Class 2 – Blockchain


By: Engineer Paul Bogdan Ionescu

Translated by: Guillermo A. Arango J.


Medellin, Antioquia

21 November, 2022




          The first work of a BLOCK CHAIN using CRYPTOGRAPHY.

          P2P (Peer-to-Peer) technology is developed,

          The door is opened for the evolution of Blockchain technology.



          Officially launched within the BITCOIN Project.

          Combination of the P2P (peer to peer) System and advanced cryptographic techniques.

          Evolved by a team under the pseudonym SATOSHI NAKAMOTO.



          The first version of the ETHEREUM PLATFORM (technology derived from the initial blockchain).


          Currently there is a great diversity of "BLOCKCHAIN" both public and private or hybrid. Among the best known are BITCOIN, ETHEREUM, DASH, MONERO, ZCASH.




          Public Key Infrastructure (PKI) – asymmetric cryptography mechanism.

          The blockchain network is the largest PKI deployment in the world.

          Guarantees the confidentiality and authenticity of all activities.

          Resolves known issues such as identity theft, fraud, hacking etc.

          Bitcoin – asymmetric cryptography mechanism (2 keys per user to encrypt and decrypt: public and private).


Blockchain Key Work


          Blockchain technology does not store private data about users such as names, address, emails.

          Respects the Right to Privacy.



          The use of SmartContract (smart contracts) ensures to preserve our rights.

          Applies to all sectors within the Company.



          Free technology (Opensource) available to everyone.

          Anyone can participate in ecosystems based on blockchain technology.

          System designed to work even with the least sophisticated equipment, including Mobile phones.

          Favors Distributed Capitalism.



          Participants are rewarded for their support according to the rules of each ecosystem.

          The cost of a transfer is distributed among the miners who worked in the confirmation of it.



          Each NODE within the blockchain network has the same functions and rights.

          Data is replicated in copies.

          There is no one center to control everything.

          Miners have the same opportunities depending on processing power.



          The use of a consensus mechanism ensures the transparency of activities within the blockchain network.

          The problem of double spend is resolved.

          Avoid the use of third parties.





          Anyone can join and participate in a public blockchain.

          Little privacy for transactions.

          Weak security.



          Access restricted / controlled by a single organization.

          Increases trust between participants.

          Increased security and privacy.


Currently there are other types of blockchain:

-          Mixed (combination between public and private blockchain)

-       Consortium (several organizations share the responsibility of maintaining the blockchain). 


Other types of Blockchain






          Each block has a fixed size depending on the configuration of each cryptocurrency (2Mb BITCOIN, BITCOIN CASH.

          Through each block created, new COINS are introduced into the BLOCKCHAIN network as a reward for the miner who first solved the block.

          Within each block are a certain number of transactions. (In the BITCOIN network there is an average of 2100 transactions).

          A block is formed by

          Header (header)


          Previous Block Hash

          Merkle Root (hash of all transactions of the same block).

          Timestamp (time stamp) + Nonce (additional random number added by the miner).


          Coinbase Tx (it is the first transaction in a block and contains the reward for the miner who solved the block + fees corresponding to each of the transactions between Wallets).

          Wallet Tx – All cryptocurrency transactions from Wallet A to Wallet B







       Computer connected with others forming a network of participants who share information.

       Full Node – Maintains an exact, complete and updated copy of all blocks in the blockchain network.

       Mining Node – Full Node + mining software.

       Each blockchain network determines the rules of creating/adding a Node to the Blockchain network.


Consensus Rules

          They are the basis of Blockchain technology.

          They help verify that the information added to the blockchain network is valid.

          They determine the size of each block (The size of a block in Bitcoin initially was 1Mb, currently expanded to 2MB).

          They constantly update the DIFFICULTY of the mining algorithm depending on the computational power in order to keep THE CREATION of the blocks constant (in Bitcoin the time of each block is 10 minutes).

          Avoid Double Spend (do not send/pay the same amount of cryptocurrency 2 or more times – validation BY THE NODES)

          Changes in the consensus rules and/or updates can cause divisions in the blockchain network, which can cause a Hard Fork.  (in the case of BITCOIN, the BETTER-KNOWN case is Bitcoin Cash on August 1, 2017)





          The amount of encryption operations that a miner/node can execute per second. It is the most important element in THE BLOCKCHAIN world. (In the Bitcoin network the total current hashrate is around 250 Ehash/s).


          It is an encryption algorithm that is used within the BLOCHCHAIN technology. The result is a string of text with a maximum length of 256 characters.

