USE OF BLOCK CHAIN

TECHNOLOGY FOR SUBSIDY

PAYMENTS!
CREATED BY
1.NIKETAN GOBBUR
2.SURAJ BHATI
3.AJAY RAUT
4.KAUSHIK MORE

GUIDED BY
DR. SONALI PATIL
 MOTIVATION BEHIND THE PROJECT

 Indian government has announced initiatives to

leverage blockchain to prevent the pervasive
corruption and fraudulent activity embedded in state
and national governments
 we want to check whether the subsidy amount is
properly distributed among Beneficiaries which can
be farmers,businessmen
 Beneficiaries would be able to see entire transaction
log and validate every transaction when block chain
is used in subsidy payments
 INTRODUCTION TO PROJECT

 Initially , we will implement transactions between

two nodes
 We will make fraudulent transactions and check
whether the system detects it or not
 Block chain emerged from distributed ledger
technology
 DLT(Distributed Ledger Technology)

 A ledger is a record of all transactions happened

 A distributed ledger is spread across several devices on a
peer-to-peer network,where each device will replicates
and saves an identical copy of the ledger and udates itself
independently
 Block chain originated from DLT , it is a subset of DLT
 First proof of DLT was block chain
 Primary advantage of DLT is a lack of central authority
 Security is accomplished through cryptographic hash
functions
 Block chain

 Formal definition of blockchain:

 A block chain is an open , distributed ledger that can
record transactions between two parties efficiently
and in a verifiable and permanent way
 KEYWORDS:
 Open(accessible to all),distributed(lack of central
authority),efficient(fast and
scalable),verifiable(everyone can check the validity of
information),permanent(information is stored
permanently )
 What is Bitcoin?

 Bitcoin is a completely decentralized, peer-to-peer, permissionless

cryptocurrency put forth in 2009
 Completely decentralized: no central party for ordering or recording anything
 Peer-to-peer: software that runs on machines of all stakeholders to form the
system
 Permissionless: no identity; no need to signup anywhere to use; no access
control – anyone can participate in any role
The Bitcoin Transaction Life Cycle – The Sender

Provides the address of Bob and

Alice opens her
the amount to transfer, and
Bitcoin Wallet
sends
The Bitcoin Transaction Life Cycle – The Network

 The wallet
constructs the The network
nodes validate
transactions, the transactions The miners
sign using based on the include the
Alice’s private existing transaction to
Blockchain, and the next block to
key, and propagate the be mined
broadcasts it transaction to
the miners
to the network
The Bitcoin Transaction Life Cycle – The Miners

Miners construct a
 The miners new block and tries to Once the mining is
collect all connect it with the over and the hash is
the obtained, the block
transactions existing blockchain,
through a is included in the
for the a existing blockchain.
time cryptographic hash
duration, computation The updated
say for 10 - blockchain is
Minutes The Mining propagated in the
Procedure network
 Bitcoin Transaction Life Cycle – The Receiver

 Bob opens his

Bitcoin Wallet
and refreshes, The transaction
the reflects at Bob’s wallet
blockchain
gets updated
 Smart contracts

 Smart Contracts: An automated computerized protocol

used for digitally facilitating, verifying or enforcing the
negotiation or performance of a legal contract by avoiding
intermediates and directly validating the contract over a
decentralized platform – faster, cheaper and more secure
 The term was coined by Nick Szabo, a computer scientist and
cryptographer, in 1996

 Szabo claimed that smart contracts can be realized with the

help of a public ledger

 Blockchain can be a pioneering technology to realize smart

contracts
 Contracts in a Centralized Platform – Crowdfunding

1. You have an
interesting project,
but do not have
sufficient money to
execute the project

3. Multiple 4. The platform

supporters commit ensures that you get 2. Submit the project in
to support the the complete money a crowdfunding
project with small if the project is platform
funds successful
 The Crowdfunding Platform

 Both the product team and the supporters

need to trust the crowdfunding platform

 The product team expects the money to be

get paid based on the project progress

 The supporters expect the money to go to the

project

 However, the crowdfunding platform, the

middleman, takes significant charge to
manage the entire process
 Crowdfunding Platform using Smart Contracts

 The contract is written in a code which is available to all

the stakeholders – the supporters and the product team –
Do you see an application of Blockchain here?
 Crowdfunding Platform using Smart Contracts

 If certain goals of the project are reached, then the code

automatically transfers the money from supporters to the
production team
 Crowdfunding Platform using Smart Contracts

 If the project goals (contracts) fail, then the code can

transfer the money back to the supporters
 Smart Contracts – The Advantage

 Immutable: No party will be able to change the

contract once it is fixed and written to the public
ledger (the Blockchain)

 Distributed: All the steps of the contract can be

validated by every participating party – no one can
claim later that the contract was not validated

