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Blockchain Tutorial

Blockchain Data Management

As we are aware, Blockchains are distributed structures that follow peer-to-peer networks and inherit the advantages of a peer-to-peer network such as speed, avoidance of single-point failures, etc.

The below diagram gives an overview of the Peer-to-Peer networks.

Blockchain Data Management

Each node is linked to each other and shares resources, meaning there is no dependence on central machines similar to the traditional client-server design.

Data Management on Chain:

In this tutorial, we’ll try to comprehend how data is stored on blockchains and the contents of every block on the blockchain. Each transaction is grouped into units, and each unit is called a block. We can refer to the following image:

Blockchain Data Management

In the above picture, some blocks have actual transaction information on them. Apart from transaction data, there are other common characteristics of every block that are like this:

  1. Index: The term “index” is nothing more than a number that is a sequential block number.
  2. Timestamp: Date on the day that blocks the data was added.
  3. Hash: It is a unique hash value used to identify the information. It is created using mathematical formulas. Each block contains different hash values that directly communicate via data changed (i.e., if data changes, then it will be reflected in the hash value as well).
  4. Previous hash: It has values for the hash of previous blocks in order to gain references backward.

Immutability over Blockchain:

We all know that databases. Traditional databases are designed for CRUD (Create, Read, Update, and Delete) operations. However, blockchain is only able to append and retrieve, meaning that the data once added can’t be removed or changed.

In the blockchain, any node that has access to the ledgers can verify and check whether the ledger has been altered or if any transaction in any block has changed. This is typically performed by calculating the hash value of the block’s data and then comparing it to the hash value of previous blocks in the next block.

Example:

Here is the Blockchain, which shows the latest block, Block#555.

Blockchain Data Management

The peer or node here can determine the hash value of block#554 as well as determine whether the hash value for block#555 is the same as the value for block#554. If it’s not, the block is declared compromised. The image below illustrates the verification process.

Blockchain Data Management

If the data is altered and invalid validation fails, rejection of a block will occur by all nodes.

Blockchain uses the consensus (general agreement) method to validate the transactions

Blockchain Consensus

It’s a method whereby peers agree to the current state of the ledger. It makes sure that all peers share the same copy of the ledger. Fraudulent transactions are kept off the ledger. It also ensures that it records transactions in chronological order.

Here is a brief description of the consensus protocols that are common to all.

Common Consensus Protocols:

1. Proof of work:

Proof of Work (PoW) as the name implies, it’s the confirmation of the work done and the proof that it is accurate. This is the method of consensus to ensure that the chain’s authenticity is valid.

The major drawback of PoW is that it demands more electrical power and high-end computing hardware, which can be expensive.

2. Proof of stake:

The Proof of Stake (PoS) is a different method of confirming and verifying the block or transaction. PoS chooses the validator according to the stake that the validator holds and their age of stake. In PoS, the validated player earns the entire or a portion from the fee for transactions.

PoS eliminates the biggest issues with PoW and is believed to have an advantage since there’s no need for expensive hardware. It is also energy efficient because it doesn’t draw as much power as PoW.

3. Tendermint:

The Tendermint is an open-source project designed to tackle scaling, speed as well as environmental issues of Bitcoin’s Proof-of-Work consensus algorithm. It utilizes the BFT (Byzantine fault-tolerant consensus) algorithm.

The Bitcoin, as well as Ethereum blockchain networks, use Proof of Work.

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Blockchain Tutorial

Ethereum 2.0

What is Eth2?

Eth2 pertains to a series of updates that will improve Ethereum’s scalability, security, and long-term viability. Numerous teams from around the Ethereum network are working on these enhancements.

Ethereum 2.0 (ETH2) is a system update that attempts to enhance the safety and manageability of the Ethereum blockchain. A holding mechanism will replace Ethereum’s existing mining process as part of this development.

What Exactly do You have to Accomplish?

You do not have to do something if you’re a digital asset customer or have ETH. If you’re a programmer or would like to initiate mining, several options are available nowadays.

Difference between Ethereum (ETH) and Ethereum2 (ETH2)

ETH2 denotes ETH that has been staked. Our users can earn incentives by staking their ETH with Coinbase. The ETH is converted to ETH2 when you stake it. The cost of ETH2 is the same as the cost of ETH. The ETH2 will regress to ETH that once Ethereum system advancement is comprehensive.

