Technology in Finance

Unit - V
Week 13
1.Block chaining

Blockchain is a decentralized technology that allows digital information to be recorded,

stored, and shared across multiple computers or nodes. It's like a digital ledger that keeps a
record of transactions or data in a transparent and secure way.

The basic idea behind blockchain is that instead of relying on a central authority like a bank
or a government, it uses a network of computers to validate and verify transactions. These
computers, or nodes, work together to maintain the integrity of the blockchain by reaching a
consensus on the validity of each transaction.

Each transaction is grouped together in a block, and each block is linked to the previous
block, forming a chain of blocks, hence the name "blockchain." This chain of blocks creates a
permanent and unchangeable record of all the transactions that have ever occurred on the
network.

One of the key features of blockchain is its security. Once a block is added to the chain, it
becomes extremely difficult to alter or tamper with the information stored in it. This is
because each block contains a unique identifier called a hash, which is generated based on the
data in the block. If someone tries to change the data in a block, the hash will change as well,
alerting the network to the tampering attempt.

Blockchain technology has gained a lot of attention because of its association with
cryptocurrencies like Bitcoin. However, its potential applications go beyond just digital
currencies. It can be used in various industries such as supply chain management, healthcare,
finance, and more. Its decentralized and transparent nature makes it useful for ensuring trust,
security, and efficiency in different types of transactions and data management.

2. Blockchain technology has several key functions that make it unique and valuable in
various industries.

1. Decentralization: One of the main features of blockchain is its decentralized nature.

Traditional systems often rely on a central authority to manage and validate transactions. In
contrast, blockchain allows multiple participants, or nodes, to maintain and validate the
network. This decentralization promotes transparency, eliminates the need for intermediaries,
and reduces the risk of a single point of failure.

2. Transparency: Blockchain provides a transparent and immutable record of transactions.

Every transaction is recorded in a block and added to the chain, creating a permanent and
unchangeable history. This transparency helps to build trust among participants and ensures
accountability.

3. Security: Blockchain technology uses advanced cryptographic techniques to secure

transactions and data. Once a block is added to the chain, it becomes extremely difficult to
alter or tamper with the information stored within it. The distributed nature of blockchain also
makes it more resilient to attacks, as changing one block would require altering the entire
chain on multiple nodes simultaneously.
4. Trust and Verification: Blockchain allows participants to verify and validate transactions
without the need for intermediaries. The consensus mechanism used in blockchain ensures
that all participants agree on the validity of transactions, eliminating the need for trust in a
centralized authority. This trust less nature of blockchain increases efficiency, reduces costs,
and minimizes the risk of fraud.

5. Smart Contracts: Blockchain technology enables the creation and execution of smart
contracts. Smart contracts are self-executing contracts with predefined rules and conditions.
They automatically execute transactions when certain conditions are met, eliminating the
need for intermediaries and reducing the potential for errors or disputes.

3. Main purpose of blockchain

Sure, let me break it down for you with five side topics to explain the main purpose of
blockchain:

1. Security: Blockchain ensures secure transactions by using advanced cryptographic

techniques. It makes it extremely difficult for anyone to tamper with the information stored in
the blocks.

2. Transparency: Blockchain provides a transparent and immutable record of transactions.

Every transaction is recorded in a block and added to the chain, creating a permanent and
unchangeable history. This transparency helps build trust among participants.

3. Decentralization: Unlike traditional systems that rely on a central authority, blockchain is

decentralized. This means that multiple participants maintain and validate the network,
eliminating the need for intermediaries and reducing the risk of a single point of failure.

4. Trust and Verification: Blockchain allows participants to verify and validate transactions
without relying on a centralized authority. The consensus mechanism used in blockchain
ensures that all participants agree on the validity of transactions, increasing efficiency and
reducing the risk of fraud.

5. Smart Contracts: Blockchain enables the creation and execution of smart contracts. These
are self-executing contracts with predefined rules and conditions. They automatically execute
transactions when certain conditions are met, eliminating the need for intermediaries and
reducing the potential for errors or disputes.

So, the main purpose of blockchain is to provide secure, transparent, decentralized, and trust
less transactions through the use of advanced cryptographic techniques and smart contracts. It
has the potential to revolutionize various industries by improving efficiency, reducing costs,
and increasing trust.

4. Blockchain in technical terms

1. Distributed Ledger: Blockchain is a distributed ledger technology that maintains a shared

database across multiple nodes or computers. Each node has a copy of the entire blockchain,
and they work together to validate and record transactions.
2. Cryptography: Blockchain uses cryptographic techniques to secure transactions and ensure
the integrity of the data. It employs hash functions, digital signatures, and consensus
algorithms to verify the authenticity of each transaction and prevent tampering.

