DEV Community: Sreya Nair

ZKP

Sreya Nair — Fri, 10 Oct 2025 20:46:49 +0000

Zero-Knowledge Proofs in Blockchain

Introduction

Imagine this: your friend insists they know your Netflix password. Rather than giving it to you directly (which would be a security nightmare), they sign into your account in front of your eyes. You're sure they have it, but they never said it out loud. This is the spirit of Zero-Knowledge Proofs: demonstrating you possess something without disclosing what that is.

Zero-Knowledge Proof (ZKP) is a cryptographic protocol by which one party (the prover) can establish that a statement holds true to another party (the verifier), with no information being leaked beyond the fact that the statement is true. The prover undergoes a series of tests or challenges that show they possess knowledge without revealing the secret behind that knowledge.

For blockchain technology, this ability is revolutionary. As blockchains are transparent in nature—any transaction can be seen on the public ledger—this openness gives rise to the issue of privacy. ZKPs rectify this paradox by allowing:

Privacy Enhancement: Transact without revealing sensitive information
Enhanced Security: Confirm credentials without divulging actual information
Greater Scalability: Condense vast amounts of information into basic proofs
Decentralized Identity: Verify attributes without disclosing personal information
Secure Data Sharing: Facilitate selective disclosure of information

In this blog, we will see how Zero-Knowledge Proofs are revolutionizing blockchain from an open ledger to a privacy-preserving, scalable technology.

The Problem ZKPs Solve

Privacy Concerns in Public Blockchains

Blockchains like Bitcoin and Ethereum are completely transparent—every transaction is publicly visible on the network. Anyone can view wallet addresses, transaction amounts, token holdings, and transaction history. While these addresses are pseudonymous (not directly tied to real names), individuals can often be tracked through various methods such as exchange KYC data, IP addresses, or transaction patterns. This creates a permanent, immutable public record of all financial activity.

Why This Matters:

Businesses don't want competitors analyzing their supply chain transactions, vendor payments, or cash flows. Individual users don't want their salary, spending habits, or net worth publicly exposed. The healthcare sector faces risks of medical record breaches and exposure of sensitive personal data. Additionally, wealthy wallet holders become easy targets for hackers, scammers, and even physical threats.

The Transparency vs. Privacy Paradox

The Contradiction

Blockchain's greatest strength—transparency—is also its biggest weakness. Blockchains provide transparency for trust and consensus, where everyone must be able to verify transactions are valid. However, real-world adoption requires privacy, as people and businesses cannot operate with complete financial transparency. Traditional finance balances this through private verification by banks while maintaining user privacy. Currently, public blockchains offer an "all or nothing" approach: complete transparency or no blockchain at all.

The Dilemma

How can you validate that a transaction is valid without showing the details of the transaction? Blockchain needs to validate transactions, and this becomes impossible if you don't disclose the transaction details. We must ensure consensus without revealing sensitive data and remain in line with regulations such as GDPR and HIPAA while keeping data immutable on-chain. That is where Zero-Knowledge Proofs come in.

Real-World Scenarios Where Privacy is Required

Financial Privacy:

No employee who gets their pay in crypto would like their fellow workers to know their specific salary
Companies would not like their rivals to know the cost of the supply chain

Identity Verification:

Verifying one is older than 18 years old without showing their specific birthday or entire ID
Verifying citizenship for voting purposes without revealing passport information

Healthcare:

Verifying vaccine status without revealing entire medical records
Clinical trials in which patient information needs to be kept confidential yet verifiable

How Zero-Knowledge Proofs Work

Zero-Knowledge Proofs (ZKPs) is a trick where you can demonstrate that you possess something without showing what that is. It is similar to a dialogue between two individuals: the prover and the verifier. Through a question-and-answer process, the verifier is convinced that the prover is aware of the fact, although the fact had not been revealed.

Three Key Properties of ZKPs

The system should have three fundamental properties in order to be deemed a genuine ZKP:

1. Completeness: If the prover statement is valid and both parties adhere to the protocols sincerely, then the verifier will always be convinced by the prover.

2. Soundness: If the proof statement is untrue, then the prover is never able to prove it. An untruthful prover can never fool the system to accept untrue statements.

3. Zero-Knowledge: If the statement is true, then the verifier never learns what the statement is, no extra information about the secret itself is disclosed during the proof.

A ZKP Example

The Ali Baba Cave Analogy

The Setup:

A circular cave with a single entrance splits into two paths—Path A and Path B. Both paths merge at the back of the cave where there is a magic door that only opens when the entrance of a secret password occurs.

The Scenario:

Peggy claims to know the password. Victor wants to verify this without finding out the password itself.

The Proof Process:

Victor remains outside and Peggy enters in and at random picks either Path A or Path B
Victor enters and at random shouts "Come out from Path A!" or "Come out from Path B!"
If Peggy knows the password, she is able to open the magic door and exit through whichever path Victor utters
They repeat it 20+ times

Why This Works:

Without the password, Peggy can only be on the right track 50% of the time per round. After 20 rounds, she has less than one chance in a million due to luck. Victor believes she has it but never does discover what it actually is.

