FOUNDATIONS OF

BLOCKCHAIN TECHNOLOGY
BCSE324L

Dr. Malathi D.
 FOUNDATIONS OF BLOCKCHAIN TECHNOLOGY

Course Objectives

• To understand building blocks of Blockchain.

• To significance of Distributed Ledger Technology and Smart Contract.
• To exploit applications of Blockchain in real world scenarios and their impacts.

Expected Outcomes

• Understand Blockchain ecosystem and its services in real world sceneries

• Apply and Analyze the requirement of Distributed Ledger Technology and Smart Contract
• Design and Demonstrate end-to-end decentralized applications
• Acquaint the protocol and assess their computational requirements

11-03-2025 Dr. Malathi D., SCOPE–VIT 2

Module – 4

Decentralized Organization

11-03-2025 Dr. Malathi D., SCOPE–VIT 3

 Decentralized Organization
• Decentralization versus Distribution
• Centralized-distributed (Ce-Di) organizations
• Decentralized-distributed (De-Di) organizations
• Decentralized Autonomous Organizations
• Aragon
• DAOstack
• DAOhaus
• Colony.

11-03-2025 Dr. Malathi D., SCOPE–VIT 4

 Decentralization in Blockchain
• Blockchain decentralization refers to distributing control across a network of computers (called
nodes) that work together to maintain and validate the blockchain.
• Traditional centralized systems: where a central authority oversees transactions. Blockchain
eliminate the need for intermediaries by allowing participants to collectively manage the system.
• In a decentralized blockchain, each node holds a full copy of the blockchain and participates in
validating transactions. This process, called a consensus mechanism, ensures all nodes agree on the
validity of transactions, fostering trust and security within the network.

11-03-2025 Dr. Malathi D., SCOPE–VIT 5

 Decentralization in Blockchain
Types of Decentralization in Blockchain
• Architectural Decentralization
• physical spread of nodes across multiple locations, reducing the risk of failure or attacks.
• ensures the system can continue functioning even if some nodes fail.
• Governance Decentralization
• decision-making power is shared among network participants through mechanisms like voting or
consensus protocols.
• prevents any single entity from having full control over the network’s direction.
• Data Decentralization
• Data is stored across many nodes in the network, providing redundancy.
• makes the system more secure and resistant to censorship or manipulation.
• Functional Decentralization
• Different participants perform various roles like mining, validating, executing smart contracts.
• Spreading these functions across participants ensures no single party controls all operations.
• Incentive Decentralization
• Rewards or incentives are distributed throughout the network, encouraging participants to act in
the system’s best interests.
• This alignment of incentives strengthens the network’s overall security and functionality.
11-03-2025 Dr. Malathi D., SCOPE–VIT 6
 Decentralization in Blockchain
Advantages of Decentralization in Blockchain
• Security: By distributing control, decentralized networks are harder to attack or censor. The lack of a
central authority minimizes single points of failure.
• Transparency: Blockchain’s decentralized nature allows everyone in the network to view transaction
history, increasing accountability and trust.
• Trustlessness: Decentralized systems remove the need to trust central authorities. The consensus
mechanism ensures accuracy without reliance on a single entity.
• Ownership: Individuals can directly control their assets and data without relying on intermediaries.
Disadvantages of Decentralization in Blockchain
• Scalability: slower transaction processing as more nodes are involved in validating transactions.
• Governance: decision-making can be slow, leading to potential conflicts when participants disagree.
• Security Risks: While decentralization reduces central points of failure, distributed networks can still
be vulnerable to attacks like a 51% attack.
• User Experience: Managing private keys & security responsibilities are difficult for non-technical users.
• Regulatory Challenges: complicate enforcement of regulations due to the absence of a central authority.
• Energy Consumption: Some consensus mechanisms, like Proof of Work, require high energy
consumption, raising concerns about sustainability.
11-03-2025 Dr. Malathi D., SCOPE–VIT 7
 Decentralization in Blockchain