3. Blocks and Chains: Transactions are grouped into blocks, which are then added to the
blockchain in a sequential manner. Each block contains a unique identifier called a hash,
which is generated based on the data in the block and the hash of the previous block. This
creates an unchangeable chain of blocks, hence the name "blockchain."

4. Consensus Mechanism: Blockchain relies on a consensus mechanism to agree on the

validity of transactions and maintain the integrity of the network. Common consensus
mechanisms include Proof of Work (PoW) and Proof of Stake (PoS), which involve
participants solving complex mathematical puzzles or staking their own cryptocurrency to
validate transactions.

5. Smart Contracts: Blockchain platforms often support the execution of smart contracts,
which are self-executing agreements with predefined rules and conditions. Smart contracts
are written in programming languages like Solidity and can automatically execute
transactions when certain conditions are met, eliminating the need for intermediaries.

In technical terms, blockchain is a distributed ledger technology that uses cryptography,

blocks, and chains to secure and record transactions. It relies on consensus mechanisms and
supports the execution of smart contracts. This combination of features makes blockchain a
powerful tool for building decentralized and secure applications.

5. Advantages of blockchain:

1. Transparency: Blockchain provides transparency by allowing all participants in the

network to view and verify transactions. This transparency helps to build trust among
participants and reduces the need for intermediaries.

2. Security: Blockchain uses advanced cryptographic techniques to secure transactions and

data. Once a transaction is recorded on the blockchain, it is nearly impossible to alter or
tamper with, providing a high level of security.

3. Decentralization: Blockchain is decentralized, meaning that there is no central authority or

single point of failure. The network is distributed across multiple nodes, which work together
to validate and record transactions. This decentralization enhances the resilience and
reliability of the system.

4. Efficiency and Speed: Blockchain can streamline processes by removing the need for
intermediaries and manual reconciliation. Transactions can be processed faster and more
efficiently, reducing costs and improving overall efficiency.

5. Traceability: Blockchain provides a transparent and immutable record of transactions,

making it easier to trace the origin and movement of assets. This can be particularly
beneficial in industries such as supply chain management, where tracking the provenance of
goods is crucial.
These are just a few of the advantages of blockchain technology. It has the potential to
revolutionize various industries by providing secure, transparent, and efficient solutions.

6. Blockchain used in real life?

Blockchain technology is being used in various real-life applications across different
industries. Here are a few examples:

1. Cryptocurrencies: The most well-known application of blockchain is in cryptocurrencies

like Bitcoin and Ethereum. Blockchain enables secure and decentralized transactions,
eliminating the need for intermediaries like banks.

2. Supply Chain Management: Blockchain is being used to improve transparency and

traceability in supply chains. It allows for the tracking of goods from their origin to the end
consumer, ensuring authenticity, reducing fraud, and enhancing efficiency.

3. Healthcare: Blockchain has the potential to revolutionize healthcare by securely storing

and sharing patient records. It can improve data interoperability, protect patient privacy, and
enhance the efficiency of healthcare systems.

4. Voting Systems: Blockchain technology can be used to create secure and tamper-proof
voting systems. It ensures transparency, eliminates voter fraud, and increases trust in the
electoral process.

5. Financial Services: Blockchain is being adopted by traditional financial institutions to

streamline processes such as cross-border payments, trade settlements, and identity
verification. It can reduce costs, increase speed, and enhance security in financial
transactions.

7. Why is it called blockchain?

The term "blockchain" is a combination of two words: "block" and "chain." Think of it like
building blocks that are connected together to form a chain. Each block represents a set of
transactions, like when you send or receive cryptocurrency. These blocks are linked together
using a special cryptographic technique called hashing.

Hashing is like a unique fingerprint for each block. It ensures that once a block is added to
the chain, it cannot be changed or tampered with without breaking the entire chain. So, all the
blocks in the chain are connected and secured by these cryptographic hashes.

This chain of blocks, or blockchain, is distributed across a network of computers, making it

decentralized. This means that no single entity has control over the blockchain, making it
more transparent and secure. The name "blockchain" perfectly captures the essence of this
technology: a chain of blocks that securely records and links transactions.

