Foundation of Blockchain (4361603) - Summer 2025 Solution

Question 1(a) [3 marks]

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Differentiate between Private key and Public key in Blockchain.

Answer:

• Private Key: Secret mathematical code that proves ownership
• Public Key: Open address that others use to send transactions
• Security: Private key loss = permanent fund loss

Mnemonic: “Private is Personal, Public is Posted”

Question 1(b) [4 marks]

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Explain Distributed Ledger in detail.

Answer:

Distributed Ledger is a database spread across multiple locations and participants.

Table: Key Features

Diagram:

graph TD
    A[Participant 1] --> D[Distributed Ledger]
    B[Participant 2] --> D
    C[Participant 3] --> D
    D --> E[Synchronized Copy 1]
    D --> F[Synchronized Copy 2]
    D --> G[Synchronized Copy 3]

• Benefits: Eliminates intermediaries, increases trust, reduces fraud
• Working: All participants maintain identical copies of records

Mnemonic: “Distributed = Divided but Identical”

Question 1(c) [7 marks]

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Define Blockchain. Describe applications and limits of Blockchain.

Answer:

Blockchain Definition: A chain of blocks containing transaction records, linked using cryptography.

Applications Table:

Limits Table:

Architecture Diagram:

graph LR
    A[Block 1] --> B[Block 2]
    B --> C[Block 3]
    C --> D[Block 4]
    
    A1[Hash] --> A
    B1[Hash] --> B
    C1[Hash] --> C
    D1[Hash] --> D

• Security: Cryptographic linking makes tampering difficult
• Transparency: All transactions visible to network participants

Mnemonic: “Blocks Chained = Blockchain, Apps Many = Limits Many”

Question 1(c) OR [7 marks]

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Write a short note on: CAP Theorem in Blockchain

Answer:

CAP Theorem states that distributed systems can only guarantee 2 out of 3 properties simultaneously.

CAP Components Table:

Blockchain Trade-offs:

graph TD
    A[CAP Theorem] --> B[Consistency]
    A --> C[Availability]
    A --> D[Partition Tolerance]
    
    E[Bitcoin] --> B
    E --> D
    F[Private Blockchain] --> B
    F --> C

Real-world Applications:

• Impact: Blockchain designers must choose which property to sacrifice
• Trade-off: Perfect systems impossible in distributed networks

Mnemonic: “Can’t Always Please - Choose 2 of 3”

Question 2(a) [3 marks]

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Explain Data Structure of a Blockchain.

Answer:

Blockchain Data Structure consists of linked blocks containing transaction data.

Block Structure Table:

Visual Structure:

• Linking: Each block points to previous block using hash
• Integrity: Changing one block breaks the entire chain

Mnemonic: “Header Holds, Transactions Tell”

Question 2(b) [4 marks]

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What are the benefits of Decentralization?

Answer:

Decentralization Benefits:

Comparison Diagram:

graph LR
    subgraph Centralized
        A[Central Authority] --> B[User 1]
        A --> C[User 2]
        A --> D[User 3]
    end
    
    subgraph Decentralized
        E[User 1] --> F[User 2]
        F --> G[User 3]
        G --> E
    end

• Security: Multiple copies prevent data loss
• Democracy: All participants have equal rights
• Resilience: System survives individual failures

Mnemonic: “Distributed = Durable, Democratic, Direct”

Question 2(c) [7 marks]

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Differentiate between Public Blockchain and Private Blockchain.

Answer:

Comprehensive Comparison:

Network Architecture:

graph TD
    subgraph "Public Blockchain"
        A[Anyone] --> B[Global Network]
        C[Anyone] --> B
        D[Anyone] --> B
    end
    
    subgraph "Private Blockchain"
        E[Authorized User 1] --> F[Private Network]
        G[Authorized User 2] --> F
        H[Authorized User 3] --> F
    end

Use Cases:

• Trade-offs: Public offers more security, Private offers more control
• Choice: Depends on transparency vs. privacy needs

Mnemonic: “Public = People’s, Private = Permitted”

Question 2(a) OR [3 marks]

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Describe Core Components of Block Chain with suitable diagram.