11-03-2025 Dr. Malathi D., SCOPE–VIT 8

 Decentralization in Blockchain
Blockchain decentralization is achieved through:
Distributed Ledger
• The blockchain’s ledger, which contains a record of all transactions, is replicated and stored across
multiple nodes in the network.
• Each participating node maintains a complete copy of the blockchain, creating a distributed ledger
that is synchronized through consensus mechanisms.
Consensus Mechanisms
• utilize consensus mechanisms to agree on the validity and order of transactions
• Proof of Work (PoW) or Proof of Stake (PoS), involve a majority of network participants coming to a
consensus on the state of the blockchain
• This consensus ensures that all nodes have an equal say in validating transactions, avoiding the need
for a central authority.
Peer-to-Peer Network
• operate on a peer-to-peer (P2P) network architecture, where participants connect directly with each
other without the need for intermediaries.
• Each node communicates with other nodes to propagate transactions and blocks, maintaining the
integrity and consistency of the blockchain.
11-03-2025 Dr. Malathi D., SCOPE–VIT 9
 Decentralization in Blockchain
Decentralized Governance
• Some blockchain networks employ decentralized governance models, where decisions regarding
protocol upgrades, changes, and improvements are made through a consensus-driven process.
• allows stakeholders in the network to have a say in the governance of the blockchain, reducing the
centralization of power.
Cryptographic Security
• The use of cryptographic algorithms ensures the integrity and security of data stored on the
blockchain.
• Once a block is added to the chain, it becomes extremely difficult to alter past transactions without
consensus from the majority of participants.
• This immutability protects the integrity of the blockchain and prevents tampering or manipulation.

• By combining these elements, blockchain decentralization and a trustless system is being achieved,
where no single entity or authority has control over the network. Instead, power is distributed
among participants who collectively maintain and secure the blockchain.

11-03-2025 Dr. Malathi D., SCOPE–VIT 10

 Importance of Decentralization in Blockchain

11-03-2025 Dr. Malathi D., SCOPE–VIT 11

 Importance of Decentralization in Blockchain
Security: enhances the security of the blockchain network
• with a distributed ledger across multiple nodes, it becomes challenging for malicious actors to
manipulate or compromise the system
• no single point of failure that can be targeted, making it more resilient to attacks and ensuring the
integrity of the data stored on the blockchain
Trust and Transparency: fosters trust and transparency in blockchain networks
• Since the ledger is distributed and replicated across multiple nodes, anyone on the network can view
the transaction history and verify its integrity
• transparency reduces the need for trust in a central authority and allows participants to
independently validate transactions, ensuring the accuracy and integrity of the data
Elimination of Intermediaries
• Traditional systems often require trusted third parties to facilitate and validate transactions, which
can add costs, introduce delays, and increase the risk of fraud
• With blockchain’s decentralization, participants can engage directly, reducing reliance on
intermediaries and enabling peer-to-peer transactions

11-03-2025 Dr. Malathi D., SCOPE–VIT 12

 Importance of Decentralization in Blockchain
Censorship Resistance: resistant to censorship and control
• As there is no central authority governing the network, it becomes difficult for any single entity or
group to exert control over the transactions or manipulate the data
• This aspect is particularly valuable in environments where censorship resistance and autonomy are
desired, such as in financial systems or regions with political instability
Ownership and Control
• allows individuals to have direct ownership and control over their assets and data
• Participants have control over their private keys and can interact with the blockchain network
without relying on centralized institutions
• gives individuals greater autonomy and reduces the risk of their assets being subject to arbitrary
restrictions or confiscation.

• Overall, decentralization in blockchain empowers individuals, enhances security, promotes trust, and
reduces reliance on intermediaries
• making blockchain an innovative and disruptive technology with broad applications beyond just
financial transactions
11-03-2025 Dr. Malathi D., SCOPE–VIT 13
 Impact of Decentralization in Blockchain