“My first class on BLOCKCHAIN technology”

In SHA-256 Encryption code




          Key that is shared with other users in the blockchain network in order to receive a message from another user




          It is kept secret by each user or platform. It is the only key that can decrypt the message encrypted with the public key 





Ø  PoW (Proof of Work)

Ø  PoS (Proof of Stake)

Ø  DPoS (Delegated Proof of Stake)

Ø  LPoS (Leasing Proof of Stake)

Ø  PoET (Proof of Elapsed Time)

Ø  HPoS (Hybrid Proof of Stake)

Ø  PoC (Proof of Capacity)

Ø  PoA (Proof of authority)


PoW (Proof of Work)

          First consensus algorithm developed on Blockchain Technology, introduced with the first Bitcoin cryptocurrency.

          The network proposes an objective to be calculated based on the difficulty determined by the total number of connected nodes and the total computing power (HashRate).

          The first Node that performs the calculation and meets the conditions of the consensus rules wins the right to create the next block and a reward is earned.

          If more than one Node solves the calculation, the winner is decided by consensus by the rest of the Nodes. The block of the losing Node becomes orphaned and all information contained is lost.

          This algorithm needs to have a larger number of permanently connected nodes to avoid malicious attacks (51%, DDoS, Sybill etc.).

          The POW algorithm creates branches that are naturally removed the moment consensus participants accept a single blockchain.




§  Very secure algorithm (advanced hash encryption SHA-256, SHA-2, SHA-3).

§  The software is free, easy to install and use.

§  It can be used in computers with different hardware characteristics (CPU, GPU, ASIC etc.).

§  Very resistant to malicious attacks.


§  It needs enormous energy and computational resources (only the cryptocurrency uses more than 120 TWh – Terawatts/hour – of electricity per year. Colombia consumes around 72 GWh – Gigawatts/hour – of electricity per year.

§  Computational power is exclusive, the computer/node cannot be used to develop, execute other tasks.

§  The constant increase in difficulty is useless on computers with less computing power.

§  Accelerates centralization in the medium or long term, limiting the number of Nodes with REAL capacity to earn the reward with each new block.


PoS (Proof of STAKE)

§  First developed in 2011. Peercoin was the first cryptocurrency to use this consensus mechanism in 2012.

§  The most important factors that determine the right to create a new block are the residence time and the commitment of each Node to the blockchain network.

§  The allocation to create a new block is random among the eligible nodes with the highest participation in the network.

§  Other criteria can be defined to determine the most committed participants. One of the criteria could be the amount of reserved currency that each Node owns.



§  Improved performance of the blockchain network.

§  Greater control of the time in creating a new block.

§  Significantly reduces energy consumption and the need to increase computing power.

§  It ensures an active participation within the blockchain network of a large number of Nodes.

§  Reduces the risk of attacks or malicious actions by participants.



§  Vulnerable to 51% attacks. More participations equal more decision-making power within the blockchain network.

§  Slow to process transactions. The greater the number of participants with a similar level of commitment, the greater the time to choose the Node that will have to create the new block.

§  Extremely vulnerable to 51% attacks.

§  Lack of scalability.  The growth of the total number of Nodes can be affected by the participation criteria in the blockchain network.

§  In some cases, an identification process is required in order to participate.  Anonymity as the basis of the blockchain philosophy disappears.



§  Variation of the PoS method with certain differences.

§  It appears for the first time in 2014 promoted by Daniel Larimer.

§  The participants in the blockchain network vote for the Delegate Nodes to represent them in decision making (between 21-101).

§  The Delegated Nodes elect a Lead Node that is responsible for making decisions and creating new blocks.

§  Delegate Nodes usually take turns creating a new block and earning the reward.

§  The roles of the Delegated Nodes include the validation of the transactions that will be added to the new block.  They receive the reward for the validation work.

§  Currently used by cryptocurrencies such as EOS, Cardano, Tezos, Tron among others.




§  Higher Security than PoS network.

§  High scalability. High computing power equipment is not needed.

§  Improves energy efficiency compared to previous PoW and PoS mechanisms.

§  Low risk of attacks type 51% or Double Spend attack (Node that tries to modify transactions within a block).



§  High risk of centralization due to the limited number of Delegate Nodes in the blockchain network.

§  The basic principle of INCLUSION and DISTRIBUTED POWER decreases or disappears.


PoET (PROOF OF Elapsed Time)

§  Developed by Intel in 2016 for its private blockchain network.

§  Nodes must identify themselves and be authorized to join the blockchain network.

§  Choose randomly through an algorithm the Node that will create the new block.

§  All Nodes have the same probability.

§  The algorithm determines a random Wait Time for each of the nodes in the network.  The Node remains inactive for the assigned period.

§  The first Node to activate will be in charge of creating the new Block.

§  Currently its use is focused at the business level in Logistics and Distribution Chains where large amounts of information are handled.



§  Considered the highest security mechanism. Each Node must be registered and authenticated.

§  High Performance of the blockchain network.

§  Low energy consumption and computational power.

§  Low risk almost zero towards type attacks 51%.



§  There is no anonymity within the blockchain network.

§  Vulnerable towards Sybill attacks. More malicious Nodes, greater probability that one of them will have to create the new block.

