1.
Give the example of three different industries that can leverage the potential of blockchain technology
to improvise some aspect of their business and how?
Supply Chain Management Industry: The supply chain industry can use blockchain
technology to enhance their supply chain management by enabling secure and transparent
tracking of goods and products. With blockchain, businesses can track their products from
the source to the end-user, which enhances transparency, and trust between different
parties in the supply chain. Blockchain technology can also be used to reduce counterfeiting,
fraud, and errors in the supply chain.
Healthcare Industry: The healthcare industry can use blockchain technology to improve the
security and privacy of patient data. With blockchain, patients can own and control their
medical data, which eliminates the need for intermediaries such as insurance companies,
hospitals, or other third-party providers. This enhances the privacy and security of patient
data while providing seamless access to healthcare services.
Real Estate Industry: The real estate industry can use blockchain technology to streamline
the buying and selling of properties. With blockchain, the industry can create smart
contracts that automate many of the processes involved in buying and selling real estate
properties, such as title transfers, payments, and escrow services. This enhances
transparency, security, and reduces fraud in the industry.
2. Discuss the blockchain technology with respect to following terms: leader, cryptography,
cryptocurrency, consensus mechanism, scalability, cost and software development.
Leader: In blockchain technology, a leader or validator is a node in the network that has the
authority to validate transactions and add them to the blockchain. The leader is responsible
for verifying the validity of each transaction and ensuring that it conforms to the rules of the
network before adding it to the blockchain.
Cryptography: Cryptography is a crucial component of blockchain technology that helps to
ensure the security and integrity of transactions. It is the process of encoding and decoding
information to prevent unauthorized access, modification, or interception. Blockchain uses
various cryptographic techniques such as hash functions, digital signatures, and public-key
cryptography to secure data on the network.
Cryptocurrency: A cryptocurrency is a digital asset that is designed to work as a medium of
exchange. It uses cryptography to secure and verify transactions as well as to control the
creation of new units. Bitcoin, Ethereum, and Litecoin are some examples of
cryptocurrencies that use blockchain technology.
Consensus Mechanism: The consensus mechanism is a process that allows all nodes in a
blockchain network to agree on the state of the network. It ensures that all nodes have a
shared understanding of the transactions that have taken place and prevents double-
spending. There are various consensus mechanisms used in blockchain technology, including
Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS).
Scalability: Scalability is a significant challenge in blockchain technology. As the number of
users and transactions on the network increases, the time it takes to validate transactions
and add them to the blockchain also increases. Blockchain developers are exploring different
solutions to this problem, such as sharding, sidechains, and state channels.
Cost: The cost of developing and deploying blockchain technology can be relatively high. It
requires specialized skills and knowledge, and the technology is still in the early stages of
development. Additionally, the cost of mining cryptocurrencies can be high due to the
significant computing power required.
Software Development: Developing blockchain software requires a deep understanding of
cryptography, distributed systems, and decentralized applications. Blockchain developers
must be skilled in programming languages such as Solidity, Java, and C++. They must also be
familiar with blockchain frameworks such as Ethereum, Hyperledger, and Corda. There are
also various development tools and libraries available to assist blockchain developers, such
as Truffle and Web3.js.
3. Discuss the various aspects of decentralization in BITCOIN?
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network without
the need for a central authority. The decentralization of Bitcoin is a key feature that sets it
apart from traditional currencies and financial systems. The following are the various aspects
of decentralization in Bitcoin:
Decentralized Network: The Bitcoin network is decentralized, meaning that it is not
controlled by any central authority. Instead, it is operated by a network of nodes that are
spread across the globe. This ensures that no single entity can manipulate or control the
network.
Decentralized Transactions: Transactions on the Bitcoin network are also decentralized.
Users can send and receive Bitcoin without the need for a central authority, such as a bank
or a government. Transactions are verified and recorded on the blockchain, which is a
decentralized ledger that is maintained by the network of nodes.