What is Staking Process?

On a PoS (proof-of-stake) blockchain, staking is the act of intentionally engaging in purchasing guidelines (equivalent to extraction). Anyone with a minimum needed crypto value can conduct transactions and gain Protecting payments on these blockchain systems.

How does Staking Work on Coinbase?

Stacking works on the coinbase in the following way:

  • When a network node budget range is reached, it spends that currency in the chain like a security deposit.
  • The probability of a node being selected to generate the next transaction is directly proportional to the volume of the stake.
  • The validation earns a payment if the network properly generates a log, analogous to how a miner is compensated in proof-of-work networks.
  • If super nodes dual or seek to assault the platform, they forfeit a portion of their investment.

What is Inflation?

ALGO (Algorand) is a cryptocurrency that earns benefits through inflation and social benefits. Inflation occurs when new coins are connected to the system at a price fixed by the system, and those assets are then dispersed as incentives to owners.

Rewards of Staking Ethereum

As an incentive to safeguard the infrastructure, you can receive an additional 5% APR on each ETH of your deposit. Staking payouts for ETH2 are calculated based on how much ETH confirms and what incentives the system is paying over the period.

When a small amount of ETH is pledged, the protocol payouts grow to encourage additional ETH to be staked. When a large amount of ETH has already been staked, however, the payout is lowered.

Risks of Ethereum Staking

Terms of agreement and any amendments made when the stake applies to the ETH scoping facility may be proffered. Staking with ETH is investigational and comes with some risks, such as the possibility of the system failing. Whenever you decide to stake, be ensure you individually examine, comprehend, and embrace the associated risks.

The chance of sacrificing your staked resources (sometimes referred to as your “main money”) owing to slicing is an obvious concern to be wary of. Slashing is a protocol-level punishment imposed in response to a connection or validator error.

Coinbase has taken precautions to reduce the possibility of a hack. On the other hand, slashing can be affected by things beyond our influence, leading to the loss of pledged ETH. If you have a slicing incident, Coinbase will instantly restore the cut principle at no further charge. If you began staking after August 30, 2021, Coinbase would only reimburse slicing fines if they are the consequence of an act or omission within our immediate control.https://aa6b9c46ec96e89a5e5d1a58096979de.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

Is There an Initial and Final Staking Amount?

On Coinbase, there are no minimal stakes. To help regulate system restrictions, each client can deposit a maximum amount of ETH. This max amount is subject to fluctuate over the period and is not unique to the account.

What are Prerequisites for Staking Ethereum?

To be authorized to stake ETH, users must meet the following requirements:

  1. Maintain an ETH balance in the Coinbase account.
  2. Be a citizen of a nation that allows ETH staking.
  3. Verify your identification completely.
  4. Verify all of your identification documents.
  5. Check the ETH staking terms of service and clarify them.

Which Countries are Allowed to Stake ETH?

Below are the following countries that allow stacking ETH, such as:

  • Europe
  • Asia
  • Africa
  • South America
  • North America
  • Middle east

How can You Start Staking Ethereum on Coinbase?

On the browser or the smartphone, go to the Ethereum asset section inside the Portfolio and follow the instructions. You may indeed be able to transfer the Ethereum to Ethereum2 and begin mining right away if you’re clogged up and approved.

If you’re on the queue, you’ll have to wait for the name to be eliminated until you can begin staking Ethereum. We’re trying to expand the availability of this option to more users, and it will let you know when you’re no longer in the queue.

We’re trying to expand the availability of this option to more users, and it will let you know when you’re no longer in the queue.

Important Note: The Coinbase Assistance is unable to confirm whether or whether you are in the queue. Where you are in a queue, or when you will be allowed access to the functionality.

If you’re having trouble investing, check to ensure you’re running the most updated incarnation of the Coinbase mobile platform.

What are Prerequisites for Receiving Reward?

It would help if you had the following prerequisites for receiving rewards, such as:https://aa6b9c46ec96e89a5e5d1a58096979de.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

  • Your identification must be confirmed.
  • You must have the minimum threshold amount for that specific currency. You can either buy or keep the required minimum amount on Cryptocurrencies, or you can send the Bitcoin from another account or marketplace. You can also see the support page for more information on transferring cryptocurrency to Coinbase.
  • On Coinbase.com, you must have the relevant bitcoin, but the reward points are not available on Coinbase Pro.