§  Focused on private, corporate blockchain networks. Little applicability for public blockchain networks like Bitcoin.








       It is an attack that occurs when a person or group controls a minimum of 51% of the computing power of the blockchain network.

       It will have the highest computational capacity of all the other miners, altering the functionality of the network.

       It is mentioned in the Bitcoin whitepaper itself.

       In 2014 the cloud mining company Ghash.IO was very close to reaching 50% of the total mining power on the Bitcoin network.


       Distributed denial of service attack.

       The objective of the attack is to reach the capacity limit of the blockchain network.



       A single person or small group tries to gain control of the blockchain network by creating multiple Accounts/Nodes, altering the data of each Node to appear independent and not arouse suspicion.



GOVERNANCE of technology blockchain

What is Governance?

       Set of Rules and Principles that form a structure accepted by all the participants using a system.

Types of Governance:


       Direct – everything the participants take part in decisions.

       Representative – the participants select a group of representatives.



Is governance necessary in a BLOCKCHAIN ecosystem?

Blockchain is a technology new in continuous development. It is important that it works efficiently while keeping up its Development.

Participants in governance:

       Developers – Maintain and update the main code of the blockchain.

       Node Operators – Responsible for records of the operations on the net.

       Token Holders – People/ organizations who own tokens and get the right to vote in the ecosystem. Mainly influence in the prices!

       Blockchain team – non-profit organizations that have different roles in the administration of a blockchain network focused toward Marketing (get funds, mediators between Node Developers and Operators, etc.)


Elements of Blockchain Governance:

       CONSENSUS – Consensus algorithms.

       INCENTIVES – Rewards that allow the participants stay and run the blockchain.

       INFORMATION – Important that every one of the participants of a decentralized network have access to all information.

       GOVERNANCE STRUCTURE – More flexible than a traditional structure acting from above towards down. Must be fluid to adjust to dynamics changing of a blockchain network.


Smart Contract 



§  Agreement between 2 or more parts that defines what can be done, when and how it can be done or what happens if something is not done.

§  AUTONOMOUS – No intermediaries neither mediators.

§  AUTOMATIC – It is able to run by itself according to the established criteria.

§  TRANSPARENT – Is a code visible to all but you can't modify it as it exists in the Blockchain technology.

§  ANONYMOUS – Both parties can be anonymous.

§  SECURE – The blockchain network offers security.

§  SAVINGS – Avoid the participation of intermediaries.

§  SUSTAINABILITY – Reduces travel expenses (less contamination) and materials as paper, etc.



Smart Contract Use


§                  Investments in Blockchain in the last 10 years:

o   DAVIVIENDA – $35 Million USD

o   BANCOLOMBIA – $100 Million USD

o   SCOTIABANK – $220 Million USD

o   GUARANTEE GROUP – $100 Million USD

o   BBVA – $30 Million USD

o   It is estimated that the Blockchain growth in Colombia will reach more than $10.000 million USD by 2024.


       Transparency – Perhaps the most important.

       transactions – At low cost.

       Security – High against frauds – very hard to hack.

       Automation – Can be program from payments until events automatically under criteria preset.

       Traceability – Facilitates the data tracking since these data cannot be altered.

       Less intermediaries.



       Tool insufficient – There is concern that the blockchain is insufficient and that it could collapse.

       The danger of attack 51% – If the community forms an alliance that is greater than 51% could modify the blockchain network by putting in endanger the safety and integrity of the data.

       Decentralization – Is an advantage for the blockchain network but can turn into an important disadvantage implementing it in an economic and social level. Difficult to reach a consensus among all the participants.


       USE CASES

       Buenaventura Container Terminal – Implement the TradeLens Platform that worldwide processes 10 million events per week on global container traffic.

       Superintendence of Notaries and Registry – Work on a blockchain solution to add authenticity, reliability, integrity and usability to notarial and registration documents.

       Rural Agricultural Planning Unit – Seeks to use a blockchain solution to facilitate the monitoring of product prices at each stage and for all agents involved.

       Attorney General of the Nation – Advances with the National University of Colombia a blockchain alternative that allows transparency in the awarding of contracts and minimizes cases of corruption in School Feeding programs.

       Las Americas Clinic Auna de Medellín – Blockchain solution for monitoring, control and supply of medical devices.



Hard Fork

       “Hard fork” – Update important part of the blockchain network protocol.

       All the users are forced to install the new version of the software to be able to continue using the blockchain network.

       The participants must choose between using the new version or the previous one.

       Can trigger a new cryptocurrency.


Hard Fork


 Soft Fork

       Updates to the Program Code that manages a blockchain network to add minor changes or resolve bugs.

       Participants are not required to update the software with new updates. They will be able to continue operating within the blockchain network with total normality but will not be able to benefit from the best ones.


Paul Bogdan Ionescu – 2022


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