Interactive vs. Non-Interactive Proofs

Feature	Interactive Proofs	Non-Interactive Proofs	Best For
Communication	Requires back-and-forth between prover and verifier	Single proof, no interaction needed	Non-interactive: Blockchain, public verification
Reusability	Cannot be reused; each verifier needs separate session	Can be verified by anyone, anytime	Non-interactive: Scalability solutions
Verification Speed	Multiple rounds required	Single verification step	Non-interactive: Fast validation
Example Use Cases	Real-time authentication, secure login	Privacy coins (Zcash), zk-Rollups, smart contracts	Depends on application needs

ZKPs in Blockchain Applications

Privacy Coins: Zcash

Zcash is among the most significant uses of ZKPs in cryptocurrencies. It utilizes zk-SNARKs to enable fully private transactions.

How does it work: The users get to decide if they want transparent transactions (similar to Ethereum) or shielded transactions where the sender, recipient, and amount are all encrypted. ZKPs verify the transactions are valid or invalid without divulging any information.

Advantages:

Total financial privacy with network security assurance
Private transactions that are compliant

Scaling Solutions: zk-Rollups

zk-Rollups are Layer 2 scaling solutions that batch many transactions off-chain and post them as a single proof to the main blockchain.

How does it work: Rather than executing each transaction on-chain, zk-Rollups batch the transactions among themselves, calculate them off-chain and produce a single ZKP proving all the transactions to be valid. Only this small proof gets posted to the blockchain.

Advantages:

Increases transaction throughput
Reduces the gas fees
Maintains Ethereum security

Confidential Transactions

ZKPs facilitate blockchain transactions where quantities and asset types are hidden but can be verified.

How does it work: The transaction amounts are encrypted, but Zero-Knowledge Proofs establish that all requirements are met. The ZKP guarantees that the sender has enough balance to execute the transaction, that no tokens have been minted out of thin air, and that the transaction is as per all protocol rules. All this verification is without revealing the actual transaction amounts, sender, or receiver.

Advantages:

Business confidentiality
Security against front-running attacks
Financial anonymity for individuals

Benefits and Advantages

Enhanced Privacy

ZKPs enable users and merchants to have private transactions without sharing sensitive financial data. Private data, transaction amounts, and wallet balances are hidden but verifiable.

Scalability Increase

By grouping numerous transactions into grouped proofs, ZKPs essentially increase blockchain throughput. Applications like zk-Rollups can process hundreds of transactions off-chain and present a single proof on-chain, freeing up network traffic.

Reduced On-Chain Data

Instead of storing complete transaction data, blockchains must store only brief proofs. This is an enormous decrease in storage and reduces expenditures, making blockchain more efficient and eco-friendly.

Regulatory Compliance Possibilities

Selective disclosure is achieved through ZKPs—users can prove regulatory compliance (e.g., KYC/AML) to legitimate parties without disclosing data to the world. This bridges the gap between privacy and compliance.

Challenges and Limitations

Computational Complexity

ZKP creation comes with high computational effort and time. Proof creation is computationally expensive, making transaction processing slow and more hardware-reliant on users.

Implementation Difficulty

ZKP systems are computationally expensive and difficult to setup correctly. Cryptography expertise is needed by programmers, and small programming errors can violate security or create vulnerabilities.

Requirements for Trust Setup

Certain ZKP protocols (e.g., zk-SNARKs) require a "trusted setup" ceremony where initial parameters are created. If the setup becomes compromised, the security of the whole system could be at risk. More recent systems like zk-STARKs eliminate this requirement.

Barriers to Adoption

ZKP technology is still new and unknown to the majority of developers and users. Complexity, limited tooling, non-standardization, and knowledge gaps make broad adoption across the blockchain ecosystem challenging.

The Future of ZKPs

Current Developments

The future of ZKPs is rapidly evolving with advancements like zk-STARKs (which minimize trusted setup requirements), improved rates of proof generation, and friendlier libraries and tools for developers. Leading blockchain projects are investing heavily in ZKP research, making the technology increasingly scalable and accessible.

Emerging Use Cases

Aside from privacy and scalability, ZKPs are exploring new horizons: private messaging on decentralized social networks, privacy-preserving machine learning, secure voting, more secure cross-chain bridges, and private smart contracts that hide business logic while being verifiable.

Industry Adoption Trends

Biggies like Ethereum are embracing ZKP-based scaling solutions as a part of their fundamental infrastructure. Banks are exploring ZKPs for compliant off-ledger private payments. Governments are considering ZKP-based digital identity frameworks. As tooling gets better and computation gets cheaper, ZKPs are moving from proof-of-concept to production-ready solutions that could shape the shape of the next generation of blockchain applications.

Conclusion

Zero-Knowledge Proofs are one of the fundamentals of blockchain innovation, resolving the centuries-old privacy-versus-transparency compromise. We've observed how ZKPs make it possible to authenticate without disclosure—enabling individuals to check that transactions are correct, identities are genuine, and information is accurate without divulging the information itself.

Why ZKPs Matter for Blockchain's Future

As blockchain moves toward widespread adoption, privacy and scalability become paramount. ZKPs make possible a future world where businesses can do business on public blockchains without giving away trade secrets, people can transact anonymously while complying with regulations, and networks can handle millions of participants without sacrificing security.

Continue Your Journey

Feeling ready to dig deeper? Investigate these resources:

Projects to Watch: zkSync, StarkNet, Polygon zkEVM, Zcash
Learning Resources: ZKProof.org, ZK documentation on Ethereum
Developer Tools: SnarkJS, Circom, Cairo programming language

The future of blockchain is verifiable, private, and scalable—and Zero-Knowledge Proofs are making it happen.