Is It Possible to Opt-Out?

You can opt-out, but you won’t get any benefits until you re-opt in. To opt-out of benefits, Follow the steps mentioned below:

On the World Wide Web: Click on Financial Services from the Settings menu. To opt-out, flip the Awards symbol off from there.

On a mobile device: Click on Financial Services in the iOS or Android application’s Settings. To opt-out, flip the Awards symbol off from there.

Working of rewards

The appropriate resource is used to determine benefits. Coinbase will accept the benefits from the platform on the side and send them to the cryptocurrency wallet instantly.

  • Rewards are computed depending on the value of the crypto you have in that wallet-the higher you have, the more Coinbase can invest on your behalf and the higher the expected rewards.
  • The regularity of transactions created by a cryptocurrency’s system affects bonuses as well.

Will the benefit percentage always be the same? Is there any chance of an increment?

The reward value is controlled by many elements, the most important of which is the platform’s protocol. It’s impacted by verifier efficiency, staked quantities or stakes, inflation expectations and/or investment returns established by the system, and so on. Depending on these conditions, the rate may rise or fall.

What is the Difference between Expected and Actual Rewards?

The statistical activities under Incentive waiting are the best approximation of the rewards you could receive once the system distributes them. Coinbase’s previous staking achievement for that crypto is the basis for the estimate.

Is It Taxed for Users to Receive Rewards?

Staking bonuses gains must be reported by US clients who are liable to US income taxes. Coinbase will issue a 1099-MISC to United States users that gain more than $600 in Staking bonuses. The IRS’s official site has more information about the 1099-MISC.

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Blockchain Tutorial

Converting Bitcoins to Fiat Currency

In this section, we are going first to understand the meaning of Fiat or Fiat Currency.

Fiat currency is a currency which is issued by a government to be legal tender in the territories controlled by it. Fiat money that has value only because of government regulation or law is not backed by a physical commodity, such as gold or silver. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government rather than the worth of a commodity backing it. It is based on the faith and credit of the economy. Most modern paper currencies are fiat currencies.

Every cryptocurrency newcomers want to know how to cash out bitcoin or withdraw from bitcoins into fiat currency(USD, EUR, INR) which will be acceptable in their native countries. There are some easy ways to convert BTC into USD, INR, EUR or GBP, some of them are listed below. Before picking any of the listed methods, you need to find out how you want to receive your fiat currency. You can sell Bitcoins in person for cash or can sell it on exchanges and get the money directly into your bank account. You can also spend your Bitcoin to buy stuff from Amazon.

Converting Bitcoins to Fiat Currency

Cryptocurrency Exchange

The first one is to use a cryptocurrency exchange. Whenever you want to go on a business trip or other countries, the first thing you need to do is that you have to go to a currency exchange centre. The exchange centre switches your local currency with the currency of that country where you are visiting. It’s the same thing with bitcoin. There are cryptocurrency exchanges that will convert your cryptocurrency into your local currency such as US dollars, euros or yen. There are many options available to do the exchanges of your currencies, such as Coinbase. The Coinbase is available in over 30 different countries, which can easily convert your bitcoins into currency and deposit it directly into your bank account. There are other alternatives available such as Kraken, Gemini, BitStamp.

Bitcoin Debit Card

It is also used to convert your bitcoin into fiat currency. The bitcoin debit cards allow their users to deposit their crypto coins via an online website which automatically converts them into a fiat currency such as Dollar or Euro. There are multiple options available for this. For example, Coinbase offers a Visa Bitcoin debit card. This card enables you to keep your holdings in bitcoin, and you can be paying anywhere that accepts Visa using your Bitcoin debit card.

Bitcoin Debit Card

Selling Bitcoins

The next option is to sell your bitcoins to someone else. As we know that, you can transfer bitcoin directly to another person without involving the services of a third-party such as a bank or a credit card. So you simply need to find out somebody who wants to buy your Bitcoins. When the buyer is available, you can transfer your bitcoins directly into their wallet and can get paid for that. In this type of transfer, there are some security risks involved because when you do a transfer of bitcoin to someone else, that transaction is irreversible. So if you send your bitcoins to someone else and that person does not pay you for the bitcoins, then there is no way to retrieve your bitcoins back. So whenever you are going to sell bitcoins to someone else whether it’s a family member, a friend, or some other person, make sure that you can trust on this person, and you are going to get paid for the bitcoins that you send.

