchains generally are of the nature _________, _________

1. High-speed, high-cost
2. Low-speed, low-cost
3. High-speed, low-cost
4. Low-speed, High-cost ? Correct

Feedback: Transaction processing is costly due to the energy intensive?mechanisms employed to process them. Public blockchains generally employ proof-of-work consensus mechanism which is secure but very slow in nature and consumes time, resources and money.

Having looked at the public blockchains earlier, let’s now take a look at the private blockchains in detail. Additionally, we will also discuss the applicability of a private blockchain to the India Lending Blockchain network.?

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A?private blockchain?is one which is operated and managed by a single entity. These type of blockchains are generally applicable in case of a conglomerate where the parent company runs the network for the underlying group of companies. In such a situation, they value efficiency over anonymity, transparency and immutability. If we consider India Lending Blockchain, RBI could be considered as the entity having supreme authority over the entire network. However, this raises the question of concentrating too much power in the hands of a single entity.

A?consortium blockchain?is largely similar to a private blockchain but differs when you consider who controls or manages the network. Instead of concentrating all power in one entity, authority is distributed across two or more participants. This scenario is also suitable for the India Lending Blockchain where authority can be distributed between RBI and a few of the major banks to ensure benefits for all of its members.?

Let’s summarize the key differences between the types of blockchains:

TypeAnonymityTransparencyImmutabilityEfficiencyConfidentialityThroughputFinality Turn aroud time (TAT)PublicYesYesYesNoLowLowHighPermissionedNoNoYesYesMediumLow/MediumMedium/HighPrivateNoNoNoYesVery highHighVery LowConsortiumNoPartialYesYesHighHighLow

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Question 1Private blockchain networks

Match the examples in the left column with the type of blockchain network in the right.

1 .?I’m the telecom industry body and want to reduce turnaround time for mobile number portability >>>> A. Public

2.?I want to participate in the network, but don’t want anyone to know about my identity >>>B. Private

3.?I’m the GST Department and want to bring all merchants to a network to enable auto-matching and easy GST process >>>C. Consortium

4.?I’m Reliance Group head and want to optimize transfer pricing costs across my group of subsidiary companies >>>D. Permissioned?

• 1-A, 2-B, 3-C, 4-D
• 1-C, 2-A, 3-D, 4-B ? Correct
• 1-A, 2-D, 3-B, 4-C
• 1-C, 2-B, 3-A, 4-D

Feedback: Telecom industries body will be a group of companies who have formed a consortium. The anonymity of the participants is a key feature of the public blockchain. GST department, being open to the public at large, yet restricts the participation of the members represents a permissioned blockchain. Reliance group head controls and manages the costs for the entire group of companies and this represents a private blockchain.

Question 2 Is it possible to have a private permissionless network?

Yes

No ? Correct

Feedback: Not at all possible. In a private network, you can’t allow access to unknown users – making it effectively a network of known users or permissioned network. So private permissionless is not a possibility.

Immutability in blockchain

You learnt a lot about the immutability of data in blockchain in the previous module. However, as they say, "?Revision never hurts?" and immutability being a key feature of the blockchain, let's?revisit the concept?to further cement our understanding.

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Immutability means something which is permanent and cannot be changed. In practical terms, it refers to the extreme difficulty that one will face in trying to alter or make changes to the existing data.

To ensure immutability of data in databases, organisations employ various mechanisms ranging from access controls, multiple approvers, reconciliation, audit trails and firewalls. In spite of employing these means, data stored in the database are mutable (i.e not immutable) and can be altered once someone gains access to the data. This is where blockchain technology makes the biggest impact.

As you have learnt earlier, a block header hash is calculated as a double SHA 256 hash of all the block constituents.?

Block header hash = SHA256 (SHA256 (previous block hash + Merkle root + timestamp + difficulty target + nonce) ).

For example, if there is a modification in the loan amount inside a transaction, the modification will affect the hash value of the transaction, which then will affect the Merkle root. Since Merkle root is one of the components of the block header, this will cause a ripple effect and the block header hash will also undergo a modification. This would lead to a mismatch with the hash value of the next block since the next block’s hash value is dependent on the current block’s hash value. Thus ultimately disrupting the chain of blocks.?