Blocks & Bots

Sreya Nair — Fri, 24 Jan 2025 11:12:03 +0000

AI and Blockchain are the pinncale of technologies of our century. Where blockchain offers a decentralised platform for the users and their data, AI provides the intelligence and insights to that data. Together they pave the way for a futuristic approach to solving our day to day life problems with enhanced optimisation and precision.

Lets start with understanding what Blockchain and AI are.

Blockchain
Blockchain is a decentralised platform withn shared and immutable ledger with transparent exhange of encrypted data. Blockchain helps with tracking orders, payments and accounts, healthcare, productions etc. Blockchain helps to bring trust and confidence with data.

AI
AI uses computers, data, even machines to mimic the problem solving, decision making and other capabilities of human beings. AI is also composed with Deep Learning and Machine learning, which uses the AI algorithms to make predictions, and better decision making as well. Some advantages of AI includes completing repetitive tasks and preparing customised experience.

Integration of Blockchain and AI introduces us with a very interesting feature trio- Authenticity, Augmentation and Automation.

Authenticity
We know that AI models feed into the data provided to them to make predictions or to make decisions, but whats the surity that the data is right and reliable. Blockchain ledger can be used to store the tried and tested data in a transparent and secure way, then this authentic data can be then fed to AI which will then be used for AI functions.

for example: In healthcare system, patient's data can be authenticated by storing it on a blockchain and then this data can be used by AI systems for diagnosis.

Augmentation
Augmentation is AI's ability to enhance human decision-making by providing insights, recommendations, and solutions based on data, and we know that blockchain helps with securing and authenticating data. Pairing AI with Blockchain will allow the formation of augmented data which enables better decisions in areas like finance, logistics and supply chain managements etc.

for example:In supply chains, blockchain ensures the traceability of goods, while AI analyzes the data to optimize routes, reduce costs, or predict delays.

Automation
Automation means AI capability to perform tasks without human intervention. We can use blockchain smart contracts to enable automatic proccesses like payments and approvals, which gets triggered by specific condtions, AI can be then used to make these processes more efficient as it can analyse complex situations and help to trigger the proccesses at the right time.

for example:In insurance, smart contracts on blockchain can automate claims processing, while AI assesses damage using data from uploaded images, ensuring faster and fairer settlements.

Combining AI and blockchain can allow us to unlock new possibilties which can generate vast productivity in our applications.

Let's explore few of those use cases.

1. Security
AI can be used to track unusual patterns in real-time, meanwhile Blockchain can ensure the integrity of data that needs to be audited. Blockchain based programs can be conbined with AI to handle identity management which helps to enhance security(such as biometrics).

2. Pharma
From ensuring transparent and immutable records of clinical trial data while AI analyzes the outcomes and identify the trends. Blockchain can be used to track down the drug's lifecycle, from production to delivery and AI can analyse this lifecycle for better tracking.

3. Data Storage
Blockchain helps to store data in a decentralised and transparent platform with privacy meanwhile AI can work on this data to organize and retrieve important details with effciency and accuracy with attention given to protect all the sensitive informations.

4. Finance
AI identifies suspicious activities like money laundering and blockchain helps to audit the trail. We use smart contracts in blockchain which can enforce the execution and records o transactions and then AI can optimize these contracts.

Challenges in the integration

1. Computational Power
Integrating AI with Blockchain or vice versa will require a lot of computational power, scalabilty and this will also be very expensive. We can use smaller AI models with better optimization techniques to reduce resource internsive programs and high consumption of energy.

2. Security Issues
AI feeds on a large amount of data, but proving an AI tool with sensitive data can impose risks of data security and may violate different acts like HIPAA.

3. Data Quality
AI models require quality data to work on and give the results, but the blockchain platforms can store data which are outdated or inaccurate. Including oracle to validate real-time data before feeding it into blockchain smart contracts or introducing data verification before giving the data to AI models can help to solve this issue.

4. Regulatory Uncertainity
Regulations for implementing AI and blockchain may be different for different regions which might stand as an issue for developers and buisnesses to implement them together. Staying updated about the changing rules and regulations can be helpful along with audting the data kept in blockchain regularly can help us to curb this issue.

Real Life Application

Fetch AI is a semi decentralised, semi AI powered open source platform which provides users with tools to create Autonomous Economic Agents(AEAs). Agents are software programs, widely known as Smart Contracts, on the Fetch platform. These agents can communicate with each other and make external API requests. They are used for performing tasks like data sharing, process automation, and value exchange in a decentralized manner. These decentralised AI agents independently perform all these tasks in a secure, transparent and trustless communication platform.The token used in Fetch AI is FET.

Applications of Fetch

1. Smart Cities
Fetch AI agents can be used to monitor the traffic in metro cities to provide better experience for commuters. They can also perform parking system and energy distribution tasks.

2. DeFi
Fetch AI executes tasks like yield farming and enables efficient trade executions and liquidity management.

3. Travel Guide
These agents can also automate booking of hotel rooms, finding the transport and cost efficient travel plans.

Wrapping Up
When one industry faces a problem, the other shows up.... Where Blockchain stores data efficiently, AI makes it better. There are numerous ways this technology combination can help and heal our cybersecurity issues while giving the best results as well. Feeding AI models data which is reliable and trustworthy helps to get finer results with better future aspects for the results to grow and help people.
Integrating Blockchain and AI is a very difficult process and this might take many years to get implemented, yet I believe that the combination of these giants can create a space for developers, buisnesses, people and organizations to work and live in a protected data driven world.