Bitcoin ATMs

Bitcoin ATM is also known as BTMs or Bitcoin Teller Machines. It is a machine where you can buy bitcoins or can sell your bitcoins. Bitcoin ATMs are available in most major cities around the world. The bitcoin ATMs provides a relatively fast and easiest way to quickly withdraw funds in your local fiat currency against your bitcoin holdings. Many Bitcoin ATMs also allow users to buy Bitcoin with money in much the same way as someone deposit money into their bank account at a regular ATM.

Bitcoin ATMs
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Blockchain Tutorial

Sending and Receiving Bitcoin

Sending and receiving bitcoin is one of the core building blocks of any bitcoin application. Sending and receiving bitcoins securely over the internet gives you a bitcoin value. To send and receive bitcoin, you need to have a wallet where you need to put the public address of the sender and recipient. The process of sending and receiving bitcoin can differ between wallets to wallets, but the general steps are given below.

Step-1 Log-in into your wallet.

Step-2 Go to Send and Receive icon.

Step-3 Choose whether you want to send or receive bitcoin.

Step-4 Send bitcoin: Enter the public address of the recipient and choose the amount which you want to send. Once you decide the amount, confirm the amount to avoid mistakes, then click on send transaction, and verify the transaction one last time for confirming your public address and sender’s public address.

Step-5 Receive bitcoin: To receive bitcoin, you need to share your public wallet address with the sender. You can also do this by letting them scan a QR code.

For example:

Alice wants to send five bitcoins to Ben. She is sending five bitcoins because she may have bought a product or paying him for services. For sending those five bitcoins, Alice needs to have five bitcoins in her wallet, and can also be able to receive bitcoins in her wallet. Now she could have bought bitcoins, or she could have received bitcoins as payment.

Here, we are assuming that Alice has 20 bitcoins in her wallet. When the wallet is created, it assigns two keys. One is the public key which is used to receive bitcoins. And second is the private key which is used to sign and authorize to send or spend those bitcoins to other people. We know that Alice has the private key to her wallet, so she is able to spend those bitcoins.

Ben can receive five bitcoins if he has a wallet of his own, which allows him to get bitcoins from anyone else. Ben also has a private key for his wallet that will enable him to spend those bitcoins that he has in his wallet. Ben’s private key is completely different from Alice’s private key. Now, if Ben wants to receive five bitcoins from Alice, he needs to provide his Bitcoin address to Alice. The bitcoin address is used for receiving money, which is a hashed version of the public key. Ben has the option to generate a new bitcoin address for every single transaction if he wants. Creating the new bitcoin address for every transaction is a good security recommendation in terms of privacy.

Ben can share his bitcoin address in two ways. He can share an alphanumeric code which starts with the number one and ends in the letter H, and another one is the QR code. The alphanumeric code is always different for every single bitcoin address, and these addresses are typically between 26 to 35 characters in length. The bitcoin address which you see numerically is the Ben address used to receive bitcoins from Alice.

Now, when Alice sends the five bitcoins to that address, she creates a transaction. She is able to do this transaction because she can access the private key and can authorize to transfer five bitcoins on Ben’s bitcoin address. So, a new transaction shows that from Alice’s wallet, five bitcoins are being sent to Ben’s wallet. The transaction at that point gets sent out into the network, and the miners begin mining blocks. When the first block comes in and includes that transaction in it, then the transaction is said to be confirmed.

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Blockchain Tutorial

How to Choose Bitcoin Wallet

In this section, we are going to learn the process of choosing the bitcoin wallet. If you want to involve in bitcoin, you need to have a wallet. A wallet allows you to receive bitcoinssend bitcoinsstore bitcoins. Here, I will take an example of a page called bitcoin.org to choose the wallet.

Bitcoin.org is a website that was developed by Satoshi Nakamoto and Martti Malmi. Now, Martti’s is no longer an active developer, but he maintains the Bitcoin.org websites. He is not involved in developing bitcoin. Bitcoin.org website is not tied into any specific core developers. It’s an open-source project which is handled by a global community.

Bitcoin.org is a very good starting point to explain how to choose your wallet because there is a lot of options available. In this page, we will go to an option called Choose your wallet. We can see this in the below image.