Decentralized Mining: Bitcoin mining is the process of verifying transactions and adding
them to the blockchain. It is a decentralized process that is carried out by miners who use
specialized hardware to solve complex mathematical problems. The mining process ensures
that the network is secure and that transactions are validated without the need for a central
authority.
Decentralized Governance: The governance of the Bitcoin network is also decentralized.
Changes to the protocol are proposed and implemented through a process known as a "soft
fork" or a "hard fork." These changes are decided through community consensus, with each
node on the network having an equal say in the decision-making process.
Decentralized Storage: The Bitcoin network also uses a decentralized storage system to store
the blockchain. The blockchain is stored on a network of nodes, with each node having a
copy of the entire blockchain. This ensures that there is no single point of failure in the
network.
Overall, the decentralization of Bitcoin ensures that the network is secure, transparent, and
resistant to censorship. It also ensures that users have control over their own funds and that
there is no central authority that can manipulate the network.
4. Describe at least three different security features of a cryptographic hash function and provide
examples for each one of these feature.
Cryptographic hash functions are widely used in information security for tasks such as data
integrity checks, password storage, and digital signatures. Here are three different security
features of a cryptographic hash function, along with examples for each:
Collision Resistance: A hash function is considered collision-resistant if it is computationally
infeasible to find two distinct inputs that produce the same hash output. This means that an
attacker cannot modify a message without changing its hash value, making it difficult to
forge digital signatures or tamper with data. An example of a hash function with strong
collision resistance is SHA-256.
Preimage Resistance: A hash function is considered preimage-resistant if it is
computationally infeasible to find an input that produces a given hash output. This means
that an attacker cannot determine the original message that produced a given hash value,
making it difficult to reverse engineer passwords or other sensitive data. An example of a
hash function with strong preimage resistance is SHA-3.
Avalanche Effect: A hash function exhibits the avalanche effect if a small change in the input
results in a completely different hash output. This means that even a slight modification to
the input data will produce a completely different hash value, making it difficult for attackers
to predict the hash output or find patterns in the data. An example of a hash function with
strong avalanche effect is BLAKE2.
In summary, cryptographic hash functions offer a range of security features, including
collision resistance, preimage resistance, and avalanche effect. By using hash functions with
strong security features, information security professionals can protect sensitive data,
ensure data integrity, and provide secure digital signatures.
5. Give at least three reasons with explanation to demonstrate why reaching consensus in a decentralized
system is hard?
Reaching consensus in a decentralized system can be challenging for several reasons:
Lack of central authority: Decentralized systems, by definition, lack a central authority to
make decisions and enforce rules. In the absence of a central authority, achieving consensus
requires all participants to agree on the rules and adhere to them. This can be difficult, as
there may be conflicting views or interests among participants, leading to disagreements
and delays in reaching consensus.
Network latency: In a decentralized system, nodes are spread out across the network and
communicate with each other to validate transactions and maintain the integrity of the
system. Network latency can cause delays in communication, leading to inconsistencies in
the state of the system. This can make it challenging to reach consensus, as nodes may have
different views on the current state of the system.
Sybil attacks: A Sybil attack is a type of attack in which a single entity creates multiple fake
identities to gain control over the network. In a decentralized system, Sybil attacks can be a
significant threat to achieving consensus. If an attacker can create enough fake identities,
they can control the decision-making process and manipulate the system for their own
benefit.
In summary, reaching consensus in a decentralized system is hard because of the lack of a
central authority, network latency, and the threat of Sybil attacks. These challenges must be
addressed by decentralized systems to ensure the integrity and security of the network.
6. In bitcoin while trying to add a block to the blockchain whether all minors solve the same puzzle.
(Justify) Discuss about some built-in limitations to the Bitcoin protocol, and why it’s challenging to
improve them?
In Bitcoin, all miners compete to solve the same puzzle, known as the Proof of Work (PoW)
algorithm. The first miner to solve the puzzle earns the right to add the next block to the
blockchain and receive a reward in Bitcoin. This ensures that there is a decentralized
consensus mechanism that allows all participants in the network to validate and agree on
the transactions recorded on the blockchain.