Answer:

Core Components:

System Architecture:

graph TD
    A[Peer-to-Peer Network] --> B[Consensus Mechanism]
    B --> C[Block Creation]
    C --> D[Hash Functions]
    D --> E[Digital Signatures]
    E --> F[Transaction Validation]
    F --> G[Block Addition]
    G --> H[Blockchain Updated]

• Integration: All components work together for security
• Purpose: Each component serves specific blockchain function

Mnemonic: “Blocks Build, Hash Holds, Signatures Secure”

Question 2(b) OR [4 marks]

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Define and explain permissioned blockchain in detail.

Answer:

Permissioned Blockchain Definition: A blockchain where participation requires explicit permission from network administrators.

Characteristics Table:

Permission Levels:

graph TD
    A[Network Administrator] --> B[Full Access]
    A --> C[Read/Write Access]
    A --> D[Read Only Access]
    A --> E[No Access]
    
    B --> F[Can validate blocks]
    C --> G[Can submit transactions]
    D --> H[Can view data only]
    E --> I[Blocked from network]

• Benefits: Better privacy, regulatory compliance, faster processing
• Drawbacks: Less decentralized, requires trust in administrators

Mnemonic: “Permission = Participation Permitted”

Question 2(c) OR [7 marks]

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Explain sidechain in brief.

Answer:

Sidechain Definition: A separate blockchain connected to main blockchain, allowing asset transfer between chains.

Sidechain Architecture:

graph LR
    A[Main Chain] <--> B[Sidechain 1]
    A <--> C[Sidechain 2]
    A <--> D[Sidechain 3]
    
    B --> E[Specific Purpose 1]
    C --> F[Specific Purpose 2]
    D --> G[Specific Purpose 3]

Benefits and Features:

Transfer Process:

Real Examples:

• Security: Maintains connection to secure main chain
• Flexibility: Each sidechain can have different rules
• Innovation: Allows blockchain ecosystem expansion

Mnemonic: “Side Supports, Main Maintains”

Question 3(a) [3 marks]

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Define Consensus Mechanism and explain any one in detail.

Answer:

Consensus Mechanism Definition: A protocol that ensures all network participants agree on the blockchain’s current state.

Proof of Work (PoW) Explanation:

PoW Process:

graph TD
    A[New Transaction] --> B[Miners Collect Transactions]
    B --> C[Create Block]
    C --> D[Solve Mathematical Puzzle]
    D --> E[First Solution Wins]
    E --> F[Block Added to Chain]
    F --> G[Miner Gets Reward]

• Security: Computational work makes tampering expensive
• Example: Bitcoin uses Proof of Work consensus

Mnemonic: “Consensus = Common Sense, Work = Win”

Question 3(b) [4 marks]

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Why is Forking needed in Blockchain? List various types of Forks in Blockchain.

Answer:

Why Forking is Needed:

Types of Forks:

Fork Visualization:

graph TD
    A[Original Chain] --> B[Block N]
    B --> C[Soft Fork - Tighter Rules]
    B --> D[Hard Fork - New Rules]
    
    C --> E[Old nodes still work]
    D --> F[Old nodes rejected]

• Impact: Forks can create new cryptocurrencies
• Examples: Bitcoin Cash (hard fork), Ethereum updates (soft forks)

Mnemonic: “Fork = Future Options, Rules Kept”

Question 3(c) [7 marks]

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What is Bitcoin Mining? Explain working, difficulty and benefits of Bitcoin mining in detail.

Answer:

Bitcoin Mining Definition: Process of adding new transactions to Bitcoin blockchain by solving computational puzzles.