Additional Link
1. https://www.synopsys.com/glossary/what-is-blockchain.html#:~:text=As
%20described%20in%20Blockchain%20for,grows%2C%20so%20does%20the
%20blockchain.
 2. https://www.pwc.be/en/news-publications/insights/2017/blockchain-functional-
introduction.html#:~:text=The%20purpose%20of%20the%20blockchain,restricted
%20('permissioned').
3. https://www.simplilearn.com/tutorials/blockchain-tutorial/blockchain-
technology#:~:text=Blockchain%20is%20a%20method%20of,computers
%20participating%20in%20the%20blockchain.
4. https://www.techtarget.com/searchcio/feature/Top-10-benefits-of-blockchain-
technology-for-business
5. https://www.insiderintelligence.com/insights/blockchain-technology-applications-use-
cases/#:~:text=Blockchain%20can%20also%20be%20used,and%20data%20security
%20and%20exchange.
Discussion
1. Is blockchain the future? Discuss

Long Answer
Why blockchain is good?

Blockchain enables secure and transparent data

sharing among multiple parties. Instead of relying
on centralized servers, blockchain-based platforms allow
participants to directly exchange data while maintaining
control over their own data privacy and security.

MCQ

1. What is the primary purpose of blockchain technology?

a) Security
b) Scalability
c) Transparency
d) Speed
1. c) Transparency

2. Which type of blockchain allows anyone to participate and validate transactions?

a) Public blockchain
b) Private blockchain
c) Hybrid blockchain
d) Centralized blockchain
2. a) Public blockchain

3. What cryptographic technique is used to link blocks in a blockchain?

a) Hashing
b) Encryption
c) Compression
d) Decryption
3. a) Hashing

4. What is the term for the process of verifying and validating transactions in a blockchain?
a) Mining
b) Hashing
c) Encryption
 d) Decentralization
4. a) Mining

5. Which industry can benefit from blockchain technology beyond cryptocurrencies?

a) Healthcare
b) Education
c) Agriculture
d) All of the above
5. d) All of the above

1. What is the primary function of blockchain technology?

a) Transparency
b) Scalability
c) Security
d) Speed
1. a) Transparency

2. Which function of blockchain technology ensures that transactions cannot be altered?

a) Immutability
b) Decentralization
c) Encryption
d) Consensus
2. a) Immutability

3. Which function of blockchain technology allows multiple participants to maintain a shared

ledger?
a) Transparency
b) Decentralization
c) Scalability
d) Encryption
3. b) Decentralization

4. What function of blockchain technology enables the verification and validation of

transactions?
a) Consensus
b) Immutability
c) Encryption
d) Scalability
4. a) Consensus

5. Which function of blockchain technology provides a high level of security against

unauthorized access?
a) Encryption
b) Consensus
c) Immutability
d) Decentralization
5. d) Decentralization
1. What is the primary goal of blockchain technology?
a) Security
b) Efficiency
c) Transparency
d) Speed
1. c) Transparency

2. Which aspect of blockchain technology ensures that transactions are tamper-proof?

a) Immutability
b) Scalability
c) Decentralization
d) Encryption
2. a) Immutability

3. What is the primary purpose of using a consensus mechanism in blockchain?

a) To verify transactions
b) To ensure privacy
c) To prevent double-spending
d) To increase transaction speed
3. a) To verify transactions

4. How does blockchain technology enhance transparency in transactions?

a) By providing public access to transaction records
b) By encrypting transaction data
c) By centralizing control of transactions
d) By increasing transaction fees
4. a) By providing public access to transaction records

5. What is the main benefit of using blockchain for secure and transparent record-keeping?
a) Elimination of intermediaries
b) Faster transaction processing
c) Lower transaction costs
d) Increased data storage capacity
5. a) Elimination of intermediaries

1. What is a blockchain?
a) Distributed
b) Immutable
c) Ledger
d) Transparent
1. c) Ledger

2. What is the purpose of a hash function in blockchain?

a) Encryption
b) Verification
c) Consensus
d) Decentralization
2. b) Verification
3. What is a smart contract in blockchain?
a) Self-executing
b) Programmable
c) Secure
d) Transparent
3. b) Programmable

4. What is the role of a node in a blockchain network?

a) Verification
b) Storage
c) Consensus
d) Encryption
4. a) Verification

5. What is a private key in blockchain?

a) Authentication
b) Encryption
c) Signature
d) Decentralization
5. b) Encryption

1. Which of the following is an advantage of blockchain technology?

a) Security
b) Scalability
c) Centralization
d) Speed
1. a) Security

2. What is one benefit of using blockchain for transactions?

a) Transparency
b) Complexity
c) Inefficiency
d) Insecurity
2. a) Transparency

3. How does blockchain enhance data integrity?

a) Through encryption
b) By relying on a central authority
c) By allowing easy modification of data
d) Through immutability
3. d) Through immutability