11-03-2025 Dr. Malathi D., SCOPE–VIT 14

 Impact of Decentralization in Blockchain
Disintermediation
• removes the need for intermediaries or central authorities in various processes
• eliminates the associated costs, delays, and potential risks associated with relying on intermediaries
• enables peer-to-peer transactions and interactions, allowing participants to transact directly with
each other without the need for intermediaries like banks, clearinghouses, or brokers.
Empowerment
• Decentralization gives individuals more control over their data, assets, and digital interactions
• individuals can manage their own digital identities, control access to their personal information, and
transact directly with others
• enhances privacy, autonomy, and self-sovereignty
Increased Transparency and Trust
• inherently transparent, as all transactions and data are recorded on a shared ledger accessible to all
• combat fraud, corruption & manipulation by providing an auditable & immutable record of activities
Enhanced Security
• improves the security and resilience of systems by distributing control and data across multiple nodes
• more resistant to attacks, hacking attempts, and single points of failure
11-03-2025 Dr. Malathi D., SCOPE–VIT 15
 Impact of Decentralization in Blockchain
• even if some nodes are compromised, the network can continue to operate without interruption,
ensuring data integrity and system availability
Inclusive Finance Systems
• Decentralized finance (DeFi) is a rapidly growing sector within blockchain that aims to provide
inclusive financial services to individuals who may not have access to traditional banking systems.
• DeFi enable peer-to-peer lending, borrowing, trading, and other financial services, eliminating the
need for intermediaries and offering greater financial inclusion to underserved populations.
Democratic Decision-Making
• involves distributed governance mechanisms, allowing participants to collectively make decisions
about the network’s rules, upgrades, and future development
• ensures that stakeholders have a say in the evolution of the blockchain
• reducing the concentration of power in the hands of a few
Global Accessibility
• accessible to anyone with an internet connection, bypassing geographical & jurisdictional boundaries
• enables seamless transactions and interactions across borders, fostering interoperability between
different systems and promoting international collaboration

11-03-2025 Dr. Malathi D., SCOPE–VIT 16

 Decentralization versus Distribution
• Blockchain networks exhibit both distribution and decentralization, but they are not the same thing.
• Understanding their differences is crucial in evaluating a blockchain’s security, control, and resilience.

What is Distribution in Blockchain?

• A blockchain is distributed when its ledger (database of transactions) is spread across multiple
computers (nodes) worldwide.
• This ensures redundancy and fault tolerance but does not necessarily mean that power is
decentralized.
• Key Features of Distribution in Blockchain
• Multiple Nodes: The blockchain ledger exists on many computers.
• Fault Tolerance: If some nodes fail, the network continues to function.
• Geographical Spread: Nodes are spread across different locations to increase security.
• Not Always Decentralized: A network can be distributed but still controlled by a central
authority (e.g., private blockchains).
• Example of a Distributed but NOT Decentralized Blockchain
• Hyperledger Fabric (IBM Blockchain)
• The ledger is distributed across multiple nodes.
• However, a central authority (enterprise) controls who can participate.
11-03-2025 Dr. Malathi D., SCOPE–VIT 17
 Decentralization versus Distribution
What is Decentralization in Blockchain?
• A blockchain is decentralized when control and decision-making are not in the hands of a single
entity. Instead, power is spread across multiple independent participants.
• Key Features of Decentralization in Blockchain
• No Single Authority: No one entity controls the blockchain.
• Consensus-Based Decision Making: Transactions are validated using protocols like Proof-of-
Work (PoW) or Proof-of-Stake (PoS).
• More Security & Trust: No reliance on a central authority to verify transactions.
• Censorship-Resistant: No entity can block transactions or manipulate data.
• Example of a Decentralized Blockchain
• Bitcoin (BTC) and Ethereum (ETH)
• Thousands of nodes validate transactions.
• No central entity has control.
• Anyone can participate in mining or validation.

11-03-2025 Dr. Malathi D., SCOPE–VIT 18

 Decentralization versus Distribution
Key Differences: Decentralization vs. Distribution in Blockchain

Can a Blockchain Be Both Distributed and Decentralized?

• Yes! The best blockchains are both distributed and decentralized:
• Bitcoin: Thousands of independent nodes (distributed) with no central control (decentralized).
• Ethereum: Thousands of validators (distributed) working independently (decentralized).
• However, some blockchains are distributed but NOT decentralized:
• Ripple (XRP): The ledger is distributed across multiple nodes, but Ripple Labs controls the
majority of validators.
• Bitcoin and Ethereum are both decentralized and distributed, while private blockchains like
Hyperledger are only distributed but centralized.
11-03-2025 Dr. Malathi D., SCOPE–VIT 19
 Centralized-Distributed (Ce-Di) organizations
• Centralized-distributed organizations blend elements of both centralized and distributed structures.
• In these organizations, decision-making and control are primarily centralized, but operational
execution or other functions are distributed across various nodes, teams, or locations.
• This model strikes a balance between having a central authority or leadership with the benefits of
distributed execution and autonomy in different parts of the organization.