Mining Process:

Mining Workflow:

graph TD
    A[Pending Transactions] --> B[Miners Collect]
    B --> C[Create Block Header]
    C --> D[Guess Nonce Value]
    D --> E[Calculate Hash]
    E --> F{Hash < Target?}
    F -->|No| D
    F -->|Yes| G[Broadcast Solution]
    G --> H[Network Validates]
    H --> I[Block Added + Reward]

Difficulty Adjustment:

Benefits of Mining:

• Energy: Mining requires significant electricity
• Competition: Difficulty increases with more miners
• Hardware: Specialized ASIC miners most efficient

Mnemonic: “Mining = Money, Math, Maintenance”

Question 3(a) OR [3 marks]

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Differentiate Soft fork and Hard fork.

Answer:

Fork Comparison:

Visual Representation:

graph TD
    A[Original Blockchain] --> B[Fork Point]
    B --> C[Soft Fork - Stricter Rules]
    B --> D[Hard Fork - New Rules]
    
    C --> E[Old nodes still valid]
    D --> F[Old nodes incompatible]
    
    E --> G[Single chain continues]
    F --> H[Two separate chains]

• Risk: Hard forks can split community and create competing currencies
• Safety: Soft forks are generally safer and less disruptive

Mnemonic: “Soft = Same Direction, Hard = Huge Difference”

Question 3(b) OR [4 marks]

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What is the importance of Finality in the World of Blockchain?

Answer:

Finality Definition: The guarantee that once a transaction is confirmed, it cannot be reversed or altered.

Importance Table:

Types of Finality:

Finality Process:

graph LR
    A[Transaction Submitted] --> B[First Confirmation]
    B --> C[Multiple Confirmations]
    C --> D[Probabilistic Finality]
    D --> E[Practical Finality]

• Bitcoin: 6 confirmations generally considered final
• Ethereum: Moving toward faster finality with Proof of Stake
• Challenge: Balance between speed and security

Mnemonic: “Final = Forever, Important = Irreversible”

Question 3(c) OR [7 marks]

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What is a 51% attack in Blockchain? Explain in brief.

Answer:

51% Attack Definition: When a single entity controls more than 50% of network’s mining power or validators, allowing them to manipulate the blockchain.

Attack Mechanism:

Attack Visualization:

graph TD
    A[Honest Chain] --> B[Block N]
    C[Attacker's Secret Chain] --> D[Block N']
    
    B --> E[Block N+1]
    D --> F[Block N'+1]
    D --> G[Block N'+2 - Longer Chain]
    
    G --> H[Network Accepts Attacker's Chain]
    E --> I[Honest Chain Abandoned]

Possible Attacks:

Prevention Methods:

Real Examples:

• Cost: Attacking major networks extremely expensive
• Detection: Attacks usually detected quickly
• Recovery: Networks can implement countermeasures

Mnemonic: “51% = Majority Mischief, Control = Chaos”

Question 4(a) [3 marks]

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Describe various types of Hyperledger projects.

Answer:

Hyperledger Project Types:

Project Categories:

graph TD
    A[Hyperledger Projects] --> B[Frameworks]
    A --> C[Tools]
    
    B --> D[Fabric - Enterprise]
    B --> E[Sawtooth - Scalable]
    B --> F[Iroha - Mobile]
    
    C --> G[Caliper - Performance]
    C --> H[Composer - Development]
    C --> I[Explorer - Monitoring]

• Focus: Enterprise and business blockchain solutions
• Open Source: All projects are freely available

Mnemonic: “Hyper = High Performance, Ledger = Large Enterprise”

Question 4(b) [4 marks]

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Differentiate between Blockchain and Bitcoin.