How to Choose Bitcoin Wallet

In the above image, we can see that there are different types of wallets that you can choose, like Desktop walletMobile walletWeb walletHardware wallet, etc.

Mobile wallet

In the mobile wallet, you can run any type of application, whether it is on Android, iOS, Windows, or even on Blackberry. They are significantly smaller and simpler and serve as a convenient on-the-go wallet for daily usage.

Popular Mobile wallets are Bitpay, BTC.com, Edge, Electrum, Mycelium, Bitcoin Wallet, etc.

Desktop wallet

In the desktop wallet, you can run it on your desktop or laptop computer for Windows, Mac, and Linux. Generally, they are secure, but sometimes they are vulnerable to various malware and computer viruses.

Popular Desktop wallets are Bitcoin Core, Bitcoin Knots, mSIGNA, Armory, etc.

Hardware wallet

In a hardware wallet, there are devices which contain your private keys. The hardware wallets are the most secure wallets, but it will also cost money.

Popular hardware wallets are BitBox, Keepkey, Trezor, Ledger Nano S, etc.

Web wallet

The web wallets are online wallets that are considered less secure than other types of wallets, yet they can be highly convenient.

Popular web wallets are Guarda, Coinbase, GreenAddress, Binance, etc.

There are multiple different wallet options available which you can have and install on your mobile device, or on your computer or a web one. There is not necessary to have only one wallet. You can have multiple wallets for different needs. It helps you to spread the risk by not keeping all of your personal crypto’s in one location but across different locations(wallets). You can create a wallet in any of these options that you find. If you wish, you can open up another wallet elsewhere and can send coins to a different wallet.

If you want to get started fast, select one of the wallet options that are available here. I would recommend you to try one of the web wallet options that are presented here. In the wallet, open up an account and try to send bitcoin to someone, buy bitcoin from someone, and store bitcoin into your wallet.

To select a reliable Bitcoin wallet, one should judge it based on the following criteria:

  • Hot/Cold Wallet: Whether a wallet is a hot(Online storage) or cold(offline storage).
  • Control private keys: A wallet where you own and control your keys.
  • Backup & security features: Here, you can seed backup keys and pin codes.
  • Developer community: It is an active development community for maintenance.
  • Compatibility: It can be compatible with different operating systems.
  • HD Wallet: It is a wallet that generates new addresses itself.
  • KYC: A wallet that doesn’t require KYC.
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Blockchain Tutorial

Getting Started With Bitcoin

The objective of this section is to show you a little bit about how you can get started with Bitcoin. The below image shows you how to start with bitcoin.

Getting Started With Bitcoin

1. Learn About Bitcoin

Bitcoin has some peculiar qualities. It behaves a lot like money, but it is different from money. For example: with bitcoin, we cannot reverse any transactions after adding on the blockchain. Every transaction in the blockchain network is permanent. It makes the blockchain different from actually sending of money with a bank where you may issue a stop payment or reversal of it’s a wrong payment. Bitcoin is also fast and efficient as compared to physical currency.

2. Choose Your Wallet

After learning about Bitcoin, the first thing you need to do is to install a wallet. The wallet is a type of software that you install on your mobile device or your computer. It enables you to get into Bitcoin and create your own addresses.

3. Get an Address

An address in Bitcoin is very similar to an e-mail address, which is used to receive bitcoin. As opposed to an e-mail address where you have one e-mail address, you can have multiple addresses in bitcoin. It’s a good practice to have multiple addresses for different needs. You may use bitcoin address for every single transaction you use.

4. Public and Private Key

When you open up your wallet, you will receive two valuable pieces of information. One of them is the public key, and another one is the private key. This information makes Bitcoin more interesting. With most businesses and different organizations, you need to have a password which you share with the people who are running the organization. So you can click on Retrieve my password, and you can get it back. But in the case of bitcoin, you will get keys instead of a password. The public key that you can share with everybody, and a private key which only you know. The private key is an alphanumeric sequence which knows only you, and with them, you can remain completely in control of all the funds that go into your wallet.

5. Get bitcoins

Once you have your wallet, you can get bitcoins. There are different ways to get bitcoins. You can earn Bitcoins by doing a job or getting paid. You can also buy bitcoins it means you could go to an exchange and get bitcoin by put in dollars or whatever currency into bitcoin. You can also gift bitcoins and can receive them from others. So these are ways of getting bitcoin.