Key Features of Ce-Di Organizations:

1. Centralized Leadership and Decision-Making
• Core strategic decisions, leadership, and high-level governance are typically handled by a central
authority or executive team.
• This ensures consistency in vision, strategy, and major organizational goals.
2. Distributed Execution and Operations
• While decisions come from a central authority, day-to-day operations, project execution, and
specific functions (like sales, R&D, or customer support) are distributed across teams or
geographical locations.
• This is especially common in multinational corporations, franchises, or large-scale companies.
11-03-2025 Dr. Malathi D., SCOPE–VIT 20
 Centralized-Distributed (Ce-Di) organizations
3. Coordination and Oversight
• The central authority maintains oversight through reporting structures, regular communication,
or performance management tools.
• Distributed teams or branches are held accountable to central leadership but are given some
degree of operational freedom.

4. Flexibility with Accountability

• Ce-Di organizations aim to provide local teams with enough autonomy to respond quickly to
challenges, while ensuring they remain aligned with the overall goals and policies set by the
central leadership.

5. Scalability with Control

• The structure enables scalability by distributing workloads, operations, or customer interaction
across regions, while maintaining overall control over the direction of the organization.

11-03-2025 Dr. Malathi D., SCOPE–VIT 21

 Centralized-Distributed (Ce-Di) organizations
Examples of Ce-Di Organizations:
• Franchise Models
• In franchise businesses (e.g., McDonald’s), the central company sets guidelines, branding, and
strategy, but franchisees operate independently to run day-to-day activities based on the
localized needs of the market.
• Multinational Corporations
• Companies like Google or Amazon maintain a centralized leadership for strategic decision-
making, but have distributed teams or branches operating worldwide, handling local operations
and market-specific strategies.
• Centralized IT Infrastructure with Distributed Teams
• In companies with centralized IT governance (cloud computing, data storage) but distributed
teams, central IT maintains control over systems and security, while individual teams manage
their local systems or projects.

11-03-2025 Dr. Malathi D., SCOPE–VIT 22

 Centralized-Distributed (Ce-Di) organizations
Benefits of Ce-Di Organizations:
• Strategic Alignment
• A centralized decision-making authority ensures that all parts of the organization are working
toward the same overarching goals.
• Operational Flexibility
• Distributed teams have the flexibility to adapt to local market conditions, regulatory
environments, or customer needs, providing a degree of agility.
• Efficiency
• Centralized leadership can make high-level decisions quickly, while distributed execution
allows for efficient scaling and localized problem-solving.
• Risk Management
• Centralization helps mitigate risks by maintaining control over critical areas (e.g., cybersecurity,
financial decisions), while distribution allows for resilience through redundancy in operations.

11-03-2025 Dr. Malathi D., SCOPE–VIT 23

 Centralized-Distributed (Ce-Di) organizations
Challenges of Ce-Di Organizations:
• Communication Gaps: Ensuring smooth communication between central leadership and distributed
teams can be challenging, leading to potential misunderstandings or delays.
• Maintaining Control: While operations are distributed, central leadership needs to ensure that all
distributed entities remain aligned with corporate policies and goals, which can be difficult to enforce.
• Cultural Differences: In multinational or geographically distributed organizations, local teams may
have different cultural approaches to work, which can create friction with centralized management.
• Resistance to Local Innovation: Centralized control may limit the ability of distributed teams to
innovate or react to local conditions, as they may be constrained by overarching policies or strategies.

Ce-Di organizations offer the stability of centralization with the operational

flexibility of distribution, making them well-suited for large-scale enterprises,
especially those with global operations or complex functional structures.

11-03-2025 Dr. Malathi D., SCOPE–VIT 24

 Decentralized-Distributed (De-Di) organizations
• Decentralized-distributed (De-Di) organizations are characterized by their lack of a central authority or
hierarchical structure, and the distribution of decision-making power across various nodes or participants.
• This model is often associated with blockchain technologies, peer-to-peer networks, and other
decentralized systems, where autonomy, collaboration, and transparency are emphasized.