Answer:

Comprehensive Comparison:

Relationship Diagram:

graph TD
    A[Blockchain Technology] --> B[Bitcoin Cryptocurrency]
    A --> C[Ethereum Platform]
    A --> D[Supply Chain Apps]
    A --> E[Healthcare Records]
    
    B --> F[Digital Payments]
    B --> G[Store of Value]

Key Differences:

• Analogy: Blockchain is like the internet, Bitcoin is like email
• Dependency: Bitcoin needs blockchain, but blockchain doesn’t need Bitcoin

Mnemonic: “Blockchain = Building Block, Bitcoin = Specific Brick”

Question 4(c) [7 marks]

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Write a short note on: Merkle Tree

Answer:

Merkle Tree Definition: A binary tree structure where each leaf represents a transaction hash, and each internal node contains the hash of its children.

Structure and Components:

Merkle Tree Diagram:

Construction Process:

Benefits Table:

Verification Process:

graph TD
    A[Transaction to Verify] --> B[Get Merkle Path]
    B --> C[Hash with Sibling Nodes]
    C --> D[Compute Path to Root]
    D --> E[Compare with Stored Root]
    E --> F{Match?}
    F -->|Yes| G[Valid Transaction]
    F -->|No| H[Invalid Transaction]

Real-world Applications:

• Inventor: Named after Ralph Merkle (1988)
• Efficiency: Allows verification with O(log n) complexity
• Security: Tampering with any transaction changes root hash

Mnemonic: “Merkle = Many Made One, Tree = Trustworthy”

Question 4(a) OR [3 marks]

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Discuss briefly about Hash pointer and how it is used in Merkle tree.

Answer:

Hash Pointer Definition: A data structure containing both the location of data and cryptographic hash of that data.

Components:

Hash Pointer in Merkle Tree:

Usage in Merkle Tree:

• Verification: Can detect any change in tree structure
• Navigation: Allows efficient traversal of tree

Mnemonic: “Hash Pointer = Location + Verification”

Question 4(b) OR [4 marks]

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What is Hashing in Blockchain? How it is useful in Bitcoin?

Answer:

Hashing Definition: Mathematical function that converts input data into fixed-size string of characters.

Hashing Properties:

Bitcoin Usage:

Hashing Process:

graph LR
    A[Input Data] --> B[SHA-256 Function]
    B --> C[256-bit Hash Output]
    
    D[Small Change in Input] --> E[SHA-256 Function]
    E --> F[Completely Different Hash]

• Algorithm: Bitcoin uses SHA-256 hashing
• Security: Makes blockchain tamper-evident
• Efficiency: Quick to compute and verify

Mnemonic: “Hash = Fingerprint, Bitcoin = Built on Hashing”

Question 4(c) OR [7 marks]

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Explain classic Byzantine generals problem and Practical Byzantine Fault Tolerance in detail.

Answer:

Byzantine Generals Problem: A classic computer science problem about achieving consensus in distributed systems with potentially unreliable participants.

Problem Scenario:

Problem Visualization:

graph TD
    A[General A - Honest] --> D[City Under Siege]
    B[General B - Traitor] --> D
    C[General C - Honest] --> D
    E[General D - Honest] --> D
    
    A --> F[Vote: Attack]
    B --> G[Vote: Attack to A, Retreat to C]
    C --> H[Vote: Attack]
    E --> I[Vote: Attack]

Practical Byzantine Fault Tolerance (pBFT):

pBFT Algorithm Phases:

pBFT Process Flow:

sequenceDiagram
    participant C as Client
    participant P as Primary Node
    participant B1 as Backup Node 1
    participant B2 as Backup Node 2
    
    C->>P: Request
    P->>B1: Pre-prepare
    P->>B2: Pre-prepare
    B1->>B2: Prepare
    B2->>B1: Prepare
    B1->>B2: Commit
    B2->>B1: Commit
    P->>C: Reply

Fault Tolerance:

Applications:

• Advantage: Fast finality, good for permissioned networks
• Limitation: High communication overhead, doesn’t scale well

Mnemonic: “Byzantine = Bad actors, pBFT = Practical Fix”

Question 5(a) [3 marks]

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List and explain cryptocurrency wallets in blockchain.