Blockchain in the Seafood Inductry

Sreya Nair — Wed, 18 Dec 2024 08:56:15 +0000

Lets have an intro before i start to yap about something i find cool for no reason.
So think about all those times you wondered about where your fish from your grilled fish dish came from? If you were to ask the restaurant, they’d probably shrug,coz who tf cares. But some of us do, right? Well, imagine if we could trace that seafood back to its origins—the exact sea it came from and the journey it took to reach your table. Yeah that's where blockchain steps in.

The seafood industry has been dealing with transparency,traceability and sourcing.The new gen of cutomers have much concerns regarding sustainable sourcing of sea food. Blockchain can help us to ensure transparency, traceability through it's well-known features.

Why do we need a blockchain system for this?
Let's understand the different problems in seafood industry

Fraud and Mislabeling
About 30% of seafood sold is presented inappropriatel.Often, consumers are tricked into buying expensive seafood, only to end up with a cheaper, lower-quality alternative that looks or tastes similar. This deception can be solved by the blockchain's authenticity ensurement and combatting fraudism.
Supply Chain Complexity
Seafood passes through multiple stages before it reaches the consumer, including fishing, transportation, processing, packaging, and distribution. Each of these steps create opportunities for different players for fraud, mislabelling and unsustainable practices.
Illegal, Unreported, and Unregulated (IUU) Fishing
It's estimated that about 26 million tons of seafood is sourced illegally, unreported and unregulated. These unsustainably sourced seafood can enter the system very easily. Acts like overfishing affects the sea life biodiversity,economic hurdles for lawful fishing practices and threates the marine ecosystems.
Quality Control and Spoilage
Seafood can get spoilt very easily, that's why the process of controlling seafood's quality is a tidious task.Improper ways of handling an dmonitoring seafood can lead to contamination, which can lead to serious health risks if consumed. This also leads to wastage of tons of seafood.
Economic Exploitation
The fisherwomen/fishermen often get paid much lesser than they deserve. This leads to economic dependency because they are esploited by intermediaries reaping the profits.

How can Blockchain be helpfull?

Well Blockchain has many features that act as a reliable network mechanism. The seafood industry NEEDS traceability, accountability and trasperency.

End to End Traceabilty
At each step of the supply chain we can include the practice of digitally recording all the work done. For eg the fiherwomen/men can record the place and estimated time when the seafood was harvested, the end consumers can be provided with a OR code alongside the product, which on scanning will
give all the necessary information required.
Ensuring Sustainability
Blockchain can ensure the sustainable harvesting of seafood through the above mentioned practice of digital records. These records act as a certification about the food being sustainably produced. This way we can incooperate ethical and eco-friendly habits into the industry.
Empowering Small-Scale Fisherwomen/men
Blockchain can be used to eliminate any intermediateries between the fishers and the consumer.This way the practise of exploiting small-scale fishers by paying them less amount can be stopped. This can also help to incooperate better trust system between the fishers and the consumers.
Improving Supply Chain Efficiency
With real time updates on the blockchain system, stakeholders can track the progress at each level, having control over proper packaging, delivery and reducing wastage due to spoilage.
We can create smart contracts which will only approve the payment process if certain checkpoints are completed.

Walmart and BT

I was really intriged by the way walmart incooperated blockchain in the supply management system. I did some digging and found out that Walmart collaborated with IBM's food trust platform to integrate BT into its supply chain which made it possible to include transperency and efficiency which further led to gain customer trusts.

Walmart collaborated with Indian seafood processor Sandhya Aqua and U.S.-based supplier Stanley Pearlman Enterprises alongside IBM to initiate a project to tract shrimp produced in India to United States.

How was Walmart benefitted from this?
Well Walmart was able to track the product at each step and thus it helped to:

Enhance food security
Supply Chain Transparency
Support for Sustainable Practices

After succeeding in ensuring the traceability of shrimp from farm to table, Walmart then brodened its implications to other products like fruits, leafy greens and diary products. Thus, Walmart was successfull in gaining it's customers undevided trust.

Some other companies/organizations that uses BT are Mercedes-Benz, LVMH (Louis Vuitton Moët Hennessy), OpenSC, De Beers' Tracr and IBM Food Trust.

Lets stop my yapppp
The integration of blockchain into the seafood industry is not just an advancement in technology but an effort towards creating a more sustainable and ethical future. Ensuring traceability, combating fraudism, and empowering small-scale fishers, blockchain has the power to completely change the way sourcing, processing, and delivery is done in seafood industry. Companies like Walmart have already demonstrated its power to build trust and transparency in the supply chain. The future, when each piece of seafood eaten comes with a promise of quality, sustainability, and fairness, looks bright indeed as more and more businesses adopt this technology. Blockchain might just be the key to not only preserving our oceans but also improving the lives of those who depend on them.
Okayei byeiiiiii <3

Bitcoin Whitepaper but easier

Sreya Nair — Sat, 27 Apr 2024 17:48:39 +0000

While the entire world was busy being amused by the infamous Balloon Boy incident, the tech world was also amused by the invention of Bitcoin or to say more precisely, the creation of Web3 i.e Blockchain Technology by Satoshi Nakamoto, who might be a person or several people or maybe even aliens because the identity of this thing has not been recognised yet. SN (short for Satoshi Nakamoto and also my initials hehe) introduced the technology by releasing a Bitcoin Whitepaper which, in my opinion, is hella confusing, so I am here to simplify it for you(I hope I don't confuse you even more :p)

What's the basic concept behind Bitcoin?