Key features of De-Di organizations include:

• Decentralized Governance: Instead of relying on a single authority, decision-making is distributed across
multiple actors. This is often achieved through consensus mechanisms, voting systems, or smart contracts.
• Autonomy: Each node or participant operates autonomously, contributing to the overall function of the
organization without needing constant oversight or approval from a central authority.
• Transparency: Decisions, transactions, and operations are often visible to all participants, fostering trust
and accountability.
• Scalability: These organizations are often highly scalable because they don’t rely on a single point of
control. The distributed nature allows them to grow organically, with each new participant contributing to
the network.
• Resilience: The distributed nature of these systems makes them more resistant to attacks, failures, or
manipulation, as there is no single point of failure.
11-03-2025 Dr. Malathi D., SCOPE–VIT 25
 Decentralized-Distributed (De-Di) organizations
Examples of De-Di organizations:
• DAOs (Decentralized Autonomous Organizations): Organizations that are governed by smart
contracts on a blockchain.
• Peer-to-Peer Networks: Systems like BitTorrent, where data is shared and distributed among peers
without a central server.
• Cryptocurrencies: Decentralized currencies like Bitcoin and Ethereum operate without a central
authority and distribute ledger management across participants.

Benefits of De-Di Organizations:

• Increased Security: By spreading decision-making and data storage, De-Di models reduce the risks
associated with centralized data breaches or attacks.
• Improved Efficiency: Automation, especially through smart contracts, can reduce the need for
intermediaries, speeding up processes.
• Empowerment of Participants: Participants have more control and ownership over decisions and
resources.

11-03-2025 Dr. Malathi D., SCOPE–VIT 26

 Decentralized-Distributed (De-Di) organizations
Challenges:
• Coordination: Without a central authority, achieving consensus can be complex and time-consuming.
• Regulatory Issues: Governments and regulatory bodies often struggle with how to regulate
decentralized organizations.
• Complexity of Governance: Developing efficient and fair governance models that ensure
accountability and prevent abuse of power remains a challenge.

Decentralized-distributed models represent a significant shift in

organizational structures, offering both new opportunities and challenges in
areas like governance, security, and efficiency.

11-03-2025 Dr. Malathi D., SCOPE–VIT 27

 Decentralized Autonomous Organizations
• A Decentralized Autonomous Organization (DAO) is a way to manage and organize groups without
the need for a central leader or traditional management structure.
• DAOs became possible with the rise of blockchain technology, allowing communities to operate
independently and transparently, where decisions are made collectively by the members.
• Example
• Imagine you and your friends start a fitness club, but instead of putting one person in charge, you
all agree to vote on every decision.
• If you need to decide on purchasing new equipment, everyone votes, & the majority decides.
• This way, no single person has all the power, & everyone has an equal say.
• To make things more efficient, instead of meeting in person, you use the internet to vote, which further
decentralizes decision-making.
• This system runs automatically, based on a set of agreed-upon rules. This is essentially how a DAO
functions.

11-03-2025 Dr. Malathi D., SCOPE–VIT 28

 Decentralized Autonomous Organizations
DAO vs Traditional hierarchical structure
• A DAO is a modern way to manage resources and people without relying on a central authority, like a
CEO or government.
• In traditional organizations, leaders or boards make key decisions.
• In a DAO, there is no single person in charge.
• Instead, the members decide together using computer code — like a set of rules written into a
computer program — that everyone in the organization agrees on.
• These rules are often stored on a blockchain, a digital ledger that tracks everything transparently
and securely.

11-03-2025 Dr. Malathi D., SCOPE–VIT 29

 Decentralized Autonomous Organizations
How DAOs Work
• Let’s take the fitness club example. Say your club needs to buy a new treadmill, and you must decide
how to allocate the funds. Normally, a treasurer would handle the money and make purchases.
• But in a DAO, this process is automated using smart contracts, which are self-executing contracts with
terms directly written into the code.
• Proposal: One of the members submits an online proposal to buy a new treadmill, and all
members can view it.
• Voting: Members then vote on the proposal. Voting power may be influenced by the level of
involvement or contribution to the club. The DAO’s system automates the voting process.
• Execution: If the majority agrees, the smart contract automatically releases the funds and makes
the purchase. No one needs to handle the money—the code does it all.