Salting is a process of adding a random string to the original string so as to ensure the original data cannot be re-calculated. Thus it will be very difficult for any hacker to compute the hashes of all the blocks to ensure that the chain is not disrupted and the node remains in a valid state.

Question 1 Immutability

Which of the following components of the current block will be affected if any modification is made in any transaction contained in that block??

• Previous block hash
• Timestamp ? Incorrect Feedback: ?The timestamp is independent of the transaction data
• Merkle root ? Correct Feedback: Merkle root is a single root formed by hashing all the transactions within a block. Thus, even a slight modification in any transaction can significantly alter the value of the Merkle root.
• Difficulty Target

In the previous video, you understood how the block structure helps in maintaining the immutability of the chain. Let’s assume that a hacker was able to modify the block data to reflect the modification.?In the next video, we will explains how the consensus mechanism plays a part in ensuring the immutability of a blockchain through the demonstration of the Practical Byzantine Fault Tolerance (PBFT) mechanism.

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Practical Byzantine Fault Tolerance?or PBFT is one of the most popular mechanisms in a private blockchain since it is energy efficient and has optimized resource utilization. It is the ability of a distributed network to reach consensus despite the presence of malicious nodes in the system. A basic assumption for implementing this mechanism is that at least 2/3rd of the nodes in the network are honest nodes. Conversely, it can also be said that PBFT requires less than 1/3rd nodes in the network to be faulty or malicious.

It works on the principle of state transformation wherein a random node upon receiving a transaction validates it against its current state. This node is designated as the leader node and propagates this transaction to all peer nodes. Each node responds with a vote or a decision and the collective majority decision of all the nodes is accepted as the final decision of the network. To read further about PBFT, please refer to the link below.

• PBFT

Question 1 Immutability through consensus

Assume that there exist f faulty nodes in a network. Suppose a node receives a transaction to validate. What is the least number of similar responses needed by the node to conclude whether the transaction is valid or not?

3f + 1

f - 1

2f + 1 ? Incorrect Feedback: Since there are f faulty nodes, the node should receive f+1 minimum responses to decide?whether the transaction is valid or not.??Assume that there are 3 faulty nodes in a network. Once it receives f+1 i.e. 4 similar responses, it is sufficient to conclude the decision. Why? This is because if these 4 nodes contained 3 faulty nodes and 1 genuine node, the responses would not have been similar. 3 faulty ones would have said something else and the genuine node would have said something else. 4 nodes saying a similar thing means that all 4 of them are not faulty. This is assuming that all the faulty nodes will send the wrong response.

f + 1 ? Correct Feedback: Since there are f faulty nodes, the node should receive f+1 minimum responses to decide?whether the transaction is valid or not.??Assume that there are 3 faulty nodes in a network. Once it receives f+1 i.e. 4 similar responses, it is sufficient to conclude the decision. Why? This is because if these 4 nodes contained 3 faulty nodes and 1 genuine node, the responses would not have been similar. 3 faulty ones would have said something else and the genuine node would have said something else. 4 nodes saying a similar thing means that all 4 of them are not faulty. This is assuming that all the faulty nodes will send the wrong response.

Having seen the role of hash and consensus mechanism in ensuring immutability, let’s take a look at the role of the distributed network in ensuring immutability of the blockchain network.

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You can learn more about?Anders tool from the link below.

• Anders Tool

Due to the distributed nature of the nodes, even if the hacker is successful in editing his copy of the blockchain, the moment the blockchain synchronises with the network, it will fail again since the other nodes contain the valid copy of the blockchain with valid data that differs from the edited copy of the blockchain. Thus, you can conclude that hash, consensus mechanism and distributed nature of the nodes ensure that the blockchain remains immutable even in situations with malicious participants.

The immutable nature of the blockchain makes it a robust and tamper-evident solution. However, this becomes a limiting factor since there might be a need to modify some incorrect data in the transaction. Hence, organisations have introduced a technique called as chameleon hash, which allows a participant to allow the modify the base transaction data without affecting the hash of the block. The modified block will contain a scar to indicate the modification of data, without affecting the hash value of the block and the subsequent blockchain. More such evolutions are expected to come up in the future to address similar concerns.?