When the internet was introduced, everyone expected that it would help to get rid of the 2 most important flaws of day-to-day lives, first being the presence of a middleman in anything and EVERYTHING and the second being the lack of trust. I mean, will you ever trust random news on the internet OR are the middlemen that are interfering in our personal lives in the pretext of navigation, reliable? Thus, to solve these problems and to be honest many others, blockchain technology was introduced.

Blockchain technology is what forms the backbone of Bitcoins (yes, blockchain and bitcoin are 2 different things, we will get to that later). BT (not the Bad Trip one dumbo) works on the solid idea of peer to peer version of a system where a transaction happens between only two parties, yeshhhh no interference by any GIANTS aka middleMAN. Every transaction is added to a chain of blocks (imagine a train’s design for better visualization) that has been validated by numerous nodes, if these large numbers of nodes are not trying to attack the network, they will create the longest possible chain and will win against the attackers hehe. These long chains are not only proof of the sequence of events, but also proof that it has been generated by a pool of majority CPUs. The nodes participating can leave the system anytime they want and when they want to rejoin they can just refer to the longest chain to understand what happened while they were gone

The role of financial institutions in transactions

Every time you make a transaction, say for example you bought some anime merch via an online website, the process of transaction is navigated by a financial institution. This system works well for a small-scale transaction, but we can't forget the trust issues that are prevailing. Also, every time there’s a dispute in the transaction, say the other party did not receive the money, this third party (mostly a bank) has to interfere to fix the problem, which increases the cost of the transaction. Meanwhile, if reversibility of the transaction is possible, the trust within the system increases. The presence of middlemen increases the need for users to give away their personal information, sometimes that information is asked that isn’t even required.

How to kick these financial institutions out (such parasites eww)

See the solution is simple, introducing a system with no central authority, or to be more precise we need a decentralised payment system. And how is this possible? Well, what if two parties directly communicate with each other and the trust of the transaction relies on cryptographic proof? This system will protect the seller and the buyers as well using different mechanisms which we will discuss later on. This system will be secure until it is in the power of the majority of CPUs that are legit and not the attacker nodes.

How do Transactions Shake, Rattle, and Roll in BT

In BT, when a transaction has to be made, an electronic coin is assigned as a chain of digital signatures. Now how can a user (sender) send this coin to another user (receiver), two components are required to do so, the first being signing a hash of the previous transaction and the other being the public key of the next owner.

Alright lemme explain to you what hashing and public key are before going further

Hashing happens when a transaction is broadcasted to the network, the data is converted into a fixed-length string called hash. Now this hash function uses the transaction data as the input and provides an output which severe as a digital footprint of the transaction.

The public key belongs to both the sender and receiver. Everyone in the BT network has their own public key and private key. Let's assume that the public key is a lockbox which is shared within the network but the key (private key) isn't. Now the users can send messages or money using this public key as a reference and the receiver uses their private key for their account.

Once the transaction is made, it has to be logged into the end of the coin. The receiver can check the previous ownership by using the signatures.

However, one of the issues with this process is that the payee (receiver) cannot check if the sender has double-spend or not. Oh wow, now what is double-spend? Ok so for example You have 5 bitcoins, and you want to send 2 bitcoins to Teddy and Bear each and alsooo you don't wanna spend 4 bitcoins. So you use your clever mind and send 2 bitcoins to Teddy and before the transaction is logged into the network you send 2 bitcoins to Bear ehehehe, which means you just tricked the system and used the same 2 bitcoins twice and your balance now is 3 bitcoins instead of 1.

To solve the issue, a central authority which will check every transaction, which defies the main logic of BT. (We BT people HATE banks). Now to make sure that double spend does not occur is to be aware of all the transactions, one way to do so is to make every transaction public in the network. Also, the payee needs to approve that at the time of each transaction, the majority of nodes should agree it was the first received.

Timestamp Server:- The Killer of Double-Spend

Now BT has a very amazing solution for double-spending. Now, this timestamp works by using the hash of the block of items that has to be timestamped and then publishing this hash over newspaper or Usenet(It is a worldwide-distributed discussion system available on computers). Whenever someone tries to double spend the system can detect it via the hash, coz if the transaction has entered the hash then it must have happened before, right? Now these timestamps also include the previous hash, forming a chain which has the information about the previous transactions.

Mining Mastery: Understanding Proof of Work

We just discussed the timestamp server, right? Now to implement this we need a system known as Proof-of-Work, which is similar to Adam Back's Hashcash. Proof-of-Work involves scanning of values using a hash function, a hash function is a mathematical function that takes an input and gives a fixed-size string of bytes.

Now, how does a miner use these hash functions? Well, they continuously try different nonce(not used values) which when hashed with the data of the block returns some hash value which starts with some number of zero bits, this number of zeros influence the amount of time required to get the exact nonce, meaning that as the number of zeros increases, the amount of time required to find the valid nonce also increases.

To implement the Timestamp Server into the network, we increase the value of nonce by some values until a value is found that gives the block’s hash the required zero bits. Once the miner finds the nonce that satisfies the proof-of-work requirements and creates a valid block, changing the data in the blockchain will require the miner to redo all the work. When more blocks are added to the network, the work to change any aspect of the block will require the effort to redo all the blocks after it.