6. Spend bitcoins

Here, we are going to know about how you can spend bitcoin. You can send bitcoin to anyone. You can use bitcoin over millions of businesses at this moment Worldwide. Many of the best-known brands like Microsoft and Dell take bitcoin as payment. You can also use bitcoin to send payments and paying bills. It works great if you are actually sending payments to people in different currencies globally. You don’t have to worry about having to change into different currencies. You can just pay in Bitcoin, and it’s universal around the world.

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Blockchain Tutorial

Who sets the Bitcoin Price

Bitcoin is like a commodity. The price of bitcoin is determined by the market in which it trades. In other words, its price is determined by how much someone is willing to pay for that bitcoin. The market sets the price of bitcoin as same as Gold, Oil, Sugar, Grains, etc. is determined. Bitcoin, like any other market, is subject to the rules of supply and demand. i.e.

  1. More Demand, Less Supply = Price Goes Up  
  2. More Supply, Less Demand = Price Goes Down  

No one, in particular, sets the bitcoin’s price nor we can trade it in one place. Each market/exchange determines its price based on supply and demand. Traders can buy and sell bitcoinon the Luno Exchange.

If you want to buy and selling bitcoin, you must have to choose a particular exchange. For example, the Luno exchange sets a specific price at a specific time for a specific market. Here, you have not confused that Luno exchange fixes the bitcoin price. Instead, the traders who are buying and selling on Luno exchange sets the price. The price of bitcoin can fluctuate at the moment, which is depending on who you talk to, and it is often different from country to country.

Note: If a bitcoin owner sets the prices of their coin too high, no one will buy it. The owner will either have to reduce their price to a reasonable rate or just go without a sale. If the owner set the price too low, the coin will sell immediately and be taken off the market.

Why does the price of bitcoin change so often?

It is because the price of a bitcoin is very volatile. Since the number of bitcoins is limited in circulation, new bitcoins are created at a decreasing rate. It means that demand must follow this level of inflation to keep the price stable. The bitcoin market is still relatively small as compared to other industries. Therefore it does not take significant amounts of money to move the market price up or down. Thus, the price of a bitcoin is still very volatile.https://imasdk.googleapis.com/js/core/bridge3.505.0_en.html#goog_771609359

It is not only the bitcoin exchange rate seems to change from day-to-day. There is also the price of many things, such as stocks, currencies, gold and many other products can be volatile. It can be moving up and down a lot against a base currency (such as the US dollar).

Some of the factors behind bitcoin volatility are:

  • Bad news hurts adoption rate. The news that scare Bitcoin users include geopolitical events and statements by governments who are regulating the bitcoin.
  • There is an uncertainty of future bitcoin’s value.
  • Large currency holder risks. It means the bitcoin investors who have holding a large currency is not much clear how they would liquidate it into fiat currency without severely moving the market.
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Bitcoin Mitigating Attacks

Bitcoin is the most secure cryptocurrency, which provides security at multiple levels of the protocol. It is often rendering sustained sophisticated attacks. In this section, we are going to look at various types of probable attacks in the bitcoin system.

The Sybil Attack

The Sybil attack happens in the peer-to-peer network. A malicious attacker wishes to carry out this attack on the bitcoin network. In this, a node in the network operates multiple identities at the same time and undermines the authority in the reputation system. Its main aim is to gain the majority of influence in the network to carry out illegal actions in the system.

The Sybil attack is difficult to detect and prevent, but the following measures can be useful:

  • By increasing the cost of creating a new identity.
  • Require validation of identities or trust for joining the network.
  • Give different power to different members.

Race Attack

The Race Attack requires the recipients to accept unconfirmed transactions as payment. As an attacker, you can send the same coin to different vendors by using the two different machines. If the vendors deliver the things without waiting for block confirmation, they will soon realize that the transaction was rejected during the mining process. The solution to this is that the vendor must wait for at least one block confirmation before sending things.

This attack is easier to pull off when the attacker has a direct connection to the victim’s node. Therefore it is recommended to turn off incoming connections to nodes for receiving payments so that your node will identify their own peers. And it does not allow the payer to submit the payment to the payee directly.