However, not all miners solve the same puzzle simultaneously. The PoW algorithm requires
miners to generate a hash that meets a specific difficulty level. This difficulty level is adjusted
every 2016 blocks to maintain a stable block production rate of one block every ten minutes,
irrespective of the number of miners or their computational power.
The Bitcoin protocol has several built-in limitations that make it challenging to improve or
scale the network. One of the main limitations is the block size limit of one megabyte, which
restricts the number of transactions that can be included in each block. This results in long
confirmation times and high transaction fees during periods of network congestion.
Another limitation is the PoW algorithm's high energy consumption, which has raised
concerns about the environmental impact of Bitcoin mining. The PoW algorithm's design
requires miners to solve complex mathematical problems, which require substantial
computational power and energy consumption.
Additionally, the decentralized nature of Bitcoin also presents challenges in improving the
protocol. Changes to the Bitcoin protocol require consensus among the network's
participants, which can be difficult to achieve given the diverse interests and opinions of the
users, miners, and developers.
In conclusion, while all miners in Bitcoin compete to solve the same PoW puzzle, they do not
solve it simultaneously. The built-in limitations to the Bitcoin protocol, such as the block size
limit and the PoW algorithm's energy consumption, make it challenging to improve and scale
the network. The decentralized nature of Bitcoin also presents challenges in achieving
consensus on protocol changes.
7. What are some ways to burn bitcoins, i.e., to make a transaction unredeemable? Which of these allow a
proof of burn, i.e., convincing any observer that no one can redeem such a transaction?
Sending bitcoins to an address with an invalid checksum or non-existent address: This
method is not a secure way to burn bitcoins, as the bitcoins can still be recovered with some
effort.
Sending bitcoins to an address with an unspendable script: This is a more secure way to burn
bitcoins as the coins are sent to an address with an output script that makes them
unspendable.
Proof of Burn: This is a method of burning bitcoins where the sender sends bitcoins to an
unspendable address that is verified to have been generated by burning some other
cryptocurrency, such as Litecoin or Dogecoin. The proof of burn ensures that the bitcoins are
truly unspendable, and the sender can prove to others that the coins have been burned by
providing evidence of the burned cryptocurrency.
Multi-Signature Address: Another way to make bitcoins unspendable is by sending them to a
multi-signature address where the required private keys are distributed across multiple
parties, making it impossible to access the coins without the agreement of all parties
involved.
Out of these methods, only Proof of Burn allows for convincing any observer that the
bitcoins are truly unspendable. The Proof of Burn method ensures that the bitcoins are truly
burned by providing evidence of the burned cryptocurrency, making it a secure way to
permanently destroy bitcoins.
8. Scalability is one of the major issues with blockchain. Discuss the reasons for this problem and various
techniques that can be applied to make blockchain-based solutions more scalable. Critically analyse
your answer for scalability in terms of number of nodes, throughput, size of the block, etc.
Scalability is one of the significant issues with blockchain technology. The following are the
reasons for this problem:
1. Limited Block Size: The current Bitcoin protocol limits the size of each block to one
megabyte, resulting in limited transaction throughput.
2. Increased Node Participation: As the number of nodes participating in the network grows,
it becomes more challenging to reach consensus on transactions, resulting in longer
confirmation times.
3. Consensus Mechanisms: The consensus mechanisms used in most blockchains, such as
proof-of-work, require extensive computational power, leading to high energy
consumption and slower transaction processing times.
To address these scalability issues, various techniques can be applied, including:
1. Segregated Witness (SegWit): This is a soft fork solution that separates the transaction
signature data from the transaction input data, freeing up block space and increasing the
number of transactions that can be included in each block.
2. Lightning Network: This is a second-layer solution that enables faster and cheaper
transactions by opening payment channels between two parties, reducing the number of
transactions recorded on the blockchain.
3. Sharding: This technique involves partitioning the blockchain into smaller shards, allowing
for more transactions to be processed simultaneously.
4. Proof-of-Stake: This consensus mechanism uses stakeholder's ownership of the
cryptocurrency to validate transactions, reducing the computational power required for
consensus and improving transaction throughput.