Another major problem that Proof-of-Work solves is the determining representation in decision-making. If the concept of one-IP-address-one-vote is applied, then it can be misused by anyone who can allocate many IPs. Blockchain uses the concept of one-CPU-one-vote. If the majority of CPUs are controlled by honest nodes, then they can grow faster and outpace any competing chains. For an attacker to attack a block, they will need to redo all the work for every block and surpass all the kinda impossible work of honest nods.

As technology improves, computers get faster, allowing people to mine cryptocurrency more quickly. Also, the number of people interested in participating in the network can change over. To keep things fair and stable, the difficulty of mining new blocks is adjusted regularly. This adjustment is based on how quickly blocks are being produced compared to a target rate, which is usually an average number of blocks per hour. If blocks are being produced too quickly, it means that miners are working too efficiently, so the difficulty of mining is increased. This makes it harder to mine new blocks and helps maintain a steady rate of block creation.

The networking in the blockchain world

what do the nodes do when any transaction is made?

A new transaction is broadcast throughout the network.
These nodes add the data of the transaction to a block.
The nodes try to find the best proof-of-work for the block.
When a node finds the required proof-of-work, it broadcasts it to all the nodes.
The other nodes accept the block only when the transactions are valid and not already spent.
After accepting the new block, the nodes work on adding new blocks using the hash of the previous hash.

Now, what if two nodes broadcast two different versions of the next block? Well, the system accepts one block by default and works on it and keeps the other one IF its chain gets longer (because the nodes consider the longest chains). If by chance the node they didn’t choose becomes longer, then they switch to the longer one.

Now it is not certain that all the transactions reach every node, sometimes the block gets added so fast that all the nodes don't even receive the transaction data. Now when the next block has to be added, the nodes who didn’t receive the data will realise that they have missed one.

Crypto Rewards: Fueling the Blockchain Boom

The first transaction in a block is always special because it starts a new coin owned by the creator of the block. Now to support the system some incentive(reward) is given to the nodes. Unlike traditional systems of transaction networks, there is no middleman or central authority which can control it, instead, cryptocurrencies are usually mined. Whenever a miner successfully adds a new block, they are given a “block reward” in the form of newly created coins. In the case of cryptocurrency mining the resources expended are CPU time and electricity, i.e. the computational power time required to solve the cryptographic puzzles and the electrical energy required while mining.

The other ways of incentives include Transaction Fees. To understand this let's take an example

Let Ponyo(Japan) want to send 20 cryptos to Howl (America), when these cryptos reach Howl, the 20 cryptos can be reduced to let's say 18 cryptos, and the 2 cryptos are the transaction fee that acts as the reward for the miners. Once the predefined number of coins is introduced no new coins can then be included, now this reward can completely transform into the transaction fee which is completely inflation-free.

Now, what if an attacker thinks of assembling more CPU power than all the honest nodes? Well, then they will have to make a tough choice between stealing money back from people or using it to generate new coins.

Before we go onto the next topic, I would like to say, GOOD JOB MATE (read this with an Australian accent). You have completed half of this hell. So far it has been very confusing yet interesting. Let's see what the other half is about.

Trimming the Fat: Reclaim Desk Space

Reclaiming Desk Space is one of the ways to save memory, once the latest transaction block is buried under enough blocks, the spent transactions can be discarded to save the disc space. Now to do this Merkel's tree concept is used, in this the transactions are hashed which further facilitates saving memory space without breaking the block’s hash. The branches of old Merkel’s trees with data can be stubbed or removed as they are not needed any longer time.

In the above picture, we can analyse Merkel’s tree, which is used to store data about a transaction. Merkel tree is like an inverted family tree. The main node has a Block Header which has the Block Hash, data about the previous hash, Nonce(Number used Once) which is a random or semi-random number that is used only once in a cryptographic communication, and lastly the data about the root hash. This main node is then connected to multiple other nodes which also have some data about hash functions.

Now one may think that saving all this memory of block hash, block header, prev hash etc etc can take up a lot of memory, but it is not the case because let's say blocks are made every 10 minutes and each block header without transaction would be about 80 bytes. The yearly storage required for this block would be about 4.2 MG, considering the computers, back in 2008, nowadays, have storage of 2GB and according to Moore's law this value increases by 1.2GB every year. Thus storing block headers in memory shouldn't be an issue, even as blockchain networks grow.

Easy-Peasy Blockchain Payment Checks

Payment verifications can be easier in blockchain. In order to understand this let's take an example of you attending a birthday party and you want some information without asking directly. Just like how you didn't need to talk to everyone in the party to know about something specific, you can just talk to some key people, these key people in the Blockchain network are network nodes. You can ask these network nodes about the block headers of the longest chain of transactions, we can assume these block headers as the main summary of all the transactions.

Now let's say you wanna confirm who brought the best birthday cake at the party, and in order to verify that you don't need to ask everyone present at the party, instead you just need to know where all the info about the cake is stored. Just like this, a user can check the transaction or verify the transactions in the blockchain network.

Even though the user is not checking or verifying the transactions by themselves, they can trust the result by linking the transaction to the main summary of all the transactions. And further, if the chain gets more updates, it's like getting more confirmation that the transaction is legit.