Finney Attack

The Finney attack is named after Hal Finney. The Finney attack is one of the types of double-spending problem. In this attack, the attacker is the miner who mines blocks normally. In the block, he includes a transaction which sends some of his coins back to himself without broadcasting the transaction. When he finds a pre-mined block, he sends the same coins in a second transaction. The second transaction would be rejected by other miners, but this will take some time. To prevent this attack, the seller should wait for at least six blocks confirmation before releasing the goods.

Vector76 Attack

The Vector76 attack is a combination of the Race attack and the Finney attack such that a transaction that even has one confirmation can still be reversed. In this attack, a miner creates two nodes, one of which is connected to the exchange node, and the other is connected to well-connected peers in the blockchain network. Now, the miner creates two transactions, one high value, and one low value. Then, the attacker pre-mines a high-value transaction to an exchange service. When a block is announced, he quickly sends the pre-mined block directly to the exchange service. When exchange service confirms the high-value transaction, the corrupted attacker sends a low-value transaction to the blockchain network that finally rejects the high-value transaction. As a result, the corrupted attacker’s account is deposited on the amount of the high-value transaction. This attack can be protected by disabling the incoming connections and only connecting to well-connected nodes.

The 51% Attack

The 51% attack is a potential attack on the blockchain network. It refers to a single miner or group of miners who are trying to control more than 50% of a network’s mining power, computing power or hash rate. In this attack, the attacker can block new transactions from taking place or being confirmed. They are also able to reverse the transactions that have already confirmed while they were in control of the network, leading to a double-spending problem.

When a miner forms a valid block of transactions, the individual will broadcast the block to other miners on the network. It can only be accepted if all transactions in a block are valid according to the existing record on a blockchain. However, a corrupt minor with more than 50% of a network’s hash rate does not broadcast solutions to the rest of the network. It results in the formation of two versions of the blockchain. One is the public version of the blockchain, which is being followed by legitimate miners. And second is used by the corrupt miners who are not broadcasting it to the rest of the network.

Bitcoin Mitigating Attacks

This type of attack is fictitious because it is costly to acquire computing power, which has more than 50% of the computing power of the entire network.

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Blockchain Tutorial

Difference between Blockchain and Database

Blockchain

A blockchain is a database or a ledger that stores information in a data structure called blocks. It is based on distributed ledger technology which can be used between parties that don’t trust each other with data. It is because when you add anything onto the blockchain, it requires verification from all other users available on the network.

Blockchain keeps information permanently in uniformly sized blocks, where each block stores the hashed information from the previous block to provide cryptographic security. The blockchain hashing uses SHA256 hashing algorithm, which is a one-way hash function. The hashed information is the data and a digital signature from the previous block. The hashes of previous blocks that go back to the very first block produced in the blockchain are known as the genesis block. A blockchain data structure is in the form of a Merkle Tree, which is used as an efficient way to verify data.

Advantage of Blockchain

Blockchain technology has become popular because of the following.

  • Time reduction: In the financial industry, blockchain can allow the quicker settlement of trades. It does not take a lengthy process for verification, settlement, and clearance.
  • Unchangeable transactions: Blockchain only allows insertion of data, which means when a new block is added to the chain of ledgers, it cannot be removed or modified.
  • Reliability: Blockchain certifies and verifies the identities of each interested parties. This removes double records, reducing rates and accelerates transactions.
  • Security: Blockchain uses very advanced cryptography to make sure that the information is locked inside the blockchain. It uses Distributed Ledger Technology where each party holds a copy of the original chain, so the system remains operative, even the large number of other nodes fall.
  • Decentralized: It is because there is no central authority supervising anything. There are standards rules on how every node exchanges the blockchain information.

Databases

A database is a kind of central ledger where the administrator manages everything. Here the administrator gives rights to read, write, update, or delete operation. Since it is centralized in nature, their maintenance is easy, and output is high. But it also has a drawback which, when corrupted, can compromise the entire data and can even change the ownership of digital records.

A database uses a client-server network architecture. Here database administrator has rights to make changes in any part of the data and its structure.

Blockchain Vs Database

Advantage of Database

The database has become popular because of the following.

  • Controls database redundancy: It is because it stores all the data in one single database file and that recorded data is placed in the database.
  • Data sharing: In DBMS, the authorized users of an organization can share the data among multiple users.
  • Easily Maintenance: It can be easily maintainable due to the centralized nature of the database system.
  • Reduce time: It reduces development time and maintenance need.
  • Backup: It provides backup and recovery subsystems which create an automatic backup of data from hardware and software failures and restores the data if required.
  • Multiple user interfaces: It provides different types of user interfaces like graphical user interfaces, application program interfaces.