 Why Blockchain?
 The blocks are immutable
 The information is open – everyone can check and validate
Smart Contract platforms
 The Block in a Blockchain – Securing Data Cryptographically

 Digitally signed and encrypted

transactions verified by the
peers

 Cryptographic security –
Ensures that participants can
only view information on the
ledger that they are authorized
to see
 Structure of a Block

 A block is a container data structure that

contains a series of transactions

 In Bitcoin: A block may contain more than 500

transactions on average, the average size of a block is
around 1 MB (an upper bound proposed by Satoshi
Nakamoto in 2010)
 May grow up to 8 MB or sometime higher (as of March 2018)
 Larger blocks can help in processing large number of
transactions in one go.
 Structure of a Block (Reference: Bitcoin)

 Two components:
 Block Header

 List of
Transactions

Block Source: https://blockchain.info/

 Block Header (Reference: Bitcoin)

 Metadata about a block – (1) Previous block hash, (2) H0

Mining statistics used to construct the block, (3) Merkle
tree root
H1 =
 Previous block hash: Every block inherits from the Hash(H0)
previous block – we use previous block’s hash to create the
new block’s hash – make the blockchain tamper proof. H1 =
 Mining – the mechanism to generate the hash Hash(H0)
 The mechanism needs to be complicated enough, to make the
blockchain tamper proof
 Bitcoin Mining: Hk = Hash(Hk-1 || T || Nonce) H3 =
 Find the nonce such that Hk has certain predefined complexity Hash(H2)
(number of zeros at the prefix)
H4 =
 The header contains mining statistics – timestamp, nonce Hash(H3)
and difficulty
 Block Header (Reference: Bitcoin)

Block Source: https://blockchain.info/

The Hashes in a Block Header (Reference: Bitcoin)

 Block identifier – the hash of the current block header (Hash

algorithm: Double SHA256)
 Previous block hash is used to compute the current block hash
Transactions in a Block (Reference: Bitcoin)

 Transactions are organized as a Merkle Tree. The

Merkle Root is used to construct the block hash

 If you change a transaction, you need to change all

the subsequent block hash

 The difficulty of the mining algorithm determines

the toughness of tampering with a block in a
blockchain
Transactions in a Block (Reference: Bitcoin)

Block Source: https://blockchain.info/

 The Notion of Distributed Consensus

 Ensure that different nodes in the network see the same data at
nearly the same point of time.
 All nodes in the network need to agree or consent on a regular
basis, that the data stored by them is the same.
 No single point of failure – the data is decentralized
 The system can provide service even in the presence of failures
 Starting from early 90’s a large number of works have been devoted
on the development of consensus algorithms over a network
 The basic philosophy is based on message passing – inform your
current state to others so that everyone can match their
current state with others in the network
 However, this philosophy requires that the participants in the
consensus algorithm knows each other.
 The Notion of Distributed Consensus

 Can we achieve consensus even when the network is

arbitrarily large, and no participant in the
network really knew all other participants?

 An open network scenario – the permission-less

protocol – you do not record your identity while
participating in the consensus system

 A challenge-response based system – the network

would pose a challenge, and each node in the
network would attempt to solve the challenge
 Challenge-Response to Permission-less Consensus

 The challenge-response protocol: The nodes in the network tries to

solve the challenge posed by the network
 The nodes or the participants do not need to reveal their identity

 The node that is able to solve the challenge first, would get to dictate what
the next set of data or state elements to be added should be

 This will continue iteratively at different rounds

 Design of a good challenge – ensures that different nodes will win the
challenge at different runs.

 This ensures that no node would be able to control the network

 The Bitcoin Proof of Work (PoW) algorithm – ensures consensus

over a permission-less setting based on challenge-response
 The Economics Behind Blockchain Consensus

 The challenge-response requires that every node spend large

amount of computational power to solve a mathematical challenge
in each iteration of consensus.

 What is the incentive for nodes? Only one (or sometime a very
few of them) will win in each round
 The Digital Money
 Ensures operational efficiency
 More levels of controlling monetary policy

 1998: Wei Dai published ‘b-money’ – an anonymous distributed

cash system

 Cryptocurrency – a currency beyond the control of banks and

governments
 The Economics Behind Blockchain Consensus

 The mining ensures that no node has the power to

sabotage the network and gain control
 No one can hold the control of the cryptocurrency

 The computational effort expended by the nodes in

achieving consensus would be paid for by
cryptocurrency generated and managed by the
network

 Blockchain ensures that the currency is secure and

tamper-proof.
 Refrences

 “Bitcoin: A peer-to-peer electronic cash system” by

Satoshi Nakamoto
 “Blockchain platform for industrial Internet of
Things”- Bahga, Arshdeep, and Vijay K. Madisetti.
 “Formalizing and securing relationships on public
networks”- Szabo, Nick.