11-03-2025 Dr. Malathi D., SCOPE–VIT 30

 Decentralized Autonomous Organizations
DAO vs. Traditional Organizations
• DAOs rely on a collective decision-making process powered by smart contracts on a blockchain.
• Traditional organizations use a hierarchical structure where decisions are made by leaders or
managers at the top.

11-03-2025 Dr. Malathi D., SCOPE–VIT 31

 Decentralized Autonomous Organizations
Benefits of DAOs
• The main goal of a DAO is to create a system where decisions are made fairly and transparently, with
no single person or group having control over the rest.
• In a DAO, everyone has the opportunity to propose ideas and vote on important matters, ensuring the
group’s direction reflects the collective will of its members.
• Key benefits of DAOs include:
• Inclusivity: Every member has an equal opportunity to contribute and influence decisions.
• Decentralized control: Decisions are made collectively with DAOs, reflecting the will of all
members of the entire community.
• Transparency: All decisions and transactions are recorded on a blockchain, making everything
open to review and reducing corruption.
• Efficiency: DAOs operate through smart contracts, which streamline processes by removing the
need for traditional administration.
• Global participation: DAOs allow participation from people worldwide, enabling diverse
perspectives.

11-03-2025 Dr. Malathi D., SCOPE–VIT 32

 Decentralized Autonomous Organizations
Types of DAOs
• DAOs come in various forms, each designed to address specific needs.
• Like managing investment, governance, services and much more, may have distinct committees for
different responsibilities.
• Investment DAOs: Members pool money and vote on investment opportunities, such as buying
trendy exercise equipment for your fitness club.
• Social DAOs: These focus on building a community or supporting a cause, with members
collaborating on shared goals.
• Service DAOs: Members provide services (e.g., organizing fitness events) and are rewarded for
their contributions.
• Governance DAOs: These allow members to vote on decisions about how the organization is
run, such as choosing new fitness classes or setting rules.
• Protocol DAOs: These are responsible for maintaining and updating technical protocols, such as
managing the rules for a fitness app.

11-03-2025 Dr. Malathi D., SCOPE–VIT 33

 Decentralized Autonomous Organizations
Challenges and Limitations of DAOs
• While DAOs offer many advantages, they also face several challenges:
• Scalability: As more members join, decision-making can become slower and more complicated.
• Complexity: Setting up and running a DAO requires technical expertise.
• Security risks: DAOs are vulnerable to hacking and coding errors.
• Participation fatigue: Frequent voting can lead to decreased member engagement over time.
• Legal issues: DAOs face uncertainty in terms of legal recognition and regulatory compliance.
• Immaturity: DAOs are still new, with limited real-world experience to guide best practices.

The Future of DAOs

• Although DAOs are still in their early stages, they have the potential to revolutionize how we think
about governance, organizations, and decision-making.
• By eliminating the need for central authorities and ensuring transparency, DAOs may provide a more
democratic and efficient way to manage everything from small clubs to large global projects.
• However, as with any new technology, there are risks and challenges, but continued development
could lead to creative solutions and wider adoption.
11-03-2025 Dr. Malathi D., SCOPE–VIT 34
 Decentralized Autonomous Organizations
Assignment Topics
• Decentralized Autonomous Organizations:
• Aragon
• DAOstack
• DAOhaus
• Colony

11-03-2025 Dr. Malathi D., SCOPE–VIT 35

 Text Book and Reference Books
Text Book

• Dhillon, V., Metcalf, D., and Hooper, M, Blockchain enabled applications, 2017, 1st Edition, CA: Apress,
Berkeley.

Reference Books

• Diedrich, H., Ethereum: Blockchains, digital assets, smart contracts, decentralized autonomous
organizations, 2016, 1st Edition, Wildfire publishing, Sydney.
• Wattenhofer, R. P, Distributed Ledger Technology: The Science of the Blockchain (Inverted Forest
Publishing), 2017, 2nd Edition, Createspace Independent Pub, Scotts Valley, California, US.

11-03-2025 Dr. Malathi D., SCOPE–VIT 36