Answer:

Cryptocurrency Wallet Types:

Storage Methods:

Wallet Functions:

graph TD
    A[Cryptocurrency Wallet] --> B[Store Private Keys]
    A --> C[Generate Addresses]
    A --> D[Sign Transactions]
    A --> E[Check Balances]
    A --> F[Send/Receive Crypto]

• Key Point: Wallets don’t store coins, they store keys to access coins
• Backup: Always backup wallet seed phrase

Mnemonic: “Wallet = Key Keeper, Not Coin Container”

Question 5(b) [4 marks]

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Write advantages and disadvantages of ERC-20 token.

Answer:

ERC-20 Token Definition: Standard protocol for creating tokens on Ethereum blockchain.

Advantages:

Disadvantages:

Comparison Table:

• Usage: Most popular standard for creating cryptocurrency tokens
• Examples: USDT, LINK, UNI are ERC-20 tokens

Mnemonic: “ERC-20 = Easy and Expensive”

Question 5(c) [7 marks]

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What are dApps used for? Explain advantages and disadvantages of dApps.

Answer:

dApps Definition: Decentralized Applications that run on blockchain networks without central authority.

dApps Usage Categories:

dApp Architecture:

graph TD
    A[Frontend - User Interface] --> B[Web3 Connection]
    B --> C[Smart Contracts]
    C --> D[Blockchain Network]
    D --> E[Distributed Storage]
    
    F[Traditional App] --> G[Central Server]
    G --> H[Central Database]

Advantages:

Disadvantages:

Development Challenges:

Popular dApp Platforms:

• Future: Moving toward better user experience and lower costs
• Adoption: Still early stage but growing rapidly

Mnemonic: “dApps = Decentralized but Difficult”

Question 5(a) OR [3 marks]

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Explain tokenized and token less Blockchain in detail.

Answer:

Tokenized Blockchain:

Token-less Blockchain:

Comparison Table:

Architecture Differences:

graph TD
    subgraph "Tokenized Blockchain"
        A[Token Rewards] --> B[Miners/Validators]
        B --> C[Secure Network]
        C --> D[Public Access]
    end
    
    subgraph "Token-less Blockchain"
        E[Permission System] --> F[Authorized Nodes]
        F --> G[Secure Network]
        G --> H[Private Access]
    end

• Choice: Depends on whether you need public participation or private control
• Trend: Most public blockchains are tokenized, most private ones are token-less

Mnemonic: “Token = Public Participation, Token-less = Private Permission”

Question 5(b) OR [4 marks]

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Write advantages and disadvantages of Hyperledger.

Answer:

Hyperledger Definition: Open-source collaborative framework for developing enterprise-grade blockchain solutions.

Advantages:

Disadvantages:

Hyperledger Projects Comparison:

Use Case Suitability:

• Target: Large enterprises and consortiums
• Support: Backed by Linux Foundation

Mnemonic: “Hyperledger = High Performance, Low Publicity”

Question 5(c) OR [7 marks]

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Explain Smart contract. Write various applications of smart contract.

Answer:

Smart Contract Definition: Self-executing contracts with terms directly written into code, automatically enforced on blockchain.

Key Characteristics:

Smart Contract Workflow:

graph TD
    A[Contract Created] --> B[Deployed to Blockchain]
    B --> C[Conditions Monitored]
    C --> D{Conditions Met?}
    D -->|Yes| E[Contract Executes]
    D -->|No| F[Continue Monitoring]
    E --> G[Automatic Settlement]
    F --> C

Applications by Industry:

Specific Smart Contract Examples:

Development Platforms:

Benefits:

Limitations:

Real-world Impact:

• Future: Integration with IoT, AI, and traditional business systems
• Evolution: Moving toward more user-friendly development tools

Mnemonic: “Smart Contract = Self-executing, Solves Problems”