So far everything is fine, the user are not verifying every transaction but trusting other honest nodes but what iffffff, what if there is an attacker node huh? The network nodes can easily verify the transactions without any problem but what if an attacker node fabricates the information and overpowers the network. The solution to this problem is very easy, the nodes can keep an eye on security alerts that can detect an invalid block and alert transactions to confirm the inconsistency.

Businesses that get frequent transactions can form their independent security and run their nods thus ensuring safety and consistency in the system.

Coin Fusion: Mixing and Matching in the Crypto World

While doing transactions, multiple inputs and outputs can be combined in a single transaction, this way the transactions can be done easily and efficiently for everyday use.

Now to understand this let's take an example:

Let's say Jay wants to buy a new mouse and it costs around 1000 rupees, Jay does not have a single 1000 rupee bill but he has multiple bills and coins adding up to 1200 rupees. Now transactions using multiple bills and coins will be a very tiring job and it will also take lots of time. One way to fix this issue is by making one single transaction instead of making multiple, in this way, Jay is using 1200 rupees worth of bills and coins as the input. Now we can have 2 outputs, one for the mouse ie 1000 rupees and one for giving back the change, which in this case is 200 rupees. In this way, blockchain combines and splits value for a smoother and easier user experience.

Fan-out is a transaction which relies on other transactions and those transactions, in turn, rely on many other transactions. In the traditional system of fan-out, it is very difficult to practice because one need to have the info of all the other transactions which makes it very resource-intensive. But in blockchain fan-out is not difficult because here, the user does not need to have the information about all other transactions. When a transaction occurs, nodes only need to verify the validity of the transaction. They don't need to retrieve and store the entire history of each transaction involved in the fan-out scenario.

Hush Hush: Privacy in Blockchain

Privacy can be a major concern in blockchain networks, as we know that each transaction in the network is publically announced, but how can this be secure or how can the privacy of the sender and receiver be maintained?

Let's take a scenario where there is a thrift marketplace where multiple stalls are put up, in a traditional transaction process, when a buyer makes a purchase, only the buyer, the sender and maybe a third party(bank) get information making sure that the transaction process is private.

But what if, after every transaction is YELLED OUT? This will eliminate the privacy aspects because now everyone in the market knows who is buying what from whom. But this can be done in a better way, instead of announcing all the information like “Hiya bought 1 dress from Sara” we can say “x bought a dress from y”, in this way the market will know about every transaction, while the privacy of the buyer and seller is maintained.

This is the same concept that is used while trading, where the time and size of the individual trade is made public but without telling who were the parties.

An additional privacy system can be the inclusion of a public key (like a lock)and a private key(like a key to the lock), to access and send funds.

Let's say you want to buy some paintings, you use a unique key pair to make the transactions. The public key associated with this transaction is like the address of the seller's digital wallet, while the private key is your secret key. Now let's say you want to buy some music, instead of using the same key pair as before, you generate a new one for this transaction. This way, the public key associated with this transaction is different from the one used for the book purchase.

Now what if you are making multiple transactions, like for eg you are collecting funds from different funds to make a single payment? Even though you will be using different key pairs for making each transaction, as all the inputs contribute to the same transaction may reveal the fact that they belong to the same owner.

The risk in this is that, if someone gets hold of one of your key pairs, they can find the owner and thus it becomes harmful. The solution to this problem will be to generate a new key pair for every transaction, making it more difficult to link transactions to a common owner.

Wohooo only one more topic and you are all done!! I am so proud of you for reaching here!! You're hardworking and passionate. :)

Calculations

Let's consider a scenario where an attacker is trying to create a different chain faster than the honest one. Even if this attempt is successful, it does not expose the system to any random alterations, such as generating an unpredictable value or taking money that never belonged to the attacker. The nodes are never going to accept a transaction with invalid credentials and the honest nodes are never going to accept a block consisting of them. The only way an attacker can fool the system is by taking the money back that he recently spent in a transaction.

To understand the rat race between the honest nodes and the attacker node while a transaction is made, we need to characterize each of them based on Binomial Random Walk.

The gap between the number of chains of the honest nodes and the attacker node can be considered by understanding the success and failure events in the honest nodes and the attacker node respectively. The gap gets extended by one block in the honest nodes chain whenever there's a success event, meanwhile, the chain of the attacker chain extends by 1 when there’s a failure event.

To understand this let's discuss the Gamblers Ruin problem.

Imagine you are playing a game where you start with a certain amount of money, but you owe some money initially. You keep playing the money, and with every round, you either win or lose some money. Now your motive is to reach a point where you have enough money to pay back the initial deficit and break even.

Now, let's relate this to the situation of an attacker trying to catch up with the honest chain in a blockchain system.

The player with the initial deficit represents the attacker who is behind the honest nodes.
Each round of the game represents the attempt of an attacker to generate a new block faster than the honest chain.
Winning money represents the successful creation of a new block and reaching the same level as the honest nodes or surpassing them
Losing money represents failing to create a new block or falling behind the honest nodes.

We can calculate the probability of the attacker ever reaching the breakeven,or the attacker ever catching up with the honest chains by using the formulas given below.

If we assume that p>q, the probability of the attacker catching up with the honest nodes gets extremely low. If the attacker doesn’t make a lucky step forward in the beginning, it becomes nearly impossible to succeed.

Now it might be possible that the sender in a transaction might be the attacker, who sends money to the receiver, the attacker wants to make the receiver believe that the money has been sent for a while, and then switch back to pay back the amount after some time has passed. Whenever this happens, the receiver gets an alert about the same and the attacker hopes that it will be too late.