In terms of the number of nodes, these techniques can increase the number of nodes that can
participate in the network without affecting transaction processing times significantly.
For throughput, SegWit and Lightning Network can increase the number of transactions that can
be processed, while sharding can improve the overall transaction processing speed.
Regarding the size of the block, SegWit and Lightning Network can help reduce the size of each
transaction, freeing up block space, and increasing the number of transactions that can be
included in each block.
In conclusion, scalability is a significant issue with blockchain technology, but there are various
techniques that can be applied to make blockchain-based solutions more scalable. These
techniques can address scalability issues in terms of the number of nodes, throughput, and the
size of the block. However, these techniques also have their limitations and potential drawbacks,
and it's essential to critically analyze their effectiveness and potential impact on the blockchain
ecosystem.
Q.1 For digital money to be useful, it needs to be transferable. The transfer of money on a blockchain is
initiated by the owner, creating a transaction. This transaction informs the network about how much
money is changing hands and who the new owner is. UTXO and account based are two most commonly
used accounting models used in blockchains.
a. Describe the working of both the model.
b. Mention the similarities and difference between the two models
9. Compare the two models with respect to different performance criterions.
a) UTXO (Unspent Transaction Output) Model: In the UTXO model, each transaction creates
new UTXOs, which are the outputs of the transaction that can be spent in future
transactions. Each UTXO has a specific value and is associated with a specific public key. To
spend a UTXO, the owner must create a transaction that references the UTXO and signs it
with their private key, proving ownership of the UTXO.
Account-Based Model: In the account-based model, each account has a balance associated
with it, and transactions involve transferring funds from one account to another. When a
transaction is created, the sender specifies the recipient's account and the amount to be
transferred. The transaction is then verified and added to the blockchain, updating the
account balances of the sender and the recipient.
b) Similarities: Both the UTXO and account-based models are used to keep track of the
ownership and transfer of digital assets on a blockchain. Both models require cryptographic
signatures to authorize transactions, and both provide a transparent and tamper-proof
ledger of all transactions.
Differences: The main difference between the two models is in the way they track
ownership and transfer of digital assets. The UTXO model tracks the ownership of specific
transaction outputs, while the account-based model tracks the balances of individual
accounts. The UTXO model requires inputs and outputs for each transaction, while the
account-based model only requires the sender's account and the recipient's account.
c) Performance Comparison:
Security: Both models are secure, but the UTXO model is considered more secure as it is less
susceptible to certain types of attacks, such as double-spending attacks.
Scalability: The account-based model is generally considered more scalable as it requires less
computational overhead to process transactions.
Flexibility: The UTXO model is more flexible as it allows for more complex transactions with
multiple inputs and outputs. The account-based model is more straightforward and easier to
use for simple transactions.
Privacy: The UTXO model provides better privacy as it makes it more difficult to trace the
history of transactions. The account-based model is more transparent and easier to audit.
In conclusion, both the UTXO and account-based models are commonly used accounting
models in blockchains, and each has its strengths and weaknesses. The choice of model
depends on the specific use case and performance requirements.
10. In order to prove “Transaction B” and Transaction D are part of the following merkle tree. What all
hashes are required to be sent by the prover to the verifier in addition to transaction B and
Transaction D itself.
To prove that Transaction B and Transaction D are part of a Merkle tree, the prover needs to
send the following hashes to the verifier:
Hash of Transaction C: The hash of Transaction C is required to prove that Transaction B is part of
the Merkle tree. To do this, the prover needs to send the hash of Transaction C, which is the sibling
of Transaction B's hash in the Merkle tree.
Root Hash: The root hash of the Merkle tree is required to prove that Transaction D is part of the
Merkle tree. To do this, the prover needs to send the root hash of the Merkle tree, which includes
the hash of Transaction D.
With the hash of Transaction C and the root hash of the Merkle tree, the verifier can re-compute the
Merkle root and verify that Transaction B and Transaction D are part of the Merkle tree.