4. What is a key advantage of using blockchain for supply chain management?

a) Increased complexity
b) Decreased transparency
c) Improved traceability
d) Higher costs
4. c) Improved traceability
5. What is one advantage of using blockchain for financial transactions?
a) Reduced security
b) Limited accessibility
c) Faster settlement
d) Higher transaction fees
5. c) Faster settlement

1. Which industry has implemented blockchain technology for secure and transparent supply
chain management?
a) Healthcare
b) Retail
c) Education
d) Hospitality
1. b) Retail

2. Which sector has utilized blockchain to enable faster and more secure cross-border
transactions?
a) Banking
b) Agriculture
c) Energy
d) Manufacturing
2. a) Banking

3. Which area has seen the use of blockchain to create decentralized digital identities?
a) Entertainment
b) Government
c) Transportation
d) Sports
3. b) Government

4. Which field has adopted blockchain to revolutionize the way digital content is distributed
and monetized?
a) Real estate
b) Music
c) Fashion
d) Food industry
4. b) Music

5. Which sector has embraced blockchain to enhance the security and efficiency of voting
systems?
a) Tourism
b) Non-profit organizations
c) Elections
d) Fitness industry
5. c) Elections

1. What is the main reason why it is called "blockchain"?

a) Interconnected
 b) Encrypted
c) Nakamoto
d) Digital
1. a) Interconnected

2. What is the primary characteristic of a blockchain?

a) Linear
b) Decentralized
c) Complex
d) Digital
2. b) Decentralized

3. How does a blockchain store data?

a) Centralized
b) Nodes
c) Chain
d) Distributed
3. d) Distributed

4. What is the purpose of the blocks in a blockchain?

a) Secure
b) Validate
c) Encrypt
d) Chronological
4. d) Chronological

5. What inspired the concept of a blockchain?

a) Traditional
b) Peer-to-peer
c) Centralized
d) Cryptographic
5. b) Peer-to-peer

Glossary
Limit
Maximum amount a policy will pay either overall or under a particular coverage.
Loan Value
The amount which can be borrowed at a specified rate of interest from the issuing
company by the policyholder, using the value of the policy as collateral. In the event
the policyholder dies with the debt partially or fully unpaid, then the amount borrowed
plus any interest is deducted from the amount payable.
Pro-Rata Cancellation
When the policy is terminated midterm by the insurance company, the earned
premium is calculated only for the period coverage was provided. For example: an
annual policy with premium of $1,000 is canceled after 40 days of coverage at the
company's election. The earned premium would be calculated as follows: 40/365
days X $1,000=.110 X $1,000=$110.
Property Damage
Damage to another person's property. The purpose of liability insurance is to cover
property damage to a third party resulting from the negligent or intentional acts of an
insured.
Quote
 An estimate of the cost of insurance, based on information supplied to the insurance
company by the applicant.
Replacement Cost
The cost to repair or replace an insured item. Some insurance only pays the actual
cash or market value of the item at the time of the loss, not what it would cost to fix or
replace it. If you have personal property replacement cost coverage, your insurance
will pay the full cost to repair an item or buy a new one once the repairs or purchases
have been made.

FAQs
1. How does blockchain ensure security and prevent tampering?
Blockchain ensures security through its decentralized nature and cryptographic techniques.
Each block contains a unique cryptographic hash that links it to the previous block, making it
difficult to alter past transactions without changing subsequent blocks. Additionally, the
distributed network of nodes helps verify and validate transactions, making it highly secure.

2. What is the difference between public and private blockchains?

Public blockchains, like Bitcoin and Ethereum, are open to anyone and allow anyone to
participate in the network, read the transactions, and validate blocks. Private Blockchains, on
the other hand, are restricted to a specific group of participants and offer more control and
privacy. They are often used by organizations for internal purposes.

3. Can blockchain be used for purposes other than cryptocurrencies?

Absolutely! While blockchain gained popularity with cryptocurrencies, its potential extends
far beyond that. It can be used for various applications such as supply chain management,
voting systems, healthcare records, and more. blockchains transparency, immutability, and
decentralization make it suitable for many industries.

4. How does blockchain handle scalability and transaction speed?

Scalability and transaction speed are ongoing challenges for blockchain technology. Different
blockchain platforms employ various solutions like sharing, layer-two protocols, or
consensus algorithm improvements to enhance scalability and increase transaction
throughput. However, it's an area that continues to evolve as the technology matures.

5. What are the potential risks and challenges associated with blockchain technology?
Some potential risks and challenges include cybersecurity threats, regulatory uncertainties,
scalability limitations, and the need for widespread adoption. Additionally, the reliance on
technology can introduce potential technical glitches or vulnerabilities. It's crucial to address
these challenges to fully harness the benefits of blockchain.