Whenever a transaction has to happen, the receiver creates a new key pair and then gives the public key shortly before the transaction happens. This prevents the sender from creating a chain of blocks before the transaction happens and then works continuously until the attacker gets far ahead, and the executing the transaction. One the transaction the attacker works secretly parallel on a chain containing an alternate version of the transaction.

The receiver waits until the transaction has been added to a block and the number of blocks has been linked after it(let's say z number of blocks). The receiver usually has no idea about the progress the attacker has made, but the receiver assumes the average time taken by the honest nodes per block, the attacker's potential progress will follow a Poisson distribution with a mean of…

What if the attacker still catches up now? In this case, to find the probability, we calculate the poison density for each potential amount of progress the attacker could have made and then multiply it by the probability that they could catch up from that particular point.

On rearranging this formula we get

Sorryy if you didn't get the Calculation part, coz I found it a little difficult :(

I hope I was able to explain you the Bitcoin Whitepaper in a better and easy way. Lemme know if I missed out on something or if you have any suggestions. All the images have been taken from the original whitepaper(https://bitcoin.org/bitcoin.pdf) which you can refer to understand the topics in depth.

Payments in Blockchain

Sreya Nair — Thu, 14 Mar 2024 19:45:06 +0000

What is “Payments in Blockchain”?

Payment in blockchain is one of the most prominent applications of blockchain. Blockchain helps to increase the security, transparency, and efficiency in the process of payment.
Unlike traditional payment systems, blockchain adopts a decentralized way of payment process through Distributed ledger technology (DTC). DTC ensures that all the transactions are recorded which removes any third party this not only ensures that there is security and the threat of cyberattacks is almost negligible but also that there is transparency in the system and the records are tamper-proof.
Blockchain has different cryptocurrencies like Bitcoin(BTC), Ethereum(ETH), and Litecoin(LTC). Each of these cryptocurrencies helps in different payment methods like Peer-to-Peer Transactions, Online purchases, Token Assets, NFTs, etc.

What are the steps required during the process of payment?

Now let's break down the process of payment in the blockchain

1. Creation of a transaction

The sender creates a digital message about the payment that includes the address of the receiver the amount that has to be transferred and any other information that is required.

2. Public and Private key

To make sure that the transaction is legitimate and that it has been authorised, the sender creates a digital signature using their private key. The receiver's public key is used to verify the digital signature and ensure the authorisation by the sender about the transaction.

3. Sharing with the Network

The authorised transaction is then shared with the network of computers(nodes) participating in the network.

4. Validation

Now the network of nodes validate if the public key of the sender and the private key match or not, also they check if the sender has enough funds to continue the transaction successfully.

5. Consensus

The transaction can be validated in two different ways, Proof of work(POW) and Proof of stake(POS).

Proof of Work:- In this, the validation is done by confirming that the transaction adheres to the rules of consensus and solving complex cryptographic puzzles.

Proof of Stake:- The validation depends upon the ownership and stake that the validators have.

An algorithm chooses a validator depending upon the amount of stakes they have and how long they have invested it.

6. Block inclusion

Once the validation is completed it's time to add the transaction into a block. In POW, the miner who solves the complex cryptographic puzzle gets to add the block to the blockchain and in POS, an algorithm chooses a validator to add the transactions into a block.

7. Adding the block to the blockchain

Once the block is created the miners(POW) and the validators(POS) work to add the block into the blockchain including solving cryptographic puzzles by the miners the miner who solves the puzzle first gets to add the block into the blockchain, meanwhile, the validators are chosen by an algorithm which depends upon the amount of stake they have put and for how long.

8. Confirmation

Once the block is added to the blockchain, the transaction is confirmed. The number of confirmations ensures the security of the transaction.

9. Adjusting Account Balances

Once the transaction is over the bank accounts of both the sender and the receiver are updated based on the latest transactions making sure that both parties have the information they require.

The contribution of Blockchain to digital payments

The financial experts and investors are conscious of the capabilities of blockchain technology in the financial sector. Over the years there have been many updates and announcements about blockchain infused into payments.
For example, in 2020 PayPal announced the launch of their integration of payments via blockchain by allowing users to buy, sell and hold cryptocurrencies. By doing so the customers could easily access the benefits of payments through the most secure and transparent way.
In 2021 Visa declared the launch of a Cross-network Transaction Hub where users can transfer and exchange assets across various payment channels in the blockchain.
In 2021 Mastercard started to support some cryptocurrencies in their network also they and Bakkt partnered together to offer cryptocurrency rewards on the user's cards.

Future of Payment in Blockchain

As the world is transforming so is the world of payments and finance. Many banks are trying to introduce their currencies through multiple experiments and exploring the blockchain ecosystem, introducing this will help to generate a banking system backed up by the government which would help to eliminate physical cash among the users.
Future blockchain payments may prioritize privacy and security to address concerns related to data breaches and unauthorized access., by introducing concepts like zero-knowledge proofs and privacy coins, users can have more control over their payment-related data.
Apart from just transferring money via blockchain, Decentralized Finance (DeFi) can help to introduce a broader range of financial features like lending, borrowing insurance etc. To enhance the security system of blockchain, in future, it might be possible to integrate AI and Blockchain which might help to detect any malpractice and also reduce the risk of a data breach.