Blockchain vs Database

We can see the difference between blockchain and database in the below table.

Blockchain Vs Database
SNBlockchainDatabase
1.Blockchain is decentralized because there is no admin or in-charge.The database is centralized because it has admins and in-charge.
2.Blockchain is permissionless because anyone can access it.The database required permission because it can be accessed only by entities who have rights to access.
3.Blockchains are slow.Databases are fast.
4.It has a history of records and ownership of digital records.It has no history of records and ownership of records.
5.Blockchain is fully confidential.The database is not fully confidential.
6.Blockchain has only Insert operation.The database has Create, Read, Update, and Delete operation.
7.It is a fully robust technology.It is not entirely robust technology.
8.Disintermediation is allowed with blockchain.Disintermediation is not allowed with the database.
9.Anyone with the right proof of work can write on the blockchain.Only entities entitled to read or write can do so.
10.Blockchain is not recursive. Here, we cannot go back to repeat a task on any record.The database is recursive. Here, we can go back to repeat a task on a particular record.
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Blockchain Tutorial

Blockchain Merkle Tree

Merkle tree is a fundamental part of blockchain technology. It is a mathematical data structure composed of hashes of different blocks of data, and which serves as a summary of all the transactions in a block. It also allows for efficient and secure verification of content in a large body of data. It also helps to verify the consistency and content of the data. Both Bitcoin and Ethereum use Merkle Trees structure. Merkle Tree is also known as Hash Tree.

The concept of Merkle Tree is named after Ralph Merkle, who patented the idea in 1979. Fundamentally, it is a data structure tree in which every leaf node labelled with the hash of a data block, and the non-leaf node labelled with the cryptographic hash of the labels of its child nodes. The leaf nodes are the lowest node in the tree.

How do Merkle trees work?

A Merkle tree stores all the transactions in a block by producing a digital fingerprint of the entire set of transactions. It allows the user to verify whether a transaction can be included in a block or not.

Merkle trees are created by repeatedly calculating hashing pairs of nodes until there is only one hash left. This hash is called the Merkle Root, or the Root Hash. The Merkle Trees are constructed in a bottom-up approach.https://imasdk.googleapis.com/js/core/bridge3.505.0_en.html#goog_1288521283

Every leaf node is a hash of transactional data, and the non-leaf node is a hash of its previous hashes. Merkle trees are in a binary tree, so it requires an even number of leaf nodes. If there is an odd number of transactions, the last hash will be duplicated once to create an even number of leaf nodes.

Blockchain Merkle Tree

The above example is the most common and simple form of a Merkle tree, i.e., Binary Merkle Tree. There are four transactions in a block: TX1TX2TX3, and TX4. Here you can see, there is a top hash which is the hash of the entire tree, known as the Root Hash, or the Merkle Root. Each of these is repeatedly hashed, and stored in each leaf node, resulting in Hash 0, 1, 2, and 3. Consecutive pairs of leaf nodes are then summarized in a parent node by hashing Hash0 and Hash1, resulting in Hash01, and separately hashing Hash2 and Hash3, resulting in Hash23. The two hashes (Hash01 and Hash23) are then hashed again to produce the Root Hash or the Merkle Root.

Merkle Root is stored in the block header. The block header is the part of the bitcoin block which gets hash in the process of mining. It contains the hash of the last block, a Nonce, and the Root Hash of all the transactions in the current block in a Merkle Tree. So having the Merkle root in block header makes the transaction tamper-proof. As this Root Hash includes the hashes of all the transactions within the block, these transactions may result in saving the disk space.

Blockchain Merkle Tree

The Merkle Tree maintains the integrity of the data. If any single detail of transactions or order of the transaction’s changes, then these changes reflected in the hash of that transaction. This change would cascade up the Merkle Tree to the Merkle Root, changing the value of the Merkle root and thus invalidating the block. So everyone can see that Merkle tree allows for a quick and simple test of whether a specific transaction is included in the set or not.

Merkle trees have three benefits:

  • It provides a means to maintain the integrity and validity of data.
  • It helps in saving the memory or disk space as the proofs, computationally easy and fast.
  • Their proofs and management require tiny amounts of information to be transmitted across networks.